Q4 2024 Hippo Holdings Inc Earnings Call
Okay.
Operator: Hello and welcome everyone to the Hippo fourth quarter 24 earnings call. My name is Maxine and I'll be coordinating the call today. If you would like to ask a question, you may do so by pressing star below by one on your telephone keypad.
Maxine: Hello, and welcome everyone to the hip I suppose cool touch when people earnings call. My name is Maxine and I'll be coordinating who today. If you would like to ask a question you may do so by pressing star led by one and you kind of think he Pat I don't know.
Mark Olson: I will now hand you over to Mark Olson, Director of Corporate Communications to begin. Mark, please go ahead when you are ready. Thank you, operator.
Speaker Change: I'll hand, you over to Mark Olson director of corporate Communications to begin Mark. Please go ahead when you're ready.
Mark Olson: Thank you operator, good morning, and thank you for joining hit those 2024 fourth quarter earnings call earlier today <unk> issued a shareholder letter announcing its Q4 and full year 2024 results, which is available at investors talk about dotcom.
Mark Olson: Good morning, and thank you for joining Hippo's 2024 fourth quarter earnings call. Earlier today, Hippo issued a shareholder letter announcing its Q4 and full year 2024 results, which is available at investors.hippo.com.
Mark Olson: Reading today's discussion will be Hippo President and Chief Executive Officer Rick McCathron and Chief Financial Officer Stewart Ellis. Following management's prepared remarks, we will open up the call to questions. Before we begin, we'd like to remind you that our discussion will contain predictions, expectations, forward-looking statements, and other information about our business that are based on management's current expectations as of the date of this presentation. Forward-looking statements include, but are not limited to, Hippo's expectations or predictions of financial and business performance and conditions and competitive and industry outlook. Forelooking statements are subject to risks, uncertainties, and other factors that could cause our actual results to differ materially from historical results and or from our forecast, including those set forth in HIPPO's Form 10-K file today.
Speaker Change: Leading today's discussion will be <unk>, President and Chief Executive Officer, Rick Mcafee, and Chief Financial Officer Stuart Atlas. Following management's prepared remarks, we will open up the call to questions.
Speaker Change: Before we begin we'd like to remind you that our discussion will contain predictions expectations forward looking statements and other information about our business.
Speaker Change: Just on management's current expectations as of the date of this presentation.
Speaker Change: Forward looking statements include but are not limited to hit those expectations or predictions of financial and business performance and conditions and competitive and industry outlook.
Speaker Change: Forward looking statements are subject to risks uncertainties and other factors that could cause our actual results to differ materially from historical results and order from our forecast, including those set forth in Naples Form 10-K filed today.
Mark Olson: For more information, please refer to the risks, uncertainties, and other factors discussed in HIPPO's SEC filings, in particular, in the section entitled Risk Factors in our Form 10-K. All cautionary statements are applicable to any forward-looking statements we make whenever they appear. You should carefully consider the risks and uncertainties and other factors discussed in HIPPO's SEC filings. Do not place undue reliance on forward-looking statements, as HIPPO is under no obligation and expressly disclaims any responsibility for updating, offering, or otherwise revising any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law.
Speaker Change: For more information please refer to the risks uncertainties and other factors discussed in Hippos SEC filings in particular in the section entitled risk factors in our Form 10-K.
Speaker Change: All cautionary statements are applicable to any forward looking statements, we make whenever they appear you should carefully consider the risks and uncertainties and other factors discussed in hippos SEC filings do not place undue reliance on forward looking statements I'd say <unk> is under no obligation and expressly disclaims any responsibility for updated offering.
Speaker Change: Otherwise revising any forward looking statements, whether as a result of new information future events or otherwise except as required by law.
Mark Olson: During this conference call, we will also refer to non-GAAP financial measures such as total generated premium and adjusted EBITDA. Our GAAP results and description of our non-GAAP financial measures with full reconciliation to GAAP can be found in the fourth quarter 2024 shareholder letter, which has been furnished to the SEC and is available on our website.
Speaker Change: During this conference call. We will also refer to non-GAAP financial measures such as total generate premium and adjusted EBITDA, Our GAAP results and description of our non-GAAP financial measures with full reconciliation to GAAP can be found in the fourth quarter 2024 shareholder letter, which has been furnished to the SEC and is available on our website.
Rick McCathron: And with that, I'll turn the call over to Rick McCathron, our president and CEO. Thank you, Mark. And good morning, everyone. Thank you for joining us.
Speaker Change: And with that I'll turn the call over to Rick Mckenney, Flynn, our president and CEO.
Speaker Change: Thank you Mark and good morning, everyone. Thank you for joining us.
Rick McCathron: Before we get into our Q4 and full year 2024 results, I wanted to take a moment to acknowledge the pain the community of Los Angeles has felt in January because of the wildfires and our role as an insurance company to help alleviate that pain. A handful of our Hippo homeowners, customers, and their families completely lost their homes to the fires. We responded immediately with assistance arranging temporary housing, accelerated payouts of policy limits, and have been working with our builder partners to explore ways to help reduce the time to rebuild. Other customers suffered partial losses and or damage from smoke and ash, and we are supporting them with both financial and operational assistance with remediation.
Speaker Change: Before we get into our Q4 and full year 2024 results I wanted to take a moment to acknowledge the pain. The community of Los Angeles has felt in January because of the wildfires and our role as an insurance company to help alleviate that pain.
Speaker Change: A handful of our Hippo homeowners customers and their families completely lost their homes to the fires. We responded immediately with assistance arranging temporary housing.
Speaker Change: Accelerated payouts of policy limits.
Speaker Change: <unk> been working with our builder partners to explore ways to help reduce the time to rebuild.
Speaker Change: Other customers suffered partial losses <unk> damage from smoking ash, and we're supporting them with both financial and operational assistance with remediation.
Rick McCathron: Because I know you are curious about the financial impact of these events, I can say that our preliminary pre-tax estimates of cap losses from these fires is approximately $42 million.
