Q1 2025 Hagerty Inc Earnings Call
Speaker Change: Greetings and welcome to the Hagerty First Quarter 2025 earnings call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation.
Speaker Change: If anyone should require operator assistance, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. If not, my pleasure to introduce, Jay Koval, Senior Vice President of Investor Relations. Please go ahead.
Jay Koval: Thank you operator and good morning everyone. Thank you all for joining us to discuss Hagerty's results for the first quarter of 2025.
Speaker Change: I'm joined this morning by McKeel Hagerty, Chief Executive Officer and Chairman and Patrick McClymont, Chief Financial Officer.
Speaker Change: Our earnings release, slides, and letter to stockholders, covering this period are also posted on the IR website as well as our 8K filing.
Speaker Change: Today's discussion contains forward-looking statements and non-GAAP financial metrics, as described further on slide two of the earnings presentation.
Speaker Change: for a discussion of material risks and important factors that could affect our actual results. Please refer to those contained in our filings with the SEC, which are also available on our investor relations website and SEC.gov.
Speaker Change: The appendix of the presentation also contains reconciliations of our non-GAAP metrics to the most directly comparable GAAP measures that are further supplemented by this morning's AK filing. And with that, I will turn the call over to McKeel.
McKeel: Thanks, Jay, and good morning everyone. We appreciate you taking the time to join Hagerty's first quarter 2025 earnings call.
McKeel: Northern Michigan is known for its long snowy winters, and this year was no exception. As the last of the snow banks have finally melted, our Hagerty members are busy preparing their toys for the driving season, and we will be there to help them protect and enjoy their special cars.
McKeel: We are also ready to welcome a record number of new members who are buying their first enthusiast vehicle or transitioning their vehicle coverage to Hagerty, given our guaranteed value proposition and the excellence service from Hagerty's passionate team of
McKeel: One team Hagerty loves your cars as much as you do, and it shows in our results with yet another solid quarter of top and bottom line growth during the first three months of 2025.
McKeel: So let me start by thanking our 1700 Hagerty team members for their great execution as we've positioned Hagerty to create value for shareholders for many years to come.
McKeel: Let me dig into the key highlights from our first quarter shown on slide three, where total revenue increased 18%.
McKeel: and Membership, Marketplace, and other revenue jumped 60 percent, propelled by successful auctions at the Amelia Concours and the Academy of Arts University in February .
McKeel: Moving to profitability during the first three months of this year, our operating margin jumped another 360 basis point resulting in net income gains of 233% and adjusted EBITDA growth of 45%.
McKeel: Over a two-year period, first quarter net income increased by 42 million and adjusted to EBITDA by 33 million.
McKeel: and we believe the best is yet to come for a margin expansion story thanks to increasing economy subscale as we double our policies in force to 3 million by 2030.
McKeel: Let's move on to slide four and remind you of our 2025 strategic priorities built around three themes, simpler, faster, and better integrated.
McKeel: First and most impactful to our long-term trajectory is to expand our specialty insurance offerings to protect more of the collectible vehicle tam, including the modern enthusiast vehicle space.
McKeel: Second is to simplify and better integrate our membership experience across products and services creating revenue synergies and driving cost efficiencies.
McKeel: Third is to expand our marketplace business internationally, leveraging the trust we have built in the United States.
McKeel: This includes our upcoming auction at the Villedeste Concourso on Lake Como, Italy, the first of our multi-year partnership with BMW at this prestigious event.
McKeel: Fourth, we will continue to leverage Hagerty's unique and authentic car culture as a key differentiator for future members. The engagement and excellence from one team Hagerty creates a repeatable winning formula for stakeholders.
McKeel: We are investing in the major technology replatforming that will enable scalable growth while delivering excellent experiences for our members with greater efficiency.
McKeel: Slide 5 goes into more detail around the investments we are making in our technology transformation including the transition to the cloud-based insurance platform.creak
McKeel: We are pleased to report that our 2025 technology investments are running on schedule and on budget.
McKeel: As we discussed at length last quarter, these near-term investments should result in greater long-term efficiency for our teams and better experiences for our members, which should enable future growth at margin expansion.
McKeel: Our technology spend should trend down as percent of revenue as we accelerate the top line in 2026 and 2027 and drive margins higher.
