Q1 2022 Hagerty Inc Earnings Call

adoption rate on new insurance policies to 76%.

Insurance policies to 76%.

Earned premium grew 41% to 89 million, driven by new written premium growth, policy retention, and a 10-point increase in our US contractual reinsurance quota share to 70%.

Earned premium grew 41% to $89 million driven by new written premium growth policy retention and a 10 point increase in our U S contractual reinsurance quota share to 70%.

Revenue per paid member increased 21% year over year to $134 compared to $111 in the prior year period.

Revenue per paid member increased 21% year-over-year to $134 compared to $111 in the prior year period.

Total written premium grew $655 million compared to $134 million in the prior year period.

Total written premium grew 655 million compared to 134 million in the prior year period.

Loss ratio remains stable year over year at 41%.

Loss ratio remained stable year over year at 41%.

We continue to benefit from higher contractual insurance revenue from our increasing quota share strong organic premium growth and new revenue sources from our distribution relationships media partnerships owned events and haggerty garage and social locations.

We continue to benefit from higher contractual insurance revenue from our increasing quota share, strong organic premium growth, and new revenue sources from our distribution relationships, media partnerships, owned events, and Hagerty Garage and social location.

Importantly, our Q1 2022 performance reflects typical seasonality of our business.

Importantly, our Q1 2022 performance reflect typical seasonality of our business.

Historically, written premium, new business count, revenue and operating income levels are at their lowest levels in the first quarter relative to the second, third and fourth quarters.

Historically written premium new business count revenue and operating income levels are at their lowest levels in the first quarter relative to the second third and fourth quarters.

Given our predominant North American footprint, our results track with enthusiast car sales and events, which historically are greatest in the late spring to early fall, the driving season. We have provided details to illustrate.

Given our predominant north American footprint, our results track with enthusiast car sales and events, which historically are greatest in the late spring to early fall.

The driving season.

We have provided details to illustrate this dynamic.

Turning to profitability for the first quarter of 2022, we reported an operating loss of 13 million $5 1 million in 2021, reflecting expected higher digital advertising costs higher amortization expenses related to software development and acquired.

Turning to profitability for the first quarter of 2022, we reported an operating loss of $13,005.1 million in 2021, reflecting expected higher digital advertising costs.

higher amortization expenses related to software development and acquired media and entertainment assets.

Yeah and entertainment assets.

and higher scaling expenses related to the State Farm and Hagerty Marketplace launches.

And higher scaling expenses related to the state farm and heavy marketplace launches.

Scheduled for later this year.

As previously discussed, these expenses include substantial pre-revenue costs for the design, development, and integration of new digital platforms with new and existing internal and distribution partner legacy insurance management and agency reporting systems.

As previously discussed these expenses include substantial pre revenue costs for the design development and integration.

New digital platforms with new and existing internal.

And distribution partner legacy insurance management and.

In agency reporting systems.

Net income for the quarter was $15.8 million versus a net loss of $6.8 million a year earlier.

Net income for the quarter was $15 8 million versus a net loss of $6 8 million a year earlier.

while GAAP earnings per share was $0.33 based on our weighted average shares of class A common stock outstanding.

While GAAP earnings per share was <unk> 33.

Based on our weighted average shares of class a common stock outstanding.

In the first quarter of 2022, we recorded a fair value gain of $31 7 million related to our private and public warrants.

In the first quarter of 2022, we recorded a fair value gain of $31.7 million related to our private and public warrants.

which are required to be treated as liabilities versus equity and marked to market under GAAP.

Which are required to be treated as liabilities versus equity and mark to market under GAAP.

Adjusted earnings per share was $0.04, which was lower than GAAP earnings per share due to the inclusion of issued and outstanding Class D common stock, along with our unexercised warrant.

Adjusted earnings per share was <unk>, which was lower than GAAP earnings per share due to the inclusion of issued and outstanding class V common stock.

Along with our unexercised warrants.

Our adjusted EBITDA was a loss of $6 million for the first quarter compared to $1 million of adjusted EBITDA in the prior year period.

Our adjusted EBITDA was a loss of $6 million for the first quarter compared to $1 million of adjusted EBITDA in the prior period.

driven by the aforementioned incremental cost incurred in the first quarter of 2022.