Speaker Change: Because I know you are curious about the financial impact of these events I can say that our preliminary pretax estimates of cat losses from these fires is approximately $42 million.
Rick McCathron: A few days ago, we signed a definitive agreement to sell our subrogation rights for the Eaton portion of the wildfires. So this figure is net of expected recoveries from both reinsurance, as well as subrogation, and includes the impact of the assessment from the California Fair Plan. Approximately 30 million of this amount relates to the Hippo Home Insurance Program, with the remaining 12 million related to non-Hippo programs supported by our Spinnaker Funding Business.
Speaker Change: A few days ago, we signed a definitive agreement to sell our subrogation rights for the <unk> portion of the wildfires. So this figure is net of expected recoveries from both reinsurance as well as subrogation and includes the impact of the assessment from the California Fair plan.
Speaker Change: Approximately $30 million of this amount relates to the Hippo home insurance program with the remaining $12 million related to non Hippo programs supported by our spinnaker fronting business.
Rick McCathron: The impact from these losses will be reflected in our Q1 2025 financial results. One more thing I should add is that the HIPPO portion of these losses was related to legacy HHIP policies, which we have been working to reduce our exposure to over the past few years. None of these losses related to homes we cover that came from our new homes channel, which represents a substantial majority of the new business we've been writing in California for some time.
Speaker Change: The impact from these losses will be reflected in our Q1 2025 financial results.
Speaker Change: One more thing I should add is that the hippo portion of these losses was related to legacy <unk> policies, which we have been working to reduce our exposure to over the past few years.
Speaker Change: None of these losses related to homes, we cover that came from our new homes channel, which represents a substantial majority of the new business, we've been writing in California for some time.
Rick McCathron: Now, turning to our performance for both the full year and fourth quarter of 2024.
Speaker Change: Now turning to our performance for both the full year and fourth quarter of 2024.
Rick McCathron: I think it's safe to say that this was the most successful year and quarter in the company's history. Over the course of the year, we improved our HHIP gross loss ratio by nearly 30 percentage points, streamlined our operations to reduce fixed costs, and in Q4, achieved our long-stated goal of generating positive adjusted EBITDA, both on time and to a greater extent than we expected. We did all of this while nearly doubling our annual revenue and laying the foundation across each of our business units to deliver margin enhancing growth for years to come.
Speaker Change: I think it's safe to say that this was the most successful year and quarter in the company's history.
Speaker Change: Over the course of the year, we improved our Hh IP gross loss ratio by nearly 30 percentage points streamline our operations to reduce fixed costs and in Q4 achieved our long stated goal of generating positive adjusted EBITDA, both on time and to a greater extent.
Speaker Change: Than we expected.
Speaker Change: Did all of this while nearly doubling our annual revenue and laying the foundation across each of our business units to deliver margin enhancing growth for years to come.
Rick McCathron: In our core HHIP homeowners insurance program, we completed the broad transformation of our policy portfolio that was designed to reduce cap related volatility and bring our loss ratios down to target levels. We accomplished this through rate increases, structural changes to our coverage, and reductions in exposure to wind and hail by approximately 80% compared to mid 2023 levels. We achieved a gross loss ratio of 73% for calendar year 2024 and a non-CAT PCS loss ratio of under 45% in the fourth quarter, approaching our long-term target level with further improvements expected in 2025.
Speaker Change: And our core <unk> homeowners insurance program, we completed the broad transformation of our policy portfolio.
Speaker Change: That was designed to reduce cat related volatility and bring our loss ratios down to target levels.
Speaker Change: We accomplished this through rate increases structural changes to our coverage and reductions in exposure to wind and hail by approximately 80% compared to mid 2023 levels.
Speaker Change: We achieved a gross loss ratio of 73% for calendar year 2024.
Speaker Change: On a non cat tcs loss ratio of under 45% in the fourth quarter approaching our long term target level with further improvements expected in 2025.
Rick McCathron: In our insurance as a service business, we have demonstrated the ability to achieve consistent long-term growth and profitability over the years while maintaining our quality bar for program vetting and underwriting. In 2024, we grew our annual revenue by more than 40% while maintaining discipline in both program selection and risk participation, which resulted in an annual net loss ratio of 39%. There is no shortage of potential programs for Spinnaker to work with. In fact, we reviewed more than 100 opportunities in 2024.
Speaker Change: And our insurance as a service business, we have demonstrated the ability to achieve consistent long term growth and profitability over the years, while maintaining our quality bar for a program vetting and underwriting.
Speaker Change: In 2024, we grew our annual revenue by more than 40%, while maintaining discipline in both program selection and risk participation.
Speaker Change: Which resulted in an annual net loss ratio of 39%.
Speaker Change: There is no shortage of potential programs for spinnaker to work with.
Speaker Change: In fact, we reviewed more than 100 opportunities in 2024, but.
Rick McCathron: But we do not think we need to compromise on quality to achieve compelling financial results. During the year, we focused on building a solid foundation for future growth for our Hippo homeowners insurance program with a particular focus on the new homes channel. We added new builders and carrier partners. enhanced our already differentiated risk allocation technology and made additional investments in operational excellence.
Speaker Change: But we do not think we need to compromise on quality to achieve compelling financial results.
Speaker Change: During the year, we focused on building a solid foundation for future growth for our Hippo homeowners insurance program with a particular focus on the new homes channel.
Speaker Change: We added new builders and carrier partners.
Speaker Change: Enhanced our already differentiated risk allocation technology.
Speaker Change: And made additional investments in operational excellence.
Rick McCathron: As we move into 2025, we are working to further expand our network of partners and to deepen relationships with our current partners, all while working with this group to redefine what is possible in helping buyers of newly built homes secure insurance quickly and easily as part of the home buying process.
Speaker Change: As we move into 2025, we are working to further expand our network of partners and to deepen relationships with our current partners all while working with this group to redefine what is possible and helping buyers of newly built homes secure insurance quickly and easily as.
