Hagerty, Inc. Q1 FY2025 earnings call

Strategic Priorities - Expand specialty insurance offerings to protect more of the collectible vehicle TAM, including modern enthusiast vehicles. - Simplify and better integrate membership experience across products and services for revenue synergies and cost efficiencies. - Expand marketplace business internationally, leveraging trust built in the US, e.g., upcoming auction at Villa d'Este Concorso. - Leverage Hagerty's car culture as a differentiator. ### Technology Investments - Investing in major technology replatforming to cloud-based insurance platform Duck Creek, with 2025 investments on schedule and budget. ### Profitability - Operating profit was $26 million in Q1, an 110% increase, with operating margins jumping 360 basis points to 8%. Adjusted EBITDA increased 45% to $40 million. - Strong growth in new members and successful auctions at Amelia and AAU contributed to the positive financials.

Total revenue for the first quarter of 2025 increased 18% to $320 million. Written premium saw a 12% increase, commission revenue grew 13%, and earned premium from Hagerty Reinsurance rose 12%. Membership, Marketplace and Other revenue jumped 60% to $50 million. The Membership, Marketplace and Other segment contributed significantly to the overall revenue growth, with its 60% increase being a notable driver.

• Reaffirmed 2025 guidance: top line revenue growth expected to be 12% to 13%, driven by 13% to 14% gains in rent and premium. - Net income projected to be $102 million to $110 million, up 30% to 40%. - Adjusted EBITDA expected to be $150 million to $160 million, up 21% to 29%.

• Tariffs: Expected to have a muted impact on the business due to the nature of vehicle supply chains and no change in tariffs for cars 25 years old and older. - Market volatility: Could affect shopping behavior for enthusiast vehicles, though State Farm rollout is expected to drive growth later.

Q: Refresh on relative margins of marketplace revenues versus the rest of Hagerty?

A: Contribution profit margins from marketplace activities like auctions are 30%-35% type numbers, and these sales are quite profitable. When compared to other parts of the business, the risk-taking insurance business has a ~10% profit margin, while marketplace outside of risk taking and insurance is mid- to high single digits but expanding.

Q: Impact of tariffs on Hagerty's book?

A: Tariffs are expected to have a muted impact. For the insurance business, upward pressure on claims costs is expected but muted due to vehicle type dispersion and supply chain differences. For marketplace, cars 25 years old and older have no change in tariff regime.

Q: Update on shopping behavior?

A: Shopping activity is strong industry-wide, but Hagerty has seen a slower growth than anticipated. Factors include large events, weather, and internal changes to improve quote flow. However, 2025 is back end loaded with State Farm ramping up, entering more states, and starting customer conversions.

Q: Visibility on membership and marketplace growth for full year?

A: There's a good start with live auctions like Amelia and AAU. The schedule for the rest of the year is set, and guidance is baked in. The upcoming auction in Italy is part of the planned growth, and it's too early to change guidance based on early results.

Q: Enthusiast Plus program details?

A: Launching in Colorado later this year, targeting modern enthusiast vehicles. It's a response to interest in newer cars that the core program didn't fully contemplate. It's a complex process to stand up, but excited about expanding the customer base.

Q: Duck Creek spending and recurrence?

A: The $20 million spend includes technology-related (two-thirds) and people-related (one-third) costs. It's a bridge for margin story, not one-time. Technology spend turns into depreciation, and people hired for expansion won't go away as business grows.

Q: Breakdown of $20 million annual expenses in Q1?

A: Approximately 15% of the $20 million was in the first quarter, with the rest gradually increasing over the year as hiring and technology implementation progresses