The Baldwin Insurance Group, Inc. Price & Performance (BWIN)

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 fourth 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. In 2024, we witnessed an amalgamation of forces and events that shaped the risk and insurance environment for our clients insurance company partners communities and firm. As we sit here today, California is beginning the long roads of recovery and rebuilding in the wake of what will likely be the most destructive wildfire in history. This comes on the heels of one of the more active hurricane seasons we've experienced in some time with three major storms making landfall in Florida and causing meaningful damage across the East Coast. These recent events serve as a stark reminder of the critical role insurance plays as a vital back stop to help individuals and businesses recover financially from the impact of unforeseen events while continuing to innovate invest and thoughtfully navigate risk to create jobs and support economic growth. All of which is essential to continued human progress Quite simply, our work in combination with our industry partners safeguards commerce and protects the possible for our clients.

I extend my profound admiration and appreciation to our colleagues who worked tirelessly during 2024 are continuing to do so today offering their expertise, advice and solutions to our clients as they navigate the aftermath of the California wildfires the recovery efforts.

Turning to our results for the fourth quarter and for the year. For the fourth quarter, organic revenue grew 19%. With strong double digit organic growth across all three segments driven by record new business productivity NIS and continued momentum in both MIS and UCTS. Adjusted EBITDA margin expanded three ten basis points in the quarter to 19%. The year, despite continued volatility within both the The industry and broader economy, we once again delivered industry leading organic revenue growth of 17%. Supported by double digit organic revenue growth across all three of our segments. As I mentioned on our third quarter call, 2024 marked the five year anniversary of our IPO. This year, we posted the most significant EBITDA margin expansion and adjusted free cash flow generation since our time as a public company. Adjusted EBITDA margin expanded 200 basis points 22.5% adjusted free cash flow grew to $134,900,000 net leverage declined to 4.1 times down from 4.8x at the beginning of the year. We are also pleased to announce that by the March The, the vast majority of our earn out obligations will be satisfied. Marking a major milestone for the business and the beginning of the adjusted free cash flow inflection point we've anticipated.

From there, we expect an acceleration in our delevering and a step function increase in our capital position and capital allocation flexibility. For our IS segment, overall organic revenue growth for the quarter was 16%, bringing the 2024 total to 10%. Organic core commissions and fees revenue was up 16% for the quarter and 11% for the year. We view this as particularly strong headwind and underlying rate and exposure compared to the full year 2023. For the full year 2024, rate and exposure only contributed 40 basis points to our overall organic growth versus five fifty basis points in the prior year. Offsetting those external market driven headwinds was our internally driven new business production. Which set a new record at $125,000,000 and resulted in sales velocity of 21.5%, a four ten basis point improvement over the prior year. Sales velocity for the quarter was 23%, a two fifty basis point improvement over the fourth quarter of last year. I have long held that organic growth is the leading measure of health and momentum of an insurance distribution firm as a result of what it says about The client outcomes and resulting top of mind preference for our firm's requisite services and solutions that are being delivered.

Sales velocity as the most meaningful of the four building blocks of organic growth speaks to the pure momentum in new client adoption, relative to industry peers. At 21.5% sales at nearly double the rate of industry peers for which the median is roughly 11%. And a third more than the top 25% of our competitors at roughly 16%. Sales velocity, unlike rate and exposure, is in entirely internally driven and create sustainability and consistency to our organic growth profile. Throughout both economic and insurance market cycles. The growing momentum we have seen in our sales is a testament to the depth and breadth of client capabilities we have built over the past five years and how our integrated platform enables us to deliver the best of what Baldwin has to offer to our clients no matter where they reside. Our UCTS segment had a fantastic fourth quarter with organic revenue growth of 25%. Our multifamily and home portfolios continue to scale generating commissions and fees growth of 2337% respectively. For the year, UCTS organic revenue growth was 27%, an incredibly strong performance on the heels of 31% organic growth print in 2023. The MGA finished the year, with over 1,100,000,000.0 in gross written premium.