McKeel: Before Patrick digs into the numbers, I want to highlight a few more reasons why we believe that we are such a compelling investment opportunity.
McKeel: Hagerty is a US-centric company with over 90% of our revenue generated in the United States.
McKeel: positioning us well to weather noise from tariffs. And we operate on a highly regulated and mandated industry that enjoys great defensive characteristics.
McKeel: This creates predictable revenue streams, especially given our excellent retention and persistent sharecans for the Hagerty brand.
McKeel: Our track record speaks to a highly differentiated business model that can thrive regardless of the economic cycle.
McKeel: Our compound annual growth rate in written premium since 2005 is over 13%, but even during the darkest moments of the great financial crisis, we maintained high single digit written premium growth.
McKeel: While volatile market conditions might make consumers think twice about buying another special car this year, or cause consumers to forego a vacation, the extra time spent at home creates opportunities to enjoy their existing enthusiast vehicles.
McKeel: Philip Altogether, we believe that we are well positioned to deliver high rates of profitable growth for many years to come.
McKeel: Let me now turn the call over to Patrick to share more details on our first quarter results and our reaffirmed 2025 outlook.
Patrick: Thank you and good morning everyone. Let me dig into the first quarter in more detail, shown on slide 6 and 7.
McKeel: In the first quarter, we delivered 18% growth in total revenue to 320 million. New business count gains combined with industry leading retention of 89% for a 12% jump in written premium.
Patrick: Mission and fee revenue jumped 13% to over 100 million in line with written premium gains on stable underwriting results.
Earned premium grew 12% to 169 million.
Patrick: Our loss ratio of 42% incorporates 10 million in losses from the Southern California wildfires, and membership, marketplace, and other revenue increased 60% to 50 million.
Patrick: Our broad-hour team delivered excellent results at both Amelia and the American Academy of Art University Sale. I would note that the No Reserve AAU auctions epitomized the power of the Hagerty ecosystem.
Patrick: We utilize the strength of our live auction platform and team of specialists.
Patrick: Our evaluation expertise and our strong balance sheet to acquire the collection and sell 105 vehicles in a jam-packed room with over 500 registered bidders present.
Patrick: In just our third year, we have quickly established ourselves as a leading auction house with unparalleled automotive expertise across Hagerty's products, focused on cultivating trusted long-term relationships with our customers.
Patrick: Needless to say, we are very excited about our upcoming auction at the Stork, the LIDA-esque Concours, the first of many auctions to be held outside of the United States.
Patrick: We reported an operating profit of 26 million in the first quarter, a 110 percent increase as operating margins jumped 360 basis points to 8 percent in the seasonally small quarter for us.
Patrick: While there were some modest timing items that benefited the quarter, we are maintaining tight discipline on the cost structure of our MGA to efficiently translate our double digit commission gains into profit growth.
Patrick: G&A increased 12% due primarily to higher software licensing costs from our technology transformation and salaries and benefits grew 5% due to merit increases.
Patrick: Our MGA membership and marketplace businesses accounted for nearly half of our total revenue in the quarter with rapidly expanding margins.
Patrick: One team Hagerty is making great strides forward on our long-term growth opportunities, including the rollout of the State Farm Classic Plus program to 25 states.
Patrick: by the end of 2025, which should power accelerate commission revenue growth for MGA into 2026 and 2027.
Patrick: We are also tracking well to launch enthusiasts plus in Colorado later this year as we target more of the modern enthusiast vehicles that we are currently declining.
Patrick: Adjusted EBITDA, increased 45% to 40 million, and is up sixfold from the first quarter of 2023.
Patrick: Adjusted EVA DOM margins continue their steady march higher surpassing 12% in the quarter as we improve the efficiency of our business model.
Patrick: Our growing capital-based at Hagerty-Re and balanced investment strategy resulted in seven million investment income despite the market volatility.
Patrick: In total, we delivered first quarter net income of $27 million compared to $8 million a year earlier an increase of 233%.
Patrick: Net income attributable to Class A common shareholders was 6 million after attribution of earnings to the non-controlling interest and accretion on the preferred stock.