Driven by the aforementioned incremental costs incurred in the first quarter of 2022.

We believe adjusted EBITDA is an important supplemental measure of operating performance on a consistent basis as it removes the impact of items, which are nonrecurring and not the direct result from our core operations.

We believe adjusted EBITDA is an important supplemental measure of operating performance on a consistent basis as it removes the impact of items which are non-recurring and not the direct results from our core operation.

Our contribution margin or the amount of total revenue that exceed variable costs and is available to pay fixed cost <unk> reinvest in growth was 22% at quarter end March 31.

Our contribution margin, or the amount of total revenue that exceeds variable costs and is available to pay fixed costs and or reinvest in growth, was 22% at quarter end March 31st.

We use contribution margin to analyze the relationship between cost.

We use contribution margin to analyze the relationship between costs.

volume and profit as revenue grows.

<unk> and.

And profit as revenue grows.

We are reaffirming our full year 2020 to outlook for the metrics, we provided on our prior call.

We are reaffirming a full year 2022 outlook for the metrics we provided on our prior call.

In addition, we are providing historical quarterly financial metrics in our investor supplement, which we believe will assist investors and the analyst community in understanding the seasonality of our business given our geographic footprint.

In addition, we are providing historical quarterly financial metrics and our investor supplement.

Which we believe will assist investors and the analyst community and understanding the seasonality of our business given our geographic footprint.

We have also provided paid and unpaid member count by category along with definitions to help investors more fully understand how we categorize members.

We have also provided paid and unpaid member count by category, along with definitions to help investors more fully understand how we categorize members.

Thank you, and I will turn it back to McKeel for final closing comments.

Thank you and I'll turn it back to Mikael for final closing comments.

Thanks, Fred. In closing, I am tremendously proud of what we have accomplished at Hagerty. We believe our value proposition is clearly resonating in the market, bolstered by our team's talent and our unyielding drive to offer best-in-class value-added services to our members. I'm very excited for our future and confident in our ability to continue to expand our ecosystem for car enthusiasts while delivering long-term value for our shareholders. Thank you again for joining us today. Onward and upward.

Thanks, Fred and closing I am tremendously proud of what we've accomplished in aggregate. We believe our value proposition is clearly resonating in the market bolstered by our team's talent and our unyielding drive to offer best in class value added services to our members I'm very excited for our future and confident in our ability to.

<unk> to expand our ecosystem for car enthusiasts, while delivering long term value for our shareholders. Thank you again for joining us today onward and upward.

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment it may be necessary to pick up your handset before pressing the star key. One moment please while we poll for questions.

Thank you we will now be conducting a question and answer session. If you would like to ask a question. Please press star.

One on your telephone keypad, a confirmation tone will indicate your line is another question queue you.

You May press Star two if you would like to remove your question from the queue.

For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star one.

Please while we poll for questions.

And gentlemen, there are no questions coming from my end.

Okay. Thank.

Okay, thank you. If there are no further questions, we have had a few questions that have come to us about a couple of general themes, so I'm going to sort of ask them and then we'll answer them. The first one that seemed to come in is, can you provide us with an update on the State Farm Partnership? Are you still on track for the Q4 2022 launch and any updates on the economics?

Thank you.

There are no further questions we have had a few.

Questions that have come to us about.

A couple of general theme, so I'm going to I'm going to sort of ask them.

And then we'll answer them the first one.

That seemed to come in is can you provide us with an update on our state farm partnership is still on track for the Q4 2002 launch and any updates on the economics.

And I'll take that one. First of all, we're really excited about the State Farm Partnership. It's huge for us. It's a long-term relationship, a long-term commitment, 10 years. They were a big investment. That investor in the pipe and their CEO is singing our board. We are still on track to get the relationship up and running later this year.

And I'll I'll take that one.

First of all we're really excited about the state farm partnership it's huge for US. It's a long term relationship a long term commitment 10 years, they were big investments that investor in the pipe and their CEO is sitting in our board.

We are still on track to get the relationship up and running.

Later this year with the.

the bulk of the first phase of that big block of business that will be coming to us starting to roll in in 2023.

The bulk of the first phase of that.

Big block of business that will be coming to us starting to roll in in 2023.