Two months into 2025 The, we wanted to provide two updates related to our Homeowners Product Suite. First, while California property represents less than 10% of our overall premium base in the MGA The, our E and S homeowners portfolio has some exposure to the recent fires that will deliver losses to our reinsurance partners. While we do not directly bear any of the costs of those losses, it remains to be seen what impact the event will have on reinsurance pricing for wildfire more broadly. And what if any impact The will have on terms and conditions in our June 1 reinsurance renewals. Second, related to our builder sourced homeowners book with QBE, as anticipated we are pleased to confirm QBE's intent to continue supporting the program past May 1, as we work to accelerate moving the book off of QBE's paper to other capacity providers. To that end, in January, we received formal approval and a certificate of authority from the Texas Department of Insurance to form and launch a Texas domiciled reciprocal insurance exchange [indiscernible] on our builder book of business. For which the MGA intends to serve as the attorney The fact. We are in the process of finalizing a third party led capitalization of reciprocal Ahead of beginning the right business into the reciprocal two to three months thereafter. [indiscernible] and forthcoming launch of our debut Baldwin sponsored reciprocal exchange represents a meaningful milestone to vertically integrate across the value chain and bring innovative third party risk capital platforms to market in support of more efficient risk transfer outcomes for our clients.

Our MIS segment delivered total organic revenue growth of 19% during the fourth quarter and 20% for the full year. These full year results are particularly impressive considering the eight twenty basis point headwind we absorbed as a result of moderating rate and exposure tailwinds compared to 2023. Importantly, we made meaningful strides in growing our a point of new home sale and mortgage origination. Our Westwood franchise onboarded six new builders in 2024 and now powers the home insurance experience for 18 of the top 25 homebuilders across the country. Additionally, after more than two years of technology build, we launched our debut digital embedded home insurance and real estate brokerage channel Going live with this embedded solution for the first time with a mortgage partner in the fourth quarter. Lastly, our Medicare business had a record annual enrollment period on the back of growth and contracted agents over 20%. In addition to continued momentum and leading organic growth results, adjusted EBITDA margin expanded two fifty basis points as we continue to grow into the de novo investments across our mortgage and real estate channels. In summary, we are pleased with the strong results for the year. And in particular the recent quarter as we enter 2025 with growing momentum across our segments.

Organic revenue growth of 17% adjusted EBITDA growth of 25%, adjusted earnings per share growth of 34%, and adjusted free cash flow growth of nearly 100% in 2024 are a testament to the quality of our colleagues, and the strength of our client franchise, which enables our ability to produce outsized organic growth with an even more meaningful flow through to earnings and cash flow. While the insurance marketplace remains dynamic and challenging for many of our [indiscernible] the growing complexity of the risk and insurance landscape will continue to iner to the benefit of our vertically integrated franchise. As it highlights the outsized value our teams continue to deliver the innovative products solutions and risk capital formations that uniquely and efficiently solve many of our clients' risks and uncertainties. The strong validation we see from clients in the marketplace and day out as evidenced by our industry leading sales velocity and organic growth, further solidifies our confidence in the sustainability of our financial performance and continued ability to deliver outsized organic growth ongoing margin accretion and expanded adjusted free cash flow well into the future. As we have finally reached the post earn out inflection point on cash flow, we now have expanded opportunities to invest in attracting and retaining talent developing products and solutions for our clients and ongoing optimization of our operations, which will further enhance the sustainability of our operating model and our ability to deliver top and bottom line growth.

With that, will turn it over to Brad who will detail our financial results.

Thanks, Trevor, and good afternoon, everyone. For the fourth quarter, we generated organic revenue growth of 19%, and total revenue of 329,900,000.0 Looking at the segment level, we generated organic revenue growth of 16% at IAS 25% at UCTS, and 19% at MIS.