Speaker Change: Part of the home buying process.
Rick McCathron: As we turn our attention to our outlook for 2025, I want to note that even with factoring in the short term impact of the LA fires, we feel very well positioned in 2025 to deliver substantial improvements to operating income versus our 2024 results.
Speaker Change: As we turn our attention to our outlook for 2025 I want to note that even with factoring in the short term impact of the fires, we feel very well positioned in 2025 to deliver substantial improvements to operating income versus our 2024 results.
Rick McCathron: Stewart will talk more about this in a few minutes, but because I know you're all curious, I will say with conviction that we remain on track to turn net income profitable by the end of 2025. I'm proud of the progress we've made as a business over the past 12 months and all of our Hippo team members who have made this progress possible.
Speaker Change: Stuart will talk more about this in a few minutes, but because I know you are all curious I will say with conviction that we remain on track to turn net income profitable by the end of 2025.
Speaker Change: I am proud of the progress we've made as a business over the past 12 months.
Speaker Change: And all of our Hippo team members, who have made this progress possible.
Rick McCathron: I'm even more excited about what's next on the Hippo journey, and we look forward to sharing more about our future plans and a special day for investors on June 12th in New York City. We'll share more details about that event soon.
Speaker Change: I'm, even more excited about what's next on the Hippo journey, and we look forward to sharing more about our future plans and a special day for investors on June 12 in New York City.
Speaker Change: We will share more details about that event soon.
Stewart Ellis: Now I'd like to turn the call over to our Chief Financial Officer, Stewart Ellis, to walk through the highlights of our full year 2024 and Q4 financial results, as well as our expectations for 2025. Thanks, Rick. And good morning, everyone.
Speaker Change: Now I'd like to turn the call over to our Chief Financial Officer, Stuart Ellis to walk through the highlights of our full year 2024, and Q4 financial results as well as our expectations for 2025.
Stuart Ellis: Thanks, Rick and good morning, everyone two.
Stewart Ellis: Two and a half years ago, in September 2022, Hippo hosted its first Investor Day. During that event, we committed to deliver positive adjusted EBITDA by the end of 2024, and to growing our revenue by three and a half times between then and calendar 2025 to between $420 and $450 million. In the fourth quarter of 2024, we delivered on that guidance by posting positive adjusted EBITDA of $8.5 million and revenue that represents an annual run rate of approximately $410 million, which means we are on track to exceed our Investor Day revenue target in 2025. Over the past two and a half years, we've responded quickly to changes in both the insurance and financial markets.
Stuart Ellis: Two and a half years ago and September 2022, Hippo hosted its first investor day during.
Stuart Ellis: During that event, we committed to deliver positive adjusted EBITDA by the end of 2024 and to growing our revenue by three five times between then and calendar, 2025% to between $420 million and $450 million.
Stuart Ellis: In the fourth quarter of 2024, we delivered on that guidance by posting positive adjusted EBITDA of $8 5 million and revenue that represents an annual run rate of approximately $410 million, which means we are on track to exceed our investor day revenue target in 2025.
Stuart Ellis: Over the past two and a half years, we've responded quickly to changes in both the insurance and financial markets.
Stewart Ellis: transformed the fundamental risk dynamics of our business and laid a strong foundation for future margin enhancing growth. We've seen the benefits of these changes over the past few quarters, and they remain present as factors that helped us exceed our adjusted EBITDA guidance in Q4. In the fourth quarter, our Total Generated Premium, or TGP, grew by 10% year-over-year to $295 million, driven by 22% year-over-year growth in our insurance as a service segment. This growth was partially offset by an expected decline of 8% in our Hippo home insurance program segment, due to the completion of our efforts over the past 12 months to manage down our exposure to high cap geography.
Stuart Ellis: Transformed the fundamental risk dynamics of our business and latest strong foundation for future margin enhancing growth we.
Stuart Ellis: We've seen the benefits of these changes over the past few quarters and they remain present as factors that helped us exceed our adjusted EBITDA guidance in Q4.
Stuart Ellis: In the fourth quarter, our total generated premium our PGP grew by 10% year over year to $295 million driven by 22% year over year growth in our insurance as a service segment.
Stuart Ellis: Growth was partially offset by an expected decline of 8% and our Hippo home insurance program segment due to the completion of our efforts over the past 12 months to manage down our exposure to high cat geographies.
Stewart Ellis: If we normalize both current and prior year periods to exclude the TGP from our First Connect platform, which we sold a majority stake in during the quarter, the year-over-year growth rate would rise from 10% to 16%. Revenue growth in Q4 once again outpaced TGP growth, increasing 58% year-over-year to $102 million, up from $64 million in Q4 of last year. Like in the first three quarters of the year, higher premium retention at HHIP and volume increases in the insurance as a service and services segments were the primary drivers of growth. As a result of the higher premium retention at HHIP, net earned premium as a percentage of gross earned premium in our HHIP business rose to 83% in Q4, up from 29% a year ago.
Stuart Ellis: If we normalize both current and prior year periods to exclude the <unk> from our first connect platform, which we sold a majority stake and during the quarter the year over year growth rate would rise from 10% to 16%.
Stuart Ellis: Revenue growth in Q4, once again outpaced TDP growth, increasing 58% year over year to $102 million up from $64 million in Q4 of last year.
Stuart Ellis: Like in the first three quarters of the year higher premium retention at <unk> and volume increases and the insurance as a service and services segments were the primary drivers of growth.
Stuart Ellis: As a result of the higher premium retention at Hh IP net earned premium as a percentage of gross earned premium in our HIV business rose to 83% in Q4 up from 29% a year ago.
Stewart Ellis: Like in previous quarters, insurance as a service revenue growth was driven mostly by the premium growth from existing programs, augmented by slightly higher risk retention with some of the programs. We also launched a few new programs, which we expect to become significant growth drivers in 2025. Our HHIP growth loss ratio improved three percentage points year over year to 50%. The HHIP non-PCS loss ratio improved at an unprecedented rate of 20 percentage points to 43%. driven by the broad transformation we have been working on over the past 12 months, the activities of which included rate increases, structural changes to our coverages and other underwriting actions.
