# Baldwin Insurance Group, Inc. (BWIN) FY 2024 MD&A

Verbatim Item 7 Management's Discussion and Analysis from Baldwin Insurance Group, Inc.'s 10-K for fiscal year 2024.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1781755/000178175525000017/bwin-20241231.htm
Accession: 0001781755-25-000017
Filing date: 2025-02-25
Report date: 2024-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/BWIN/
All MD&A years: /company/BWIN/mda/
Previous year: /company/BWIN/mda/fy2023/ (FY 2023)
Next year: /company/BWIN/mda/fy2025/ (FY 2025)

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes and other financial information included elsewhere in this Annual Report on Form 10-K. In addition to historical consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs. Our actual results may differ materially from those discussed in the forward-looking statements as a result of various factors, including those set forth in Item 1A. Risk Factors and included elsewhere in this Annual Report on Form 10-K.

EXECUTIVE SUMMARY OF 2024 FINANCIAL RESULTS

We are an independent insurance distribution firm providing indispensable expertise and insights that strive to give our clients the confidence to pursue their purpose, passion and dreams. The following is a summary of our 2024 financial results.

Revenues for the year ended December 31, 2024 were $1.4 billion, an increase of $170.5 million, or 14%, year over year. Core commissions and fees grew organically by $190.0 million as a result of new and renewal business from clients across industry sectors and continued outperformance from MSI. In addition, profit-sharing and other revenue grew organically by $6.9 million as a function of improvements in loss ratios and the number of policies sold for MIS and IAS, offset in part by a reduction in UCTS profit-sharing revenue, which resulted from historically strong underwriting performance in 2023. This growth was offset in part by commissions and fees of $28.8 million derived from our Wholesale Business between March and December of 2023, for which there were no comparable revenues earned in 2024 as a result of the sale of the business in the first quarter of 2024. In addition, investment income grew $5.2 million due to an improved cash management strategy and growing yield on our invested cash.

Operating expenses for the year ended December 31, 2024 were $1.3 billion, an increase of $67.3 million, or 5%, year over year. The increase in operating expenses was primarily attributable to commissions, employee compensation and benefits, resulting in part from the correlation of compensation to our revenue growth, and as a result of investing in our future as we continue to launch new products in our MSI product suite and expand our business. This increase was offset in part by a decrease in the change in fair value of contingent consideration, which was primarily impacted by a gain recognized in connection with the reclassification of colleague earnout incentives into compensation expense.

Interest expense, net, for the year ended December 31, 2024 was $123.6 million, an increase of $4.2 million, or 3%, year over year. Interest expense, net, increased as a result of higher average borrowings, offset in part by lower average interest rates resulting from our May 2024 debt refinancing and federal rate reductions. We expect interest expense to remain relatively flat on a year-over-year basis. Refer to the Liquidity and Capital Resources section further below for additional information on our May 2024 refinancing.

During the year ended December 31, 2024, we reported a gain on divestitures of $39.0 million, which was driven by a $35.1 million gain recorded in connection with the sale of our Wholesale Business during the first quarter of 2024. We also reported a loss on extinguishment and modification of debt of $15.1 million related to our May 2024 debt refinancing.

Net loss for the year ended December 31, 2024 was $41.1 million, or a $0.39 loss per fully diluted share, compared to a net loss of $164.0 million, or a $1.50 loss per fully diluted share, in the same period of 2023.

Adjusted EBITDA for the year ended December 31, 2024 was $312.5 million, an increase of $62.3 million year over year. Adjusted EBITDA margin was 22.5% for 2024, a 200 basis point expansion compared to 20.5% in 2023.

Adjusted net income for the year ended December 31, 2024 was $176.9 million, an increase of $45.8 million year over year. Adjusted diluted EPS was $1.50 for 2024, an increase of 34% over $1.12 for 2023.

Organic revenue for the year ended December 31, 2024 was $1.4 billion compared to $1.2 billion for the same period of 2023. Organic revenue growth was $196.9 million, or 17%, for 2024 compared to $187.2 million, or 19%, for 2023.

Refer to the Non-GAAP Financial Measures section below for reconciliations of adjusted EBITDA, adjusted EBITDA margin, adjusted net income, adjusted diluted EPS, organic revenue and organic revenue growth to the most directly comparable GAAP financial measures.

54

RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2024 AND 2023

For a discussion of our 2022 financial results and a comparison of financial results for the years ended December 31, 2023 to 2022, refer to Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K filed with the SEC on February 28, 2024.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements as of December 31, 2024 and 2023 and for the years ended December 31, 2024, 2023 and 2022 and the related notes and other financial information included in Item 8. Financial Statements and Supplementary Data of this Annual Report on Form 10-K.

In addition to historical financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results and timing of selected events may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those discussed under Item 1A. Risk Factors.

The following is a discussion of our consolidated results of operations for the years ended December 31, 2024 and 2023.

[[GREPCENT_TABLE]]
[["","","For the Years Ended December 31,","","Variance"],["(in thousands, except percentages)","","2024","","2023","","Amount","","%"],["Revenues:"],["Core commissions and fees","","$","1,268,790","","","$","1,107,575","","","$","161,215","","","15","%"],["Profit-sharing and other income","","108,326","","","104,253","","","4,073","","","4","%"],["Commissions and fees","","1,377,116","","","1,211,828","","","165,288","","","14","%"],["Investment income","","11,921","","","6,727","","","5,194","","","77","%"],["Total revenues","","1,389,037","","","1,218,555","","","170,482","","","14","%"],["Operating expenses:"],["Commissions, employee compensation and benefits","","1,032,048","","","911,354","","","120,694","","","13","%"],["Other operating expenses","","192,366","","","190,267","","","2,099","","","1","%"],["Amortization expense","","102,730","","","92,704","","","10,026","","","11","%"],["Change in fair value of contingent consideration","","(4,949)","","","61,083","","","(66,032)","","","(108)","%"],["Depreciation expense","","6,194","","","5,698","","","496","","","9","%"],["Total operating expenses","","1,328,389","","","1,261,106","","","67,283","","","5","%"],["Operating income (loss)","","60,648","","","(42,551)","","","103,199","","","n/m"],["Other income (expense):"],["Interest expense, net","","(123,644)","","","(119,465)","","","(4,179)","","","3","%"],["Gain on divestitures","","38,953","","","\u2014","","","38,953","","","\u2014","%"],["Loss on extinguishment and modification of debt","","(15,113)","","","\u2014","","","(15,113)","","","\u2014","%"],["Other expense, net","","(194)","","","(718)","","","524","","","(73)","%"],["Total other expense","","(99,998)","","","(120,183)","","","20,185","","","(17)","%"],["Loss before income taxes","","(39,350)","","","(162,734)","","","123,384","","","(76)","%"]]
[[/GREPCENT_TABLE]]

__________

n/m    not meaningful

55

Seasonality

The insurance brokerage market is seasonal and our results of operations are somewhat affected by seasonal trends. Our adjusted EBITDA and adjusted EBITDA margins are typically highest in the first quarter and lowest in the fourth quarter. This variation is primarily due to fluctuations in our revenues, while overhead remains consistent throughout the year. Our revenues are generally highest in the first quarter due to a higher degree of first quarter policy commencements and renewals in certain IAS and MIS lines of business such as employee benefits, commercial and Medicare. In addition, a higher proportion of our first quarter revenue is derived from our highest margin businesses.

Partnerships can significantly impact adjusted EBITDA and adjusted EBITDA margins in a given year and may increase the amount of seasonality within the business, especially results attributable to partnerships that have not been fully integrated into our business or owned by us for a full year.

Commissions and Fees

We earn commissions and fees by facilitating the arrangement between insurance company partners and clients for the carrier to provide insurance to the insured party. Our commissions are usually a percentage of the premium paid by the insured and generally depend on the type of insurance, the particular insurance company partner and the nature of the services provided. Under certain arrangements with clients, we earn pre-negotiated service fees for insurance placement services. Additionally, we earn policy fees for acting in the capacity of an MGA and fulfilling certain administrative functions on behalf of insurance company partners, including delivery of policy documents, processing payments and other administrative functions. We may also receive profit-sharing commissions, which represent forms of variable consideration paid by insurance company partners associated with the placement of coverage. Profit-sharing commissions are generally based on underwriting results, but may also contain considerations for volume, growth or retention. Other revenue streams include other ancillary income, premium financing income, and marketing income based on negotiated cost reimbursement for fulfilling specific targeted Medicare marketing campaigns.

Commissions and fees increased $165.3 million, or 14%, year over year to $1.4 billion driven by organic growth in core commissions and fees of $190.0 million related to new and renewal business across client industry sectors and continued outperformance from MSI. In addition, profit-sharing and other revenue grew organically $6.9 million as a function of improvements in loss ratios and the number of policies sold for MIS and IAS, offset in part by a reduction in UCTS profit-sharing revenue, which resulted from historically strong underwriting performance in 2023. This growth was offset in part by commissions and fees of $28.8 million derived from our Wholesale Business between March and December of 2023, for which there were no comparable revenues earned in 2024 as a result of the sale of the business in the first quarter of 2024.