For the full year, organic revenue growth was 17% and total revenue was $1,400,000,000 We recorded GAAP net loss for the fourth quarter of 34,800,000.0 or GAAP diluted loss per share of $0.31 GAAP net loss for the full year was $41,100,000 or $0.39 per fully diluted share. Adjusted net income for the fourth quarter which excludes share based compensation, amortization and other one time expenses, was $32,100,000 or $0.27 per fully diluted share. For the full year, adjusted net income was $1,766,900,000.0 or 1.5 per fully diluted share. A table reconciling GAAP net income to adjusted net income can be found in our earnings release and our 10 ks filed with the SEC The. Adjusted EBITDA for the fourth quarter rose 38% to 63,200,000.0 compared to $45,600,000 in the prior year period. Adjusting to eliminate the impact of the sale of Connected Risk Solutions in February of twenty twenty four adjusted EBITDA grew 42%, Adjusted EBITDA margin expanded approximately three ten basis points year over year to 19.1% for the quarter compared to 16% in the prior year period. Adjusted EBITDA for the full year grew 25% over the prior year to $312,500,000 Adjusted EBITDA margin for the full year was 22.5% an expansion of 200 basis points year over year.

Adjusted free cash flow for the fourth quarter was $16,900,000 a 328% increase year over year. Net cash provided by operating activities and our statement of cash flows was $102,200,000 for the full year 2024 compared to $44,600,000 in 2023. Adjusted free cash flow for the full year was $134,900,000 an increase of 97% from the prior year. When adjusting for one time third party refinancing costs of $14,000,000 incurred during 2024, adjusted free cash flow was $148,900,000 In the fourth quarter, we paid $42,200,000 of unannounced in cash inclusive of amounts reclassified to colleague earn out incentives. In February, we paid an additional $25,600,000 bringing our total cash earn out spend over the past fourteen months to $163,300,000 As a result, our remaining estimated undiscounted earnout obligations have been reduced to approximately $159,700,000 as of today. By the end of the first quarter, we expect to have only approximately $10,000,000 of outstanding earnout obligations. 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 firms 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 added back $31,200,000 of compensation expense in the fourth quarter associated with colleague earn out incentive As we wind down the last of our earn out payments for our 2021 partnerships, we want to direct investors to the 2021 partnership scorecard in our earnings supplement. Which highlights the meaningful value created across the 16 partnerships we completed in 2021. In aggregate, we paid 14.6x adjusted EBITDA or five times revenue upfront Three years later, after taking into account nearly $240,000,000 of post closing contingent earn out payments our aggregate all in adjusted EBITDA and revenue multiples sit at 8.9 times and 3.3 times respectively. As a result of outsized top and bottom line growth across the cohort. We continue to believe we have a unique and compelling M and A thesis and as leverage permits, we will look to strategically and thoughtfully allocate excess capital to this strategy in a manner that enhances the long term value to our stakeholders. In the first quarter of twenty twenty five, we will be transitioning to a fiduciary reporting model for cash accounts receivable and payables held or owed in a fiduciary capacity. This change is to reflect the nature of the accounts more appropriately on our balance and reduce volatility in the cash flow from operations.

On the balance sheet, we will label them fiduciary assets and fiduciary liabilities. The cash flow statement, changes in fiduciary tasks will be presented within financing activities. Starting in the first quarter of twenty twenty five, we will present the prior periods on the same basis. It is important to note that this will also change our definition of adjusted free cash flow from operations which will no longer require the removal of the change in premiums commissions and fees receivable or the change in accounts payable, accrued expenses and other liabilities. We expect this to introduce significant seasonality to our presentation of adjusted free cash flow from operations resulting in minimal free cash flow in Q1 followed by a consistent stream of improved free cash flow in quarters 02/2004.

At the end of the fourth quarter, net leverage stood at 4.1 times a further reduction from the third quarter as we continue to make progress towards our goal of bringing net leverage back within our stated long term range of three to four times, We took advantage of favorable market conditions increasing our term loan facility by $100,000,000 in January to prefund earn out obligations while also tightening pricing on our term loan facility by 25 basis points to term sover plus 3%. We maintained our 25 basis point step down feature and expect pricing on our term loan to drop to term SOFR plus 2.75% when net leverage falls below four times later this year. For the first quarter of twenty twenty five, we expect revenue of $410,000,000 to $420,000,000 and organic revenue growth towards the low end of our 10% to 15% long term range which contemplates an anticipated mid single digit organic growth rate for IES as a result of timing of net new business. We expect IAS to deliver double digit commissions and fees growth for the full year. We anticipate adjusted EBITDA for the quarter between $110,000,000 dollars and adjusted diluted EPS of $0.62 to $0.66 per share.

