Hagerty (HGTY), a leader in collectible vehicle insurance, has announced a robust performance in the first quarter of 2024, with a significant increase in commission revenue and marketplace revenue. The company also reported improved operating margins, a substantial rise in net income, and an increase in adjusted EBITDA. Hagerty’s outlook for 2024 remains positive, with expectations of continued revenue growth and a strong financial position, supported by strategic partnerships and product launches.
Key Takeaways
- Commission revenue rose by 19%, driven by gains in written premiums and strong underwriting results.
- Marketplace revenue surged by 58%, attributed to more listings and higher auction sales.
- Operating margins improved by 1,200 basis points.
- Net income increased by $23 million, and adjusted EBITDA grew by $21 million.
- Hagerty reaffirmed its 2024 revenue growth outlook of 15-17% and net income forecast of $61 million to $70 million.
- The company has $91 million in long-term debt, with $29 million as back leverage against collectible car loans.
- Hagerty anticipates a 13-14% growth in written premiums and aims for 11-12% adjusted EBITDA margins in 2024.
- An investor event is scheduled for May 31 to discuss long-term growth strategies.
Company Outlook
- Hagerty projects top-line revenue growth of 15-17% for 2024.
- Net income is expected to rise by 116-148%, reaching $61 million to $70 million.
- Adjusted EBITDA is forecasted to increase by 41-53%, with a target of $124 million to $135 million.
Bearish Highlights
- Insurance rates increased by only 3%, which is lower than the industry average of 10%.
Bullish Highlights
- The company is experiencing growth in policy count and insured values.
- The collectible car marketplace is expanding.
- Partnerships, like the one with State Farm, are progressing well.
- Enthusiast Plus, a new product, is set to launch in 2025 and 2026.
Misses
- There were no specific financial misses reported in the earnings call.
Q&A Highlights
- The company addressed its debt structure, detailing $29 million in back leverage for loans collateralized by collectible cars.
- Hagerty discussed its strategic initiatives, including the marketplace platform and underwriting profit control, to support long-term growth.
- The upcoming investor event in Greenwich, Connecticut, was highlighted, where the company will elaborate on its growth plans.
Hagerty’s first-quarter results demonstrate a strong start to 2024, with notable revenue growth in both its core insurance and marketplace segments. The company’s strategic focus on expanding its marketplace platform and controlling underwriting profits is poised to contribute to long-term growth and margin expansion. With the introduction of the Enthusiast Plus product and the strengthening of its partnership with State Farm, Hagerty is well-positioned to accelerate growth in the coming years. Investors and stakeholders are looking forward to the May 31 event for a deeper dive into the company’s future direction and long-term growth strategies.
InvestingPro Insights
Hagerty (Ticker: HGTY) has been making waves in the collectible vehicle insurance market, and recent data from InvestingPro provides a deeper insight into the company’s financial health and market performance. With a market capitalization of $3.13 billion and a substantial revenue growth of 25.7% over the last twelve months as of Q1 2024, Hagerty’s financial trajectory appears promising.
InvestingPro Tips suggest that analysts are optimistic about Hagerty’s future, with three analysts having revised their earnings upwards for the upcoming period. This aligns with the company’s own positive outlook for 2024. Additionally, despite trading at a high P/E ratio of 99.74, the adjusted P/E ratio for the last twelve months as of Q1 2024 stands at a more moderate 45.78. This suggests that, relative to near-term earnings growth, Hagerty could be positioned more favorably than the current P/E ratio implies.
Furthermore, Hagerty’s Price / Book ratio for the last twelve months as of Q1 2024 is 33.55, indicating a premium market valuation, which may reflect the company’s strong brand and market position in the niche market of collectible vehicle insurance.
For readers interested in a more comprehensive analysis, there are additional InvestingPro Tips available that provide deeper insights into Hagerty’s financials and market performance. Use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription at https://www.investing.com/pro/HGTY.
