Q1 2025 Hippo Holdings Inc Earnings Call
of Communications. You may proceed.
Speaker Change: Reading today's discussion will be Hippo President and Chief Executive Officer Rick McCathron, Chief Financial Officer, Guy Zeltzer, and Stewart Ellis, Chief Strategy Officer. 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: that are based on management's current expectations as of the date of this presentation.
Speaker Change: 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.
Speaker Change: Forward-looking statements are subject to risks, uncertainties, and other factors that could cause their actual results to differ materially from historical results and or from our forecast, including those set forth in Hippo's form, 10Q filed today.
Speaker Change: For more information, please refer to the risks on certainties and other factors discussed in Hippo's SEC violence, in particular in the section entitled Risk Factors in Our Form
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 to discuss in Hippo's SEC filings.
Speaker Change: 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: During this conference call, we will also refer to non-GAAP financial measures such as adjusted EBITDA.
Speaker Change: Our gap results and description of our non-GAAP financial measures with full reconciliation to gap can be found in the first quarter 2025 shareholder letter which has been furnished to the SEC and is available on our website.
Speaker Change: And with that, I'll turn the call to Rick McCathron, our president and CEO .
Rick McCathron: Thanks, Mark, and good afternoon everyone. Thank you for joining us.
Rick McCathron: During Q1, we delivered on two of our most important objectives as a company. We proactively supported our customers in the aftermath of the Los Angeles wildfires, as we do in all catastrophic events, and further advance the key drivers of long-term value in our business.
Rick McCathron: As we discussed last quarter, Hippo's financial results were impacted by the fires in Los Angeles that affected the broader homeowners insurance industry.
Rick McCathron: However, when we look beyond the short-term impact of these fires, our Q1 results reveal remarkable progress in our business and we remain on track to generate net profit by the end of the year.
Rick McCathron: Our Hippo homeowner's insurance program saw a 35 percent year-over-year increase in growth written premium from our home builder partners.
Rick McCathron: New homes are built to modern codes making them more resilient and better equipped to withstand catastrophic events which is why this channel has had such compelling underwriting results.
Rick McCathron: These homes, which have accounted for most of the new business we have been writing in California over the past few years were not impacted by the fires.
Rick McCathron: We continue to reduce H.H.I.P. written premium from existing homes in Capprone areas for some prior year to help reduce weather-related volatility in the portfolio. And I'm happy to report that these efforts are now largely complete.
Rick McCathron: Written premium outside of HIP increased 21% year-over-year. We view these other lines of business, which are available to us because of the quality of our minute-for-platform as an important source of diversification going forward.
Rick McCathron: They are additive to our underwriting profit while lowering the volatility of that profit, a true win win.
Rick McCathron: Spinnaker has proven its ability to build relationships with quality underwriters over the past ten years, and the consistent profitability of this portion of our business is a testament to its value.
Rick McCathron: We believe so strongly in the value of this platform that we decided to raise additional risk-based capital to further support its growth and find an agreement to raise a $50 million dollar surplus note in April pending regulatory approval.
Rick McCathron: This incremental capital will support further growth in these diversifying product lines without diluting our consolidated equity base, another win-win.
Rick McCathron: Finally, we continue to gain operating leverage during the quarter by reducing fixed expenses through further investments in our infrastructure and automation while boosting our top line
Rick McCathron: These investments will support continued operating leverage improvements in future quarters.
Rick McCathron: I'm extremely proud of the progress we made this quarter and excited to share our three-year roadmap and long-term financial targets at our upcoming investor day on June 12, 2025 in New York City.
Rick McCathron: The team's hard work preparing the company for sustainable growth positions as well for continued and accelerated success in 2025 and beyond.
Rick McCathron: Now, I'd like to turn the call over to our Chief Financial Officer, Guy Zeltzer, to walk through the highlights of our first quarter 2025 financial results, as well as our expectations for the remainder of 2025.
Thanks Rick and good afternoon everyone.
Rick McCathron: In the first quarter of 2025, we achieved the minimum improvement in all the main underlying drivers of value in our business versus the year ago [inaudible]
Rick McCathron: We drove solid premium revenue growth, diversified our premium base, improved the traditional growth source ratio, and continued to demonstrate our scalability through additional fixed cost leverage.
Rick McCathron: The only drag on our Cuban results were the Los Angeles White Pires, but as Rick mentioned, none of these losses were related to our new home's channel, which has represented a substantial majority of the new business we have been writing in California over the last few years.