Stuart Ellis: Like in previous quarters insurance as a service revenue growth was driven mostly by the premium growth from existing programs augmented by slightly higher risk retention with some of the programs.
Stuart Ellis: We also launched a few new programs, which we expect to become significant growth drivers in 2025.
Stuart Ellis: Our <unk> gross loss ratio improved three percentage points year over year to 50% the HIV non tcs loss ratio improved in an unprecedented rate of 20 percentage points to 43%.
Stuart Ellis: Driven by the broad transformation, we have been working on over the past 12 months the activities of which included rate increases structural changes to our coverages and other underwriting actions.
Stewart Ellis: We achieved this improvement despite the portfolio-level shift away from higher-CAT geographies, which, all things equal, would have tended to raise the non-PCS loss ratio. The HHIP PCS cat loss ratio came in at 7% during Q4. This represents an increase of 17 percentage points year over year, which is mostly explained by substantial current and prior accident period reserve release in the fourth quarter of 2023, a year ago, which resulted in a PCS loss ratio of negative 10% in that period. The combination of year-over-year improvements in gross loss ratio and the improvements to our reinsurance structure, working their way into our financials, drove an even larger improvement in our HHIP net loss ratio, which came in at 60% during the quarter, an improvement of 46 percentage points versus Q4 of last year.
Stuart Ellis: We achieved this improvement despite the portfolio level shift away from higher cat geographies, which all things equal what has tended to raise the non PCI loss ratio.
Stuart Ellis: The Hh IP PCF cat loss ratio came in at 7%. During Q4. This represents an increase of 17 percentage points year over year, which is mostly explained by substantial current and prior accident period reserve release in the fourth quarter of 2023, a year ago, which resulted in a PCF loss ratio of negative 10% in that.
Stuart Ellis: Period.
Stuart Ellis: The combination of year over year improvements in gross loss ratio and the improvements to our reinsurance structure working their way into our financials drove an even larger improvement in our net loss ratio, which came in at 60% during the quarter an improvement of 46 percentage points versus Q4 of last year.
Stewart Ellis: In Q4, we again delivered significant top line growth while simultaneously reducing our operating expenses, both as a percentage of revenue and on an absolute dollar basis. Relative to Q4 of last year, our gap sales and marketing, technology and development, and general and administrative expenses collectively declined by $8 million, a year-over-year decrease of 19%. When combined with the increases in our revenue over the same period, these costs fell from 69% of revenue in Q4 of last year to 35% of revenue this quarter. Q4 net income came in at positive $44 million, an $86 million improvement versus Q4 of last year.
Stuart Ellis: In Q4, we again delivered significant topline growth, while simultaneously, reducing our operating expenses, both as a percentage of revenue and on an absolute dollar basis.
Stuart Ellis: Relative to Q4 of last year, our GAAP sales and marketing technology and development and general and administrative expenses collectively declined by $8 million a year over year decrease of 19%.
Stuart Ellis: When combined with the increases in our revenue over the same period. These costs fell from 69% of revenue in Q4 of last year to 35% of revenue this quarter.
Stuart Ellis: Q4, net income came in at positive $44 million and $86 million improvement versus Q4 of last year.
Stewart Ellis: $46 million of this improvement relates to the one-time gain from the sale of a majority stake in First Connect. The remaining $40 million of the improvement was driven by revenue growth at HHIP, enabled by our improved reinsurance structure, improvements to HHIP's gross loss ratio, better operating leverage and continued growth in our businesses that are less exposed to weather and underwriting volatility. Our Q4 adjusted EBITDA came in at positive $8.5 million ahead of our previous guidance and a $31 million improvement versus Q4 of last year. The primary drivers of the year-over-year improvement are the same as the non-First Connect drivers of the net income improvement I just walked through.
Stuart Ellis: $46 million of this improvement relates to the one time gain from the sale of a majority stake in <unk> connect the.
Stuart Ellis: The remaining $40 million of the improvement was driven by revenue growth at HHS IP enabled by our improved reinsurance structure improvement.
Stuart Ellis: Improvements to <unk> gross loss ratio.
Stuart Ellis: Better operating leverage and continued growth in our businesses that are less exposed to weather and underwriting volatility.
Stuart Ellis: Our Q4 adjusted EBITDA came in at positive $8 5 million ahead of our previous guidance and a $31 million improvement versus Q4 of last year the.
Stuart Ellis: The primary drivers of the year over year improvement are the same as the non first connect drivers of the net income improvement I just walked through.
Stewart Ellis: Q4 ending cash and investments increased quarter over quarter by $25 million to $571 million. This increase was driven by positive cash flow from the business, seasonal working capital changes associated with payments to reinsurers, and proceeds from selling a majority of our shares in our First Connect platform. partially offset by our repurchase of shares during the quarter.
Stuart Ellis: Q4, ending cash and investments increased quarter over quarter by $25 million to $571 million.
Stuart Ellis: This increase was driven by positive cash flow from the business seasonal working capital changes associated with payments to reinsurers and proceeds from selling the majority of our shares in our first connect platform.
Stuart Ellis: Partially offset by our repurchase of shares during the quarter.
Stewart Ellis: Turning now to our guidance for 2025. Beyond the Q4 2024 adjusted EBITDA target we set at our Investor Day back in 2022. During that event, we also committed to deliver 2025 revenue of between $420 and $450 million.
Stuart Ellis: Turning now to our guidance for 2025.
Stuart Ellis: Beyond the Q4 2024, adjusted EBITDA target, we set at our Investor day back in 2022.
Stuart Ellis: During that event, we also committed to deliver 2025 revenue of between 420 and $450 million.