Patrick: and Gap Basic Interluded Earnings for Share with $0.7, based on 90 million shares of Class A common stock outstanding.
Patrick: We ended the quarter with 128 million in cash and 147 million of total debt, which includes 32 million in back leverage for our profitable portfolio of loans to customers that are collateralized by collectible cars.
Patrick: We also increase the capacity of our unsecured credit agreement to 375 million in the quarter adding BIMO to the syndicate.
Patrick: The amended facility has lower borrowing costs and a maturity of 2030.
Patrick: Let me wrap up with our 2025 Outlook, shown on slide 9.
Patrick: Given the solid first quarter results in business momentum, we are reaffirming our 2025 guidance for the top line revenue growth of 12 to 13% powered by 13 to 14% gains in rent and premium.
Patrick: We expect to deliver strong operating leverage to the bottom line with net income of $102 to $110 million up 30 to 40 percent and adjusted EBITDA $150 to $160 million up 21 to 29 percent.
Patrick: In summary, we are executing well against our 2025 strategic priorities and positioning Hagerty for high rates of compounding profit growth.
Patrick: With that, let us now open the call to your questions.
Patrick: Ladies and gentlemen, if you'd like to ask a question, please press star one on your telephone keypad, and the confirmation tone will indicate your line is in the question queue.
Patrick: You may press star 2 if you would like to remove your question from the queue.
Patrick: for participants using speaker equipment. They may be necessary to pick up your handset before pressing the star keys.
One moment please, or we pull for questions.
Patrick: and the first question comes from the line of Pablo Singzon with JP Morgan, please proceed.
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Pablo Singon: Hi, good morning. Patrick, you touched on this a bit in your comments, but I was wondering if you could provide a refrush on the relative margins to generate a marketplace revenue versus the rest of the Hagerty. I'd assume in a quarter like this one where you saw a strong growth in marketplace, you probably got a decent amount of mixed benefit to respect the margins just with the normal operating leverage.
Speaker Change: So if you just, you know, maybe parse out the rather than contribution of marketplace this quarter or whether in terms of, you know, dollar, EBITDA or basis points of margins that will be helpful. Thank you.
unknown: Sure, good morning Pablo, thanks for the call for the question. Yes, we've talked about the driver in this quarter really was the live auction business and so we had the AU sale that went quite well. We had a million island and so
unknown: We really benefited from strong sales in both of those, and I think what we talked about is the way we think about those sales.
unknown: Really on a contribution profit basis, and so you kind of design a sale where you know what your costs are to put on that sale and then you try to put together a book of business that puts you in a position where you're going to cover all those costs and produce more margins.
unknown: and so before you get to sort of overhead allocation, those kind of things.
unknown: These are designed that if they go well, they should be quite profitable. So, contribution profit margins, you know, 30, 35 percent type numbers.
unknown: and so when you have two good sales, that's the kind of contribution we were getting in the first quarter.
unknown: and then of course there's overhead and central cost and those kind of things that you've got to burn in the business for.
unknown: but it is quite profitable. And when you compare that to the other parts of our business, you know, our risk-taking business is about a 10% profit margin business. The outside of risk-taking and insurance, you know, we're sort of mid to high single digits right now, but expanding, that will continue to grow over time.
unknown: but the nature of the marketplace business is that when working well, it will be a very profitable business on a margin basis. Hopefully that's helpful.
Speaker Change: Yes, it was. Thanks for the detail. And then just jump into another topic.
Speaker Change: a strong risk result, this quarter right through the threshold coming in the low 40s even with a catastrophe. So if you X out those catastrophes that put your loss ratio in the mid 30s, right? But I think it's much lower than where you just thought you run. So if you could just provide perspective on what happened, X catastrophes with respect to the loss ratio. Thank you.
Speaker Change: The first thing is just how we think about seasonality in losses and so the way we think about is we going into a year, we come up with what we assume will be our full year of loss ratio.
Speaker Change: and then we booked to that, and so typically in the first and second quarter, we're just booking to that full-year loss ratio, even though those are typically seasonally low quarters for us from a loss perspective.
and then in the third quarter and fourth quarter.
Speaker Change: Will you keep looking to that estimate that we have at the beginning of the year, or we'll make adjustments one way or the other, and the reason why this all makes sense for us is we're so seasonal, where the driving activity happens.
