Hagerty (HGTY) 8 Nov 232023 Q3 Earnings call transcript

Greetings, and welcome to the Hagerty Third Quarter 2023 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Jay Koval, Senior Vice President of Investor Relations. Please go ahead.

Thank you, operator, and good morning, everyone, and thank you for joining us to discuss Hagerty's results for the third quarter of 2023. I'm joined this morning by McKeel Hagerty, Chief Executive Officer; and Patrick McClymont, Chief Financial Officer.

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release and Slide filing available non-GAAP presentation. as further on press financial of X-K materials. Today's the discussion with our there, metrics Our other along contains X earnings is earnings also and forward-looking statements described

expected subject future the not and our and variety statements financial of from are about Forward-looking could actual include risks and business promises materially differ future our performance statements cause of to that uncertainties performance. to expectations. guarantees results or They are a

could contains of in X-K actual those to presentation filing. And sec.gov. The the morning's available and For Founder the refer financial I to appendix that comparable filings with this please our GAAP call metrics directly that, on affect website our most McKeel, will which reconciliations a material further our by factors and discussion of are our to measures turn also are contained results, at supplemented over of the risks our with SEC, CEO. and Relations also non-GAAP Investor that important

appreciate good and XXXX morning, taking Jay, quarter Thanks, to everyone. you our time third We join the earnings call.

to theme forth on forward services strategy their better we profitability serve the growth. From set with lot we significantly in our back, dream For months. at This people successfully planning a Haggerty, improve vehicles. are into when can our the executing and November about and But XXXX of and to celebrate enjoy we XXXX the classic owners, and they stop top driving season better. reminisce to accomplished I kind misadventures XXXX, how X,XXX XXXX At season we and members Hagerty think adventures of come. the like have month. look of need organic car are we the driving a growth products a look and is XX one Simply spring our of all we of a for perspective, the put, impacting deep about season enthusiast to that is negatively at rates without line the to but important over end high it's looks really last past

would sustained There X XX% has model we XX% Over we spend year's of the revenue delivered of we XXXX, have by and possible commitment team. our excellent during written on total last gains, the months, first EBITDA a improvement grown compared premiums not business than jumped expect scaling compounding around XXXX growth. XX% have from you would time, top execution of the too the area Fast The is dramatically we rapidly line. too and was X more nothing been $XX Technology the XX% minimal a growth. to first have year's last year great, million, flow-through looks growth million. built powerful EBITDA. year-over-year $XX These different this a bottom delivering fast. to where without great adjusted of results today, than Last the had Expense months brand. weren't and from forward XXXX adjusted at is

the opportunities. I more tech is to incremental out State drive flow-through as position into the improvement launched long-term technology in in investments this and on years. point percentage of as Importantly, even we September, at making ramped we This we an to support improve track and rollout the build additional year. are our would are been necessary the will out of strong spend deliver that coming further insurance margins thoughtfully necessary Classic our adjusted to actions the we technology implementation revenue up technology have platform over we continued online the impressive that to years. This we that taking incremental EBITDA to Farm invest point have in Hagerty over includes the coming growth the margins people program in marketplace Hagerty's profits X

the XX% resonating Let's key premium with during over into as level due revenue our results. investor The rate of And we XX% with XX% increased shown months underwriting of premium the XXXX Hagerty a written increases Hagerty revenue on few months first X X This is jumped a strong first X pressures. stable and and includes our on inflationary deck. of seeing of to risk year-to-date in and million. our grew to premiums highlights $XXX now XX% Slide dig Written risk-taking of of we're total growth entity, consumers, results proposition our our underwriting the to value the as share brand associated industry endures grew commission quota jump premium unprecedented more the earned assume double-digit and Reinsurance, capabilities. XX%

on decades are XX% We far Atlantic. rate by new a has automobiles. interactions human an our of increased membership on is as high goods, million Slide realized community extra annual of known Hagerty X. fuel our marketplace $XX subscription in award-winning largely shared was membership glove, to revenue, growth marketplace other a Club, of year and our our in fueled fosters access the an that cat growth insurance season revenue members growth and to membership months. white towing, Membership, passion business, discounts services and We members high full what member thanks business magazine, to and Drivers described XX% customer fee for and around retention. gives the believe been This built through access events revenue to flatbed during global tools $XX for largely A valuation thus experience helping through satisfaction uneventful first X by

