Baldwin Insurance Group Inc (BWIN) 2020 Q4 法說會逐字稿

Greetings. Welcome to BRP Group Fourth Quarter 2020 Earnings Call. (Operator Instructions) Please note, this conference is being recorded.

I will now turn your conference over to Austin Rock, Director of Strategy and Partnership. Thank you. You may begin.

Thank you, operator, and good afternoon.

By now, everyone should have access to our earnings announcement and slide presentation, which was released prior to this call and which may also be found on the Investor Relations portion of our website at baldwinriskpartners.com.

Before we begin our formal remarks, a reminder that part of our discussion today may include forward-looking statements, which are based on the expectations, estimates and projections of management as of today. The forward-looking statements in our discussion are subject to various assumptions, risks, uncertainties and other factors that are difficult to predict, and which could cause actual results to differ materially from those expressed or implied in the forward-looking statements.

These statements are not guarantees of future performance, and therefore, undue reliance should not be placed upon them. We refer all of you to our recent filings with the SEC, including our Form 10-K filed today for a more detailed discussion of the assumptions, risks, uncertainties and other factors that could impact the future operating results and financial condition of BRP Group, including those related to the potential effects of the COVID-19 pandemic on our business, financial condition and results of operations. We disclaim any intentions or obligations to update or revise any forward-looking statements except to the extent required by applicable law.

Also, our discussion today will include references to certain non-GAAP measures. A reconciliation of these measures to the most comparable GAAP measure can be found within the earnings announcement and earnings supplement slide presentation, both posted on our website at ir.baldwinriskpartners.com or in our SEC filings. In addition, this call is being webcast, and an archived version will be available after the call on the Investor Relations portion of our website.

With that, I will now hand the call to Trevor Baldwin, Chief Executive Officer of BRP Group.

Thanks, Austin, and good afternoon, everyone.

Welcome to our fourth quarter 2020 earnings call. We appreciate your taking the time to join us and your interest in BRP Group. During today's call, I'll provide some brief highlights on our accomplishments during the quarter and for the full year. Brad will then provide a more detailed review of our Q4 and fiscal year 2020 results. And Kris will wrap up with a few quick comments on our balance sheet and certain expectations regarding our outlook for the future. We'll then open up the line for questions.

In summary, we had another fantastic quarter in Q4 to cap a phenomenal year, in which we believe we firmly validated the power and resilience of our hybrid growth strategy and differentiated business model amidst a challenging macroeconomic backdrop. For the quarter, we recorded strong year-over-year organic revenue growth of 17% and total revenue growth of 91%, and for the full year, generated organic revenue growth of 16% and total revenue growth of 75%.

In Q4, our organic growth was again led by our Specialty segment, with MGA of the Future growing 73% during the quarter, driven by continued success in renters and the launch of our master tenant liability product, which Brad will discuss in detail in a bit.

On the partnership front, we had a successful quarter, closing 5 transactions for $155 million of annual acquired revenue, marking the most active quarter from a partnership perspective in our firm's history. And becoming the first firm in recent history to acquire 3 top 100 middle market firms in a year, which we accomplished during the fourth quarter alone. We believe that all of the firms that joined us during the quarter are of uniquely high-quality with strong track records of organic growth and bring to us incremental product and industry expertise and scale on some of the fastest-growing regions in the country. All of which will be important to delivering on our goal of generating sustained double-digit organic growth well into the future.

To our new colleagues at Insgroup, AHT, Burnham and TBM, we welcome you to BRP and are excited about your future contributions to the organization. We are a better and stronger firm as a result of your joining.

Looking ahead, in terms of number, size and the quality of opportunities, we continue to have a strong partnership pipeline and anticipate another robust 2021 on the partnership front as our story continues to increasingly resonate with potential partners.

And finally, we're excited to announce several promotions amongst the BRP leadership team. Effective April 1, 2021, Kris Wiebeck will be promoted from Chief Financial Officer to become our newly appointed Chief Strategy Officer. Kris has been a driving factor in the transformation of our business and over a 20x increase in our annualized pro forma revenue since he joined as CFO 6 years ago. This new role will allow him to focus on driving our most important strategic initiatives across the firm and positioning us for success in what we anticipate will be a transformational decade for the insurance industry broadly.

