Hagerty, Inc.

Thank you, Operator. Good morning, everyone. And thank you for joining us to discuss Hagerty's results for the third quarter of 2025. I'm joined this morning by McKeel Hagerty, Chief Executive Officer and Chairman, and Patrick McClimont, 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 slides and letter to stockholders covering this period are also posted on the IR website, as well as our 8-K 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, 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 8K filing. And with that, I'll turn the call over to McKeel.

Thanks, Jay, and good morning, everyone. We appreciate you taking the time to join Hagerty's third quarter 2025 earnings call. While many of us are putting away our special cars in the fall after another fun driving season, we at Hagerty are breathing a sigh of relief that 2025 was a relatively benign year for catastrophes after a challenging start with the California wildfires. As our reinsurers have pointed out to us, even in the worst of hurricane years, our book of collectible vehicles tends to significantly outperform what their models would have predicted. Our members love their cars, and they will find ways to drive them to safety. Building trusted relationships with our members through the years of delivering on our brand promise enables us to develop new products such as the recently launched Safe Storage Concierge. which provides guaranteed shelters for cars in hurricane-prone areas such as Tampa and Miami. While we hope our members never need to use the program, if they do, we will be there for them, regardless of the type of vehicle that they love, leading to lower claim frequency and consistently strong and stable underwriting results year after year as we add new members. Let me dig into the highlights from the first nine months of 2025 shown on slide three. Total revenue increased 18%. New business count fueled by a 13% increase in written premium and 14% growth in commission revenue and acceleration from the first half results as State Farm policy conversions ramp up month over month. October came in even stronger than September, delivering the highest policy in force or PIF growth in our history. Earned premium in our risk-taking entity, Hagerty Reinsurance, increased 12%. And membership, marketplace, and other revenue jumped 54% due to the launch of our European auction business, plus growth in inventory sales and private transactions. Moving to profitability, during the first nine months of the year, our operating margins jumped another 350 basis points, resulting in net income gains of 73% to $121 million, and adjusted EBITDA growth of 46% to 153 million. High rates of compounding growth with a relentless focus on operating efficiencies are resulting in sustained margin expansion as we work towards doubling our policies in force to 3 million by 2030. Agrity has become one of the largest MGAs in the specialty vehicle insurance business, thanks to omni-channel distribution, best-in-class service, valuation, and underwriting capabilities, not to mention a brand unlike any other with a net promoter score of 82 that towers over the industry's average score of 37. Our direct business is adding new members efficiently, thanks in part to our unique ability to drive a disproportionate number of people into Hagerty's funnel on the strength of the Hagerty brand and low-cost referrals. And our distribution team has been working diligently to cultivate relationships with the leading carriers in the U.S., as the majority of the specialty cars we seek to insure sit within their bundled policies. With that, we announced yesterday that we had signed a new partnership with Liberty Mutual and Safeco. Liberty Mutual is the seventh largest auto insurer in the U.S. and has built a sizable collector car program over the past decade under the Safeco brand. Hagerty will help Liberty Mutual engage and retain their customers through a combination of our excellent customer service and expertise at valuing, underwriting, and handling claims on collectible vehicles. We are very excited to work closely with the Liberty Mutual team to help ramp up this partnership into 2027. Moving on to slide four, a reminder of 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. Second is to simplify and better integrate our membership experience across our products and services, creating revenue synergies and driving cost efficiencies as we engage with our members in a unique and authentic way. Third is to expand our marketplace business internationally, leveraging the trust we have built in the United States. This includes two recent European auctions in Belgium and Switzerland, plus this past weekend's auction at the Wynn Concours in Las Vegas, bringing our global vehicle value sold at Broad Arrow live auctions to $240 million through November 1st. We are methodically building Hagerty and Broad Arrow into the most trusted brands for people to buy and sell special vehicles, and live auctions work synergistically with our private sales transactions and financing business. And finally, we are investing in the technology replatforming that will enable additional efficiency gains shown on slide five. Slide six shares details on the new fronting arrangement with our strategic partner Markel that we discussed in late July. As a reminder, we have been moving towards assuming more of the premium and risk associated with our high quality underwriting And this 2% fronting arrangement would allow Hagerty to control 100% of the premium and risk commencing in 2026, a 25% increase compared to the current 80% quota share. We are excited to continue partnering with Markel as we build out our own capabilities to deliver a seamless experience for members with greater operational control, not to mention drive increased profitability from the additional underwriting and investment income. Let me now turn the call over to Patrick to share more details on our results and increased 2025 outlook.