Rick McCathron: Looking ahead to the rest of 2025, we expect our key financial metrics to continue to improve both year-over-year and quarter-over-quarter and we're now guiding to finish 2025 at an annual run rate of more than $500 million of revenue and generating net profits.
Rick McCathron: In Q1, revenue grew 30% over year, $210 million, up from 85 million in Q1 of last year.
Rick McCathron: The growth was driven primarily by our entrance to the service and Hippo Holdings Insurance Program
Rick McCathron: In terms of service revenue, grew 91% year-over-year to $39 million, up from $20 million in Q1 of last year.
Rick McCathron: This was driven by a 27% year-over-year growth in gross earth premium, which was achieved through strength in existing programs, as well as higher risk retention at select programs where the risk profile and underwriting profitability were attracted.
Rick McCathron: HJP Revenue grew 12% year over year to $62 million, up from $55 million in Kiwana Plastia.
Rick McCathron: This was driven by improvements or rinse or unstructure, which raised net arm premium as a percentage of gross arm premium to 85% in Q1 up from 58% a year ago.
Rick McCathron: Over the course of 2025, this year-over-year comparison will become a smaller factor in our financial as the prior-year period converged to current levels.
Rick McCathron: The HJT Revenue Growth was offset by a 20% year-over-year reduction gross urm premium, driven by the final stages of our efforts to reduce exposure in capron areas for non-new homes, which was offset by growth in urm premium from our new homes channel.
Rick McCathron: In Q1, the AGJP growth source ratio increased 41% percentage points year-over-year to 121%.
Rick McCathron: This increase was primarily the result of the white bars in Los Angeles, which by themselves resulted in a 56% percentage point of year earlier increase in the HJP growth
Rick McCathron: Revened by the portfolio transformation, we underwent in 2024, which included rate increases, structural changes or coverages and other underwriting actions.
Rick McCathron: The HGJB net loss ratio increased 33% percentage point to your over year to 133%.
Rick McCathron: Again, this increase was primarily the result of the wildfires in Los Angeles, which by themselves resulted in a 57 percentage points of your overyear increase in the HJP in
Rick McCathron: In Q1, we continue to deliver a top-line route while reducing our operating expenses as a percentage of revenue in an absolute dollar basis.
Rick McCathron: We're wrapping the Q1 of last year. Our sales and marketing, technology and development, and general and administrative expenses collectively declined by $7 million, a year over your decrease of 18%.
Rick McCathron: When combined with the increases in our revenue over the same period, these costs fell from 48% of revenue in Q1 of last year to 30% of revenue discorded.
Rick McCathron: Q1 Metrols came in at $48 million, a 12 million interest versus Q1 of last year, with $45 million of expense related to the LA Y-bars.
Rick McCathron: Without the impact of the L.A.Y. fires, our net loss would have improved by 33 million dollars year over year.
Rick McCathron: This underlying improvement was supported by top-line growth due to higher premium retention as insurance service and HJP, attrition and loss ratio improvement due to pricing and underwriting actions taking in 2024. Lower fixed expenses due to continuous progress driving operation and efficiency.
Rick McCathron: and Restortion Extensive, we include in Q1's last year that is not real here this year.
Rick McCathron: Our Q1 Adjusted Ibiza loss came in at $41 million, a $21 million increase versus Q1 of last year, with 45 million of expense related to the LA wildfires.
Rick McCathron: Without the impact of the LA wildfires, our Justin Evida would have improved by $20,000,000,000 year-over-year.
Rick McCathron: The same drivers of the net loss improvement also benefited adjusted Yvida, except for the effect related to last year's restructuring extended, which does not impact the adjusted Yvida.
Rick McCathron: U1 ending cash-in investments decreased quarter-over-quarter by $42 million to $528 million.
Rick McCathron: This decrease was driven primarily by payment of losses related to the LA fires and seasonal working capital changes associated with payments to renters.
Rick McCathron: In Q1, we made significant progress in the key drivers of long term value in our business.
Rick McCathron: We can therefore reiterate our previous guidance that we will generate net profit by the fourth quarter of 225.
Rick McCathron: The key assumptions.
Rick McCathron: <unk> or <unk>.
Rick McCathron: Our revenue growth driven by higher premium volume, coupled with higher premium retention in our risk businesses.
<unk> been known to Csl's ratio, improving throughout the year as underwriting and pricing actions, which have already been implemented.
Rick McCathron: Continuing to work their way into our financials.
Rick McCathron: <unk> capital ratio to follow the seasonal pattern.
Rick McCathron: We're fixing to Youtube and trends lower throughout the remainder of the year.