Investment Income

Investment income is earned by investing assets held in trust. Investment income increased $5.2 million year over year due to improvements in our cash management strategy and growing yield on our invested cash.

Commissions, Employee Compensation and Benefits

Commissions, employee compensation and benefits is our largest expense. It consists of (i) base compensation comprising salary, bonuses and benefits paid and payable to colleagues, commissions paid to colleagues and outside commissions paid to others; and (ii) equity-based compensation associated with the grants of restricted and unrestricted stock awards to senior management, colleagues, risk advisors and directors. We expect to continue to experience a general rise in commissions, employee compensation and benefits expense commensurate with expected revenue growth as our compensation arrangements with our colleagues and risk advisors contain significant bonus or commission components driven by the results of our operations. In addition, we operate in competitive markets for human capital and need to maintain competitive compensation levels as we expand geographically and create new products and services.

56

Commissions, employee compensation and benefits expense increased $120.7 million, or 13%, year over year, primarily related to outside commissions, which increased $74.1 million, after excluding outside commissions related to the Wholesale Business between March and December of 2023 of $15.8 million, due to growth in UCTS and MIS. In addition, colleague earnout incentives, which relate to contingent earnout liabilities that were reclassified, at the partner's option, to an earnout incentive bonus payable to colleagues, increased $33.4 million. Other increases, after excluding amounts related to the Wholesale Business between March and December of 2023, were driven by continued investments in headcount to support the growth of existing and new products, including colleague compensation (fixed compensation plus share-based compensation) of $21.5 million, inside advisor commissions of $15.5 million, and benefits and other expense of $12.3 million. These increases were partially offset by commissions, employee compensation and benefits expense of $23.7 million incurred by our Wholesale Business between March and December of 2023, for which there were no comparable costs incurred in 2024, and a decrease in severance expense of $12.6 million relating primarily to the retirement of two of our executive officers at the end of 2023.

Other Operating Expenses

Other operating expenses include travel, accounting, legal and other professional fees, placement fees, rent, office expenses and other costs associated with our operations. Our occupancy-related costs and professional services expenses, in particular, generally increase or decrease in relative proportion to the number of our colleagues and the overall size and scale of our business operations.

Other operating expenses increased $2.1 million year over year, driven by higher advertising and marketing costs of $2.5 million in connection with our rebranding, travel and entertainment of $2.1 million to support the growth in IAS, payment processing fees for our MGA business of $1.9 million, and legal claims and settlements expense of $1.4 million. These increases were offset by decreases to several other operating expenses due in part to certain cost saving measures we have implemented, including the renegotiation of vendor contracts, and post partnership integration operational efficiencies gained, including lower partnership integration and infrastructure-related costs of $3.7 million and rent expense of $2.2 million.

Amortization Expense

Amortization expense increased $10.0 million year over year, primarily due to the acceleration of trade names amortization in connection with rebranding within IAS and higher amortization of intangible assets recorded in connection with our Westwood Partnership, which are amortized based on a pattern of estimated economic benefit, offset in part by a reduction in amortization related to the write-off of intangible assets in connection with the sale of our Wholesale Business during the first quarter of 2024.

Change in Fair Value of Contingent Consideration

Change in fair value of contingent consideration was a $4.9 million gain for the year ended December 31, 2024 compared to a $61.1 million loss for the same period of 2023. Several of our partnership agreements contain provisions that permit former selling shareholders to allocate portions of the earnout proceeds to colleagues who meaningfully contributed to the partnered firm’s achievement of the earnout. 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, the change in fair value of contingent consideration for the year ended December 31, 2024 was reduced by $39.3 million of colleague earnout incentives, which were reclassified, at the partner's option, from contingent earnout liabilities to an earnout incentive bonus payable to colleagues, thereby resulting in a gain in the change in fair value of contingent consideration and an increase to commissions, employee compensation and benefits expense. This gain was offset in part by positive changes in revenue growth trends of certain partners and accretion of the contingent earnout obligations approaching their respective measurement dates.

Interest Expense, Net

Interest expense, net, increased $4.2 million year over year resulting from higher average borrowings, offset in part by lower average interest rates resulting from the May 2024 debt refinancing and federal rate reductions. We expect interest expense to remain relatively flat on a year-over-year basis due to an anticipated increase in borrowings from our revolving credit facility to fund the settlement of contingent earnout liabilities, offset by lower expected average interest rates.

Refer to Item 7A. Quantitative and Qualitative Disclosures About Market Risk for further discussion of the impact of interest rates on our results of operations, financial condition and cash flows.

57

Gain on Divestitures

Gain on divestitures of $39.0 million for the year ended December 31, 2024 was driven by a $35.1 million gain recorded in connection with the sale of our Wholesale Business during the first quarter of 2024.

Loss on Extinguishment and Modification of Debt

Loss on extinguishment and modification of debt of $15.1 million for the year ended December 31, 2024 relates to the May 2024 debt refinancing.

FINANCIAL CONDITION—COMPARISON OF CONSOLIDATED FINANCIAL CONDITION AT DECEMBER 31, 2024 TO DECEMBER 31, 2023.

Our total assets and total liabilities increased $32.8 million and $42.9 million, respectively, year over year. The most significant changes in assets and liabilities are described below.

Premiums, commissions and fees receivable, net increased $74.3 million and premiums payable to insurance companies increased $85.7 million. The increase in each can be attributed to our revenue growth and the timing of cash collections and payments.

Intangible assets, net decreased $63.9 million as a result of amortization expense of $102.7 million, offset in part by capitalized software development costs of $38.4 million related to infrastructure to support our business.

Long term debt increased $428.0 million and our revolving line of credit decreased $341.0 million due to the May 2024 refinancing in which we upsized the term loan under a new $840 million senior secured first lien term loan facility and entered into a new senior secured first lien revolving facility with commitments in an aggregate principal amount of $600 million. Proceeds from the May 2024 refinancing were used to paydown our revolving line of credit.

Contingent earnout liabilities decreased $130.9 million resulting from settlements of $126.2 million and a change in fair value of contingent consideration gain of $4.9 million, which was impacted by the reclassification of $39.3 million of colleague earnout incentives to commissions, employee compensation and benefits expense.

Assets and liabilities held for sale of $64.4 million and $43.9 million, respectively, at December 31, 2023 were written off in connection with the sale of our Wholesale Business on March 1, 2024. Refer to Note 3 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for more information.

NON-GAAP FINANCIAL MEASURES

Adjusted EBITDA, adjusted EBITDA margin, organic revenue, organic revenue growth, adjusted net income and adjusted diluted earnings per share (“EPS”), are not measures of financial performance under GAAP and should not be considered substitutes for GAAP measures, including commissions and fees (for organic revenue and organic revenue growth), net income (loss) (for adjusted EBITDA and adjusted EBITDA margin), net income (loss) attributable to Baldwin (for adjusted net income) or diluted earnings (loss) per share (for adjusted diluted EPS), which we consider to be the most directly comparable GAAP measures. These non-GAAP financial measures have limitations as analytical tools, and when assessing our operating performance, you should not consider these non-GAAP financial measures in isolation or as substitutes for commissions and fees, net income (loss), net income (loss) attributable to Baldwin, diluted earnings (loss) per share or other consolidated income statement data prepared in accordance with GAAP. Other companies in our industry may define or calculate these non-GAAP financial measures differently than we do, and accordingly, these measures may not be comparable to similarly titled measures used by other companies.

We define adjusted EBITDA as net income (loss) before interest, taxes, depreciation, amortization, change in fair value of contingent consideration and certain items of income and expense, including share-based compensation expense, transaction-related partnership and integration expenses, severance, and certain non-recurring items, including those related to raising capital. We believe that adjusted EBITDA is an appropriate measure of operating performance because it eliminates the impact of income and expenses that do not relate to business performance, and that the presentation of this measure enhances an investor’s understanding of our financial performance.

58

Adjusted EBITDA margin is adjusted EBITDA divided by total revenues. Adjusted EBITDA margin is a key metric used by management and our board of directors to assess our financial performance. We believe that adjusted EBITDA margin is an appropriate measure of operating performance because it eliminates the impact of income and expenses that do not relate to business performance, and that the presentation of this measure enhances an investor’s understanding of our financial performance. We believe that adjusted EBITDA margin is helpful in measuring profitability of operations on a consolidated level.

Adjusted EBITDA and adjusted EBITDA margin have important limitations as analytical tools. For example, adjusted EBITDA and adjusted EBITDA margin:

•do not reflect any cash capital expenditure requirements for the assets being depreciated and amortized that may have to be replaced in the future;

•do not reflect changes in, or cash requirements for, our working capital needs;

•do not reflect the impact of certain cash charges resulting from matters we consider not to be indicative of our ongoing operations;

•do not reflect the interest expense or the cash requirements necessary to service interest or principal payments on our debt;

•do not reflect share-based compensation expense and other non-cash charges; and

•exclude certain tax payments that may represent a reduction in cash available to us.

