Hagerty, Inc.

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, slides, and letter to stockholders covering this period are also posted on the IR website, as well as our 8K filing. 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 discussion of material risks and important factors that could affect our actual results, please refer to those contained in our filings for the SEC, which are also available on our investor relations website 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 8K filing. And with that, I will turn the call over to McKeel.

Thanks, Jay, and good morning, everyone. We appreciate you taking the time to join Hagerty's second quarter 2025 earnings call. This summer has been another great driving season as we remain on track to welcome a record number of new members to Hagerty in 2025, helping them protect, buy, sell, and enjoy their special cars. After four decades in the car world, I have learned that everyone has their own car story, ranging from someone who loves brass horseless carriages to modern-day high-performance vehicles to off-road vehicles to vintage woody wagons, and American-made muscle cars to Japanese K cars. Regardless of the type of vehicle, we know it's special to that member, leading to an emotional connection that inspires safer driving habits, which in turn leads to lower claims frequency and consistently strong underwriting results. And our team of auto enthusiasts is here to provide the excellent service, guaranteed value coverage, and a suite of Hagerty products and services to help celebrate their vehicle. This passion and love of cars shared by one team, Hagerty, and our members results in sustained high rates of growth. Let me dig into some highlights from the first half of 2025 shown on slide three. Total revenue increased 18%. New business count fueled an 11% increase in written premium and a 12% growth in our commission revenue. Earned premium for our risk-taking entity, Hagerty Reinsurance, increased 12%. and membership, marketplace, and other revenue jumped 68% due to higher inventory sales and the launch of our European auction business. Moving to profitability, during the first six months of the year, our operating margins jumped another 210 basis points, resulting in net income gains of 46% and adjusted EBITDA growth of 28%. Over the last three years, we have expanded first half operating margins by nearly 14 percentage points, and we expect continued gains as we double our policies in force to 3 million by 2030. Let's move on to slide four, which details our 2025 strategic priorities built around three themes, simpler, faster, and better integrated. First is to expand our specialty insurance offerings to protect more of the collectible market, including modern enthusiast vehicles with the launch of our Enthusiast Plus program in Colorado two weeks ago. Second is to simplify and better integrate the membership experience across our products and services, creating revenue synergies and driving cost efficiencies. This is how we engage with our members in a unique and authentic way. Third is to expand our marketplace business internationally, leveraging the trust that we have built in the United States. We announced two additional European auctions on the heels of the excellent results from our inaugural Villa d'Este auction in May. where we achieved a 78% sell-through rate. These include auctions built around partnerships with the Zoot Concours in Belgium and Auto Zurich in Switzerland. We are methodically building Hagerty and Broad Arrow into the most trusted brands to help people around the world buy and sell special vehicles. And finally, we are investing in the technology replatforming that will enable efficiency gains shown on slide five. I would note that we recently launched Enthusiast Plus on Duck Creek, a leading cloud-based insurance platform. Our technology spend should trend down as a percent of revenue as we accelerate the top line in 2026 and 2027 and begin to realize the efficiency benefits from these investments. Before I turn the call over to Patrick to share more details on our results and increased 2025 outlook, I wanted to walk you through the recently announced fronting arrangement with our long-standing partner Markel shown on slide 6. As you know, we have had a highly successful partnership with Markel that began in 2013 when they acquired Essentia to underwrite Hagerty's US business. In 2017, we began to assume 25% of the premium and risk associated with our high quality book of business and steadily increased it to the current quota share of 80% with Markel retaining 20%. On July 24th, we announced that we had signed an LOI to move to a new fronting arrangement with Markel. where Hagerty would control 100% of the premium and risk commencing in 2026, while paying a 2% fronting fee to Markel to issue policies and provide administrative support. The evolution of this partnership will result in increased profitability for Hagerty in the form of additional underwriting and investment income, along with greater operational control. We are excited to continue partnering with Markel and believe the new arrangement will position us to unlock even more value for Hagerty shareholders over the coming years. Patrick?

Thank you, and good morning, everyone. Let me dig into the second quarter results in more detail, shown on slide seven and eight. In the quarter, we delivered 18% growth in total revenue to $369 million. New business count gains, combined with industry-leading retention of 89%, drove an 11% increase in rent and premium. This 11% is below the 13% to 14% growth we expect for the full year, given our expectations for faster growth in the second half as state farm ramps. Our two-year rates of written premium growth during the first half were over 30%, and should remain steady at those levels in the second half as growth accelerated back into the mid-teens during July. Admission and fee revenue grew 11% to $143 million, Earned premium increased 13% to $178 million. Our loss ratio remained steady at 42%. And membership, marketplace, and other revenue jumped 78% to $48 million. In just three years, 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. Turning now to profitability, shown on slide 9 and 10, we reported an operating profit of $48 million in the second quarter, with operating margins up 70 basis points to 13%. We are maintaining tight discipline on our costs to translate double-digit commission gains into faster rates of profit growth. G&A increased 6% due primarily to higher software licensing costs from our technology transformation and salaries and benefits grew 11% due to merit increases and additional headcount to support our growth. Adjusted EBITDA increased 20% to $64 million as we improved the efficiency of our business model. Our growing capital base at Hagerty Rhee and balanced investment strategy resulted in $11 million in second quarter investment income. Interest and other income of $6 million included $2 million of interest expense and a $3 million non-cash increase in the tax liability related to our partnership structure. In total, we delivered second quarter net income of $47 million compared to $43 million a year earlier, an increase of 11%. Net income attributable to Class A common shareholders was $9 million after attribution of earnings to the non-controlling interest and accretion on the preferred stock. GAAP basic and diluted earnings per share was 9 cents based on 91 million shares of Class A common stock outstanding. We ended the quarter with 140 million in unrestricted cash and 176 million of total debt, which includes 39 million in back leverage for our portfolio of collateralized loans. Let me wrap up with our updated outlook for 2025. where we increased full year expectations for revenue and profits, shown on slide 11. Given our first half results and solid business momentum, we are increasing our 2025 revenue expectations with 13% to 14% growth, powered by similar rates of rent and premium growth and strong gains from our marketplace business. We are also increasing our assumptions for margin expansion and now expect net income of $112 to $120 million, up 43 to 53%, and adjusted EBITDA of $162 to $172 million, up 30 to 38% compared to 2024. In addition to executing on our 2025 strategic priorities, we are well positioned to deliver accelerated growth as we move into 2026, fueled by State Farm's ramp and market share gains. We are excited to welcome their 525,000 current program members and to help them grow their classic business. Our partnership pipeline is strong and growing as top 50 carriers realize that they could benefit from a partnership with Hagerty to help them fuel their own growth and improve retention with our differentiated approach to caring for their members and special cars. Enthusiast Plus should become a material growth driver over the medium term as we target more of the modern enthusiast vehicles with the right product and pricing to service these vehicles. As we continue to get smarter at utilizing our data to target members with superior driving characteristics with their special toys, we have more precisely defined our target market for 25 to 40-year-old cars that are more likely to be collectible versus just an older vehicle that might still be used as a daily driver. This includes filtering by vehicle and body type, equipment and powertrain packages, and original MSRP. The 1999 Toyota Camry would be a good example of this. We believe we have a long runway in front of us, given our penetration of this 35 million car target market is only 6.7%. When you combine our top line momentum and growth levers with our ongoing efficiency initiatives and the proposed Martell funding arrangement, We believe we're pulling together all the ingredients necessary for strong shareholder value creation over the coming years. With that, let us now open the call to your questions.