Next, Brad Hale will be promoted to Chief Financial Officer transitioning from his prior role of Chief Accounting Officer. Brad has done a tremendous job for us since joining prior to the IPO. And we expect this to be a smooth transition for him and the team with his continued involvement with our finance and accounting activities.

To round it out, Corbyn Galloway, currently our Director of Accounting, will become our new Chief Accounting Officer. Like Brad, Corbyn joined us in May 2019 prior to the IPO, and has worked closely with him to drive the success of our accounting team. She is a tremendous asset to BRP, and we are thrilled to welcome her to our executive team.

In closing, we're exceptionally proud of the performance we were able to generate in 2020. None of which would have been possible without the tremendous efforts and hard work of our colleagues who worked tirelessly to deliver for our clients amidst a challenging environment. To all of our colleagues, a huge thank you. You are the reason our business is in the strongest position it has been in the firm's history.

With that, I'll turn the call over to Brad to go into more detail on our Q4 and full year 2020 results.

Thanks, Trevor, and good afternoon to everyone on the call.

For the fourth quarter, we generated revenue growth of 91% to $69.6 million, and for the year, we delivered revenue growth of 75% and to $240.9 million. The revenue growth was driven once again by our hybrid growth model, namely organic growth combined with contributions from new partnerships.

As Trevor mentioned, we once again generated double-digit organic revenue growth on a year-over-year basis, recording 17% organic growth for the quarter and 16% organic growth for the year, thanks to solid performance across all of our operating groups and particularly strong performance from our specialty segment driven by the MGA of the Future. Given that partnerships are an important portion of our ongoing growth strategy, in our regulatory filings, we also provide revenue metrics on an unaudited pro forma basis. This provides investors with a more apples-to-apples comparison as if our 2020 partnerships have been acquired on January 1, 2020.

For the fourth quarter of 2020, unaudited pro forma revenue was $94.4 million, up 158% from the prior year. For the full year, unaudited pro forma revenue was $426.2 million, up 179% from 2019. Unaudited pro forma information should not be relied upon as being indicative of the historical results that would have been attained if the partnerships had occurred on that date nor the results that may be obtained in the future.

GAAP net loss for the fourth quarter was $19.1 million or $0.29 per fully diluted share. GAAP net loss for the full year was $29.9 million or $0.58 per fully diluted share. Adjusted net income for the fourth quarter of 2020, which excludes share-based compensation, amortization and other onetime expenses, was $4.9 million or $0.06 per fully diluted share. For the full year, adjusted net income was $32.4 million or $0.44 per fully diluted share. A table reconciling GAAP net income to adjusted net income can be found in our earnings release and our 10-K filed with the SEC.

Adjusted EBITDA for the fourth quarter of 2020 rose 79% over the prior year period to $10.6 million. Adjusted EBITDA margin was 15% for the fourth quarter of 2020. Compared to 16% in the prior year period, in line with expectations communicated on our Q3 earnings call. Adjusted EBITDA for the full year grew 54% over the prior year to $44 million. Adjusted EBITDA margin was 18% for the full year.

As a reminder, our adjusted EBITDA margin were seasonal in nature, with Q1 being the strongest quarter. We usually record lower margins in the second half of the year with Q4 being our seasonally lowest margin quarter.

Additionally, as we do every quarter, in the earnings supplement available on our IR website, we have updated the quarterly pro forma financial statements to reflect the partnerships we closed in the fourth quarter as if we had owned those businesses since the beginning of the year, which increases the revenues in quarters 1 through 3 versus what we presented last quarter. As a reminder, the pro forma financials we present are not projections of future performance. Additionally, results for our individual operating segments can be found in the earnings supplement as well.

Our MGA of the Future platform continues to outperform, growing 73% during the quarter compared to the prior year period. As Trevor mentioned at the outset, the results were driven by continued growth in renters and was incrementally bolstered by the broad launch and initial success of our master tenant liability policy product, which allows property managers to mitigate risks from tenants that chose not to purchase a traditional HO4 renter's policy. Note that the 73% organic growth includes a cumulative catch-up of 10% as a result of the Q4 2020 contract establishment date from previously satisfied services. We would note that without the impact of the launch of our master policy product, organic growth of the MGA of the Future when compared to the prior year period was approximately 40%, which is in line with the results we've seen quarterly throughout 2020.