Speaker Change: late Q2 and Q3, so it's not until we get to the end of Q3 that we've got a sense what the driving Susan looked like.
Speaker Change: and then that's also end of Q3, you're kind of right in the midst of what cat season, and so...
Speaker Change: that's when we'd make any adjustment. So the way to think about what happened in the first quarter is we booked to our annual number. It includes what happened in California with cats.
Speaker Change: and so you're right. If you stripped out those caps, you would be, you know, down in the 30s. And typically the first quarter is a much lower loss ratio, quarter for us, so that the actual experience is going to be in the 30s. We booked to something that's more likely.
Speaker Change: Announcer This has been a production of WTRF, The Daily Show.
So that's the mechanics behind it, to that answer the question.
Yes or no? Thanks again.
You bet. Thanks, Pablo.
Speaker Change: and the next question comes from the line of Matt Carletti with JPM J&T Securities. Please proceed.
Speaker Change: Hi, yes, this is David on from Matt. I had a couple questions if that's all right. First, if you could just provide an update on the impact of Paris.
Speaker Change: A large peer earlier this reporting season suggested that one time made the highest single-digit lost lost cost impact, presumably slightly higher in auto and lower in home. So how the anticipated impact on Hagerty's book compare?
Speaker Change: Sure. Thanks for the question, David. Good morning. The way we're thinking about tariffs, we don't see it as having what I'd call a direct impact on our business.
Speaker Change: We can start with the insurance business and the way that we think about it is over time you would expect that it would create some sort of upward pressure on claims costs related to severity.
Speaker Change: The tricky part for us is, if so many vehicles are, it's
Speaker Change: is a big dispersion in terms of the types of vehicles and the age of vehicles and the supply change for parts for each of those vehicles can be very different and oftentimes a lot of these things, these are not on the run parts, these are things that are being manufactured in small batches and oftentimes they are manufactured domestically.
Speaker Change: and so while there should be, over time, some upward pressure, we think it will be quite muted for our business.
Speaker Change: So really hard to predict because the nature of the supply chains for the different cars that we're serving, but we think it'll be pretty muted for us.
Speaker Change: We also think about in terms of the marketplace business and our interpretation of the rules and obviously things are moving around but our interpretation is that
Speaker Change: Cars that are 25 years old and older, there's no change in the tariff regime. It was a 2.5% tariff, it's still a 2.5% tariff.
Speaker Change: So we think about high-value cars being imported into the United States and those are the kind of cars that were helping people sell it auction or privately, no change.
Speaker Change: from Tarris on that side. So we'll watch and see. We're monitoring it closely but we think it will be relatively muted for us.
Speaker Change: That's very helpful. Thank you. And just one more question. Last quarter, spoke a bit about how your business is seasonal.
and start seeing more shocking activity come March or April .
Speaker Change: You also mentioned how the LA Fires were having a cooling effect on that activity, similar to what you've seen in other cat events or cold weather events. So, sitting here now in May, can you update us on what you've seen over the past 30 to 60 days with respect to shopping behavior?
Sure, yeah.
Good questions.
Speaker Change: You know, it's interesting. There's industry wide. You're seeing a lot of shopping activity right now. You're seeing some of the large.
Speaker Change: Daily Driver Ensures, really leaning in from a marketing perspective and driving that shopping activity.
Speaker Change: Some of that flows through to us, just activity creates more at the top of the funnel, so our quote volume continues to be strong, and that has held up over the course of the first quarter into the second quarter as well.
Speaker Change: We have seen a little bit slower growth than what we anticipated and planned for.
Speaker Change: and as we did our diagnostic of that, there's a few things going on. Some of the factors you described right when there are these large events that typically results in a pause.
Patrick McClymont, McKeel Hagerty
Speaker Change: and then there's a number of changes that we've made internally to make sure that we're
Speaker Change: taking friction out of sort of our quote flow. And so we're trying different things to make sure that we're driving the right level of activity. So a little bit slower than what we had anticipated. We've always talked about 2025 being an interesting year where it's very back-end loaded in terms of new customer growth.
Speaker Change: and a lot of that is related to State Farm, which ramps up. We're now in seven states with State Farm. We enter three more states in the last quarter.