Rick McCathron: These expenses to be consistent with Q1 dollar levels, even as our topline continues to growth enabled by the scalability of our infrastructure and additional investments in automation.
Rick McCathron: Additional details on our guidance can be found in our Q1 'twenty five shareholders that are both at the high level, we expect revenue of between $465 million to $475 million for full year 2025.
Rick McCathron: Adjusted EBITDA loss of between 35% and $39 million.
Rick McCathron: For full year 2025.
Rick McCathron: Net loss of between 65 and $69 million for full year 2025.
Rick McCathron: Annual run rate by Q4, 'twenty, five or more than $500 million of revenue and generating net profits.
Speaker Change: And we've got the operator, I would now like to open the floor to questions.
Speaker Change: Thank you we will now begin the question and answer session. If you would like to ask a question. Please press star followed by one on your telephone keypad. If for any reason you would like to remove that question. Please press star followed by two again to ask a question press Star one and as a reminder.
Speaker Change: If you were using a speaker phone. Please remember to pick up your handset before asking a question and we will pause briefly as questions are registered.
Speaker Change: The first question is from the line of Tommy <unk> joint with Cape BW You May proceed.
Speaker Change: Hi, this is <unk>.
Speaker Change: <unk> on for Connie.
Speaker Change: My first question is on the surplus notes.
Speaker Change: With regards to the note that being array.
Speaker Change: The cost of that now.
Speaker Change: Any detail you can provide.
Speaker Change: Thank you.
Speaker Change: Alright.
Speaker Change: Thank you. Thank you for the question, we're actually quite excited about raising the note for a couple of different reasons one.
Speaker Change: I think this demonstrates our confidence in the spinnaker platform.
Speaker Change: And the ability for us to continue to grow the spin occurred platform both from a size perspective.
Speaker Change: Risk partis risk participation perspective.
Speaker Change: Rates that we're getting on this.
Speaker Change: As approximately nine 5%.
Speaker Change: So we think that the marginal marginal rate on that.
Speaker Change: Of that capital and the cost of capital is something that's quite favorable.
Speaker Change: Got it.
Speaker Change: <unk>.
Speaker Change: Just a follow up on that.
Speaker Change: You mentioned that it will be a.
Speaker Change: The capital will be used to fund growth.
Speaker Change: With spinnaker I'm sorry.
Speaker Change: Sure.
Speaker Change: J J P will land.
Speaker Change: Oh no.
Speaker Change: Funding does that at all.
Speaker Change: Sure.
Speaker Change: I can't talk about dispositions.
Speaker Change: Tap into the personnel.
Speaker Change: Contributing cash.
Speaker Change: At <unk> <unk> company.
Rick: Yes, no. This is Rick I'm happy to answer that too and then if guy has anything he wants to add he certainly well.
Rick: The primary driver on the desire to raise the note is to fund.
Rick: The spinnaker side of our business and the spinnaker platform, both as a combination of necessary surplus to maintain our a M best rating, but also for risk participation and the programs we choose to participate in one valuable aspect of the spinnaker platform as we can.
Rick: Participate in risk and at what amount dependent on our view of the quality of the underlying program. So we believe we have a portfolio of positively selected underwriting business in which we want to continue to take risk and likely take more risk.
Rick: Time goes on based on the historical performance of those particular programs. If you look at spinnaker, excluding Hippo the performance the loss performance of those programs historically has been below 40%. Even when you include the California wildfires for the non HIPAA.
Rick: Oh portion at sub 60%. So we're very excited to use those proceeds predominantly to grow the spinnaker portfolio that said, we are going to grow the Hh IP portfolio now that we have substantially derisked the business or reduce the risk of volatility.
Rick: On the <unk> business, we have rate adequacy, we've diversify some of the concentration of exposures Hippo.
Rick: <unk> policies are written on spinnaker paper.
Rick: No.
Rick: For all intents and purposes, you can consider pooling that amount to help both spinnaker third party business and but we're excited that this will help fund growth without the need to raise equity capital.
Rick: Got it thank you so much.
Speaker Change: Youre Welcome question is from the line of Andrew Henderson with Jefferies. You May proceed.
Andrew Henderson: Hey, good afternoon could you maybe just talk about how you're thinking about tariffs whether it be on material inflation or just kind of a new home sales.
Andrew Henderson: Yeah, Hey, Andrew It's Rick I'll go ahead and take this one.
Speaker Change: When we think about homeowners insurance.
Speaker Change: Pacific Li Unlike some other types of product lines, essentially the cost built into replacing homes.