We expect net leverage to increase slightly in the first quarter given the incremental $100,000,000 we added to our Term Loan B and the roughly 175,000,000 of anticipated earn out payments to be made during the quarter. But by the third quarter, we expect net leverage to fall below four times for the first time since 2020 To further expand on the high level 2025 guidance we provided on our last earnings call, we currently expect organic revenue growth in the lower half of our long term 10% to 15% range. Implying total revenue between $1,520,000,000 and $1,560,000,000 and adjusted EBITDA margin expansion in the lower half of the '25 to 100 basis point range we provided during the third quarter call. Which would imply adjusted EBITDA between $345,000,000 to $360,000,000 both of which incorporate some uncertainty around potential impacts from the California wildfires on our 6.1 reinsurance renewals in the MGA. The contemplates full year double digit commission and fees growth for IAS double digit organic growth in UCTS, and mid single digit organic growth for MIS as a result of the one time impact of replatforming our builder sourced homeowners book of business from QBE to new capacity providers including our newly formed reciprocal exchange.

We expect adjusted free cash flow from operations of $150,000,000 to $175,000,000 a conversion rate between 4050% versus approximately 45% in 2024.

Lastly, we expect adjusted diluted earnings per share of $1.71.0.8 dollars In closing, we are pleased with our results for the quarter and for the full year. Our ability to deliver on our stated goals of sustaining double digit organic growth improving margin and reducing net leverage position us well for continued success in 2025 and beyond. With substantially all of our earn out obligations behind us, we have tremendous opportunity for accretive capital deployment that will benefit all of our stakeholders for the foreseeable future. We will now take questions. Operator?

Thank you. We will now be conducting a question and answer session. The first question we have is from Josh Shanker of Bank of America.

Thank you very much for taking my question. Good afternoon, everybody.

I wanted to talk The you about contingents and and earn out opportunities. So the first one obviously, to incentivize your producers around the acquisitions you made over the past few years, you not only paid contingents out to principals who joined you and you acquired, but also their producers I'm curious if you say as we reach the end of the burnout period, are there sales inducements that you plan to include in call producer earn out contingent or whatnot going forward?

Or is that a one time thing associated with the acquisition we're not going to see that going forward as well? Hey, Josh, this is Trevor.

So let me just make sure I'm I'm understanding your question accurately. You used the language we paid contingents to producers And I'm assuming you don't mean like contingent income from insurance companies because that was not paid [indiscernible] Right. Yes. So the colleague incentive pools I'd say those were spread broadly across colleagues and certain partnership entities and not necessarily specifically pointed at producers. The were entirely at the discretion of the selling shareholders of the acquired businesses. And so we actually were not involved in how those funds were directed or allocated. What I can tell you is that those will not reappear in the future. And that is [indiscernible] colleague earn out incentive payments are just taking what was otherwise earn out payments due to selling shareholders and paying them to certain colleagues as designated by the selling shareholders rather than to the selling shareholders directly. [indiscernible] maybe inferring a little bit into your question, which I would suppose is Hey, it looks like you could have been incentivizing some of this outsized sales performance via these colleague earn out incentive payments And what does that mean relative to kind of the sales and new business performance in in the organization going forward.

And I would just point you as an example to two of our regions and the IS business, our West Region and our Southwest Region both of which came out of earn out at the end of 2023, And so did not have any kind of earn out incentives in play during 2024. Despite that, 2024 was by a wide margin the best organic growth year for each of those regions since they've joined us. Is that helpful context?

You're a bit of a mind reader there. That's That's sort of what I'm getting at, Zach. And that's some good color there. And I just also wanted catch up on the change in the fair value of the contingent consideration. Obviously, we tend to reverse that out It was largely negative in this quarter, but I think some of the moving pieces involved the contingent [indiscernible] the pool was taken out of the change in fair value contingent consideration and move to the colleague earn out incentives in the The? Is that how that That's exactly how it works, Josh. It's As Trevor articulated, these are not incremental payments. To the earn out we've been calculating all along, it's just a redirecting of those payments from selling owners to non selling owners. And when we do that, it is a reclass out of that change in fair value of contingent consideration to this colleague incentive line. So the negative result you're seeing is directly The result of pulling pulling The non selling shareholder amount into a separate line.