new in Hagerty Drivers we September. regarding Stafe new arm their by policies, states program car to sell Classic-plus initial are program program administered and pleased XXXX. Finally, we are State states with the we memberships these convert to X that launched agents along move the as members Farm, will classic Club through Hagerty to begin in beginning to existing report in

now Slide XXXX increased to me to be to move to and our Let in expected total XX%. have we for again XX% now resulting expectations growth premium XX% XX% X, on growth written of revenue where

line, the bottom margin first EBITDA X we points over On months. have of the adjusted XX driven expansion

fourth and as quarter, Given expectations head for our the trajectory year-to-date are increasing into we our seasonally also the performance, small XXXX. EBITDA we

we million, adjusted For year the delivering higher we our in now to million and $XX initial guidance. XX% began EBITDA, context, than $XX anticipate $XX expecting to $XX roughly million million

with high for moved leaner, can share A- revenue. In for decade creating continuing a with began rates this when integrated year-after-year. Hagerty our we ago we becoming company we company have agreement This and of also from arrangement, the profit beyond profitable towards a journey is underwriting the more a financial evolution another quota the stronger and outcome inked into Markel right commission the that rating insurance of our to stream Excellent that recent path original are a great creating We self-fund growth announcement our strength assuming a gate. business fully AM of a more becoming premium Reinsurance. out summary, a visible are Best's of We received the

cash top summer's car flow of coming execute years with combined of Cash operating for and of to strong the drive will over initiatives continue productivity raise the future driving invest $XXX million million year-to-date long-term and to save to to culture to generation on $XXX us growth flow fuel capital flow. cash Our to us positions and on ambitions generations. our allow this

now cover more quarter call me the the turn to Patrick detail. over Let to financials third in

some and McKeel, highlights the months. you, everyone. of from X McKeel first Thank good the morning, shared

with dig new jumped business and the the acquired XX% driven grew the Membership, we written came million, quarter commissions million gains X. In results. and the written $XX bump and revenue progressive XX-point Commission to Group. robust increase by written absence $XXX due of to $X the growth XXXX quota to contingent of part share revenue Arrow due Broad quarter, X growth of XX% Slides fee to XX%. So higher of ramp total we the the premium and normalization XX% by $XXX our from online $XXX into marketplace delivered in new Earned third in Marketplace a to the the premium let's quarter premium in marketplace. of to growth revenue Hurricane growth and contractual revenue on in shown third our million in grew reinsurance powered third XXXX premium XX% retention. of the and in XX% count other ownership underwriting in million when to versus full Ian. million

members stable deliver the in underwriting and due in came described prized passion XX%, at that ratio care possessions. historical loss with to large consistent We levels. our their part to results Our

net compared a million garage million We resulted year resources public businesses. Operating of insurance, impairment an aggregate, as from to included turning the opportunities and private sale related revaluation and as These a joint DriveShare. related Now the people profit $XX of Broad decision $XX a year income the to benefited well social reported to to clear on million Group prior our a fair income XXXX, $XX we of earlier. $XX period. net grow third termination the our swing $XX delivered the $XX gain over of focus X. million, from million and our of of an the and venture profitably membership In the shown related marketplace $X and million of buying review value quarter to million increase and and million adjustment Arrow profit In to quarter profitability, third actions our on $XX warrants. of rest strategic loss to business our in Slide operating

business we XX per execute operating net growth improved of driven significantly profitable underlying margins ambitions. earnings improved A GAAP results, was stock produced $X.XX the million our on as weighted based by Class So on income share primarily the shares meaningfully outstanding. average successfully

prior was over a operating in the million. in cash quarter $XX during XX% million EBITDA Our $XX flow quarter period. the jumped to $XX And adjusted the million, third loss million $XX improvement third the year

this move on have XX. third straight me our XXXX to we revised on Slide Let now year, outlook, for increased quarter shown which the

revenue powered add in we mentioned, outlook growth million total XX% of given our top strong X.XX growth and to momentum new business, line we premium to consistently to members McKeel XX%, in as for by XX% As XXXX. XX%, increasing visible around written our are the

Moving down P&L. the

increased that we million. In $XX are We and positive million delivering again $X EBITDA $XX year. million are we exactly as maintain our for expectations do while to full a our of million have ago what to double-digit $XX a for We've XXXX. full momentum actions began return driving we year net We summary, to to line set of income able planning the been margins. swift profit implementing now top adjusted historic year expect towards out

high are us necessary the we over years. With to to and Importantly, questions. that, steps the open the call your through these rates flow growth the to of sustain let coming bottom taking line now

from with [Operator Peters comes Raymond Instructions] Greg Your James. first question