With the addition of the incremental products we already have and plan to launch over the course of the year, we anticipate being able to maintain an approximate 40% revenue growth rate in the MGA of the Future for the full year in 2021, even if the business continues to scale.

Ultimately, in what is typically our lightest quarter for the MGA, policies in force increased by over 24,000 from September 30, 2020. As of March 10, policies in force have increased further to over 547,000. We've also made nice progress adding new units to our ecosystem and turning on buildings within our distribution footprint. As of March 10, we now have over 17 million units within our property management software provider and property manager ecosystem, up from the 15 million we have communicated since the IPO as a result of new client wins for both us and our distribution partners. Within that ecosystem, we also successfully turned on over 2 million units in 2020. As of March 10, our turned on count stands at 8.2 million units versus 5.6 million units at the end of 2019.

In summary, we continue to be bullish on the MGA in terms of its ongoing sustainable contributions to our organic revenue growth, driven by continued growth in renters, the continued build-out of a holistic suite of products from the habitational real estate sector and distributed through our existing middle market client base. And the pending rollout of our private flood and homeowners' insurance products.

With that, I'll now turn the call over to Kris.

Thanks, Brad, and good afternoon to everyone on the call. A few closing remarks before we had Q&A.

As most of you are aware, we successfully raised $249 million of primary equity proceeds in our December follow-on offering. Allowing us to fund our partnership activity in Q4 and delevering the balance sheet ahead of what we anticipate will be a robust 2021. Pro forma for the completion of the equity offering and the closing of our Q4 partnerships, net leverage stands at 2.8x and we maintained $480 million of capacity between cash on hand and our full $400 million revolving credit facility to execute on our 2021 partnership pipeline.

As we've said before, we continue to believe that 3.5 to 4x leverage is a prudent run rate for our business. And we'd be comfortable taking leverage opportunistically, up around the 4.5 area in the wake of a larger transaction. Looking ahead, as the economy continues to recover from the COVID-19 pandemic amidst positive vaccine developments, we are hopeful for material improvements in the business environment over the course of 2021. As such, and given strong performance across our business in January to start the year, as we sit here today, for Q1, we feel confident in our ability to generate organic growth on the higher end of our longer-term 10% to 15% double-digit organic growth goals. Additionally, given seasonality, we expect margin in Q1 to be back to a similar level of the prior year, above 30%.

For the full year, we plan to continue investing in the organic growth of the business. However, as it stands today, we would expect 100 to 200 basis point increase in the adjusted EBITDA margin above last year's 18%. We continue to feel good about the $120 million to $150 million of annualized acquired revenue for the year and would reiterate that we expect at least 90% of those transactions to close in the quarters 2, 3 and 4. As a reminder, the exact timing of partnerships is subject to change.

And then finally, another reminder that it typically takes 12 to 18 months for us to begin to realize full pro forma EBITDA from partnerships, particularly larger partnerships as we work to integrate them into the broader BRP platform.

In summary, we are excited about our results during the quarter and for the full year. The momentum we have carried into the start of 2021, and for what we believe will be another very strong year on the partnership and organic growth front. I would echo Trevor's thank you to our colleagues who have been the driving force for the continued success of the business and have put our business in the best position we've ever been.

With that, I thank you for your time. We'll now open the call for Q&A. Operator?

(Operator Instructions)

Our first question is from Greg Peters with Raymond James.

Before I start with my questions, congratulations on the promotions. And Brad I have to say you did a flawless job in reading your scripts, you're off to a good start.

Thanks, Greg.

So first, let's talk about the organic revenue growth results. And specifically, the MGA of the Future clearly is driving the consolidated results. Can you talk a little bit about how the middle market is progressing and perhaps Mainstreet and Medicare as well?