Hagerty’s robust performance and strategic growth initiatives appear to be resonating with both analysts and the market, positioning the company for a potentially strong performance in 2024.
Full transcript – Hagerty (HGTY) Q1 2024:
Operator: Greetings and welcome to the Hagerty First Quarter 2024 Earnings Call. This time, all participants are in a listen-only mode, and a question-and-answer session will follow the formal presentation. [Operator instructions] Please note this conference is being recorded. At this time, I’ll now turn the conference over to Jay Koval with Investor Relations. Mr. Koval, you may now begin.
Jay Koval: Thank you, operator. Good morning, everyone, and thank you for joining us to discuss Hagerty results for the first quarter of 2024. I’m joined this morning by McKeel Hagerty, Chief Executive Officer and Chairman and Patrick McClymont, Chief Financial Officer. During this morning’s conference call, we will refer to an accompanying presentation that is available on Hercules Investor Relations section of the Company’s corporate website at investor.hagerty.com. Our earnings release, accompanying slides and letter to stockholders covering this period, are also posted on the IR website. Our 8K filing is also available there, along with our earnings press release and other materials. Today’s discussion contains forward-looking statements and non-GAAP financial metrics as described further on Slide 2 of the earnings presentation. Forward-looking statements include statements about our expected future business and financial performance and are not promises or guarantees of future performance. They are subject to a variety of risks and uncertainties that could cause the actual results to differ materially from our expectations. 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 at SEC.gov. 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 8-K filing. And with that, I will turn the call over to McKeel.
McKeel Hagerty: Thanks, Jay, and good morning, everyone. We appreciate you taking the time to join Hagerty’s first quarter of 2024 earnings call. The winter chill in Northern Michigan and across much of North America is behind us. Plants are blooming and cars are firing up as we begin the 2024 driving season. To us, it is the best time of the year. Hagerty may be a leading provider of insurance for collectible vehicles in North America, but insurance does not define us. A lot of cars does, and that is the key competitive advantage we have utilized to differentiate our approach and to position us to deliver high rates of compounding profitable growth in the years to come. So let me start by thanking our 1,700 Hagerty employees. This team of highly engaged car people has never been better aligned around our strategic growth ambitions and is well-positioned to deliver great results for stockholders. Let us dig into the key highlights for our first quarter results shown on Slide 3. This includes commission revenue jumped 19%, fuelled by written premium gains and strong underwriting results. Our brand and value proposition fuelled consistent mid-to-high single digit growth in new business counts. Insurance rates also increased by 3%. This is well below the 10% average rate increase we are seeing from most of the major national insurance carriers as they look to pull down their loss ratios following a period of elevated losses. Those higher average rates out there are causing more people to shop than ever. This is a good thing for us as it helps us power our direct-to-consumer business. Earned premium for our risk-taking entity, Hagerty reinsurance jumped 29% due to written premium gains and last year’s increase in quota share to 80%. Membership, marketplace and other revenue grew 18%. This was powered by 58% growth in marketplace as we steadily increased the number of cars listed on our online marketplace and we more than doubled sales at our Amelia live auction. Marketplaces off to a great start to the second quarter with over $15 million in sales at the ports of sale with air water in Costa Mesa last week. Moving to profitability; during the first three months of this year, our operating margins jumped to 1,200 basis points, resulting in a $23 million improvement in net income and a $21 million jump in adjusted EBITDA. You may recall that in 2023, we grew total revenue by 27%, while significantly improving profitability, delivering a year-over-year increase in net income of $26 million and adjusted EBITDA of $90 million. The first quarter of 2024 marked the continuation of Hagerty’s margin expansion story as we have thoughtfully reengineered our business processes. Slide 4, shares a few examples of how this work positions Hagerty for sustained multiyear operating leverage. First, we are better leveraging our performance marketing team to efficiently acquire new customers, activating our increasingly strong data assets, we have reallocated funds into the traditionally slower shoulder seasons to effectively deliver search and social ads to the surge of insurance shoppers. We are also