Stewart Ellis: We are now in a position to raise that revenue guidance to $465 million for calendar 2025 and to guide to positive net income by Q4 of 2025. The Revenue Guidance represents a 25% year-over-year growth rate from 2024 revenue on a gap basis, and 27% year-over-year growth when First Connect is removed from our 2024 results. The expected improvement to turn net income profitable by Q4-25 is driven by the continuation of the trends in the business that drove our adjusted EBITDA improvement in 2024. Specifically, excluding the benefits of prior accident year reserve releases, we expect continued year-over-year improvement in both gross and net loss ratios in calendar 2025 versus 2024 levels, even when factoring in the impact of the Q1 wildfire.
We're now in a position to raise that revenue guidance to $465 million for calendar 2025 and to guide to positive net income by Q4 of 2025.
The revenue guidance represents a 25% year over year growth rate from 2020 for revenue on a GAAP basis, and 27% year over year growth. When first connect is removed from our 2024 results.
Stuart Ellis: The expected improvement to turn net income profitable by Q4, 25% is driven by the continuation of the trends in the business that drove our adjusted EBITDA improvement in 2024.
Stuart Ellis: Specifically, excluding the benefits of prior accident year Reserve releases, we expect continued year over year improvement in both gross and net loss ratios in calendar 2025 versus 2024 levels, even when factoring in the impact of the Q1 wildfires.
Stewart Ellis: As far as Q4 2025 specific guidance, we expect HHIP gross loss ratio to be less than 60%, with an expected PCS catload in that quarter of 15%. We expect HHIP net loss ratio in Q4-25 to be less than 67%. Beyond improvements to loss ratio, we expect continued improvements to operating leverage with six expenses remaining roughly consistent with current levels, despite the higher expected revenue.
Stuart Ellis: And as far as Q4 2025 specific guidance, we expect <unk> gross loss ratio to be less than 60% with an expected PCF cat load in that quarter of 15%.
Stuart Ellis: We expect <unk> net loss ratio in Q4 dollars 25 to be less than 67%.
Stuart Ellis: Beyond improvements to loss ratio, we expect continued improvements to operating leverage with fixed expenses remaining roughly consistent with current levels. Despite the higher expected revenue.
Rick McCathron: And now I'd like to turn the call back over to our CEO, Rick McCaffrey. Thanks, Stewart.
Gregg <unk>: And now I'd like to turn the call back over to our CEO Gregg <unk>.
Gregg <unk>: Thanks Stuart.
Rick McCathron: Before we open the floor up for questions, I want to take a moment to mention an announcement in our Form 10-K that we filed this morning. Just over six years ago, we hired Stewart as Hippo's chief financial officer. Since that time, he and the team he has assembled have been instrumental in our success as a business. One of the things we emphasize as leaders at Hippo is developing our team and preparing them to take on greater responsibility.
Gregg <unk>: Before we open the floor for questions I want to take a moment to mention an announcement in our Form 10-K that we filed this morning.
Speaker Change: Just over six years ago, we hired Stewart as Hippos, Chief financial officer since that time.
Speaker Change: And the team he has assembled have been instrumental in our success as a business.
Speaker Change: One of the things we emphasize as at least as leaders at Hippo is developing our team and preparing them to take on greater responsibility.
Rick McCathron: I've been particularly pleased with Stewart's efforts in this regard as it relates to our finance organization, and yesterday, our board of directors formally recognized this by appointing our current VP of Finance, Guy Zeltser, to be Hippo's next chief financial officer, effective on Monday, March 10th. Beyond his responsibilities as our CFO, Stewart has also been serving as Hippo's Chief Strategy Officer. He has been a valuable thought partner to me and our leadership team in this capacity, and I'm looking forward to his continued contributions in this more focused role. Most of you have already had the pleasure of interacting with Guy over the years.
Speaker Change: I've been particularly pleased with Stuart's efforts in this regard as it relates to our finance organization and yesterday, our board of directors formally recognize this by appointing our current VP of finance Guy Seltzer to be Hippos next Chief Financial Officer effective on Monday March 10th.
Speaker Change: Beyond his responsibilities as our CFO Stewart has also been serving as Hippos Chief strategy Officer.
Speaker Change: He has been a valuable partner to me and our leadership team in this capacity and I'm looking forward to his continued contributions in this more focused rule.
Speaker Change: Most of you have already had the pleasure of interacting with guy over the years.
Rick McCathron: And while he has big shoes to fill, I can't imagine a better choice to fill them.
Speaker Change: And while he has big shoes to fill and I can't imagine a better choice to fill them.
Rick McCathron: Please join me in thanking Stewart for all of his contributions as Hippo's CFO and congratulating Guy on his promotion. You'll hear more directly from Guy in his new capacity on our next earnings call.
Speaker Change: Please join me in thanking Stewart for all of his contributions as hippos CFO and.
Speaker Change: In congratulating Guy on his promotion.
Speaker Change: We have more directly from guy in his new capacity on our next earnings call.
Operator: Now operator, we'd be happy to open the floor for questions. Thank you. If you would like to ask a question, you may do so by pressing star followed by one on your telephone keypad. Now, if you do change your mind, please press star followed by two. When preparing to ask your question, please ensure that your line is unmuted locally.
Speaker Change: Now operator, we'd be happen, we'd be happy to open the floor for questions.
Speaker Change: Okay. Thank you I'd like to ask a question you may do cyber question flip I won Nikkei. Thank you Pat now if you do change your mind. Please post office.
Linda. Thank you asked a question. Please ensure that your line is from Richard lengthening.
Thomas McJoynt: Our first question today comes from Tommy Mcjoynt from KBW. Please go ahead, Tommy. Your line is now open. Hey, good morning, guys.
Julien: And our first question today comes from Julien.
Speaker Change: <unk>. Please go ahead, Tony Your line is now open.
Julien: Hey, good morning, guys.