Yes. Greg, this is Trevor. So as you articulated, the MGA of the Future had just a fantastic quarter in Q4 at over 70% growth. Propelled by the launch of our new master tenant liability product. With that being said, I think when we look at the full year results relative to the overall economic and operational environment, we're really pleased with the results of all of our segments. And so outside of specialty, you'll see that we had mid-single-digit organic growth.

You'll also recall in the third quarter that we had guided towards the lower end of our target, 10% to 15% organic growth range for the fourth quarter. And that was a result of anticipated exposure unit rightsizing in our client base, particularly on the employee benefit side as businesses took action as it became clear that there was not going to be a fourth quarter stimulus package that ultimately was passed.

So I think we've gotten through that across our business in middle market and Mainstreet, in particular, and as you heard Kris talk about in the prepared remarks, we're super excited about where we're positioned, and as a result, feel really good about delivering organic growth towards the upper end of our 10% to 15% range in Q1.

Yes. Got it. Okay. The second question I had was -- I think, Kris, in your comments, you mentioned that there could be 100 to 200 basis points of EBITDA margin expansion in '21. And I just wanted to make sure I heard that correct. And I guess I'm curious about how you're thinking about working capital needs considering the substantial growth that you reported last year and as you think about this year.

Yes. That's right, Greg. So if you look at this year, I think at year-end, we're at 18%. We're planning to invest over $30 million in the business this year. And even in the face of doing that, we think we'll get about 100 to 200 basis points increase above that 18% as we sit here today.

So from a working capital standpoint, we think we're in great shape. We've raised equity in December. We still have our whole revolver available. We still have a decent amount of cash on the balance sheet. So we think we're in really good shape going into the year. And as we said, so far in January, we've had some positive results.

Got it. The last question, one of the things that struck me as I was going through your slide deck, if you look at if you look out the earn-out potential, and like on Slide 3, you said in the third line from the bottom, the maximum contingent earn-out has now, in the fourth quarter, moved up to almost $300 million. And then if you look at those -- that number and the growth of that number and then I go down into your table 6 and look at the adjustments, if you will, or the bridge to adjusted EBITDA, we're seeing a change in the fair value of that contingent consideration.

Can you just walk us through how you're thinking with such a large contingent consideration sitting out there. How that might affect pro forma commission fees and this adjusted EBITDA bridge that you report on?

Sure. So I'll start, and then I'll let Brad provide some additional commentary.

One, I want to remind folks, the maximum contingent consideration and the earn-outs is generally at a level higher than even 20% organic growth. A lot of times, we've taken those tables to 30% or higher. So there's a tremendous amount of growth that would have to happen for those businesses to hit the maximum. And at the same time, we've delevered ourselves down, and they would have generated significantly more EBITDA at the payment of those than when they join. So I want to make sure people remember that the consideration is very much tied to fantastic performance, and we find nothing happier to pay max consideration at the end of the day. As far as some of the detail, I'll let Brad comment.

Right. So as you know, Greg, we talked about this before. On day 1 of that partnership, right, you're reporting a fair value of that contingent consideration, which has to contemplate any number of scenarios, in fact, all scenarios that could occur with that business. You get a significant discounting factor, both in terms of what's going to happen in that business over 3 years and the time value of money.

So what we're seeing is, particularly as we have a larger base of contingent consideration, our mark-to-market each quarter is sometimes substantial, which is why we are calling it out and adding it back because it makes our true GAAP net income somewhat distorted.

So to the extent that number is increasing, that's, in our mind, a good thing because it means those businesses are performing. And as we've said before, we like nothing more than to pay on the high end of contingent consideration because that means that business has grown at levels that Kris just outlined in terms of 20-plus percent organic growth.

Our next question is from Elyse Greenspan with Wells Fargo.

I also want to extend my congrats to Kris and Brad on the recent promotion. My first question, so I guess, maybe I'll start with M&A. You cited when you laid out the 2021 plan in December, you had said that you expected it to be pushed into the back 2 quarters of the year, which you reaffirm today. So we're obviously pretty close to the second quarter. So do you have a sense, just timing-wise? I know maybe it depends upon some tax changes or things like that. But when we should -- when you would expect to see some of the deals starting to come in 2021.