Speaker Change: We're going to start the process of doing conversion of state farms existing customers.
Speaker Change: The letters for our first four states have already gone out, and so that means by summertime we'll be converting those customers.
Speaker Change: and then we'll do the same with the three states that we've just entered. By the end of this year, we think we'll be in around 25 or more states with state farm and so that really drives a lot of the growth that we are seeing occur this year. It'll be in the second half.
Speaker Change: So off to a solid but not as quick start as we anticipated for 2025, but we think that it will ramp up quite quickly as we get into the driving season and particularly the State Farm Activity.
Thank you.
Speaker Change: Ladies and gentlemen, again if you would like to ask a question, star one.
Speaker Change: and the next question comes from the line of Mark Hughes with true securities. Please proceed.
Yeah, thank you. Good morning.
The Mark Membership of the
Speaker Change: Good morning. Membership and marketplace revenue up a very strong this quarter of 60% seems like you've got some good events in the pipeline. Any sense or visibility for what it might be for the full year in terms of the growth there?
Speaker Change: Yes, as we said on the call, we've affirmed our guidance, and you should interpret that to be across the entire business.
Speaker Change: Good start to the year in live auctions and we've got the schedule for the balance of the year.
Speaker Change: We had one additional auction that happened in the second quarter, which was a good outcome. That was our partial only sale that we did at Air and Water a couple of weeks ago, and so that came kind of in line with what we did in the previous year.
Speaker Change: As always, Monterey is big for us and so that will be in August . We get the new sale coming up in Italy all that's baked into our guidance. So off to a good start, but it's a little bit early for us to conclude that we need to change our guidance on it, but we're pleased with the outcome so far.
Very good, you would have mentioned that.
Speaker Change: Hagerty, Jason Koval, Mark Hughes, Hagerty, Jason Koval, Could you expand on that? What was your point there?
McKeel: Mark McKeel, I'll comment on that as we've talked about, we're launching really a new program that will operate in parallel with our core program, we're referring to it as enthusiast
Speaker Change: and this is really in response to this changing both, I guess, kind of demographic and vehicle preference trend that we've been tracking for a number of years, where as younger buyers and collectors get into the space, they're interested in newer cars that our...
in a core classic collector car insurance.
Speaker Change: Program and pricing structure didn't entirely contemplate. So we get a lot of that interest today.
Speaker Change: and we turn a lot of it away for pricing or underwriting reasons and so are in this whole
Effort to...
Speaker Change: Acquire and stand up the driver's head insurance company, our Duck Creek Apex Technology
Speaker Change: is really in response to that. So we can widen the aperture of our underwriting funnel and to be able to write more of the business that's already coming our way. So we're excited about it, but it's a complicated long process to get one of these new.
Speaker Change: programs and insurance companies up and running and we're excited to get that going a little bit later this year and starting in Colorado and then we'll be...
Speaker Change: Yeah, so are these cars, are they kind of more in the...
Speaker Change: Border, they're more like daily drivers or people drive them more often, but they still are older, more classic vehicles, is that the complication?
Speaker Change: Well, you know, I like to remind people that the, you know, the Mazda Miata is now over 30 years old, has a type of car that, you know, we get a lot of interest in and, you know, these are 10, 15, $20,000 cars that are beloved by the people that own them.
Speaker Change: and yes, they can be driven more. There were many of them, you know, it wasn't that long ago that they were still under warranty.
Speaker Change: but they are the special two-seater convertible that you can go out and enjoy on a sunny afternoon.
Speaker Change: The usage profile generally matches everything that we've been doing for all of these decades, but the car is a little bit more modern, a little bit more reliable.
Speaker Change: and yes, sometimes you will see them driven more than 5, 6, 800 miles a year, but still we think within a very under-rightable, a very pricing target that we can get.
Speaker Change: and similar kind of results that we've been able to achieve through the years. So we write some of this business today, we've kind of stretched our pricing and rating models about as far as we can with those, and that's why we're standing up the new program.
Speaker Change: I understand. Patrick, on the Duck Creek spending in your Reaffirmed Outlook, you highlight again the 10 million from the wildfires and 20 million from the Duck Creek technology
Speaker Change: When we roll that forward into 2026, how much of that recurs or, you know, would be ongoing, or does that, is that just isolated to 2025, you could remind me on that to be great.