Patrick. Thank you and good morning, everyone. Let me dig into the third quarter results shown on slide seven and eight. We delivered 18% growth in total revenue to $380 million. New business count gains combined with industry leading retention of 89% drove a 16% increase in written premium. As expected, written premium growth accelerated in the third quarter, resulting in two-year rate growth exceeding 30% as we ramped conversion of State Farm's 525,000 classic policies to their new Classic Plus program powered by Hagerty. Commission and fee revenue grew by 18% to 137 million. Earned premium increased 13% to 187 million. Our loss ratio came in at 42% for the quarter, in the first nine months of the year, resulting in year-to-date combined ratio of 89%. And membership, marketplace, and other revenue jumped 34% to $56 million. As Michiel mentioned, we have quickly established ourselves as a leading auction house with unparalleled automotive expertise for our customers. We also continue to build our online marketplace, offering 240 barn find vehicles from the first tranche of the Generous Collection in October with more collections to follow over the coming months. Turning now to profitability, shown on slide 9 and 10, we reported an operating profit of $34 million in the third quarter, an increase of 240% as operating margins jumped 590 basis points to 9%. G&A increased 17% due to higher software licensing costs from our technology transformation, as well as the professional fees associated with the August secondary offering of shares from Kim Haggerty's estate, and the Markel fronting arrangement. Salaries and benefits grew 44% due to higher year-over-year incentive compensation accruals thanks to our strong financial outperformance this year. As a reminder, last year's incentive compensation was negatively impacted in the third quarter due to elevated CAT losses from Hurricane Helene. Excluding professional fees and incentive comp, we are holding core growth in G&A and salaries and benefits to the mid to high single digit range. This increase is due to merit and selective headcount additions to support future growth. We had a fair bit of activity on the tax front this quarter. Given the sustained improvement in our profitability, we concluded that the company will generate sufficient future taxable income to realize a portion of our deferred tax assets. As a result, 38 million of the valuation allowance was released and recorded as an income tax benefit. In connection with the release, we remeasured our tax receivable agreement liability, resulting in an expense of $29 million, which was the driver of negative $21 million in interest and other income. Third quarter interest income from our investment portfolio was $11 million, and interest expense was $2 million. In total, we delivered third quarter net income of $46 million compared to $19 million a year earlier, an increase of 143%. Net income to Class A common shareholders was $19 million after attribution of earnings to the non-controlling interest and accretion of the preferred stock. GAAP basic earnings per share was $0.18 and diluted came in at $0.11. Adjusted EBITDA increased 106% to $50 million in the quarter. And we ended the quarter with $160 million in unrestricted cash and $178 million of total debt. which includes $75 million in back leverage for our portfolio of collateralized loans. Let me wrap up with our updated outlook for 2025, where we again increased full-year expectations for revenue and profits shown on slide 11. We now expect 14% to 15% revenue growth and are increasing our assumptions for margin expansion. This should result in net income of $124 to $129 million, equating to growth of 58% to 65%. and adjusted EBITDA of $170 to $176 million, an increase of 37% to 41% compared to 2024. The net income range also includes the $6 million year-to-date net impact from the valuation allowance benefit of $38 million, partially offset by the increase in TRA liability of $32 million. In summary, we are delivering on our 2025 strategic priorities and are well positioned to accelerate profit growth and cash flow generation as we move into 2026 and 2027, fueled by high rates of organic growth in new members. Our brand strength and omni-channel distribution enable us to grow profitably during both good and bad times, making us truly differentiated from most P&C carriers where profitability is dependent on the rate cycle. When you combine multiple growth levers with ongoing operating efficiencies, we believe we are pulling together all the ingredients necessary to create shareholder value over the coming years. With that, let us now open the call to your questions.