Hagerty, Inc.

Greetings and welcome to the Hagerty 4th Quarter 2022 Earnings Conference Call. At this time, all participants are on a listen-only mode. A brief question and answer session will follow the formal presentation. If you would like to ask a question, please press star 1 on your telephone keypad. If anyone should require operator assistance during the conference, please press star 0 on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Jay Koval, Senior Vice President of Investor Relations. Thank you. You may begin.

Thank you, operator. Good morning, everyone. And thank you all for joining us to discuss Hagerty's results for the fourth quarter and full year of 2022, as well as our outlook for 2023. I'm joined this morning by McKeel Hagerty, Chief Executive Officer, and Patrick McClima, Chief Financial Officer. During this morning's conference call, we will refer to an accompanying presentation that is available on Hagerty's 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 8-K 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 two 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 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 8K filing. And with that, I'll turn the call over to Michiel Hagerty, our founder and CEO.

Thanks, Jay, and good morning, everyone. We appreciate you taking the time to learn more about Hagerty's first year results as a public company. We have spent the last several decades building Hagerty into one of the most beloved consumer brands in the auto enthusiast space, and we believe our affinity model uniquely positions us to provide our members with the products and services to help them enjoy their passion for fun cars and for driving. For 2022, our results are proof that the love of the automobile persists regardless of the economic backdrop. Slide three of our investor deck shares some of the key insights. They include total revenue gains of 27% for the full year toward the high end of the outlook we shared with you a year ago. This growth was powered by compounding mid-teens written premium growth, strong contributions from Hagerty Re's higher quota share reinsurance arrangement, and five months of revenue contribution from our marketplace platform. Written premium growth of 15% was in line with our expectations and well balanced between policy-enforced growth and increasing rates. Hagerty's brand strength and value proposition is evident in the 235,000 new insurance policies issued during the year. Membership and marketplace revenue jumped 50% due primarily to $14 million in incremental marketplace revenue, including $86 million in transacted vehicle value from three live auctions as seen on slide four. And our team continued to make steady progress with the state farm integration shown on slide five on both the technology and people side. We anticipate all coding work to be complete this spring and to begin writing new policies later in 2023. This 10-year initial arrangement will drive meaningful scale and growth for Hagerty as we move into 2024. Our highly differentiated business strategy results in a powerful recurring revenue model and we believe our top-line growth reflects the solid execution by the Hagerty team during uncertain times. Net promoter score improved slightly in the year to 83, nearly double the industry average, and retention of 88% remained solid despite the elevated transactional market for vehicles. The Hagerty brand is revered by those that know it, and we believe we can create meaningful value for shareholders through steadily chipping away at the 96% of the total addressable market that we don't yet serve through our omnichannel distribution strategy. This brings me to our key 2023 initiatives as we pivot to significantly improve our profitability shown on slide six. First, we look to continue our track record of strong total revenue growth powered by sustained double-digit written premium gains. Our teams are also highly focused on delivering an unmatched online and live marketplace experience as well as driving loyalty, referrals, and incremental revenue from Hagerty Drivers Club, our membership business. Second, we will continue Hagerty's evolution into an integrated insurance business, including an increase in Hagerty Re's quota share reinsurance agreement in the US and UK to 80%. And third, we will do the above with significantly improved profitability through cost containment and operational efficiencies. Let me expound on that final point, because it reflects the single largest change we are making from 2022 to 2023 as we transition toward profitability. As you know, we have been investing heavily in our technology and people over the last three years to best position the company to capitalize on the opportunity within the auto enthusiast space. This includes making meaningful investments as we prepare for the State Farm launch later this year and build out Haggerty Marketplace, both of which have the potential to drive strong incremental profits for the company. But in 2023, we are adding heightened discipline around our costs and capital. So we began to implement some major actions during the fourth quarter that we believe will allow us to return to profitability in short order. This includes a reduction in force and voluntary retirement program, along with an overhaul of our IT teams, not to mention increased prioritization of resources against our 2023 initiatives. which leads me to slide seven, a summary of the 2023 outlook. We expect 2023 to be another year of strong top line momentum, up to 22 to 26%, and fueled by 11 to 13% growth in written premiums. With our productivity initiatives well underway, we anticipate delivering $40 to $60 million in adjusted EBITDA in 2023, equivalent to a $50 million year-over-year improvement at the midpoint. Let me now turn the call back over to Patrick to go through our financials in more detail.