Stewart Ellis: We were a little surprised to see the sale of the Eaton Fire subrogation rights. As we have generally heard from other carriers that, you know, those rights and potential recoveries are not being sold. Can you talk about the strategy behind that? I assume none of that was driven by a need for liquidity. But just talk about a potential, you know, upside you guys are missing out on or just why you guys ultimately sold those.
Julien: We were a little surprised to see the sale of the Eaton fire Subrogation rights.
Julien: We have generally heard some from other carriers that those rates and potential recoveries are not being sold.
Speaker Change: Can you just talk about the strategy behind that and I assume none of that was driven by a need for liquidity.
Julien: Let's just talk about the potential.
Julien: Upside you guys are missing out on or just why you guys ultimately sold does.
Stewart Ellis: Yeah, happy to take that one.
Stuart Ellis: Yeah happy to take that one tammi this is Stuart.
Stewart Ellis: Tommy, this is Stewart. This is I'll, I'll, I'll confirm your suspicion that this is not due to liquidity needs. This is due to really looking at the potential for what we could realize in terms of proceeds in the, in the market now, and essentially comparing the economic value of that to what we would expect to receive by, you know, continuing to pursue the claims through the the normal legal process, both the time value of money as well as the, you know, the, the ultimate price that we were able to achieve in the in the market today, made that just an attractive opportunity for us to do to do in.
al: This is al I'll confirm your suspicion that this was not due to liquidity. Nate. This is due to really looking at the potential for while we can realize in terms of proteins in the in the market now and essentially comparing the economic value of that.
al: What we would expect to receive by <unk>.
al: Continuing to pursue the claims through the normal legal process, both the time value of money as well as the.
al: The ultimate price that we were able to achieve in the market today.
al: I made that as an attractive.
al: Active opportunity for us to do to do in this world.
Stewart Ellis: Okay, got it.
al: Okay got it.
Stewart Ellis: And how does such an early in the year, you know, cat loss event impact your reinsurance protection for the rest of the year? Perhaps you could share, you know, what second event retention looks like. And just remind us when your reinsurance renewal programs go into effect when you guys are negotiating this.
al: And how does such an.
al: And early in the year Cat loss event impact your reinsurance protection for the rest of the year.
al: Perhaps you could share what second event retention looks like and just remind us when your reinsurance renewal programs go into effect. When you guys are negotiating that.
Stewart Ellis: Yeah, happy to take that one as well.
al: Yeah happy to take that one as well so the Hippo specific Hippo a program specific reinsurance renewals are at January one renewals. So this was right after the renewal for 2025.
Stewart Ellis: So the HIPPO specific or the HIPPO program specific reinsurance renewals are a January 1 renewal. So this was right after the renewal for 2025. The size of the losses associated with the HIPPO program taking into account the the suffragation barely made it into our reinsurance tower. It's not just into the first layer by by a small amount. So our existing reinsurance is more or less intact, even when giving effect to these events. So we don't really feel like it has a meaningful impact on the protection that we would have for other potential events over the course of the rest of the year.
al: The size of the the losses associated with the Hippo program.
al: Sure.
al: Taking into account the subrogation barely made it into our reinsurance tower.
al: Not just into the first layer by by a small amount so.
al: Our existing reinsurance is more or less intact.
al: Even when giving effect to these events. So we don't really feel like it has a meaningful impact on the protection that we would have for other potential events over the course of the rest of the year.
Rick McCathron: Yeah, I think this is right, Tommy, just emphasize on that. We don't think our reinsurance partners are going to be negatively impacted from our portfolio, as Stewart mentioned, barely made it into the first layer. And on our XOL, we have three layers of reinsurance protection. So this was not an overly significant event from our reinsurance perspective. Got it.
Tommy: I think this is Tommy just to emphasize on that.
Tommy: We don't think our reinsurance partners are going to be negatively impacted from our portfolio as Stuart mentioned.
Tommy: Barely made it into the first layer.
Tommy: And on our <unk>, we have three layers of reinsurance protection. So this was not.
Tommy: Overly significant events.
Tommy: From a reinsurance perspective.
Tommy: Got it.
Stewart Ellis: And then just last question. It sounds like you're you're giving guidance for the full year for revenue and then a bottom line figure for just the fourth quarter of twenty five. I guess, are there any sort of guideposts that you could help us think about for the full year 2025 on a bottom line basis, either EBITDA or an earnings basis?
Tommy: And then just last question it sounds like you're you're giving guidance for the full year for revenue.
Tommy: And then bottom line figure for just the fourth quarter.
Tommy: 25.
Tommy: I guess are there any sort of guidepost that you can help us think about the full year 2025 on a bottom line basis, either EBITDA or earnings basis.
Stewart Ellis: Yeah, I'm gonna, I'm gonna go ahead and punt a little bit on this to our earning, or excuse me, to our Investor Day event on June 12. If you recall, two and a half years ago, we had an Investor Day where we gave sort of three year financial projections. Our intention is to also do that on our Investor Day, along with sharing some other strategic opportunities that we've been exploring and working with, to really grow and expand our portfolio now that we've gotten our house in order, our loss ratios are near our desired levels. We're really excited to share that.
Tommy: Yes.
Tommy: Go ahead and pumped a little bit on this to our earning or excuse me to our Investor day event on June 12.
Tommy: If you recall, two and a half years ago, we had an investor day, where we gave sort of a three year financial projections. Our intention is to also do that on our investor day, along with sharing some other strategic opportunities that we've been exploring and working with to really grow and expand our portfolio.
Tommy: <unk> now that we've gotten our house in order our loss ratios are near our desired levels. We're really excited to share that so we're going to give a lot more detailed guidance on a three year basis.
Stewart Ellis: So we're going to give a lot more detailed guidance on a three-year basis on June 12. Tell me, I'll add a little bit more in the in the guidance that we did give earlier in the discussion. I think we did give you some indication of where we feel like our operating expenses are going to be. We talked about revenue. We talked a little bit about kind of the loss ratio progression. It should be possible to to infer kind of how we're feeling about the full year on some of those things. But as Rick said, we will, we'll try to make that a lot more specific as we get into the into the year.