Yes. Elyse, this is Trevor. And thanks to the big congrats for Kris and Brad. We're really excited about their new roles and continued and future contributions to the business.

As we think about our pipeline and the broader M&A landscape, as we articulated on the call, our pipeline is very strong, and we have a number of very high-quality opportunities across the range of size. And so we feel good about our target in that $120 million to $150 million range. When it comes to timing, M&A can be lumpy and timing is subject to the nuances and vagaries of the M&A process. And so I don't want to provide kind of any specific detail there other than -- we do believe it's going to be back-end weighted as a result of the dynamics of how busy Q4 was, the time we're taking to really effectively integrate the partners this first quarter that joined us at the end of last year. And then just the dynamics in the marketplace is there was a little bit of an air pocket at the beginning of Q1 as a lot of folks that were thinking about transacting in the relative near term, pulled it forward into the fourth quarter of 2020 for tax concern reasons.

So we're excited about our pipeline and the quality of the organizations that are in it and excited about how we're going to be able to execute from a partnership strategy this year.

Okay. And then my next question. So if we look at like the organic growth in the quarter towards the high end of your expectations that you guys -- as you pointed out, exceptional growth within the MGA business. So if we neutralize for that, it does seem like the rest of the businesses did decelerate, which I imagine, there might just be some timing nuances going on that's embedded. I think you said that Q1 would be at the high end of the 10% to 15% target. So the Specialty business goes to 40% back into an implied growth in the rest of your businesses in the first quarter.

So can you just -- I'm assuming I'm correct on the outlook. And can you provide any color on why some of the segments might have contracted or seeing some pressure in the fourth quarter?

Elyse, it's Kris. I'll take that one. I mean I think as Trevor mentioned earlier, we did see some weakness, especially in the middle market, just on the employee benefit side, where I think folks had waited to make decisions until after the election season and if stimulus was going to happen, and they tried to right size getting into year-end. We haven't seen that kind of continue into January. So that's positive.

And as far as the other businesses, we talked about last year, Mainstreet had a tough start in Q1 with some contingent headwinds. By Q3 of this year, all of them had been double digit organic. So Q4 was a little lighter. January has looked good. And as we said, we expect, as we sit here today, Q1 to be on the high side of that 10% to 1%%.

Yes. Elyse, we feel like we've gained a lot of momentum into '21 across all of our businesses and feel really good about how we're positioned to continue executing on our long-term goal of consistent and durable double-digit organic growth.

That's great. And then one last one. I'm looking at the slide presentation, I guess, the supplement. And so the full year 2020 adjusted EBITDA margin was 26. I believe you said you would expect 20% in 2021. And we're assuming that delta between those 2 numbers is just essentially, the reinvestment that you pointed to in response to an earlier question, which is almost the good chunk of it. And then just the fact that it takes the 12 to 18 months for some of these businesses to scale once you've arrived...

That's exactly right, Elyse. Yes. We see an incredible opportunity to keep doubling down on investing in our business, in particular, the MGA of the Future where we're experiencing exceptional results. And so as Kris pointed out, we plan to invest over $30 million into new talent alone in addition to the technology and other investments that we're making across our business.

Our next question is from Josh Shanker with Bank of America.

And congrats in the quarter and all the good news for everybody.

I hope that you can talk a little bit. I'm interested in the relationship between the contingent payout and sales inducement programs. To what extent are sales inducement programs going to be a common feature of future acquisitions. Given the first couple of months you have here data, to what extent are your producers taking up on those opportunities? And when you set objectives, how do you sort of think about the relationship between what you're willing to pay and what you're willing to pay individual producers?

Yes. So Josh, to clarify, the inducement program is tied -- it is part of the overall consideration for an individual transaction. And so one of the unique things about our M&A program is that all -- generally all colleagues at a partner firm are receiving equity consideration as a part of the purchase price that at times we're publishing.

So the inducement plan is not separate and distinct from the purchase price that you would see published in our materials. It is a part of that. And is the way in which we put equity in the hands of the individuals that may not be owners or material owners of the business at the time of the transaction, but that we believe are going to be considerable drivers of future performance well into the future. And so we're using that to align their interests with the overall organization.