It's a very large growth opportunity for us with an estimate at the end of 2021, 460,000 policies, very significant for us.

It's a very large growth opportunity for us with an estimated at the end of 2021 460000 policies very significant for us.

and that there are no changes in the economics. So the exciting thing is that it's coming, the number of policies is larger than we thought, and we'll be excited to accelerate the conversion in the time period ahead.

And there are no changes.

Economics. So the exciting thing is that it's coming the number of policies is larger than we thought and we'll be excited to accelerate the conversion and the <unk>.

Time period ahead.

The second question that came in is, with 1Q22 in April now behind us, how comfortable are you with your overall 22 guidance? Fred, do you want to? Yeah, happy to take that, Mikheil. Thank you. Yeah, Q1 results put us on track to meet our 2022 full-year guidance, so we feel pretty good about that. We remain focused, however, on executing our plans to meet that guidance as we move forward throughout 2022. We're happy with the results thus far. Thank you.

Second question that came in is with.

<unk> 22 in April now behind US how comfortable are you with your overall 'twenty two guidance Fred do you want to yeah happy to take that material. Thank you.

Yes, Q1 results put us on track to meet our 2022 full year guidance. So we feel pretty good about that.

We remain focused however on executing our plans to meet that guidance as we move forward throughout 2022.

We're happy with the results thus far.

Yeah.

And I think kind of finally for us here today is this one was excluding state farm. How do you feel about general business trends particularly given more economic uncertainty including higher inflation and higher interest rates?

And I think kind of finally for US here today is.

This one was excluding state farm, how do you feel about general business trends.

Particularly given more economic uncertainty, including higher inflation and higher interest rates.

Well, we recognize here that, of course, no business is immune to.

While we recognize here that of course, no business is immune to.

But I've been sitting in my seat since the early 2000s. We've been through a lot of different kinds of cycles, a lot of different downturns economically.

But I've been sitting in my seat since the early two thousands we've been through a lot of different kinds of cycles. So a lot of different <unk>.

<unk> economically.

The first one was the dot-com crash in the early 2000s, followed by the economic crisis. We've had a lot of...

First one was the dot com crash in the early two thousands followed by the economic crisis, we've had a lot of.

catastrophic weather events, and then COVID. And what I can say in general is our business model is incredibly resilient in economic downturns.

Catastrophic weather events, and then Covid and what I can what I can say in general as our business model is incredibly resilient in economic downturns.

both from a growth and a profitability standpoint. Specifically, as it comes to inflation, though, there are probably some, they're both headwinds and tailwinds.

Both from a growth on a profitability standpoint.

What specifically is it comes to inflation, though there are probably some that are both headwinds and <unk>.

The headwinds, as I described in my earlier comments, we see some rising loss costs when it comes to repairing vehicles, labor rates, wage pressures for all supporting businesses around the world are definitely there, transportation costs.

The the headwinds I would describe as.

As I described in my earlier comments, we see some wise rising loss cost when it comes to repairing vehicles labor rates.

Wage pressures for all supporting businesses around the.

All are definitely their transportation costs.

that sort of thing, but you deal with that through normal pricing adjustments, which we're in the process of putting in place this year. If you follow the insurance industry, this is happening throughout property and casualty insurance, and we are in front of that. But there are also tailwinds when it comes to inflation, and this one is actually good for us, and that is the value of vehicles is up significantly. In 2021, we saw almost

Sort of thing but.

Deal with that through normal price.

Pricing adjustments, which were in the process of putting in place. This year, if all of the insurance industry. This is happening throughout property and casualty insurance and we are in.

In front of that but Theyre also tailwind when it comes to inflation and this one is actually good for us and that is the value of vehicles is up significantly in 'twenty 'twenty. One we saw almost 70% of the 40000 makes and models of vehicles that we track in our vehicle information database.

70% of the 40,000 makes and models of vehicles that we track in our vehicle information database.

our valuation tools went up in value on nearly 10 percent. So that's a very significant jump in increase in value. So for us, what that means is you

Our evaluation tools went up in value on nearly 10%. So that's a very significant jump in increase in value. So for us what that means is.