investing in additional television advertising around our 40 anniversary campaign; Keepers of the Flame. Early data from this campaign suggests that consumer response is outperforming our expectations. With unaided brand awareness of 16%, we have a long runway to build our fan base far beyond the current 1.4 million policyholders. Second, we have been making changes to our member service center process to serve our members more effectively, reducing handle times and freeing up resources for continued member growth. There are ample opportunities to increase straight through processing and automation, in addition to leveraging AI tools to improve speed and efficiency of service. We have also moved our MSC team to a quarterly bonus structure that increases our ability to incentivize and recognized top performers. And third, we have identified potential savings within our claims organization. While we are extremely proud of Hagerty’s consistently stable combined ratio of under 90%, losses and loss adjustments totalled $221 million last year, our second largest expense behind ceding commission. So we are adding resources to our in-house claims team to help deliver great claims experiences for customers with minimal leakage. Simply put, these initiatives complement our cost containment efforts and position Hagerty for high rates of flow through of incremental revenue into profits over the coming years. Slide 5 is a reminder of our 2024 priorities, including; first, we are improving loyalty to drive renewals and referrals. This represents a highly profitable way we can grow Hagerty, given the lower loss ratios of seasoned policies and lower acquisition costs from referrals. Second, we are enhancing the member experience in a cost effective and efficient way, leveraging technology to fuel margin expansion as we scale up. Third, we will continue building Hagerty marketplace into the most trusted and preferred place to buy, sell and finance collectible vehicles. This includes ramping up our online marketplace, which is now selling five cars per day with industry-leading views per vehicle and bids per vehicle and sell-through rate of 70% to 80%. And fourth, we are increasing our flexibility and control over our underwriting profits, including the CNIC. insurance company acquisition and launch of an enthusiast plus product to better serve the post 1980s vehicle cohort. We are off to a great start in 2024 and are confident in our ability to grow revenue in the mid-teens with even stronger rates of profit growth. Improved margins and cash flow generation will allow us to invest in the competitive advantage that lengthen our leadership position and create substantial value for shareholders over the coming years. Let me now turn the call over to Patrick to run through the first quarter results and 2024 financial outlook in more detail.
Patrick McClymont: Thank you and good morning, everyone. Let us dig into the first quarter results, which are on Slides 6 and 7. In the first quarter, we delivered 24% growth in total revenue to $272 million. Robust new business count and improved retention of 89% compared to 88% in the prior year produced written premium gains of 19%. Commission and fee revenue jumped 19% to $89 million, in line with written premium gains on stable underwriting results. Membership, marketplace and other revenue, increased 18% to $31 million. Our broad aero team delivered excellent results at Amelia with sales of $63 million and a 92% sell-through rate, lower garage and social results partially offset the strong marketplace results. Recall we dissolved our garage and social joint venture during the third quarter of last year to refocus internal resources on more material profit drivers. Earned premium grew 29% to $152 million, driven by the combined impact from written premium gains and a higher reinsurance quota share. Loss ratio came in at 41.1%, consistent with historical levels. We produce stable and highly predictable underwriting results, thanks to decades of experience, ensuring customers have special vehicles. Turning now to profitability, shown on Slide 8; we reported a first quarter operating profit of $12 million, an improvement of $29 million over the prior year period, as operating margins jumped 1,200 basis points. We decisively moved historically seasonally weak quarter into the black with a 4.5% operating margin. G&A declined 7% and salaries and benefits grew only 2% due to our cost reduction activities. Our margin expansion is even more impressive as we continue to invest in our long-term growth opportunities, including the rollout of the State Farm Classic Plus program and launch of the Enthusiast Plus product as we move into 2025. Adjusted EBITDA increased $21 million year-over-year to $27 million. This is on top of the $13 million improvement in EBITDA delivered in the first quarter of 2023, resulting in a two year stacked improvement of $33 million. Adjusted EBITDA margins in the quarter surpassed 10%, and we believe there is much more to come as we continue to optimize our business