That's great. And then finally, You're right to point out that story changed in 2025 as the earnouts are finished and the cash flow starts coming through. I realize that you are a very enterprising organization, and you've been hoping for this moment for a while. If you were to engage in M and A, that changed the story a little bit and we may not get to see the cash flow as well.

I assume you have an appetite for things, but you also want to demonstrate the cash flow generating nature of the businesses. How do you weigh the signaling to show the cash flow generation versus your desire to find other things in the market that might suit you.

Yes. Hey, great question, Josh. So first, what I would tell you is our number one priority is continuing to delever the balance sheet and strengthen our financial position over the near term. Into our long term range of three to four times. Second, I would tell you You can look at the results in the earnings supplement where we detail the performance of the businesses acquired during 2021, we feel like we've done a really nice job of allocating capital and driven spectacular results for our shareholders through the deployment of that capital. As evidenced by how much the multiples been bought down over our three year ownership time period.

Looking forward, we believe M and A will be a lever that we will continue to opportunistically pull and we look forward to a time that is quickly approaching where we will have excess capital to do that. I would tell you, you should continue to expect the same level of the around the type of M and A we're going to do both qualitatively and quantitatively to ensure that there's strong alignment great financial outcomes, and real value add we're very much looking for and expect to show and prove to our shareholders in the Street broadly the significant free cash flow potential of our enterprise as evidenced by free cash flow from operations that this business will begin and continue to spin off in ever growing quantums. So to wrap it up, I'd say we're in a great position We have a business that's growing top line in an industry leading manner on an organic basis. We have a really attractive margin accretion story for the foreseeable future. I'll provide some more context and color around that in our annual letter this year So if you haven't haven't seen that yet, I would point you to that on our IR website.

And then we are growing capital positions and capital allocation flexibility as a result of that financial performance.

The next five years for our organization are going to be an exceptional five years And while the last five years since our IPO have been quite remarkable, I am more excited for the next.

Thank you very much.

The next question we have is from Elise Greenspan of Wells Fargo. Please go ahead. Hi, thanks. Good evening. My first question is just on I guess, IAS, I guess it's multipart, right? Growth was strong to end the year and then you guys are pointing to lower growth in the Q1 due to the timing of new business. If you could just expand on that? And then for the full year, you said double digit commission and fee growth for IAS Given that there's no M and A, would that be representative of the organic outlook or is there some other adjustment we need to think about between the two The? Yes. Hey Elyse, this is Trevor.

So to start, the momentum in our IS business is incredibly strong as evidenced by industry leading sales velocity that I detailed earlier in the call.

And we don't anticipate that momentum ebbing The call out to Q1 is just specific timing nuances. Just the nature of the business is you will see some variability in overall organic growth quarter to quarter. And we don't want people to be surprised or [indiscernible] Our expectation for double digit commission and fees growth for the year is a read through to organic growth. Would just say you would likely sense a hint of cautiousness around growth and contingents as two weeks into the year, we saw will likely end up being a top three catastrophe loss for the industry with the California wildfires. And so As you think about the implications to overall loss costs over the course of the year, there could be some impacts but it's frankly just too early to tell.

And then do you guys on your last call, right, had said that there was a $10,000,000 to $15,000,000 negative EBITDA impact, right, expected this year from the QBE and just arranging the reinsurance cover. It sounds like with with the reciprocal, there's more going on there. And so is that still the expected impact or is some uncertainty The, right, that it might be more? Is that embedded in being at the low end of the margin guide for the year?

Yes. So a few things and I'll just kind of try and quickly run through them. We're pleased to have shared that as expected QBE signaled its intent entered into a new agreement with us to continue supporting the builder source book of business beyond fiveone. Part of that agreement will result in us not needing to help them with arranging third party reinsurance in exchange for which we will take [indiscernible] with that $10,000,000 to $15,000,000 impact.