So the total price that will be paid, given perfect execution, includes that inducement cost within the price?

Correct.

Okay. And should we expect -- I mean, you put a press release out for that to explain how it works. Would you expect in the future that most deals that you're going to -- will come with an inducement component for the producers?

Yes, in virtually every deal.

Yes. Okay. And in terms of the -- you guys look at -- I think that you've done a great job of identifying great transactions. And we do talk about that business insurance top 100 list. But of course, there's many companies that don't appear that list that are attractive.

Just to get a frame, I'm not asking to disparage your competitors. But when you look at a list like that, 100 companies, how many of those companies, not particularly naming them, are great fits for a company like Baldwin if you had your choice? If money were no object and you guys would say, look, these are companies that we think are great, how many out of 100 companies are actually probably material?

I'd say my sense would be 20%, Josh.

20%. And that's based on long-term growth and culture, I guess?

That's exactly right.

And in terms of sort of your pipeline, and deal size, I don't want to give too much away. But should we expect bolt-ons to be regularly announced and large deals, of course, are something usual?

Yes. So I think that's a fair characterization of how the partnership program will continue.

(Operator Instructions) Our next question is from Meyer Shields with KBW.

Great. Thanks. I think, Trevor, you had mentioned that things were looking stronger even in some of the segments that had a little bit weaker fourth quarter. Is that improvement also on the employee benefit side? Or can you talk about what's looking better so far in 2021?

Yes, it is. And what I would tell you, Meyer, is universally across all 3 of the single-digit segments, we're seeing enhance performance thus far in 2021. I mean just to provide some specificity there. As we think about the impact of the exposure unit pullback in the first -- or in the fourth quarter, the impact on the business, the combined impact of rate and exposure was an 8% headwind. And remember, you can think about rate as being positive to the tune of high single digits even.

And so it was a pretty significant rightsizing that we were still able to grow through at 17% overall across the business. We think we've gotten most, if not all, of that kind of underlying client-level exposure unit rightsizing out now and feel really good about the momentum and the positioning of our organization, the relative new business pipelines that exist across our segments and risk advisers. And as we shared, we feel good about achieving organic growth on the higher end of our 10% to 15% target range for the first quarter.

Okay. That's very helpful. Doing some quick back-of-the-envelope math, it looks like I don't know, maybe 40% of the annual investment, I'm just looking at the margin numbers that Kris has provided, like a lot of that investment will come in Q1. Should we expect that level of seasonality because of the revenue heaviness? Is that the right way to think about the investment opportunity?

I don't know that I'd think about the investment coming that front-loaded, Meyer. I would think about it being more evenly kind of distributed across the year. Because remember, the $30-plus million is all in talent. And onboarding talent means we've got to have the resources and bandwidth to appropriately welcome those new colleagues into our organization, get them trained on our unique ways in which we go-to-market, and educated on all of the resources and capabilities that they have access to as part of our broader platform.

Okay. So understood. When you say talent that -- I assume that that's brokerage talent as opposed to IT. Am I think about that right?

It's talent across the business. So yes, a significant amount of it would certainly be brokerage talent, but it's also technology talent. It's developers. It's product management specialists in the MGA. It is HR and training and development talent to continue to bolster our ability to onboard and welcome new colleagues. It's recruiting talent so that we can continue to build our bench of recruiters that are focused on identifying high-potential individuals to come on board. So it's across the board.

Okay. That works. And I guess final question. If we're looking at 40% or so organic revenue growth on the MGA of the Future in 2021. I assume that if we look at individual quarters because the comparable in 4Q is so high, it will be higher in the earlier quarters, and then we're just lapping that more difficult one. Is that fair?

Yes. I think that's a fair characterization, Meyer.

And our next question is from Pablo Singzon with JPMorgan.

So in thinking about your organic growth guidance of 10% to 15%, I think you can easily get to that range with MSI growing 40% for at least the next several quarters. But I'm more interested in the rest of the BRP business. Is your expectation that the rest of BRP will be growing at a pace of double-digit range to support that 10% to 15% overall growth?

