Hagerty, Inc.

Greetings and welcome to Hagerty's second quarter 2022 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn this conference over to your host, Mr. Jay Koval, Investor Relations. Thank you, sir. You may begin your presentation at this time.

Thank you. And good afternoon, ladies and gentlemen, and thanks for joining us for Hagerty's second quarter 2022 earnings conference call. My name is Jay Koval, and I recently joined Hagerty to lead their investor relations function, and I look forward to working with all of you. Please note that this call will be simultaneously webcast on the investor relations section of the company's corporate website at investor.hagerty.com. Our earnings release accompanying slides and quarterly letter to stockholders covering this period are also posted on Hagerty's IR site. Joining the call today are Michiel Hagerty, Chief Executive Officer, and Fred Turcotte, Chief Financial Officer. Before we start, I would like to remind you that the discussion today may contain statements related to our business that may be considered forward-looking, including statements concerning our expected future business and financial performance, our ability to maintain existing and acquire new members, our plans to expand market share, including planned investments and partnerships, expectations regarding key operational metrics, and other statements regarding our plans and prospects. Forward-looking statements are often identified with words such as we expect, we anticipate, we believe, or similar expressions. These statements reflect only our view as of today, August 10th, 2022, and should not be considered our views as of any subsequent date. We do not undertake any obligation to update or revise any forward-looking statements. Forward-looking statements are not promises or guarantees of future performance and are subject to a variety of risks and uncertainties that could cause the actual results to differ materially from our expectations. For discussion of material risks and other important factors that could affect our actual results, please refer to those contained in our filings with the SEC, which are available on Hagerty Investors Relations website and at sec.gov. Finally, during today's call, we will refer to certain non-GAAP financial measures. A discussion of these non-GAAP financial measures, along with a reconciliation to the most directly comparable GAAP measure, is included in our stockholder letter, Investor Deck, and Form 10-Q, copies of which can be found on the investor relations section of our website and on the SEC's website at sec.gov. Unless otherwise noted in today's call, all comparisons are on a year-over-year basis. And with that, I'd like to turn the call over to McKeel Haggerty, the CEO of Haggerty.