The you heard from us on the Q3 The, but fixing The, so no kind of variability beyond that of sorts. Incredibly excited about the reciprocal exchange that we're in the process of starting up and how that will provide an innovative long term source of capacity for us to continue growing the builder book over time. And over time, we also anticipate that that reciprocal will provide for overall gross economics more consistent with the historical economics we had for QBE. Importantly, it will take some time for that to earn in. And so The wouldn't expect to be back to those levels fully until 2026 or 2027. So that is all contemplated in the guide that you heard Additionally to that, as you also heard us reference, we have built in some conservatism and cautiousness as a result of uncertainty related to the broader impacts of the California wildfires on reinsurance pricing, for the upcoming June 1 renewals. To provide some context, our MGA finished last year at about $1,100,000,000 of gross written premiums, who will be impacted by the fires that are just under 20% of that overall premium. And of which about 15% of the 20% is associated with California business.

As we think about the context of the loss here, and the headwinds that we're citing it's predominantly market drift driven event. So when you look at the current industry estimates of somewhere between $30,000,000,000 and $50,000,000,000 if you take the upper range The, This is tracking to be a top three catastrophe loss event of all time. That occurred on what the reinsurance market is historically considered to be a secondary Harold, and for which a loss that will be much more heavily absorbed by the reinsurance market than say a Florida hurricane would. And so while our California exposure overall is in line with I'd say it remains to be seen how reinsurance pricing for the market more broadly shakes out. To the extent it goes up The could put pressure on our gross commission rates for those two programs, on the June 1 renewal.

To be explicit, we do not have any specific sizing around what that impact could or couldn't be. And there's a world where you take adequate rate on a primary basis to fully absorb it. And there's also a world where there's cost increases that are passed through and that have temporary impacts. And so this is just us wanting to be transparent and conservative and cautious around how we're managing the expectations going forward. I appreciate the color. And then I guess one last one, so I'm thinking about it correctly, given that this is all geared towards The second half of the year with like the reinsurance and the QBE, Within your guide, are you expecting like greater margin improvement in the first half of the year? And then less in the back half, Or am I missing something and just like that kind of high level thought?

Yes, at a very high level that's accurate at least.

Okay.

Thanks.

The next question is from Greg Peters of Raymond James. Please go ahead.

Good afternoon. Just following up on that last comment, Trevor. With more costs because The reinsurance [indiscernible] changes beginning with the renewal, does that mean The there's going to be headwinds in the 26. Yes.

I mean, these are all hypotheticals right now. Greg. But hypothetically, we absorbed increased costs associated with the reinsurance and some of programs, that pressure would be for a full twelve months.

And just this is in the E and S market, so that's free of rate and form. Why would that cost be passed along to the policyholder there's a world where it could In your comments, there's two other things. You talked about how you're going to be restating free cash flow and moving some pieces around. And you gave us some guidance around What how the numbers are going to look on a quarterly basis And I'm wondering if you have that The the adjusted on this new format, the adjusted number was for the full year '24. So we can use that as a as a benchmark as we build out our numbers for 2025 and 2026.

Yes, we haven't disclosed that yet, Greg. What I will say is obviously when we were each of the quarters, it will be on a comparable basis. And we'll walk that bridge as well in our earnings supplement. [indiscernible] I mean from a big picture perspective, does the adjusted adjustments, how does that directionally, is that move free cash flow down for you guys for 2024 versus what you've reported?

It likely moves it down to some extent, Greg, because you're pulling out any increase in trust cash. Which previously would have been mixed with your overall operating cash increase. So when you're pulling Fadush The business is scaling, in theory, right, your fiduciary assets are scaling as well. So it would I would expect The the base for 2024 to be lower than how we were previously calculating it. Under the old methodology.

Okay. Finally, going back to comments you made at the outset of the call, and I know there are some previous comments on this in the answer to some of the questions. You said an acceleration in deleveraging post the last earn out And in the last quarterly call, I think you made a statement that you weren't expecting to do any M and A in 2025. It seems like there might be a slight shift in that thinking, but I don't want I don't want to try and read into too much what you're saying, but I guess related to this topic is, would you consider going above four times debt leverage again if the right opportunity came along because you talked about the three to four target range? Yes. Hey, Greg. This is Trevor.

One, we will not consider going about four times in the foreseeable future. [indiscernible] I would not model any M and A in 2025 our primary focus over the near term is continuing to strengthen our balance sheet.

Thank you for The answers. Thanks Greg. The next question we have is from Pablo Singzon.