We calculate organic revenue based on commissions and fees for the relevant period by excluding (i) the first twelve months of commissions and fees generated from new partners and (ii) commissions and fees from divestitures. Organic revenue growth is the change in organic revenue period-to-period, with prior period results adjusted to (i) include commissions and fees that were excluded from organic revenue in the prior period because the relevant partners had not yet reached the twelve-month owned mark, but which have reached the twelve-month owned mark in the current period, and (ii) exclude commissions and fees related to divestitures from organic revenue. For example, commissions and fees from a partner acquired on June 1, 2023 are excluded from organic revenue for 2023. However, after June 1, 2024, results from June 1, 2023 to December 31, 2023 for such partners are compared to results from June 1, 2024 to December 31, 2024 for purposes of calculating organic revenue growth in 2024. Organic revenue growth is a key metric used by management and our board of directors to assess our financial performance. We believe that organic revenue and organic revenue growth are appropriate measures of operating performance as they allow investors to measure, analyze and compare growth in a meaningful and consistent manner.

We define adjusted net income as net income (loss) attributable to Baldwin adjusted for depreciation, amortization, change in fair value of contingent consideration and certain items of income and expense, including share-based compensation expense, transaction-related partnership and integration expenses, severance, and certain non-recurring costs that, in the opinion of management, significantly affect the period-over-period assessment of operating results, and the related tax effect of those adjustments. We believe that adjusted net income is an appropriate measure of operating performance because it eliminates the impact of income and expenses that do not relate to business performance.

Adjusted diluted EPS measures our per share earnings excluding certain expenses as discussed above and assuming all shares of Class B common stock were exchanged for Class A common stock on a one-for-one basis. Adjusted diluted EPS is calculated as adjusted net income divided by adjusted diluted weighted-average shares outstanding. We believe adjusted diluted EPS is useful to investors because it enables them to better evaluate per share operating performance across reporting periods.

59

Adjusted EBITDA and Adjusted EBITDA Margin

The following table reconciles adjusted EBITDA and adjusted EBITDA margin to net loss, which we consider to be the most directly comparable GAAP financial measure:

[[GREPCENT_TABLE]]
[["","","For the Years Ended December 31,"],["(in thousands, except percentages)","","2024","","2023"],["Revenues","","$","1,389,037","","","$","1,218,555"],["Net loss","","$","(41,081)","","","$","(164,019)"],["Adjustments to net loss:"],["Interest expense, net","","123,644","","","119,465"],["Amortization expense","","102,730","","","92,704"],["Share-based compensation","","65,503","","","56,222"],["Colleague earnout incentives","","41,917","","","8,020"],["Gain on divestitures","","(38,953)","","","\u2014"],["Loss on extinguishment and modification of debt","","15,113","","","\u2014"],["Transaction-related partnership and integration expenses","","10,501","","","20,728"],["Income and other taxes(1)","","7,184","","","1,285"],["Depreciation expense","","6,194","","","5,698"],["Severance","","5,756","","","18,514"],["Change in fair value of contingent consideration","","(4,949)","","","61,083"],["Loss on interest rate caps","","244","","","1,670"],["Other(2)","","18,682","","","28,834"],["Adjusted EBITDA","","$","312,485","","","$","250,204"],["Net loss margin","","(3)","%","","(13)","%"],["Adjusted EBITDA margin","","22.5","%","","20.5","%"]]
[[/GREPCENT_TABLE]]

__________

(1)    Other taxes in 2024 include the Tax Receivable Agreement expense and other operating tax expense, such as state taxes, under GAAP.

(2)    Other addbacks to adjusted EBITDA include certain income and expenses that are considered to be non-recurring or non-operational, including certain recruiting costs, professional fees, litigation costs and bonuses.

Organic Revenue and Organic Revenue Growth

The following table reconciles organic revenue and organic revenue growth to commissions and fees, which we consider to be the most directly comparable GAAP financial measure:

[[GREPCENT_TABLE]]
[["","","For the Years Ended December 31,"],["(in thousands, except percentages)","","2024","","2023"],["Commissions and fees","","$","1,377,116","","","$","1,211,828"],["Partnership commissions and fees(1)","","\u2014","","","(44,696)"],["Organic revenue","","$","1,377,116","","","$","1,167,132"],["Organic revenue growth(2)","","$","196,922","","","$","187,213"],["Organic revenue growth %(2)","","17","%","","19","%"]]
[[/GREPCENT_TABLE]]

__________

(1)    Includes the first twelve months of such commissions and fees generated from newly acquired partners.

(2)    Organic revenue for the year ended December 31, 2023 used to calculate organic revenue growth for the year ended December 31, 2024 was $1.18 billion, which is adjusted to exclude commissions and fees from divestitures that occurred during 2024.

60

Adjusted Net Income and Adjusted Diluted EPS

The following table reconciles adjusted net income to net loss attributable to Baldwin and reconciles adjusted diluted EPS to diluted loss per share, which we consider to be the most directly comparable GAAP financial measures:

[[GREPCENT_TABLE]]
[["","","For the Years Ended December 31,"],["(in thousands, except per share data)","","2024","","2023"],["Net loss attributable to Baldwin","","$","(24,518)","","","$","(90,141)"],["Net loss attributable to noncontrolling interests","","(16,563)","","","(73,878)"],["Amortization expense","","102,730","","","92,704"],["Share-based compensation","","65,503","","","56,222"],["Colleague earnout incentives","","41,917","","","8,020"],["Gain on divestitures","","(38,953)","","","\u2014"],["Loss on extinguishment and modification of debt","","15,113","","","\u2014"],["Transaction-related partnership and integration expenses","","10,501","","","20,728"],["Depreciation","","6,194","","","5,698"],["Income tax expense","","6,537","","","\u2014"],["Amortization of deferred financing costs","","5,841","","","5,129"],["Severance","","5,756","","","18,514"],["Change in fair value of contingent consideration","","(4,949)","","","61,083"],["Loss on interest rate caps, net of cash settlements","","2,544","","","12,588"],["Other(1)","","18,682","","","28,834"],["Adjusted pre-tax income","","196,335","","","145,501"],["Adjusted income taxes(2)","","19,437","","","14,405"],["Adjusted net income","","$","176,898","","","$","131,096"],["Weighted-average shares of Class A common stock outstanding - diluted","","63,455","","","60,135"],["Dilutive weighted-average shares of Class A common stock","","3,598","","","3,874"],["Exchange of Class B common stock(3)","","50,896","","","53,132"],["Adjusted diluted weighted-average shares outstanding","","117,949","","","117,141"],["Diluted loss per share","","$","(0.39)","","","$","(1.50)"],["Effect of exchange of Class B common stock and net loss attributable to noncontrolling interests per share","","0.04","","","0.10"],["Other adjustments to loss per share","","2.01","","","2.64"],["Adjusted income taxes per share","","(0.16)","","","(0.12)"],["Adjusted diluted EPS","","$","1.50","","","$","1.12"]]
[[/GREPCENT_TABLE]]

___________

(1)    Other addbacks to adjusted net income include certain income and expenses that are considered to be non-recurring or non-operational, including certain recruiting costs, professional fees, litigation costs and bonuses.

(2)    Represents corporate income taxes at assumed effective tax rate of 9.9% applied to adjusted pre-tax income.

(3)    Assumes the full exchange of Class B common stock for Class A common stock pursuant to the Amended LLC Agreement.

61

INSURANCE ADVISORY SOLUTIONS OPERATING GROUP RESULTS

IAS provides expertly-designed commercial risk management, employee benefits and private risk management solutions for businesses and high-net-worth individuals, as well as their families, through our national footprint, which has assimilated some of the highest quality independent insurance brokers in the country with vast and varied strategic capabilities and expertise.

Effective January 1, 2024, our FounderShield Partner moved from UCTS to IAS. Prior year results of operations for IAS below have been recast to conform to the current organizational structure.

[[GREPCENT_TABLE]]
[["","","For the Years Ended December 31,","","Variance"],["(in thousands, except percentages)","","2024","","2023","","Amount","","%"],["Revenues:"],["Core commissions and fees","","$","641,286","","","$","580,692","","","$","60,594","","","10","%"],["Profit-sharing and other income","","64,871","","","61,651","","","3,220","","","5","%"],["Commissions and fees","","706,157","","","642,343","","","63,814","","","10","%"],["Investment income","","5,779","","","3,732","","","2,047","","","55","%"],["Total revenues","","711,936","","","646,075","","","65,861","","","10","%"],["Operating expenses:"],["Commissions, employee compensation and benefits","","534,379","","","447,196","","","87,183","","","19","%"],["Other operating expenses","","79,323","","","81,768","","","(2,445)","","","(3)","%"],["Amortization expense","","60,222","","","53,793","","","6,429","","","12","%"],["Change in fair value of contingent consideration","","(10,458)","","","38,306","","","(48,764)","","","(127)","%"],["Depreciation expense","","1,485","","","1,546","","","(61)","","","(4)","%"],["Total operating expenses","","664,951","","","622,609","","","42,342","","","7","%"],["Operating income","","46,985","","","23,466","","","23,519","","","100","%"],["Total other income","","5,172","","","183","","","4,989","","","n/m"],["Income before income taxes","","$","52,157","","","$","23,649","","","$","28,508","","","121","%"]]
[[/GREPCENT_TABLE]]

__________

n/m    not meaningful

Commissions and Fees

IAS generates (i) commissions for placing insurance policies on behalf of its insurance company partners; (ii) profit-sharing income based on either the underlying book of business or performance, such as loss ratios; and (iii) fees from consulting and service fee arrangements, which are in place with certain clients for a negotiated fee.