Tommy: On June 12.
Tommy: Tell me I'll add a little bit more in the in the guidance that we did give earlier in the discussion I.
Tommy: I think we did give you.
Tommy: Some indication of where we feel like our operating expenses are going to be.
Tommy: We talked about revenue, we talked a little bit about kind of the loss ratio progression it should be possible to to infer kind of how we're feeling about the full year on some of those things.
Tommy: But as Rick said, we will we will try to make that a lot more specific as we get into the into the year.
Thomas McJoynt: Sounds good. Thank you. Thanks, Tommy. Thank you.
Speaker Change: Sounds good thank you.
Tommy: Okay.
Tommy: Thanks Tommy.
Tommy: Yes.
Operator: As a reminder, if you would like to ask a question, you may do so by pressing star followed by one on the telephone keypad.
Tommy: Thank you.
Speaker Change: Nine days people got to ask a question you may do freight that comes from Phillip Huang Nicole Thank you Patrick.
Andrew Anderson: Our next question comes from Andrew Anderson from Jefferies. Please go ahead Andrew, your line is now open. Hey, good morning, guys.
Speaker Change: Our next question comes from James Anderson from Jefferies. Please go ahead and Jay Your line is now open.
James Anderson: Hey, Good morning, guys I guess first congratulations guy and started it's been a pleasure over the years.
Rick McCathron: I guess first, congratulations, Guy and Stewart. It's been a pleasure over the years. Maybe just on the quarter and thinking about California here, does the recent events kind of change your thinking about exposures in the state? And could you maybe provide an update on where you are with de-risking a little bit? I think there was still some remediation as of last quarter, but to a more moderate degree than prior periods.
James Anderson: Maybe just on the quarter and thinking about California here.
James Anderson: The recent events kind of changed your thinking about exposures and the state and could you maybe provide an update on where you are with Derisking a little bit I think there was still some remediation as of last quarter, but.
James Anderson: More moderate degree than prior periods.
Rick McCathron: Yeah, Andrew, this is Rick. Happy to take that question. First, to be clear, you're still going to have lots of interactions with Stewart. He's not going anywhere. So we're excited about what we'll be sharing during Investor Day. And as a result, Stewart's got a lot of work to do on that front. So, related to the California fires, we did mention in our pre-comments that none of the losses in these fires were related to our new home business, which is Substantially all the new business we've been writing in the state of California in a fairly diversified fashion.
Yes, Andrew this is Rick happy to take that question first to be clear youre still going to have lots of interactions with Stewart he's not going anywhere. So we're excited about about what will be shared during the investor day and as a result Stewart has got a lot of work to do on that on that front. So.
Speaker Change: It related to the California fires.
James Anderson: We did mentioned in R.
Speaker Change: Our pre comments that.
Speaker Change: None of our none of the losses in these fires were related to our new home business, which is <unk>.
Speaker Change: Substantially all of the new business, we've been writing in the state of California.
Speaker Change: A fairly diversified fashion. So this doesn't change that perspective at all for us.
Rick McCathron: So this doesn't change that perspective at all for us. All of the losses were a result of the historical HHIP portfolio. We have been working both independently and with the state to figure out a way that we can reduce some concentration exposures on that particular portfolio, also allowing us to write new business in areas that we deem are appropriate, where we have very solid underwriting guidelines. So I think this is, despite the tragedy, I think it's an opportunity to further refine our efforts in California. It's a big state for us. It's an important state for us.
Speaker Change: All of the losses were a result of the historical Hh IP portfolio.
Speaker Change: We have been working.
Speaker Change: Independently and with the state to figure out a way that we can reduce some concentration exposures on that particular portfolio also allowing us to write new business in areas that we deem.
Speaker Change: Our appropriate where we have very solid underwriting guidelines so.
Speaker Change: This is despite the tragedy I think it's an opportunity to further refine our efforts in California, It's a big state for US it's an important state for us.
Rick McCathron: But we don't think this dramatically changes our outlook. Related to the second part of your question on our what we call project volatility, we have done the vast majority of the corrective items. Those are already in flight. They have not all shared or reflected in our P&L just yet. So we're excited. We have a little bit of favorable tailwinds as it results to that. But there's still a little bit of work to be done. The biggest portion of that was California. And again, we're working with the regulators on how to finish that portion of our remediation.
Speaker Change: But we don't think this dramatically changes our outlook.
Speaker Change: Related to the second part of your question on our what we call project volatility.
Speaker Change: We have done the vast majority of the corrective items and those are already in flight and they have not all shared are reflected in our in our P&L just yet. So we're excited we have a little bit of a favorable tailwind as it results to that.
Speaker Change: But there's still a little bit of work to be done the biggest portion of that was.
Speaker Change: California, and again, we're working with the regulators on how to finish that portion of our of our remediation work.
Rick McCathron: But all the work is substantially done. Now it's just time to earn that positive benefit into the portfolio. Thanks.
Speaker Change: All the work is substantially done now, it's just time to earn that positive benefit into the portfolio.
Speaker Change: Thanks, and then on.
Rick McCathron: And then on IAAS, I think you mentioned a pretty strong pipeline, but being careful on risk selection, kind of how are you seeing the competitive environment there and thinking about growth, just as perhaps reinsurance costs moderate for the industry a bit? Yeah, Andrew, good. Great question. So I, a couple things.
Speaker Change: Yes, I think you mentioned.
Speaker Change: Pretty strong pipeline, but being careful on risk selection.
Speaker Change: How are you seeing the competitive environment, there and thinking about growth just as perhaps reinsurance costs moderate for the industry a bit.
Speaker Change: Yeah.
Speaker Change: Yeah, Andrew good Great question. So a couple of things one I just want to reemphasize the quality asset that spinnaker is.