Of JPMorgan. Please go ahead. Hi, good evening. First question, could you please The the gap between the EBITDA outlook you gave for $25,000,000 I believe it was $345,000,000 to $360,000,000 The the cash flow number, right? So that's about I think about 200 variance, right? And I guess half of The is interest expense and if you could speak to what the other half is? Thank you.

Yes, I would say, a significant portion of that is interest expense, I'd say even larger than a half. We do anticipate while they've been declining meaningfully, over the last year, that we would still have some form of continued cash add backs for one time items that pop up.

And then the last is as the business scales, We're always facing some headwind in working capital, particularly with respect to receivables we book On direct bill policies, for which the cash is typically received over a twelve month period. As well as receivables on contingent income for which the cash is received typically in the subsequent year.

So we build in some cushion per se for the continued scaling of the business The would present some of that working capital headwind.

Got you. And then another cash question. I think your CapEx this year is running close to $40,000,000 or a little over 40 Would that be a good run rate to think about for next year or were there certain investments that you made this year The might not recur in 2025?

The would be a good run rate to think about in terms of next [indiscernible] is internal use software as we continue to build out certain technological capabilities particularly in the embedded channel As Trevor mentioned, as we're launching some of those relationships in real time. Got you. And then last question, maybe for Trevor.

Trevor, is your broad expectation that the rate and exposure headwinds that you saw in IAS will be fully lapped in 2025 or do you think there's some more pressure there. Coming down the The. Thank you.

Yes. I don't anticipate the same headwinds in 2025 from having rate and exposure The full year impact was relatively modest. If anything, I think there could be some tailwinds there depending on what happens with the economy and how [indiscernible] reacts in the in the context of some of the large cat losses we've seen over the past couple of months.

Thank you.

Thanks, Pablo.

Next question we have is from Tommy McJoint of KBW.

The, good evening guys. A question on the middle market landscape. It was a pretty active year of deals and consolidation in The space last year. Have you sensed that the competition in that space is any way reinvigorated under new ownership or have those those deals led to maybe talent becoming available to hire? What's your sense there?

Yes. So I'd say we're seeing definitely a real evolution in the M and A marketplace, Tommy.

The middle market space where many of the kind of private equity backed consolidators that drove the preponderance of the M and A activity for the past five to ten years have largely slowed down as they've begun kind of to be more inwardly focused on catching up from an integration and operating tempo perspective, Many of the large publics who have advantaged capital positions today and think certainly robust currencies have become more active. I think we will continue to see more large deals get done, whether it be with large public strategics or more peer to peer style mergers of [indiscernible] There's still some really high quality tuck in and midsize opportunities and that's really where we're going to spend the preponderance of our time as we begin thinking about turning the M and A engine back on towards the end of this year heading into 2026. And so we look forward to being able to exercise that that lever and really return to driving a ton of shareholder value creation as you've seen evidenced in in both the 2020 and 2021 classes of M and A that we've done and reported on. From a talent perspective, I would say we are in an incredibly privileged position.

We are seeing significant upticks in proactive inbound activity relative to experienced insurance professionals who are beginning to experience some disruption on many of these legacy M and A roll up sell The organizations in preparation for future capital markets activity And as such, many of these professionals who are experiencing that disruption are taking the opportunity to ask a question of themselves If I'm going to experience a ton of disruption and a bunch of change, I should probably reevaluate whether or not this is the right platform for me to build The most rewarding and impactful career that I can. And fortunately, we've carved out a reputation for ourselves as a [indiscernible] to deliver very strong outcomes for their clients, have a lot of fun and build a rewarding career. So I think that will be a growing source of [indiscernible] as we think about the results in 2025. Great. Thanks, Trevor. Thanks, Tommy.

At this time, there are no further questions. And I would like to turn the floor back over to Trevor Baldwin for any closing remarks.

Thank you. In closing, I want to thank our colleagues for their hard work and dedication to delivering innovative solutions exceptional results for our clients. I also want to thank our clients for their continued trust and confidence in our teams. Thank you all very much we look forward to speaking to you again next quarter.

The concludes today's conference. Thank you for joining us. You may now disconnect your lines.