IAS commissions and fees increased $63.8 million, or 10%, year over year to $706.2 million due primarily to organic growth in core commissions and fees. Growth in our core commissions and fees was driven by 21% sales velocity (new business as a percentage of prior year commissions and fees), which improved 410 bps over the prior-year period, and resultant new business across client industry sectors. New business growth was offset by a 510 bps headwind in underlying rate and exposure year over year, largely attributable to catastrophe-exposed real estate and construction project work weakness, as well as a decrease in retention of 140 bps, attributable to rate fatigue. In addition, profit-sharing revenue increased $3.2 million primarily resulting from improvements in loss ratios and the number of policies sold.

Investment Income

IAS investment income increased $2.0 million year over year due to improvements in our cash management strategy and growing yield on our invested cash.

62

Commissions, Employee Compensation and Benefits

Commissions, employee compensation and benefits expense for IAS increased $87.2 million, or 19%, year over year primarily due to an increase in colleague compensation of $36.4 million, driven by continued investments in headcount to support our growth, coupled with an increase in colleague compensation allocated to IAS that was previously recognized in Corporate and Other. IAS commissions, employee compensation and benefits expense for 2024 also included an increase related to colleague earnout incentives of $30.8 million for contingent earnout liabilities that were reclassified, at the partner's option, to an earnout incentive bonus payable to colleagues. In addition, inside advisor commissions increased $14.5 million, or 9%, in line with the growth in IAS’ core commissions and fees.

Other Operating Expenses

Other operating expenses for IAS decreased $2.4 million year over year, driven by cost savings measures we have implemented, including the renegotiation of vendor contracts and post partnership integration operational efficiencies gained, including various expense reductions of $3.8 million and lower professional fees of $1.2 million. These savings were partially offset by higher costs for travel and entertainment to support the growth in IAS of $2.8 million and higher legal claims and settlement expense of $0.4 million.

Amortization Expense

IAS amortization expense increased $6.4 million year over year due to the acceleration of trade names amortization in connection with rebranding within IAS.

Change in Fair Value of Contingent Consideration

Change in fair value of contingent consideration for IAS was a $10.5 million gain for the year ended December 31, 2024 compared to a $38.3 million loss for the same period of 2023. The fair value gain related to contingent consideration for the year ended December 31, 2024 was impacted by the reclassification of $39.3 million of colleague earnout incentives to commissions, employee compensation and benefits expense, offset in part by positive changes in revenue growth trends of certain partners.

63

UNDERWRITING, CAPACITY & TECHNOLOGY SOLUTIONS OPERATING GROUP RESULTS

UCTS consists of three distinct businesses—MSI, our reinsurance brokerage business, Juniper Re, and our captive management business. Through MSI, we manufacture proprietary, technology-enabled insurance products with a focus on sheltered channels where our products deliver speed, ease of use and certainty of execution, an example of which is our national embedded renters insurance product sold at point of lease via integrations with property management software providers. Our MGA product suite is now comprised of more than 20 products across personal, commercial and professional lines. UCTS’ Wholesale Business was sold in the first quarter of 2024 and its operations are included in our results through February 29, 2024.

Effective January 1, 2024, our FounderShield Partner moved from UCTS to IAS. Prior year results of operations for UCTS below have been recast to conform to the current organizational structure.

[[GREPCENT_TABLE]]
[["","","For the Years Ended December 31,","","Variance"],["(in thousands, except percentages)","","2024","","2023","","Amount","","%"],["Revenues:"],["Core commissions and fees","","$","455,845","","","$","377,294","","","$","78,551","","","21","%"],["Profit-sharing and other income","","13,032","","","25,205","","","(12,173)","","","(48)","%"],["Commissions and fees","","468,877","","","402,499","","","66,378","","","16","%"],["Investment income","","4,062","","","2,040","","","2,022","","","99","%"],["Total revenues","","472,939","","","404,539","","","68,400","","","17","%"],["Operating expenses:"],["Commissions, employee compensation and benefits","","361,717","","","298,108","","","63,609","","","21","%"],["Other operating expenses","","41,313","","","41,995","","","(682)","","","(2)","%"],["Amortization expense","","14,950","","","15,963","","","(1,013)","","","(6)","%"],["Change in fair value of contingent consideration","","5,085","","","20,930","","","(15,845)","","","(76)","%"],["Depreciation expense","","568","","","621","","","(53)","","","(9)","%"],["Total operating expenses","","423,633","","","377,617","","","46,016","","","12","%"],["Operating income","","49,306","","","26,922","","","22,384","","","83","%"],["Total other income","","34,107","","","859","","","33,248","","","n/m"],["Income before income taxes","","$","83,413","","","$","27,781","","","$","55,632","","","200","%"]]
[[/GREPCENT_TABLE]]

__________

n/m    not meaningful

Commissions and Fees

UCTS generates (i) commissions for underwriting and placing insurance policies on behalf of its insurance company partners; (ii) policy fee and installment fee revenue for acting in the capacity of an MGA and fulfilling certain administrative functions on behalf of insurance company partners, including delivery of policy documents, processing payments and other administrative functions; (iii) profit-sharing income, generally based on the profitability of the underlying book of business of the policies it generates on behalf of its insurance company partners; and (iv) fees from service fee arrangements, which are in place with certain customers for a negotiated fee.

UCTS commissions and fees increased $66.4 million, or 16%, year over year to $468.9 million, due to organic growth in core commissions and fees. Growth in our core commissions and fees was driven by continued outperformance in our multi-family business (accounting for $35.7 million of the increase in core commissions and fees), momentum in our homeowners product (accounting for $36.8 million of the increase in core commissions and fees) and commercial umbrella product (accounting for $9.9 million of the increase in core commissions and fees), and growing contribution from our reinsurance brokerage business and commercial property program. This growth was offset in part by core commissions and fees of $26.8 million derived from our Wholesale Business between March and December of 2023, for which there were no comparable revenues earned in 2024. Core commissions and fees growth, excluding such revenue related to the Wholesale Business between March and December of 2023, was 30%.

64

Profit-sharing and other revenue decreased $12.2 million year over year, of which, $7.5 million is a function of strong profit-sharing revenue in 2023, which resulted from historically strong underwriting performance in that year. The remaining decrease relates to profit-sharing and other income earned by our Wholesale Business between March and December of 2023, for which there were no comparable revenues earned in 2024, and a reduction in other income.

Investment Income

UCTS investment income increased $2.0 million year over year due to improvements in our cash management strategy and growing yield on our invested cash.

Commissions, Employee Compensation and Benefits

Commissions, employee compensation and benefits expense for UCTS includes both outside commissions paid to partners that distribute our MGA products and compensation paid primarily to colleagues. Commissions, employee compensation and benefits expense for UCTS increased $63.6 million year over year, primarily driven by outside commissions, which increased $66.8 million, or 35%, in line with the growth in UCTS core commissions and fees after excluding outside commissions relating to the Wholesale Business between March and December of 2023 of $15.8 million. Other increases, after excluding amounts relating to the Wholesale Business between March and December of 2023, included benefits and other expense of $7.0 million and colleague compensation of $8.9 million, which were driven by continued investments in headcount to support the growth of existing and new products, coupled with an increase in colleague compensation allocated to UCTS that was previously recognized in Corporate and Other. These increases were partially offset by compensation costs of $23.7 million incurred by our Wholesale Business between March and December of 2023, for which there were no comparable costs incurred in 2024.

Other Operating Expenses

Other operating expenses for UCTS were relatively flat year over year. Other operating expenses for the current year included higher costs due to fulfilling certain administrative functions on behalf of insurance company partners (including an increase in payment processing fees) of $3.2 million, generally higher costs to support the growth of the business and the launch of new products of $1.6 million, legal claims and settlement expense of $0.7 million, and travel and entertainment of $0.5 million to support growth. These increases were offset in part by reductions in partnership integration expenses of $4.2 million and professional fees of $1.2 million.

Amortization Expense

UCTS amortization expense decreased $1.0 million year over year, primarily due to the write-off of intangible assets in connection with the sale of our Wholesale Business during the first quarter of 2024.

Change in Fair Value of Contingent Consideration

Change in fair value of contingent consideration for UCTS was a $5.1 million loss for the year ended December 31, 2024 compared to a $20.9 million loss for the same period of 2023. The fair value loss related to contingent consideration for 2024 was impacted by positive changes in revenue growth trends of certain partners and accretion of the contingent earnout obligations approaching their respective measurement dates.

Total Other Income

Total other income for UCTS increased $33.2 million year over year, driven by a $35.1 million gain recorded in connection with the sale of our Wholesale Business during the first quarter of 2024.