model. This includes the initiatives McKeel mentioned in his remarks around our marketing efforts, member service center and claims. On a trailing 12-month basis, we delivered net income of $51 million and adjusted EBITDA of $109 million, also equating to a margin of 10%. Note that this EBITDA excludes the more than $24 million in net interest income generated from our growing capital base at Hagerty rate. In the aggregate, we delivered first quarter net income of $8 million compared to a loss of $15 million a year earlier. Significantly improved operating margins drove the $23 million improvement in net income. An increase in the fair value of our private and public warrants reduced net income by $6 million. Net income attributable to Class A common shareholders was negative $3 million after attribution of earnings to the non-controlling interest and accretion on the preferred stock. GAAP basic and diluted earnings per share was minus $0.04 based on $85 million weighted average shares of Class A common stock outstanding. Dramatically improving cash flow has created a net positive cash position at the end of the quarter with $131 million of cash and only $91 million of long-term debt, $29 million of the $91 million debt is back leverage for our profitable portfolio of loans to customers that are collateralized by collectible cars. Let me wrap up with our reaffirmed 2024 outlook shown on Slide 9. Given the excellent start to the year contemplated in our full year outlook, we reaffirm our 2024 guidance for top line revenue growth of 15% to 17% powered by 13% to 14% growth in written premium. Hagerty’s best-in-class value proposition built around guaranteed value, automotive expertise and favourable relative rate increases in the low single digits, fuel high rates of member growth. We expect strong operating leverage to the bottom line with net income of $61 million to $70 million, up 116% to 148% and adjusted EBITDA of $124 million to $135 million, up 41% to 53%. In summary, we are executing well on our plan for high rates of revenue growth, margin expansion and cash flow production and we are on track for 11% to 12% adjusted EBITDA margins in 2024. But the best is yet to come as investments in our people and technology positions to deliver 30% incremental margins from 2022 to 2024 as well as even higher rates of revenue growth into 2025 and 2026 as State Farm ramps up and we launch enthusiast plus. With that, let us now open the call to your questions.
Operator: [Operator instructions] And our first question is from the line of Mark Hughes with Truist Securities. Please proceed with your questions.
Mark Hughes: Could you talk about the PIP growth, the policy count growth, you talked a lot about your performance marketing initiatives and other strategies to grow policy count. Seems like your rate of posture, low single digits, pretty attractive relative to the broader market, as you say, how should we think about the prospects for policy count growth?
McKeel Hagerty: I think you answered most of the question and asking that.
Patrick McClymont: Yes, we’re pleased so far this year. Last year we had north of a quarter of a million new customers. We expect this year to be something in that same neighborhood. We’re a little bit ahead of that pace as we got through the first quarter. What we’re seeing in the marketplace right now is a pretty meaningful increase in daily driver insurance prices is driving a lot of shopping activity and we’re benefiting from that. As you described there, our prices are only up low single digits relative to a market that we think will be up about 10% this year and so that’s just putting more people at the top of our funnel and then we’re doing a really good job converting and so we expect to have similar on an absolute basis similar growth this year to what we had last year.
Mark Hughes: And then in the marketplace, you described the five cars per day, is it something that is a steady build or in the model? Is there some point where there is a potential inflection where the the network effect takes over and you have more of a step function activity there?
McKeel Hagerty: Well, thanks, Mark, McKeel. For now it’s the steady build and it’s this really delicate balance between supply and demand that we actually have quite a wait list of cars wanting to be listed and as part of the marketplace and to go on with one of the live auctions, but if you go — if you dump too many cars into the mix and demand drops, then your sell-through rate it lowers, and so it’s this really steady build at this point. But yes, the team sitting out there thinking, okay, out in the future, once we get past this sort of first big phase of the steady build, you should start seeing greater acceleration there and we’re really pleased with is that the in the digital product teams that are out there, building the marketplace or adding features to this every two weeks and we just have this great steady supply kind of coming out of our customer base. So we’re excited for the future, but it’s a steady build for now.