Sid is This Greg. on for

First, I on strength the believe this Hagerty a weakening of market bit the Insider from something read year. car I collectible

or So may not market just on curious your marketplace? of the how the affect results of the strength may

informed really able saw the back end as and pleased interest as publishing top of the starting people definitely it of We of top, market marketplace, of in live make weakening where car all of of we insights in in auctions about into little the to softness a selling. buying decisions kind softening at of end top we're well the August, virtually kind the and a saw Monterrey market. really And the continue to be helps think bit

continuing hold their the However, people on build remains. to their around collections resilience vehicles, to

needed business it go the can be a a going how being a going exactly larger little seeing for we're to in the build forward So volume we a really forward. that That this to we're events of what really said, delivers the sure might new end, do significant top out careful future calendar years. to slow make and bit at bit not but change of down we

or Yes, year year. the we -- for EBITDA has adjusted than sense. expected Okay. just guidance better to I the back go can come guidance what then original curious increased we makes discuss, expectations? the this And you to on compared relative in original just now, to guess, When the can

of up P&L. kind down really it's the Well, and

we what a standpoint, growth revenue from our had than a premium written is So higher expected. bit

Our what new a had is bit we count expected. business higher than

costs key take So the additional in down core insurance strength out. as is we did underlying you then the the business P&L, driver. a move And

this are of possible year the restructuring So as we benefits was restructuring first we that kept we had to not sure through. And sure the the and pushing that being as in in making guidance. make a original that disciplined quarter contemplated flowed of then

continue gave us performance, changes that discipline making we And right October of in had that and the of in strong top to the we increase guidance good the better some line tighten EBITDA. We've that confident the way the to with then on first So performance earlier now. some another a of cost the month, and on year, quarters top the the X where put consistent good feel the a on fourth And saw end -- position we're up was keeping cost structure. started, the quarter range about structure, the range what on year.

Darling & ]. with [indiscernible] Dan question, Next Partners [

State you see, on just on other the but opportunities similar Farm good the partnership, discuss that hear It's you the can pipeline? to curious, progress anything

we getting of launched were volume to continuing test work after -- work and it coming up sure with of that going to well business State large very expected of in. Yes, that the to a can you. wiring make and forward running Farm excited lot Thank and all

many the opening a vehicles open here our that help work industry sometimes definitely We're We're of We're to the existing for there we pipeline. discussions out that that's new is vehicle challenged their not of focused with these. announcing of in them think expand largest them, business. is larger that offerings our they insurance of specialty very take our expand And yet, we on results, care would that previously fact of any very, opportunities, the types and number as the some Hagerty in the even own, of but on being we're mindful We can up is we ways but category. needs. have their of distributors partners for with have of other working thought

it about we're to feeling about the talking list quite So the maybe names in forward good additional some and year. look on coming

which collectible than so will? guys you classic enthusiastic compares example, get that collectibles, of And but the the you sure if loss I'm curious profile to cars your portfolio? being more level, probably their them try to track classic terms how between maybe see loss cars price And do extent volatility, I not but or for the Interesting. to you you in in ratio volatile cars, just this, ratio and

X through several period been in right have on beauty No. our -- stability to had coming biggest levels. year, our in side, the our very returned those the expectations. historic claims previous physical the and the in worst And due that results underlying to The calls, some really damage car time, we main And at ratios collectible part a It's of the discussed due remain real on Obviously, is last vintage steady largely business, to of is volatile it year, business X-year the kind loss of liability of this really all. it. in of not which fact, pandemic liability classic of years landing cars.

loss So comes this when steady, anything this is volatility. proving think would And year steady business a I it very ratio. look nicely. of book like that's that And to out

that I so curious some know Yes, trends collective. do severity classics seen the And the given is classics, to at particularly you ratio this if there But in that the year. -- but how segment. share the on more clear all? similar loss But I'm just you... profile market definitely, we've have

make to question. want I'm understanding the just sure I

there of differentiation a vehicles of market. between of our We we at that of and what coming have is new book. years. post seeing mostly XX business cars. the more volumes that's earlier time more from yes, of we all of collector And are and call that this pre-XXXX. look or and business consumer we've -- more we're talking total It's a lesser about those XXXX kind -- almost a vintage stable in been we've in larger the our big lot and just we it mean, I demand make collectible our because So And newest from lot part penetration classic addressable standpoint, segment. way that The in vehicle And it's spent we a segment. market. business And while a are cars, for XXXX

not segment doesn't hey, It to the so collectible. enthusiast car. an And renewing have is book one vehicles. no to generically that That that that a year bulk in of to big word anything. the the car this to business, say, world enthusiast We is newer is use classic every it. -- I used refer out refer We older as

as So to performing vehicles. for well. that us, very, too, is enthusiast we very refer And it,