65

MAINSTREET INSURANCE SOLUTIONS OPERATING GROUP RESULTS

MIS offers personal insurance, commercial insurance, and life and health solutions to individuals and businesses in their communities, with a focus on accessing clients via sheltered distribution channels, which include, but are not limited to, new home builders, realtors, mortgage originators/lenders, master planned communities, and various other community centers of influence. MIS also offers consultation for government assistance programs and solutions, including traditional Medicare, Medicare Advantage and Affordable Care Act, to seniors and eligible individuals through a network of primarily independent contractor agents.

[[GREPCENT_TABLE]]
[["","","For the Years Ended December 31,","","Variance"],["(in thousands, except percentages)","","2024","","2023","","Amount","","%"],["Revenues:"],["Core commissions and fees","","$","250,825","","","$","217,300","","","$","33,525","","","15","%"],["Profit-sharing and other income","","30,423","","","17,397","","","13,026","","","75","%"],["Commissions and fees","","281,248","","","234,697","","","46,551","","","20","%"],["Investment income","","35","","","\u2014","","","35","","","\u2014","%"],["Total revenues","","281,283","","","234,697","","","46,586","","","20","%"],["Operating expenses:"],["Commissions, employee compensation and benefits","","176,156","","","148,240","","","27,916","","","19","%"],["Other operating expenses","","35,593","","","31,698","","","3,895","","","12","%"],["Amortization expense","","26,452","","","22,848","","","3,604","","","16","%"],["Change in fair value of contingent consideration","","424","","","1,847","","","(1,423)","","","(77)","%"],["Depreciation expense","","715","","","570","","","145","","","25","%"],["Total operating expenses","","239,340","","","205,203","","","34,137","","","17","%"],["Operating income","","41,943","","","29,494","","","12,449","","","42","%"],["Total other income (expense)","","(15)","","","30","","","(45)","","","(150)","%"],["Income before income taxes","","$","41,928","","","$","29,524","","","$","12,404","","","42","%"]]
[[/GREPCENT_TABLE]]

Commissions and Fees

MIS generates (i) commissions for placing insurance policies on behalf of its insurance company partners; (ii) profit-sharing income based on either the underlying book of business or performance, such as loss ratios; and (iii) commissions and fees in the form of marketing income, which is earned through co-branded marketing campaigns with our insurance company partners.

MIS commissions and fees increased $46.6 million, or 20%, year over year to $281.2 million, due to organic growth in core commissions and fees. Key drivers of the organic growth in MIS core commissions and fees included our Westwood Partner (accounting for $15.7 million of the year-over-year increase in core commissions and fees), our legacy Mainstreet business (accounting for $13.9 million of the year-over-year increase in core commissions and fees), and the national mortgage and real estate channel (accounting for $4.1 million of the year-over-year increase in core commissions and fees). In addition, MIS profit-sharing and other income increased $13.0 million primarily resulting from improvements in MIS loss ratios and the number of policies sold.

Commissions, Employee Compensation and Benefits

Commissions, employee compensation and benefits expense for MIS increased $27.9 million, or 19%, year over year, primarily due to outside commissions, which increased $15.3 million, or 25%, relating to growth in our Westwood and legacy Mainstreet businesses. Other increases included colleague compensation of $7.6 million, inside advisor commissions of $3.5 million and benefits and other of $2.2 million, which were driven by continued investments in headcount to support our growth, coupled with an increase in colleague compensation allocated to MIS that was previously recognized in Corporate and Other.

66

Other Operating Expenses

Other operating expenses in MIS increased $3.9 million year over year, driven by higher technology-related costs to support the growth of the business of $1.1 million, licenses and taxes of $0.7 million, advertising and marketing of $0.7 million, and travel and entertainment of $0.3 million.

Amortization Expense

MIS amortization expense increased $3.6 million year over year, primarily driven by the amortization of intangible assets recorded in connection with our Westwood Partnership, which are amortized based on a pattern of estimated economic benefit.

CORPORATE AND OTHER RESULTS

[[GREPCENT_TABLE]]
[["","","For the Years Ended December 31,","","Variance"],["(in thousands, except percentages)","","2024","","2023","","Amount","","%"],["Revenues:"],["Commissions and fees","","$","(79,166)","","","$","(67,711)","","","$","(11,455)","","","17","%"],["Investment income","","2,045","","","955","","","1,090","","","114","%"],["Total revenues","","(77,121)","","","(66,756)","","","(10,365)","","","16","%"],["Operating expenses:"],["Commissions, employee compensation and benefits","","(40,204)","","","17,810","","","(58,014)","","","(326)","%"],["Other operating expenses","","36,137","","","34,806","","","1,331","","","4","%"],["Amortization expense","","1,106","","","100","","","1,006","","","n/m"],["Depreciation expense","","3,426","","","2,961","","","465","","","16","%"],["Total operating expenses","","465","","","55,677","","","(55,212)","","","(99)","%"],["Operating income (loss)","","(77,586)","","","(122,433)","","","44,847","","","(37)","%"],["Other expense:"],["Interest expense, net","","(123,642)","","","(119,652)","","","(3,990)","","","3","%"],["Loss on extinguishment and modification of debt","","(15,113)","","","\u2014","","","(15,113)","","","\u2014","%"],["Other expense, net","","(507)","","","(1,603)","","","1,096","","","(68)","%"],["Total other expense","","(139,262)","","","(121,255)","","","(18,007)","","","15","%"],["Loss before income taxes","","$","(216,848)","","","$","(243,688)","","","$","26,840","","","(11)","%"]]
[[/GREPCENT_TABLE]]

__________

n/m    not meaningful

Commissions and Fees

Corporate and Other records the elimination of intercompany revenue from the operating groups. During 2024, UCTS recorded commissions revenue shared with other operating groups of $77.6 million and MIS recorded commissions revenue shared within the same operating group of $1.6 million.

A substantial portion of the intercompany commissions revenue recorded during 2024 is related to the QBE Program Administrator Agreement. We expect intercompany commissions revenue to continue to grow as we serve as the MGA on more intersegment revenue such as homeowners insurance sold through MIS.

67

Commissions, Employee Compensation and Benefits

Commissions, employee compensation and benefits expense in Corporate and Other decreased $58.0 million year over year, driven by a reduction in colleague compensation of $31.5 million, due in part to a decrease in corporate-related headcount, including the retirement of two of our executive officers at the end of 2023, coupled with a decrease in colleague compensation previously recognized in Corporate and Other that is now allocated to the operating groups. Other decreases included severance of $11.9 million relating to the retirement of two of our executive officers at the end of 2023 as mentioned above, and $11.5 million relating to an increase in intercompany commissions expense eliminations.

A significant portion of the year-over-year increase in intercompany commissions expense eliminated through Corporate and Other is related to the QBE Program Administrator Agreement. We expect intercompany commissions expense to continue to increase as we serve as the MGA on more intersegment revenue such as homeowners insurance sold through MIS.

Other Operating Expenses

Other operating expenses in Corporate and Other increased $1.3 million year over year due to an increase in tax receivable agreement expense of $4.6 million, higher advertising and marketing costs of $1.4 million connected to our rebranding, and higher licenses and taxes expense of $0.7 million. These increases were offset in part by decreases due, in part, to certain cost saving measures we have implemented, including the renegotiation of vendor contracts, and operational efficiencies gained from partnership integration projects by our operating groups, which resulted in various costs savings of $2.1 million, and reductions in professional fees of $2.0 million and travel and entertainment of $1.5 million.

Amortization Expense

Corporate and Other amortization expense increased $1.0 million year over year due to capitalized software development costs.

Interest Expense, Net

Interest expense, net, in Corporate and Other increased $4.0 million year over year resulting from higher average borrowings, offset in part by lower average interest rates resulting from the May 2024 debt refinancing and federal rate reductions. We expect interest expense to remain relatively flat on a year-over-year basis due to an anticipated increase in borrowings from our revolving credit facility to fund the settlement of contingent earnout liabilities, offset by a lower expected average interest rate.

Loss on Extinguishment and Modification of Debt

Loss on extinguishment and modification of debt in Corporate and Other of $15.1 million relates to the May 2024 debt refinancing.

LIQUIDITY AND CAPITAL RESOURCES

Our primary liquidity needs for the foreseeable future will include cash to (i) provide capital to facilitate the organic growth of our business and to fund future partnerships, (ii) pay operating expenses, including cash compensation to our colleagues and expenses related to being a public company, (iii) make payments under the Tax Receivable Agreement, (iv) pay interest and principal due on borrowings under the 2024 Credit Facility and Senior Secured Notes, (v) pay contingent earnout liabilities, (vi) pay income taxes, and (vii) fund potential investments in third-party businesses that support the growth of our business, which may include Emerald Bay or sponsorship of, and a minority, non-controlling interest in, other investment funds, the purpose of which may include facilitating the establishment of additional and alternative capacity that supports the growth of our MSI business.

We have historically financed our operations and funded our debt service through the sale of our insurance products and services, and we have financed significant cash needs to fund growth via the acquisition of partners through debt and equity financing.