You're able to capture more premium with new business, and then very often we capture additional premium at the time of renewal by offering a higher value for people to insure their vehicles. So headwinds and tailwinds balances out both ways, but overall, our business model is incredibly resilient in difficult times.

Youre able to capture more premium with new business and then very often we capture additional premium at the time of renewal by offering a higher value for people to ensure their vehicles so headwinds in tailwind.

<unk> both ways, but overall our business model is incredibly resilient.

In difficult times.

So it looks like there may have been a question that came into the queue. Operator, did you see one that came in?

It looks like there.

May have been a question that came into the queue operator, yes sure.

Sure, we have a question from Kelly Schling, private investor, please go ahead.

Sure we have a question from Kelly Schlang private Investor. Please go ahead.

Actually, one, could you comment on what the combined ratio is year to date and what it was for the finishing last year combined ratio? And number two, what do you attribute to the erosion in the price per share that's occurred?

Actually one could you comment on what the combined ratio.

Year to date and what it was for the.

There anything.

Last year combined ratio and number two what do you attribute the erosion in the price per share.

Thats.

Yeah.

Occurred throughout the course of this year.

I'll go ahead and take the first one and McKeel, on the price erosion, we can talk through it together. On the first one, the combined ratio on the business that is written to Hagerty Re with our partners Markel in the U.S. and the U.K. and Aviva in Canada was 89.5. So 89.5 is the combined for the first quarter.

I'll go ahead and take the first one and mckeel on the price erosion, we can talk through it together on the first one the combined ratio on the business that is.

Written through Haggerty re.

With our partners <unk> in the U S and the UK and a leader in Canada.

It was 89 and a half so 89 and a half.

Is the combined for the first quarter and for last year. It was just slightly higher about 89 $8 90.

And for last year, it was just slightly higher, about 89.8, but 90.

Okay.

And then on the next question Mikael you want to take that.

And then on the next question, Keel, you want to take that? No.

Yeah, in terms of the erosion since the original listing, I think what we were seeing is an awful lot of excitement about our company going public.

In terms of the erosion since.

Since the original listing I think we were what we're seeing is an awful lot of excitement about our company going public.

especially amongst people who understood that there's a very persistent business model that underlies our business.

Amongst people, who understood that theres, a very persistent business model that underlies our business.

Now, there's not a lot of float in our stock as it spans today, and the erosion I think of very, very late is probably macroeconomic factors, people looking at it that way.

There's not a lot of <unk>.

Float in our stock as it stands today.

The erosion I think a very very latest probably macroeconomic factors people looking at us that way.

Okay.

I would like to follow up on that, if I might then, to what will you attribute the, how will you go about improving the price per share? I happen to be both a shareholder and an insurer of your organization. I'm concerned about the viability of the model if it's not reflected in the price per share.

Thank you Robert.

Brian .

And I would like to follow up on that if I might then.

What do you attribute the.

How will you go about improving your price per share.

Happy to be both a shareholder and.

And short of of your.

Integration I'm concerned about the viability of the model.

It is not reflected in the price per share.

Now, well, thank you, Kelly, and first of all, thank you for insuring your vehicles with us, and thank you for being an investor. You know, our number one focus here is to execute, which is to, you know, grow the business organically and persistently over time, and to, you know, continue building our, you know, profit in our business model along the way. We believe that what we need to be focusing on is making sure that we help build consistent

Well, thank you Kelly.

First of all thank you for sharing your vehicles with us.

For being an investor.

Our number one focus here is to execute choose to grow the business organically and persistently over time and to continue building, our profit and our and our business model along the way.

We believe that what we need to be focusing on is making sure that we build consider.

solid growth through this quarter and we hope that the market reflects favorably on that for us. But again, thank you for your business.

Solid growth through this quarter and we.

We hope that the market reflects favorably on that for us, but again, thank you for your business.

Youre right now my further question.

Yeah.

This concludes teleconference.

This concludes today's teleconference. You may disconnect your lines at this time and thank you for your participation.

You may disconnect your lines at this time and thank you for your participation.

Thank you very much. This is McKeel again. Thank you very much for being with us today. We're very excited about the year and I hope you have a good afternoon.

Thank you very much keil again, thank you very much for being with US today, we're very excited about the year and I Hope you have a good afternoon.

That do.

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