McKeel Haggerty Thanks, Jay, and good afternoon, everyone. We appreciate your interest in Haggerty. I'm pleased to report that we continue to deliver solid results during the second quarter, despite the increasingly challenging macroeconomic backdrop. Before Fred and I dig into the numbers, we wanted to say thank you to our 1,700-plus One Team Hagerty members who worked tirelessly to deliver high rates of consistent growth, including 26% revenue growth so far this year. This team is comprised of long-tenured Hagerty employees, as well as the newly hired, that are excited to join a company that is just beginning to hit its stride. Their hard work, combined with our ongoing investments in people, technology, and infrastructure, will help power our results in the years to come as we continue to tap into the growing and resilient passion for the fun side of the automotive world. Slide three of the investor deck that we posted on our website shares some of the key year-to-date highlights. This includes Total revenue grew 23% in the second quarter and 26% during the first half compared to the prior year periods. Total active members grew 9% year over year to 2.5 million. Written premiums grew 14% in the second quarter and 15% during the first half. We also entered into a definitive agreement to acquire the remaining 60% of the Broad Arrow Group for $64.8 million. We expect the deal to be immediately accretive to 2022 revenue and EBITDA as the business ramps quickly, leveraging the strength of the Hagerty ecosystem. Integration continues for the long-term and contractual State Farm partnership. The digital and technology teams have moved into the testing phase and regulatory approval process with State Farm. We now expect to begin activating State Farm's 19,200 agents to sell classic car policies during the first half of 2023. Our strong revenue growth of 26% during the first six months of 2022 keeps us well on track to deliver our full year top line outlook of 24 to 28%. This excellent growth is the result of strong execution by the team and managing through an increasingly challenging economic environment And we are encouraged by the strength of this trajectory as we approach 2023. The enthusiast vehicle universe tends to be a safe haven during economic downturns, as people have historically allocated their available discretionary funds and free time to their areas of true interest. And everything we do is done to make it easier for auto enthusiasts to enjoy their cool cars. With this perspective, during the first half of 2022, written premiums grew 15%. This growth is slightly ahead of the last decade's highly consistent annual growth of 13%, shown on slide 4. Over a decade, that delta compounds into an aggregate growth nearly five times the industry's rate of growth. And despite our greater size today, we are delivering even faster rates of growth as we begin to capture the latent potential of Hagerty's brand and ecosystems. The bar chart on the right side of slide four highlights the significant difference in loss ratio for Hagerty versus the standard auto industry over the last decade. While the industry average loss ratio for daily drivers is 66%, our loss ratio in the US has consistently been under 40%, allowing us to reinvest in our platform and to deliver great experiences for our members. Let me share some color on the quarter given the inflationary environment. We did experience slower than anticipated new business count in the second quarter as unprecedented inflation impacted consumer behavior. While our business model has proven to be resilient over the years, delivering sustained growth through good times and bad, we are not completely immune to increasingly cautious consumers. As we have seen in previous periods of uncertainty, we saw a modest demand impact at the beginning of the second quarter that quickly stabilized. We believe that part of this slowdown in new business count during the second quarter was due to the reduced marketing budgets of our large insurance distribution partners as they look to offset some of the challenges from slower growth and higher combined ratios as frequency and severity have increased on daily driven vehicles. The other impact from this environment is that higher vehicle values in the collector space create a higher than normal trend in single policy vehicle sales. This causes a dip in our normal retention levels. While most companies would covet an 88% retention figure, it's currently running slightly below the 89 to 90% that we had modeled for 2022. Back to our big moves for 2022. You will recall that we made an initial investment in the Broad Arrow Group earlier this year to help build our Hagerty Marketplace platform for members to buy, sell, and finance collector vehicles. The ongoing strength and long-term growth potential of the resale market validates our initial investment and has led us to announce today that we are acquiring the remaining 60% of Broad Arrow in a stock deal valued at $64.8 million, shown on slide five. We expect Broad Arrow to be immediately accretive to our revenue and EBITDA in 2022 and are pleased to share that Hagerty Marketplace is trending well ahead of the original expectations when we formed the joint venture. The experienced Broad Arrow team is growing rapidly, and they have been successfully identifying opportunities to leverage Hagerty's brand and membership model to build momentum in 2022 by accelerating investments in marketplace. We expect Broad Arrow to contribute meaningfully to Hagerty's future growth as we leverage our growing membership base to directly drive revenue and EBITDA in this compelling adjacency. not to mention further strengthening our insurance business. The opportunity for Hagerty is large. Over the last 12 months, we've seen 300,000 cars transact across Hagerty's insurance book with a total value of $12 billion. Our Hagerty marketplace efforts can provide large new revenue opportunities as well as opportunities to keep a vehicle insured by Hagerty post-sale, not to mention potentially to add Hagerty Drivers Club member fees and further engagement. Moving now to an update on State Farm on slide six. The teams are making solid progress, working diligently on integrating our systems, seeking regulatory approvals, and moving into the testing phase. We expect to begin activating State Farm's 19,200 agents to sell classic car policies during the first half of 2023, as well as to begin the state-by-state conversion of the existing 460,000 policies to the new program. Our teams are focused on delivering a seamless experience and we believe that this customer-centric approach is what will help sustain our high organic growth rates over the coming years. The upfront investments to deliver our digital initiatives and to launch the State Farm Partnership and others are substantial. but we believe that Hagerty shareholders will benefit longer term from the increased size and profitability. This includes growing commission streams, reinsurance revenue, as well as Hagerty Drivers Club. Strategic partnerships such as State Farm can augment our high rates of organic growth and drive operating leverage. Importantly, this is a win-win for partners as they seek to protect their insurance bundle, including daily drivers, home, umbrella, As car lovers know well, there is no better way to lose a customer than through an unsatisfying claims process on a collector car, and Hagerty has created the expertise to deliver claims NPS scores that are consistently near 90. Slide 7 highlights several additional milestones achieved towards delivering a seamless digital experience for members, including launching the Hagerty Roadside mobile app, expanding Hire2Classified for members to buy and sell their cars, reaching 9 million monthly views on YouTube with great original content for auto enthusiasts, and transitioning all event ticketing and vehicle submissions to the Concord Digital Event Platform that supports all of our owned and operated events. Our purpose as a company is to save driving and car culture for future generations. We do this by continuing to facilitate access to our automotive communities around the world that meet the human need for social interaction and connectivity with others in the car community. As we think about the coming years, we remain committed to improving an already great business model. This includes investing in a disciplined manner to continue delivering best in class experiences to members, support our digital transformation, and to drive better cross-selling of our products. Our one team, Hagerty, is energized and committed to winning in the automotive enthusiast world while maintaining a careful eye on costs. On that note, as we look ahead, we are prioritizing our time and resources to the strategic priorities that will drive our long-term profitable growth. Thoughtful discretionary spend frees up additional capacity to accelerate investments in key focus areas such as State Farm and Hagerty Marketplace. With that, I will turn it over to Fred to discuss our financial results in more detail. Fred?