68

On May 24, 2024, we repaid in full our then-outstanding debt with proceeds from an offering of $600 million in aggregate principal amount of 7.125% senior secured notes due May 15, 2031 (the “Senior Secured Notes”) and borrowings under a new $840 million senior secured first lien term loan facility maturing May 24, 2031 (the “2024 Term Loan”). In connection with the refinancing, we also established a new senior secured first lien revolving facility with commitments in an aggregate principal amount of $600 million maturing May 24, 2029 (the “2024 Revolving Facility” and, together with the 2024 Term Loan, the “2024 Credit Facility”). Proceeds from the issuance of the Senior Secured Notes and the 2024 Term Loan were also used to pay related fees, costs, expenses and accrued interest. Refer to Note 11 to our consolidated financial statements included in Part II, Item 8. Financial Statements and Supplementary Data of this report for more information relating to the terms of the Senior Secured Notes and 2024 Credit Facility.

On January 10, 2025, the 2024 Credit Agreement was amended to, among other things, provide for $100 million of incremental term B loans (the loans thereunder, the “2025 Term Loans”), increasing the aggregate principal amount of our existing $835.8 million senior secured first lien term loan facility maturing on May 24, 2031 to $935.8 million. The proceeds of the 2025 Term Loans were used to repay in full all of the 2024 Term Loans outstanding under the 2024 Credit Agreement.

In the near term, we intend to fund our earnout obligations with cash and cash equivalents, including unused proceeds from the issuance of the Senior Secured Notes and the 2024 Term Loan, cash flow from operations and available borrowings under the 2024 Revolving Facility. From time to time, we will consider raising additional debt or equity financing if and as necessary to support our growth, including in connection with the exploration of partnership opportunities or to refinance existing obligations on an opportunistic basis.

As of December 31, 2024, our cash and cash equivalents were $148.1 million and we had $588.0 million of available borrowing capacity on the Revolving Facility under the 2024 Credit Agreement. We believe that our cash and cash equivalents, cash flow from operations and available borrowings will be sufficient to fund our working capital and meet our commitments for the next twelve months and beyond.

See Item 1A. “Risk Factors—Risks Relating to our Business Operations and Industry—Partnerships have been, and may in the future continue to be, important to our growth. We may not be able to successfully identify and acquire partners or integrate partners into our company, and we may become subject to certain liabilities assumed or incurred in connection with our partnerships that could harm our business, results of operations and financial condition.”

Contractual Obligations and Commitments

The following table represents our contractual obligations and commitments, aggregated by type, at December 31, 2024:

[[GREPCENT_TABLE]]
[["","","","Payments Due by Period"],["(in thousands)","Total","","Less than 1 year","","1-3 years","","3-5 years","","More than 5 years"],["Operating leases(1)","$","99,311","","","$","21,210","","","$","37,935","","","$","27,815","","","$","12,351"],["Debt obligations payable(2)","2,107,516","","","114,410","","","226,903","","","224,347","","","1,541,856"],["Undiscounted estimated contingent earnout obligations(3)","185,205","","","181,691","","","3,514","","","\u2014","","","\u2014"],["USF Grant","3,352","","","856","","","1,696","","","800","","","\u2014"],["Total","$","2,395,384","","","$","318,167","","","$","270,048","","","$","252,962","","","$","1,554,207"]]
[[/GREPCENT_TABLE]]

__________

(1)    Represents noncancelable operating leases for our facilities. Operating lease expense was $21.5 million and $23.2 million for the years ended December 31, 2024 and 2023, respectively.

(2)    Represents scheduled debt obligation and estimated interest payments for our Senior Secured Notes and 2024 Term Loan.

(3)    Represents the total expected future payments to be made to partners and colleagues for earnout-related obligations at December 31, 2024.

Our contractual obligations and commitments are comprised of operating lease obligations, principal and interest payments on our borrowings under the Senior Secured Notes and the 2024 Term Loan, estimated payments of contingent earnout liabilities and our commitment to the University of South Florida (“USF”).

Our operating lease obligations represent noncancelable agreements for our corporate headquarters and office space for our insurance brokerage business. Our operating lease agreements expire through August 2035. These obligations do not include leases with an initial term of twelve months or less, which are expensed as incurred. We may extend, terminate or otherwise modify or sub-lease facilities as needed to best suit the needs of our business. The lease term is the non-cancelable period of the lease and includes options to extend or terminate the lease when it is reasonably certain that an option will be exercised.

69

Our debt obligations at December 31, 2024 include borrowings outstanding under the Senior Secured Notes of $600.0 million and the 2024 Term Loan of $835.8 million. Estimated interest payments for outstanding borrowings on the Senior Secured Notes and 2024 Term Loan in the table above were calculated based on the applicable interest rates at December 31, 2024 of 7.125% and 7.61%, respectively, through their respective due dates of May 15, 2031 and May 24, 2031.

Substantially all of our partnerships and certain acquisitions of select books of business that do not constitute a complete business enterprise include contractual earnout provisions. We record an estimation of the fair value of the contingent earnout obligations at the partnership date as a component of the consideration paid. Our contingent earnout obligations are measured at fair value each reporting period based on the present value of the expected future payments to be made to partners in accordance with the provisions outlined in the respective purchase agreements. The recorded obligations are based on estimates of the partners’ future performance using financial projections for the earnout period. The aggregate estimated contingent earnout liabilities included on our consolidated balance sheet at December 31, 2024 was $145.6 million, of which $4.7 million must be settled in cash and the remaining $140.8 million can be settled in cash or stock at our option. The undiscounted estimated contingent earnout obligation presented in the table above represents the total expected future payments to be made to the partners. The undiscounted estimated contingent earnout obligation at December 31, 2024 was $185.2 million, of which $5.0 million must be settled in cash and the remaining $180.2 million can be settled in cash or stock at our option. The maximum estimated exposure to the contingent earnout liabilities was $268.8 million at December 31, 2024.

As of December 31, 2024, we have a remaining commitment to USF to donate $3.4 million through October 2028. The gift will provide support for the School of Risk Management and Insurance in the USF Muma College of Business. It is currently anticipated that Lowry Baldwin, the Company's Chairman, will fund half of this commitment.

Effects of Inflation

Certain of our lease agreements feature annual rent escalations either fixed or based on a consumer price index or other index, which, historically, have not had a material impact on our results of operations, including our results of operations for the years ended December 31, 2024, 2023 and 2022. Although we have recently sustained high levels of inflation, we do not anticipate the inflation rates for 2025 to have a material impact on our results of operations. We have monitored and will continue to monitor the components of compensation costs and operating expenses for the potential impact of inflation.

Off-Balance Sheet Arrangements

We do not invest in any off-balance sheet vehicles that provide liquidity, capital resources, market or credit risk support, or engage in any activities that expose us to any liability that is not reflected in our consolidated financial statements except for those described under this Liquidity and Capital Resources section.

Dividend Policy

Assuming Baldwin Holdings makes distributions to its members in any given year, the determination to pay dividends, if any, to our Class A common stockholders out of the portion, if any, of such distributions remaining after our payment of taxes, Tax Receivable Agreement payments and expenses (any such portion, an “excess distribution”) will be made at the sole discretion of our board of directors. Our board of directors may change our dividend policy at any time. Refer to Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities—Dividend Policy for additional information.

Tax Receivable Agreement

Baldwin is a party to the Tax Receivable Agreement with Baldwin Holdings’ LLC Members that provides for the payment by Baldwin to Baldwin Holdings’ LLC Members of 85% of the amount of cash savings, if any, in U.S. federal, state and local income tax or franchise tax that Baldwin actually realizes as a result of (i) any increase in tax basis in Baldwin Holdings assets resulting from (a) previous acquisitions by Baldwin of LLC Units from Baldwin Holdings’ LLC Members, (b) the acquisition of LLC Units from Baldwin Holdings’ LLC Members using the net proceeds from any future offering, (c) redemptions or exchanges by Baldwin Holdings’ LLC Members of LLC Units and the corresponding number of shares of Class B common stock for shares of Class A common stock or cash or (d) payments under the Tax Receivable Agreement, and (ii) tax benefits related to imputed interest resulting from payments made under the Tax Receivable Agreement.