Speaker Change: Sure, so the 20-minute that we talked about, about two-thirds of that is technology-related and really is what we call Apex, which is...
as part of the modernization of our stack.
and so about two-thirds is technology related.
Speaker Change: The other third, really, is people related. And some of that is standing up the team that we need to take on our European expansion within Marketplace. We're not just doing one auction over there, we're going to be in business over there. And so we're building out a team and capabilities. So it's related to all the volume that will be coming online for State Farm.
I'm going to step up for some of that activity.
Speaker Change: So that's how we got to that $20 million, and the intent was to help people understand
Speaker Change: that that is a, that compresses our margins in 2025. We are spending those dollars now in support of growing our business.
Speaker Change: and we're spending those dollars in some cases in advance of the revenue, right? So we're hiring up a team in Europe .
Speaker Change: We're having our first auction in May. We won't be at a full schedule for a couple of years.
Speaker Change: and so it's a margin drag as we get to that stabilization.
Speaker Change: Same concept with State Farm, right? We've got to hire those people and we're onboarding them before the full revenue comes online and obviously the case for technology.
Speaker Change: So that was the intent is to give people a way to bridge sort of the margin story. Our margins have expanded quite rapidly. The rate of expansion slows in 2025, largely because of this 20 million. We're not signaling if that it's a one-time, right? Those dollars don't go away.
Speaker Change: The technology spend, we spend a bunch of capital dollars that turn into depreciation and then we'll be paying for the licenses for the new technology platform and the heads dollars you don't go away because we're going to...
Speaker Change: a bigger book of business on a go-forward basis, so it's not a one-time concept, it's more of a bridge concept.
Is that helpful?
Speaker Change: It is, yeah, it becomes kind of the baseline of expenses, but then you're layering on the revenue associated with that and leveraging that over time. It sounds like the way to think about that. Yeah, that's it. Yeah. Okay, very good. Thank you.
Thank you. Thank you.
Speaker Change: In the last question, we'll come again from the line of Pablo Singzon with JP Morgan. Please proceed.
Pablo Singham: Hi, thanks for taking my follow-up. I just wanted to follow up quickly on the 20 million of panel expenses. How much of that showed up this quarter and how should it face into the year? Thank you.
Uh...
Speaker Change: I'm pretty rateably actually because the technology we signed up all those licenses we're paying for them now, some of the work is still construction and progress and it hasn't fully been put into action and therefore we haven't started depreciation on it.
The People, Elf.
Pablo Singham: Most of the hiring happens in Q1 and Q2 for that, so...
Pablo Singham: I would say it's probably of that 20 million, you know, there's probably...
Pablo Singham: 15 to 15% was in the first quarter, and then just kind of gradually increased it from there. That's Jason, Paul Park. Good way to think about it.
Thank you.
Pablo Singham: This will conclude the question and answer session. I'd like to hand the call back to McKeel Hagerty for closing remarks.
Pablo Singham: Thank you, operator, and thanks to all of you for your continued support and interest in Hagerty. Driving season is here, and so is show season, our Grennitch.
Pablo Singham: Connecticut Concord Delegance Weekend is coming up on May 31st in June 1st in Greenwich, Connecticut, and we will also be hosting our annual investor event on Friday, May 30th at the Delamar Greenwich Harbor right there on the site.
Pablo Singham: of the Concord event. So, hopefully some of you will be interested in joining us there and we look forward to seeing you. We hope you will be able to learn more about us as we think about positioning our company to double our PIFCount to 3 million by 2030 through our highly differentiated business model.
Pablo Singham: The entire Greenwich Concord weekend should be a lot of fun and hope you can attend. And for those of you who happen to find yourselves in Italy the weekend before, we'd love to have you join us at the Villa Destae Auction and Concord on May 24th and 25th. Until then, never stop driving.
Speaker Change: This concludes today's conference. You may disconnect your lines at this time. Enjoy the rest of your day.
Speaker Change: Patrick McClymont, Mark Hagerty, Jason Koval, Mark Hagerty, Jason Koval, Mark Hughes