Mark Hughes: Yes. And then what’s the latest update on State Farm.
McKeel Hagerty: So latest updates with State Farm is we’re live in the four states, which are we’ve talked about before, and it’s actually going very, very well in those four states, a little bit ahead of plan. Lots and lots of testing going on that before we can add the additional states, but a lot of optimism on both sides, and we’re just continuing to work through this start-up phase. So we’re here we wish it was a lot more states right now, but we’re also happy that the tests in these first for doing so well.
Operator: [Operator instructions] The next question is from the line of Pablo Singzon with JPMorgan. Please proceed with your question.
Pablo Singzon: Good morning. Growth in insured values and price increases contributed more than 13 points of our written premium growth this quarter. Right. And I think that was up from last year. Do you think the current — this current level is sustainable and what are what assumption is embedded in your growth outlook.
McKeel Hagerty: Yes. So for us, the key drivers are going to be new customer growth, rate growth and then changes in value and all three have been contributing. As we just answered the previous call with sort of low to mid-single digits on premium and then the balance is kind of split between changes in value and new customer growth and right now after kind of four plus months into the year, momentum has remained strong, and so as we look for the balance of this year, we’re very comfortable and reaffirmed our guidance. We’re very comfortable with that. As we get beyond and into 2025 and 2026 in the core business right now, it looks as though that kind of growth will continue and what we’ll be accelerating, our growth in ’25 and ’26 is the ramp up of State Farm, which begins in earnest in 2025 and then also the enthusiast plus product we talked about, which we’re not going to start selling until early 2025. And so those two years should have even higher growth because of those two new programs and airline core business, we continue to see very attractive growth and nothing that leads us to believe that that’s slowing down
Pablo Singzon: Thank you. And then on the Enthusiast product, any way to size how that will ramp up beginning ’25, but it’s a new product, obviously, it’s a big part of the classic car market that you’re not, I think, full potential yet today, but so your thoughts on how that business might ramp the next few years. Thank you.
Patrick McClymont: We’re going to take a sort of an appropriate and deliberate pace to it because it is a new product and so we’ll be launching in four states initially in the early part of next year. We’ll use that to do some learning to make sure that we’ve got the product right, which we’ve got the pricing right, and then we’ll start to add incremental states over the course of 2025. My guess is it won’t be until 2026 that were kind of fully rolled out some. We’re excited about it, but it is new. It’s an evolution of our existing product and so we want to make sure we do it thoughtfully.
Operator: We’ve reached the end of question-and-answer session. I’ll turn the call over to the McKeel Hagerty for closing.
McKeel Hagerty: All right. Thank you, operator, and thanks to all of you for your continued support and interest in Hagerty. We have carefully built a highly differentiated business model over the last four decades, and that is just beginning to hit its stride as we help members protect buy-sell and enjoy their price vehicles. As I mentioned on our last call, our omnichannel distribution delivers high rates of commissionable revenue growth. Membership supports the profitability of our insurance business through excellent retention and net promoter scores from happy members. We are investing significant resources to build Hagerty marketplace into the trusted and preferred platform in this rapidly growing market and we also continue our multiyear evolution towards increasing our flexibility and control over our underwriting profits. This allows us to maintain high rates of written premium growth as we further penetrate the 46 million collectible cars in the United States. We will be hosting an in-person event for investors on May 31, in Greenwich, Connecticut, where we will share more color on how we are positioning the Company for long-term growth and margin expansion. We hope to see there as the entire weekend of the Greenwich Concord Telecom should be a lot of fun for all. Until then never stop driving.
Operator: This will conclude today’s conference. You may disconnect your lines at this time. Thank you for your participation.
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