70

Holders of LLC Units (other than Baldwin) may, subject to certain conditions and transfer restrictions described above, redeem or exchange their LLC Units for shares of Class A common stock of Baldwin on a one-for-one basis. Baldwin Holdings intends to make an election under Section 754 of the Internal Revenue Code of 1986, as amended, and the regulations thereunder (the “Code”) effective for each taxable year in which a redemption or exchange of LLC Units for shares of Class A common stock occurs, which is expected to result in increases to the tax basis of the assets of Baldwin Holdings at the time of a redemption or exchange of LLC Units. The redemptions or exchanges are expected to result in increases in the tax basis of the tangible and intangible assets of Baldwin Holdings. These increases in tax basis may reduce the amount of tax that Baldwin would otherwise be required to pay in the future. The Tax Receivable Agreement with Baldwin Holdings’ LLC Members provides for the payment by us to Baldwin Holdings’ LLC Members of 85% of the amount of cash savings, if any, in U.S. federal, state and local income tax or franchise tax that Baldwin actually realizes as a result of the transactions listed in the preceding paragraph. This payment obligation is an obligation of Baldwin and not of Baldwin Holdings. For purposes of the Tax Receivable Agreement, the cash tax savings in income tax will be computed by comparing the actual income tax liability of Baldwin (calculated with certain assumptions) to the amount of such taxes that Baldwin would have been required to pay had there been no increase to the tax basis of the assets of Baldwin Holdings as a result of the redemptions or exchanges and had Baldwin not entered into the Tax Receivable Agreement. Estimating the amount of payments that may be made under the Tax Receivable Agreement is by its nature imprecise, insofar as the calculation of amounts payable depends on a variety of factors. The actual increase in tax basis, as well as the amount and timing of any payments under the Tax Receivable Agreement, will vary depending upon a number of factors, including the timing of redemptions or exchanges, the price of shares of our Class A common stock at the time of the redemption or exchange, the extent to which such redemptions or exchanges are taxable, the amount and timing of our income, the tax rates then applicable and the portion of our payments under the Tax Receivable Agreement constituting imputed interest. We account for the effects of these increases in tax basis and associated payments under the Tax Receivable Agreement arising from future redemptions or exchanges as follows:

•we record an increase in deferred tax assets for the estimated income tax effects of the increases in tax basis based on enacted federal and state tax rates at the date of the redemption or exchange;

•to the extent we estimate that we will not realize the full benefit represented by the deferred tax asset, based on an analysis that will consider, among other things, our expectation of future earnings, we reduce the deferred tax asset with a valuation allowance; and

•we record 85% of the estimated realizable tax benefit (which is the recorded deferred tax asset less any recorded valuation allowance) as an increase to the liability due under the Tax Receivable Agreement and the remaining 15% of the estimated realizable tax benefit as an increase to additional paid-in capital.

All of the effects of changes in any of our estimates after the date of the redemption or exchange will be included in net income. Similarly, the effect of subsequent changes in the enacted tax rates will be included in net income.

During 2024, we exchanged 2,869,808 LLC Units of Baldwin Holdings on a one-for-one basis for shares of Baldwin's Class A common stock and cancelled the corresponding shares of Baldwin's Class B common stock. We receive an increase in our share of the tax basis in the net assets of Baldwin Holdings due to the interests being redeemed. We have assessed the realizability of the net deferred tax assets and in that analysis have considered the relevant positive and negative evidence available to determine whether it is more likely than not that some portion or all of the deferred tax assets will be realized. We have recorded a full valuation allowance against the deferred tax assets at Baldwin as of December 31, 2024, which will be maintained until there is sufficient evidence to support the reversal of all or some portion of these allowances.

As of December 31, 2024, we have recorded a Tax Receivable Agreement liability of $4.8 million associated with the payments to be made to current or former Baldwin Holdings’ LLC Members subject to the Tax Receivable Agreement.

Deferred Tax Assets

To determine the realizability of our deferred tax assets, we analyzed all evidence – both positive and negative. This includes, but is not limited to, history and/or projections of future earnings, future reversals of existing temporary tax differences and tax planning strategies. The Company has a history of cumulative losses over a three-year period (2022, 2023 and 2024), which indicates significant negative evidence. Based on the weight of evidence, the Company has determined that its deferred tax assets are not more likely than not to be realized. Accordingly, we maintain a full valuation allowance against our deferred tax assets. As the Company emerges from its cumulative loss position, we will reassess the realizability of our deferred tax assets and the necessity for a full valuation allowance.

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Sources and Uses of Cash

The following table summarizes our cash flows from operating, investing and financing activities for the periods indicated:

[[GREPCENT_TABLE]]
[["","For the Years Ended December 31,","","Variance"],["(in thousands)","2024","","2023"],["Net cash provided by operating activities","$","102,151","","","$","44,644","","","$","57,507"],["Net cash provided by (used in) investing activities","13,299","","","(21,922)","","","35,221"],["Net cash used in financing activities","(29,644)","","","(26,230)","","","(3,414)"],["Net increase (decrease) in cash and cash equivalents and restricted cash","85,806","","","(3,508)","","","89,314"],["Cash and cash equivalents and restricted cash at beginning of year","226,963","","","230,471","","","(3,508)"],["Cash and cash equivalents and restricted cash at end of year","$","312,769","","","$","226,963","","","$","85,806"]]
[[/GREPCENT_TABLE]]

Operating Activities

The primary sources and uses of cash for operating activities are net income (loss) adjusted for non-cash items and changes in assets and liabilities, or operating working capital, and payment of contingent earnout consideration. Net cash provided by operating activities increased $57.5 million year over year, driven by better operating leverage.

Investing Activities

The primary sources and uses of cash for investing activities relate to cash consideration paid to fund partnerships and other investments to grow our business. Net cash provided by investing activities increased $35.2 million year over year, driven by net cash proceeds from divestitures of $57.0 million, relating primarily to the sale of our Wholesale Business during 2024, offset in part by a decrease in cash relating to higher capital expenditures of $19.7 million due to software development projects for infrastructure to support our business.

Financing Activities

The primary sources and uses of cash for financing activities relate to the issuance of our Class A common stock; debt servicing costs in connection with our long-term debt and revolving line of credit, as well as purchases, sales and settlements of interest rate caps to mitigate interest rate volatility on that debt; payment of contingent earnout consideration; and other equity transactions. Net cash used in financing activities increased $3.4 million year over year, driven by an increase in net proceeds from borrowings on our credit facilities of $99.4 million resulting from the May 2024 debt refinancing, offset in part by decreases in cash from additional payments of contingent earnout consideration classified as financing activity of $70.7 million, higher borrowing costs of $13.0 million, and fewer cash settlements from interest rate caps of $8.6 million.

RECENT ACCOUNTING PRONOUNCEMENTS

Please refer to Note 1 to our consolidated financial statements included in Item 8. Financial Statements and Supplementary Data of this Annual Report on Form 10-K for a discussion of recent accounting pronouncements that may impact us.

72

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our consolidated financial statements are prepared in accordance with GAAP, which requires management to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Our estimates, judgments and assumptions are continually evaluated based on historical experience, known or expected trends, independent valuations and other factors we believe to be reasonable under the circumstances. As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates. Our most critical accounting policies and estimates, as discussed below, govern the more significant judgments and estimates used in the preparation of our consolidated financial statements and could have a material impact on our financial condition or results of operations.

Critical Accounting Policies

Revenue Recognition

Commission revenue is earned at a point in time upon the effective date of bound insurance coverage, as no performance obligation exists after coverage is bound. The Company makes its best estimate of direct bill commissions at the policy effective date, particularly in employee benefits within IAS, which is subject to change based on enrollment and other factors over the policy period.

Commission revenue is recorded net of an allowance for estimated policy cancellations. The allowance for estimated policy cancellations is determined based on an evaluation of historical and current cancellation data.

Medicare contracts in the MIS operating group are multi-year arrangements in which we are entitled to renewal commissions. However, we have applied a constraint to renewal commissions that limits revenue recognized when a risk of significant reversals exists based on: (i) historical renewal patterns; and (ii) the influence of external factors outside of our control, including policyholder discretion over plans and insurance company partner relationship, political influence, and a contractual provision, which limits our right to receive renewal commissions to ongoing compliance and regulatory approval of the relevant insurance company partner and compliance with the Centers for Medicare and Medicaid Services.

Profit-sharing commissions represent a form of variable consideration, which includes additional commissions over base commissions received from insurance company partners. A constraint of variable consideration is necessary when commissions and fees are subject to significant reversal. Profit-sharing commissions associated with loss performance are uncertain, and therefore, are subject to significant reversal as loss data remains subject to material change. Management estimates profit-sharing commissions using historical outcomes and known trends impacting premium volume or loss ratios, subject to a constraint. The constraint is relieved when management estimates commissions and fees that are not subject to significant reversal, which often coincides with the earlier of written notification from the insurance company partner that the target has been achieved or cash collection. Year-end amounts incorporate estimates subject to a constraint or where applicable, are based on confirmation from insurance company partners after calculation of premium volume or loss ratios that are impacted by catastrophic losses.

Costs to obtain contracts include compensation in the form of producer commissions paid on new business. These incremental costs are capitalized as deferred commission expense and amortized over five years, which represents management’s estimate of the average period over which a client maintains its initial coverage relationship with the original insurance company partner.

The nature of estimates used in recognizing commissions and fees revenue do not involve a significant level of subjectivity, judgment, or estimation uncertainty that could have a material impact on the Company's results of operations.

Critical Accounting Estimates

We have determined that there are significant judgments and uncertainties included in the application of guidance for impairment of intangible assets and goodwill; valuation of contingent consideration; and valuation allowance for deferred tax assets. The nature of the estimates and assumptions used and the impact the estimates and assumptions could have on our actual results are discussed in the tables below.