Of sometimes. course, vehicles post-XXXX, these as as new might think we not are

hope with those terms. both just clarify happy answering, trying we're segments. So I'm that's of I to

[Operator Instructions] Next JPMorgan. question comes from Pablo Singzon with

is, to market, insurers first question large states? is business customers or seeing Hagerty's certain the disruption personalized increases right, So it's broader not write influenced under business write whether the what by in new to to ability extent in going renewals

it's Pablo, Patrick.

want So sure got make to I I just it.

I ability challenging asking, implications So and think write... what you're it's has for market auto that for standard our to broader a

-- you it recognizing right, and different a be that same that interconnection you To there there. these might the have the with there's but book, distributors, still you is institutions, some some extent partner

it. Got

I just want to...

Pablo So auto. has asking I was standard is that disrupted think implications for market what

with Pablo? We our Is have implications are Does each fair, grow ability for partnership to them. that with in that of these.

exactly That's right.

Yes.

Okay.

years really And almost So no, X and long. the has disruption been it's a question. good

with XXXX. old reacting to in access own certain about said, for big we're big, and but open in book. business whether changes saw agency focused own with states results But where still the on about the talking -- agents their of We let's even market businesses companies, our They're agents, in be work very, classic like very manage were just to companies how loss the in their they're to captive it. that year been grow. That being like agency last markets definitely They're growth. still them their big ratios we've need availability trying So partners They're clear about those worried California. some California.

them. where spot companies kind So to in struggling big a been many agents of of are the of for some and maintain, we've cases, kind their bright

is refer as then so And year it we omnichannel, points. out kind and growth larger flow-through all -- to agent big get and our direct broker I where this we distribution our partnerships we're lines, across break even of we all and of business. the those

So business and it's us. for for -- we're going it's open well

you helpful, the just assuming sharing on social. I And That's sales kind have question, tiny, guess, it. are these can going provide go-forward Got McKeel. impact that second CLS on on then any not business What perspective profitable those impact of right? forward? of drive under the EBITDA, the heavily but I'm Garage will

Yes.

You'll there charge see and share were the we it to social took loss related garage we charge on drive those, restructuring $X accretive that took just and will be disclosure, EBITDA. or both and million that was marked divestiture a to making, so

had, then I And question Patrick. maybe the last Okay. you, for

maybe how you for can investable of right? you you what getting? assets sort what some are on Halyard run have much perspective rate about on give investment So sheet? income And or hoping balance the Just looks cash yields just talk has,

and X.X%. it And in easiest -- of cash earning restricted we look about heavily The within unrestricted, of you're invested the Hagerty at assets. it's just is and $XXX that focus are right Re Yes. cash-like but in RE, neighborhood within both now, Hagerty on the means think to worth and million X%, it's way instruments the

what so that now, is. going -- will run give for to things current with And stick rate the like. are cash And you we're sense that then

can you our around, straightforward what simple earn calculate rate So be. to now. very able bounces It's right run earnings cash do be what would and

like at closing for to to further turn floor the no over this McKeel I time. are would comments. There questions

questions. Thank in you, thanks continued and And who Hagerty. asked your for you for to interest of you operator, and those thank support all

business stride buy, and protect, a highly sell vehicles. and as just unique we our high-growth have continue profit insurance is consumers Commissionable membership distributor hit prized its We a is the help beginning that model as their and supported growth omnichannel driver sustained enjoy be will differentiated revenue backbone primary to our proposition of through double-digit for given expectations distribution. a to by Hagerty

costs the underwriting profits stable in by but more is as and its allow encouraged year stack towards strong results. full capture the to will us and of to our profitable marketplace our from results infancy, deliver growth our controlling and destiny very we're ability Our frictional move insurer and a first reducing

call. us delivering our mid-teens have we members We rigor create for share consistent things growth of the value over good over stop the earnings is Thanks allowing and all have to our again these on last shareholders next high to ambitions financial results Until you years. over we that team premium rates and on written at And delivered never the year Hagerty, last to coming more will low come line decade. the growth, our XXXX to with the fund driving. growth then, implemented thoughts in amazing maintain bottom the are while to excited

This concludes teleconference. today's

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