Rick McCathron: One, I just want to reemphasize the quality asset that Spinnaker is. We had the opportunity to purchase it approximately four years ago, as we were needing a risk bearing entity. And through our management of that entity over the last several years, we recognize just the quality of individuals we have in that organization. The pipeline for fronting business is very full. It reduces as you start thinking about the quality of the various MGAs that we're starting to see. A lot of our growth in that particular channel has been with our existing MGA partners that have long track records of positive underwriting results.
Speaker Change: We have the opportunity to purchase and it's.
Speaker Change: Approximately four years ago as.
Speaker Change: We weren't needing a risk bearing entity and through our management of that entity over the last several years, we recognize just the quality of individuals we have in that organization the pipeline for fronting business and is very full.
Speaker Change: It reduces as you start thinking about the quality of the various <unk> that we're starting to see a lot of our growth in that particular channel has been with our existing MGA partners that have long track records of positive underwriting results.
Rick McCathron: And these are the areas where we really get to know those partners. These are the areas in which we consider taking a bit more risk on these programs. So we feel good about continued organic growth, and we are also adding new programs that we deem of high quality. Because these are high quality programs, we're not at all concerned with how reinsurance would look at these various programs. And just as a reminder, each of these programs have their own reinsurance panels. And then we, of course, have a corporate cap that goes over each one of these individual programmatic reinsurance panels.
Speaker Change: And these are the areas, where we really get to know.
Speaker Change: Partners. These are the areas in which we consider taking a bit more risk on these programs. So we feel good about continued organic growth and we are also adding new programs that we deem of high quality.
Speaker Change: Because these are high quality programs.
Speaker Change: Not at all concerned with how reinsurance would look at these various programs.
Speaker Change: And just as a reminder, each of these programs have their own reinsurance panels and then we of course have a corporate cap that goes over each one of these individual programmatic reinsurance panel. So the performance of our programs generally have been very strong and we're excited.
Rick McCathron: So the performance of our programs generally have been very strong, and we're excited that we have an opportunity to grow with those partners and add new partners. And Andrew, I'd also say, I think we have a differentiated product and service within the fronting space. I think both the quality of the relationships that Rick mentioned, as well as some of the things that we can offer them in terms of support, are part of the reason why we have such a full pipeline. And we're excited about that as well.
Speaker Change: We have an opportunity to grow with those partners and add new partners and Andrew I would also say I think we have a differentiated product and service within the front end space.
Speaker Change: No.
Rick: I think both the quality of the relationships that Rick mentioned as well as some of the things that we can offer them in terms of support.
Rick: Or are part of the reason why we have such a full pipeline and we're excited about that as well.
Rick McCathron: Thanks, and maybe just one more. Sales and marketing, it's come in over the last couple of years.
Rick: Thanks, and maybe just one more sales and marketing it's come in over the last couple of years. How are you thinking about that spend line that in seasonality to 'twenty five.
Rick McCathron: How are you thinking about that spend line and seasonality, the 25? Yeah, I think I mean, we have benefited from getting more efficient in our spend and our conversion rates and everything else that drives the top of the funnel metrics for us. So we've been able we feel like we've been able to continue to grow with well being, you know, very disciplined in the spending. I think we see opportunities out in the market and we will be aggressive if we feel like we can grow, you know, in a way that will continue to enhance the margin.
Rick: Okay.
Rick: Yes, I think we have benefited from getting more efficient in.
Rick: Our spend and our conversion rates and everything else that drive the top of the funnel metrics for us. So we've been able we feel like we've been able to continue to grow with will be very.
Rick: <unk> in the spending.
Rick: I think we see opportunities out in the market and we will be aggressive if we feel like we can.
Rick: ROE in a way that will continue to enhance the margin I think we we are not finished making the business more efficient we're not finished and driving additional bottom line results as we talked about earlier, we are yes.
Rick McCathron: I think we, we are not finished making the business more efficient, we're not finished in driving additional bottom line results.
Rick McCathron: As we talked about earlier, we are, we turn to just to give you that positive and Q4, but we're very focused on making sure we are at income positive in 2025, by the end of the year, and, you know, continuing to get more efficient on the, you know, all aspects of of the what we'll call fixed costs is an important part of that. But, but I do think that we have, we've got opportunities in the market to grow, where we can spend some money and, and have a high return on that from a growth standpoint.
Rick: We turned adjusted EBITDA positive in Q4, but we're very focused on making sure. We are net income positive in 2025 by the end of the year end.
Rick: Continuing to get more efficient on all aspects of the mobile call fixed costs is an important part of that but.
Rick: But I do think that we have we've got opportunities in the market to grow where we can spend some money in.
Rick: And have a high return on that from it.
Rick: Growth standpoint.
Operator: Thank you. Thanks, Andrew. Thank you. As a final reminder, if you would like to ask a question, please press star followed by one on the telephone keypad now.
Rick: Thank you.
Rick: Thanks, Andrew.
Rick: As a final reminder, if you would like to ask a question. Please press star followed by one of our niche I think keep happier.
Rick McCathron: We have no further questions so we'll hand back over to Rick McCathron for closing remarks. Thank you so much, operator. And thank you for joining us. We're very excited about the results of the quarter in the full year.
Speaker Change: We have no further questions, so I'll hand back to the team.
Rick: <unk> for closing remarks.
Rick: Thank you so much operator, and thank you for joining us.
Rick: Very excited about the results of the quarter and the full year and we look forward to sharing.
Rick McCathron: And we look forward to sharing more updates as we have our Q1 earnings call.
More updates as we have our Q1s earnings call.
Rick: And as we share a more <unk>.
Operator: And as we share a more futuristic plan for our longer term operations and opportunities in our investor day on June 12. Have a very good day, everyone. Thank you. This does conclude today's call. Thank you for joining. You may now disconnect your lines.
Rick: Terrific plan for our longer term operations and opportunities in our Investor Day on June 12 have a very good day everyone.
Rick: Thank you. This does conclude today's call. Thank you for joining you may now disconnect your lines.
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Rick: Okay.
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