73

[[GREPCENT_TABLE]]
[["Description","","Judgments and Uncertainties","","Effect if Actual Results Differ from Assumptions"],["Impairment of Intangible Assets"],["We evaluate our definite-lived intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. These events and circumstances include, but are not limited to: higher than expected attrition for relationships; a current expectation that an intangible asset will be disposed of significantly before the end of its previously estimated useful life, such as when we classify a business as held for sale; or a significant adverse change in the extent or manner in which we use an intangible asset. Undiscounted cash flow analyses are used to determine if impairment exists; if impairment is determined to exist, the loss is calculated based on estimated fair value.","","Our impairment evaluations require us to apply judgment in determining whether a triggering event has occurred, including the evaluation of whether it is more-likely-than-not that an intangible asset will be disposed of significantly before the end of its previously estimated useful life. Incorrect estimation of useful lives may result in inaccurate amortization charges over future periods leading to future impairment. Our impairment loss calculations contain uncertainties because they require management to make assumptions and to apply judgment to estimate future cash flows and asset fair values, including forecasting useful lives of the assets and selecting the discount rate that reflects the risk inherent in future cash flows.","","During the last three years, we have not made any changes in the accounting methodology used to evaluate the impairment of intangible assets or to estimate the useful lives of our intangible assets.At December 31, 2024, we had $953.5 million of intangible assets, which are included in each of our reporting units and in Corporate and Other at the following amounts:Insurance Advisory Solutions\u2014$636.9 millionUnderwriting, Capacity & Technology Solutions\u2014$103.8 millionMainstreet Insurance Solutions\u2014$206.5 millionCorporate and Other\u2014$6.2 millionWe performed a qualitative analysis of each of our asset groups as of October 1, 2024 and determined that there were no events or changes in circumstances that had occurred to indicate that the carrying amount of our intangible assets may not be recoverable. The Company also determined there were no triggering events through December 31, 2024 that would cause the Company to perform an interim period analysis. We did not record impairment charges for intangible assets in 2024, 2023 or 2022."]]
[[/GREPCENT_TABLE]]

74

[[GREPCENT_TABLE]]
[["Description","","Judgments and Uncertainties","","Effect if Actual Results Differ from Assumptions"],["Impairment of Goodwill"],["Goodwill is not amortized but rather tested at least annually for impairment, or more often if events or changes in circumstances indicate it is more-likely-than-not that the carrying amount of the asset may not be recoverable. Goodwill is tested for impairment at the reporting unit level, which represents the operating segment. Goodwill is tested for impairment by either performing a qualitative evaluation or a quantitative test. The qualitative evaluation is an assessment of factors to determine whether it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount, including goodwill. We may elect not to perform the qualitative assessment for some or all of our reporting units and instead perform a quantitative impairment test. We estimate the fair value of each reporting unit using a combination of the income approach and the market approach. The income approach incorporates the use of a discounted cash flow method in which the estimated future cash flows and terminal value are calculated for each reporting unit and then discounted to present value using an appropriate discount rate. The market approach estimates fair value of a reporting unit by using market comparables for reasonably similar public companies.","","Our impairment evaluations require us to apply judgment in determining whether a triggering event has occurred. The valuation of our reporting units requires significant judgment in evaluation of recent indicators of market activity and estimated future cash flows, discount rates, and other factors. Our impairment analyses contain inherent uncertainties due to uncontrollable events that could positively or negatively impact anticipated future economic and operating conditions. In making these estimates, the weighted-average cost of capital is utilized to calculate the present value of future cash flows and terminal value. Many variables go into estimating future cash flows, including estimates of our future revenue growth and operating results. When estimating our projected revenue growth and future operating results, we consider industry trends, economic data, and our competitive advantage.","","During the last three years, we have not made any changes in the accounting methodology used to evaluate impairment of goodwill.At December 31, 2024, we had $1.4 billion of goodwill. Our goodwill is included in each of our operating groups at the following amounts:Insurance Advisory Solutions\u2014$932.5 millionUnderwriting, Capacity & Technology Solutions\u2014$235.6 millionMainstreet Insurance Solutions\u2014$244.3 millionOn October 1, 2024, we performed an impairment evaluation for each of our reporting units beginning with a qualitative assessment. We determined that based on the overall results of the qualitative analysis and the outlook of our reporting units, company and industry, there was no indication of goodwill impairment. Therefore, no further testing was required. We did not record goodwill impairment charges during 2024, 2023 or 2022."]]
[[/GREPCENT_TABLE]]

75

[[GREPCENT_TABLE]]
[["Description","","Judgments and Uncertainties","","Effect if Actual Results Differ from Assumptions"],["Valuation of Contingent Consideration"],["Substantially all of our partnerships and certain acquisitions of select books of business that do not constitute a complete business enterprise include contingent consideration arrangements, which are based on the acquired company achieving thresholds related to future revenues, total insured value or number of rented units. The structure of these contingent earnout arrangements can reduce the risk of overpaying for acquisitions if the projected financial results are not achieved.The fair values of these contingent consideration arrangements are included as part of the purchase price of the acquired companies on their respective acquisition dates. For each transaction, we estimate the fair value of contingent earnout payments as part of the initial purchase price and record the estimated fair value of contingent consideration as a liability on the consolidated balance sheets. The fair values of the earnout arrangements are estimated by discounting the expected future contingent payments to present value using a variation of the income approach, specifically using a Monte Carlo Simulation approach. We have 9 partners with a corresponding contingent consideration liability still outstanding at December 31, 2024.","","The fair value of the contingent consideration arrangements is estimated by simulating the metrics corresponding to a payment using a Monte Carlo Simulation approach and discounting the expected future contingent payments to present value. The key assumptions used in our valuation were: (i) forecast of revenue, total insured value or number of rented units, (ii) the volatility associated with the revenues, total insured value or number of rented units, (iii) risk-adjusted discount rate applied to forecasted revenues, total insured value or number of rented units, and (iv) the credit-adjusted discount rate related to the payment of the contingent consideration. These estimates are influenced by many factors, including historical financial information, guideline public company data, and management's expectations for future revenue of the acquired businesses, total insured value and number of rented units, as well as market conditions, economic conditions and the company\u2019s performance. Changes in these inputs could have a significant impact on the fair value of the contingent consideration liability.","","We review and re-assess the estimated fair value of contingent consideration on a quarterly basis, and the updated fair value could be materially different from the initial estimates or prior quarterly amounts; however, the fair value of contingent consideration liabilities becomes less uncertain as partners approach their respective measurement dates. Any changes in the estimated fair value of contingent consideration and adjustments to the estimated fair value related to unobservable inputs will be recognized within change in fair value of contingent consideration in the consolidated statements of comprehensive loss. We recognized a $4.9 million benefit related to the change in fair value of contingent consideration in 2024.At December 31, 2024, we recorded $145.6 million of contingent consideration liabilities related to the 9 contingent consideration arrangements still outstanding and the total potential maximum of the remaining contingent consideration payments is $268.8 million. If all remaining revenue, insured value, and rented units targets were to be achieved, our partners would be entitled to payments of up to $258.8 million in calendar year 2025 for achieving targets through September 30, 2025; and $10.0 million in calendar year 2026 for achieving targets through September 30, 2026. If the actual achievement of contingent consideration payments in 2025 through 2026 was at the maximum target amounts, we would record an additional $123.2 million of expense over the next two years."]]
[[/GREPCENT_TABLE]]

76

[[GREPCENT_TABLE]]
[["Description","","Judgments and Uncertainties","","Effect if Actual Results Differ from Assumptions"],["Valuation Allowance for Deferred Tax Assets"],["We record a tax provision for the anticipated tax consequences of the reported results of operations. We compute the provision for income taxes using the asset and liability method, under which deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, and for operating losses and tax credit carryforwards. We measure deferred tax assets and liabilities using the currently enacted tax rates in each jurisdiction that applies to taxable income in effect for the years in which those tax assets are expected to be realized or settled. We are required to establish a valuation allowance for deferred tax assets and record a charge to income if it is determined, based on available evidence at the time the determination is made, that it is more likely than not that some portion or all of the deferred tax assets will not be realized.","","Our evaluation of the realizability of the deferred tax assets contains uncertainties because it requires management to make assumptions and to apply judgment to estimate future taxable income or loss. Many variables go into estimating future taxable income or loss, including estimates of our future revenue growth and management's expectations of ongoing investments. Our evaluation also requires management to consider significant, objective evidence to determine if it is more likely than not that we will be able to realize our deferred tax assets in the future. Considerations include recent results of operations, projected future taxable income, tax-planning strategies, potential changes in tax law and rates, and future reversals of existing taxable temporary differences.","","During the last three years, we have not made any changes in the accounting methodology used to evaluate the realizability of the deferred tax assets.We review and re-assess our cumulative three-year loss before income taxes on a quarterly basis. Deferred tax assets have been reduced by a full valuation allowance at December 31, 2024 due to a determination that it is more likely than not that all of the deferred tax assets will not be realized based on the weight of all available evidence.If we had concluded that it was more likely than not that the full deferred tax assets will be realized, our valuation allowance would have been reversed and we would have recognized deferred tax assets of approximately $169.1 million, before indirect tax considerations, on our consolidated balance sheet at December 31, 2024. If we did not have a valuation allowance established, we would have recognized an income tax benefit of approximately $3.1 million, before indirect tax considerations, for the year ended December 31, 2024."]]
[[/GREPCENT_TABLE]]

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