Yes, Pablo, what I'd say is we've always said any segment we have, we think we can grow at 10% to 15% on a longer-term period of time. Obviously, last year, we fell a little short of that in some of the segments, and last year was a tough year with some economic stuff going on. But that's not our expectation. Our expectation is that those businesses all can grow double digits.

Now obviously, the quarterly timing of that areas as these businesses are still growing immensely sometimes and they pull back a little bit. But in the long run, year-over-year, we think all those businesses can grow double digits.

Got you. And then, Trevor, based on your comments about, I guess, the headwind from exposure, is it fair to assume that the exposures you were booking, I guess, of much as apples-to-apples as you can get, right? It's never 1:1. But is it fair to then that exposures in 1Q -- Q1 better than what you're booking in the fourth quarter 2020, but probably still lower than first quarter last year? Is that sort of the right way to think about it conceptually?

Yes, I think that's right, Pablo. I mean if you think back to last year, COVID wasn't universally impacting the country until really March. And so you can think about January and February, comps really being to accounts that have renewed in a pre-COVID world, and then as you get into March and April, you can begin thinking about accounts that have renewed in a post-COVID world, but a post cover world that was awash in significant stimulus funding in QE in support of keeping businesses and jobs alive.

And then as you lap into the fourth quarter, you can think about the lack of stimulus funding that made it out to the system and businesses that maybe it held on a little bit longer finally deciding that they needed to rightsize.

Okay. And then I think last year, there was some noise in terms of negative adjustments from, I guess, exposure audits, right, midterm exposure audits. If we sort of think about going out of the trough and the economy recovering, would it be reasonably expect, I guess, adjustments on the positive side, whether this year or early next?

Yes. I think that's a reasonable expectation. Of course, subject to how quickly and how robust the economy recovers, I think, businesses are likely over -- the past year, they've learned how to do more with less. And I think a lot of organizations would tell you that they've learned how to be a lot more efficient. I mean we've seen it in our public peers in our industry, as an example, with margins achieving relatively record highs across the peer group. So I'm not sure you see an immediately -- an immediate rebound because I believe businesses will look to do -- continue doing more with less broadly. But over time, certainly, I think exposure unit growth will get layered back in.

Okay. And last one for me, I was just hoping if you could contextualize for the new renters products. So any color you can share? Are the commission rates are similar? Is it part of the 70 million unit ecosystem you described? Is there an overlap with the existing rentals product to serve? Any detail you can provide that would be helpful.

Yes. So I mean, the new master tenant liability product is something the team has been working on. In fact, we've been working on a full suite of solutions to complement the overall habitational real estate ecosystem that we're serving. And so -- and the master tenant liability product is one that pairs up nicely with the integrated and embedded HO4 solution that we offer because it enables property managers to place liability-only coverage on units individuals who choose not to buy a full HO4 solution. And therefore, it's a way for those tenants to satisfy their insurance obligation without the larger HO4 product.

And as you think about kind of what impact that has for us more broadly, what we've shared in the past is building at -- maturity, you may see 20% to 30% penetration with the HO4 product. You layer in the tenant master reliability solution, and you could get to as high as 50% overall penetration on a combined basis between the two.

And just a few other, I think, stats to highlight some of the momentum we're seeing in that part of the business. We grew the overall units turned on inside the system to 8.2 million as of yesterday, which is up significantly from the 7.7 million that we ended at the end of 2020 with and the 5.6 million that we ended at the end of 2019.

And if you think about the relative penetration of those units that we've been in since the end of 2019, we've gone from 6.4% to 7.3% or a 15% growth in overall policies in force for buildings that we've been active in for over 12 months.

So we're continuing to see growing adoption and continuing to get better at marketing and offering our solution set into the buildings that we've activated and that were integrated into.

We have reached the end of our question-and-answer session. I would like to turn the conference back over to management for closing remarks.

Thank you. We appreciate all of your interest and support.

And I just want to thank our colleagues one last time for the amazing grit and perseverance that they showed throughout 2020. We're incredibly fortunate to have a uniquely talented group of colleagues. And I can tell you that we're exceptionally excited about what 2021 has in store for our business, and the opportunities for us to continue growing and innovating the industry. Thank you.

Thank you. This does conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.