Speaker Change: We are in a total loss are built into the coverage and premium charged for those so our ability to raise coverage a and a commensurate premium is automatic at each renewals each policy renewal, therefore, youre never really more than a year behind on any.
Speaker Change: Particular policy is sort of inherent within coverage and pricing of our policy those changes do not require regulatory approval and our technology platform allows us to really adjust those almost real time as each renewal is approaching the other aspect by that flexibility.
Speaker Change: <unk> that we have is making sure that we're providing adequate and ample coverage for the protection of policyholders.
Speaker Change: Our ability to go ahead and increase the coverage when Theres a total loss event make sure is that <unk>.
Speaker Change: Even when tariffs have impacted both labor and materials on those particular costs. The customer has the right level of insurance. So it's.
Speaker Change: It's automatic for the most part and insurers protection for our customers.
Speaker Change: Okay.
Speaker Change: Thank you and then just on the guidance piece I think I heard net income profitable for <unk> 25.
Speaker Change: And you had given EBITDA guidance for full year 'twenty five, but how are we thinking about kind of getting to EBITDA profitability is that something and for full year 'twenty six.
Speaker Change: It seems to be improving throughout the rest of 2025 is what I'm getting at.
Speaker Change: Hi, Andrew This is a guy who are happy to take this question.
Speaker Change: So first of all as you mentioned first of all I'll start by saying So if you look at the shareholders that our guidance that we provided you can see thats, what we do expect all the key drivers to improve throughout the year and.
Speaker Change: And you heard correctly.
Speaker Change: We are guiding specifically for Q4 25 to be net income.
The book as.
Speaker Change: Adjusted EBITDA profitable.
Speaker Change: And I will say beyond the guidance for 2025.
Speaker Change: Sure.
Speaker Change: We're going to have our word.
Speaker Change: At Investor Day in New York next month in June and we're going to provide guidance or more longer term guidance around that.
Andrew Henderson: Yes, Andrew I'll go ahead and.
Andrew Henderson: I'll go ahead and add one little one thing to it. So if you look at the guidance range, we did for adjusted EBITDA. It was.
Andrew Henderson: Minus 39 to minus $35 million.
Andrew Henderson: La wildfires contributed minus 45 to that number and thats baked into the guidance. So minus the wildfires. We would have had full year adjusted EBITDA profitability for for 2025.
Andrew Henderson: Thank you how much of the <unk>.
Speaker Change: If I'm reading it correctly. The EBITDA loss includes the assessment from the Fair plan I guess, one is that correct and two are you able to tell us how much the assessment was.
Speaker Change: So Andrew this is guy I'll take this one so the $45 million number included a fair amount of assessment.
Speaker Change: We what we have said in the past and I just want to reiterate.
Speaker Change: $45 million $12 million.
Speaker Change: Scott or non <unk> programs and then the rest belongs to the Hippo.
Speaker Change: Yes. It does include.
Speaker Change: The Fairpoint assessment, what I will say is that we do expect some benefit in the future to that number because we have the ability to charge VIX some of the <unk> cost back to the policyholders.
Speaker Change: For accounting reasons, we cannot conclude this amount right now, but we haven't give us some benefit.
Speaker Change: Throughout the month in the future, yes, just.
Andrew Henderson: Summarize that Andrew.
Andrew Henderson: We have baked into our numbers the entire assessment, our belief of the entire assessment, but we have not baked into the numbers any recoupment, we get from policyholders. So we're being we're fully loading it and not taking a discount of any potential recruitment.
Speaker Change: Okay. That's helpful are you able to share how much the assessment was.
Speaker Change: I don't think we're sharing that number just at this at this juncture, there's a couple of different components remember.
Speaker Change: A portion of it is obviously the Hippo home insurance program. There is also a portion of it that our spinnaker fronted business. So that data is still being gathered but we think we've put a conservative number in there that we think is likely.
Speaker Change: Thank you.
Andrew Henderson: Thanks, Andrew.
Speaker Change: Okay.
Speaker Change: There are currently no questions registered so as a brief reminder is star one to ask a question and we will pause here briefly as questions are registered.
Speaker Change: Yeah.
Rick McCathron: There are no additional questions waiting at this time I would now like to pass the conference back over to Rick My Catherine for any closing remarks.
Rick McCathron: Well I just want to thank each of you for joining us. This evening and we are very excited about our Investor day again Thats on June 12 in New York City. We are hopeful that you can attend and we will have a lot more to talk about both at that event and in subsequent quarters. So thank you very much have a great evening.
Rick McCathron: That concludes today's call. Thank you for your participation and enjoy the rest of your day.