Greetings. Welcome to Hagerty's Fourth Quarter 2023 Earnings Call. At this time, all participants are in a listen-only mode, and question and answer session will follow the formal presentation. Please note, this conference is being recorded. I will now turn the conference over to Jay Koval, Senior Vice President of Investor Relations. Thank you. You may begin.

Thank you, operator, and good morning, everyone, and thank you for joining us to discuss Hagerty's results for the fourth quarter of 2023. I'm joined this morning by McKeel Hagerty, Chief Executive Officer; and Patrick McClymont, 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 2 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 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 financial metrics to the most directly comparable GAAP measures that are further supplemented by this morning's 8-K filing. And with that, I will turn the call over to McKeel, our Founder and CEO.

Thanks, Jay, and good morning, everyone. We appreciate you taking the time to join Hagerty's fourth quarter 2023 earnings call. As the winter snow begins to melt and the days grow longer, 67 million auto enthusiasts in the United States are beginning to plan their driving adventures for 2024. And Hagerty is there to help car lovers protect, buy, sell, and enjoy their collectible vehicles with our array of products and services. Today, we will share the excellent results from One Team Hagerty's hard work over the last year as well as our initial outlook for 2024. Let's start with Slide 3, which compares our initial 2023 outlook with the actual results. A year ago, we expected total revenue growth of 22% to 26%. Actual 2023 revenue grew 27%, taking us past $1 billion for the first time ever and doubling 2020's revenue in just 3 years. Revenue was powered by 17% growth in written premium, again, well ahead of our initial guidance for 11% to 13% growth. Total revenue growth was further accelerated by our increased quota share and over $100 million in revenue from our rapidly growing membership and marketplace businesses, up 16% and 109%, respectively. More importantly, we improved full year operating margins by 960 basis points. We take enormous pride in being one of the very few high-growth companies that executed on delivering significantly improved margins and profitability without negatively impacting our high rates of revenue growth. Adjusted EBITDA increased from negative $2 million in 2022 to positive $88 million this year, a $90 million improvement. Adjusted EBITDA of $88 million came in 76% higher than our initial outlook of $50 million as we move back toward and eventually past prior peak margins. These are exceptional results just 1 year after restructuring our business processes to drive profitable growth. I want to thank our team of over 1,700 Hagerty colleagues for their hard work, commitment to our strategic objectives and passion to serve our customers and partners with excellence and expertise. Our team rose to the challenge in 2023 and allowed Hagerty to set expectations quarter after quarter and we have created a clear path to drive profitable growth over the coming years as we execute against our multiyear roadmap to deliver high rates of organic growth plus revenue from our new partnerships. Let's now dig into a few other key highlights from our full year 2023 results shown on Slide 4. This includes commission revenue growth of 19%, fueled by written premium increases and strong underwriting results as the Hagerty brand and value proposition is gaining share in an industry struggling with double-digit rate increases. In our risk-taking entity, Hagerty Reinsurance, earned premium jumped 32% due to the growth in written premium and our increased level of quota share to 80%, as we continue our evolution towards assuming more of the risk and premium associated with our stable underwriting capabilities. Membership, Marketplace, and other revenue increased 33%, this high rate of growth was fueled by new member growth and single-tier pricing in Hagerty Drivers Club at $70 as well as $29 million of marketplace revenue described on Slide 5. State Farms, shown on Slide 6, launched in 4 states in September, and we saw the majority of agents in those states begin to sell new policies under the State Farm Classics+ program during the fourth quarter. We expect State Farm to become a meaningful incremental driver of written premium growth in 2025, as we add the other states and convert State Farms 0.5 million existing classic policies into the Classic+ program administered by Hagerty. 2024 marks our 40th year in business, and we are anticipating another banner year of growth and margin expansion. Slide 7 highlights our 2024 priorities, including: first, improving loyalty to drive renewals and referrals. This is one of our most profitable ways to grow Hagerty given the lower loss ratios of seasoned policies and lower acquisition costs from referrals. In 2024, we expect these initiatives to help us add well over 0.25 million new members and to drive higher rates of retention through recent initiatives, including Autopay. Second, we are enhancing the member experience in a cost-effective and efficient way, leveraging smart technology to reduce variable costs. This should help us fuel continued margin expansion as we grow. Third, we will continue building Hagerty Marketplace into the most trusted and preferred place to buy and sell collectible vehicles. We are steadily growing the number of vehicles sold and our time-based options with the high closed rates that attract future sellers. Marketplace also benefits from our large established base of consumers. In 2023, over 300,000 vehicles were bought and sold across our books with a value of over $14 billion, representing a double-digit increase in total value from the prior year. The opportunity is large with very attractive margins as more and more transactions move online. And finally, we are increasing our flexibility and control over our underwriting profits, including the recently announced acquisition of the insurance company called CNIC. We intend to use this new carrier platform to launch new products and coverage offerings to fill an underserved segment of the classic and enthusiast market where our penetration is low today, particularly the post-1980s cohort. The Enthusiast Plus program will be an expansion of our current Flex offering, which we launched in 2014 and will enable us to decline fewer inbound requests for Hagerty coverage on enthusiast vehicles. We are excited for 2024 to be another great year for stakeholders as we become a leaner, stronger, and more profitable company that can self-fund our high rates of growth year after year and invest in our competitive advantages to lengthen our leadership position. Let me now turn the call over to Patrick to run through the fourth quarter as well as the financial outlook for 2024 in more detail.

Thank you, and good morning, everyone. McKeel shared some of the highlights from the full year 2023. So let's dig into the fourth quarter results shown on Slides 8 and 9. In the fourth quarter, we delivered 24% growth in total revenue to $245 million, with written premium growth of 19% powered by robust new business count and a bump in retention as early initiatives began to take hold. Commission and fee revenue jumped 22% to $78 million due to the written premium gains and strong underwriting results. Membership, Marketplace, and other revenue decreased 3% to $20 million compared to the fourth quarter of 2022. As a reminder, we hosted a live auction during last year's fourth quarter that we chose not to repeat this year, resulting in the year-over-year decline. Our online marketplace is growing well as we steadily increased the volume and value of vehicles sold, at the same time, we build awareness for our differentiated approach that instills trust and confidence by offering certification services, title, and escrow. To help build out our asset-based lending activities, we entered into a $75 million credit facility at the end of the quarter. Our earned premium grew 31% to $147 million, driven by new premium growth and the 10-point increase in our contractual reinsurance quota share. Our loss ratio came in at 41.5%, consistent with historical levels. We deliver stable and highly predictable underwriting results, thanks to decades of experience ensuring vehicles that are treated well by their owners. Turning to profitability, shown on Slide 10, we reported a fourth quarter operating loss of $6 million, an improvement of $29 million over the prior year period as margins expanded by 1,550 basis points. Our margin expansion is even more impressive as we have continued to thoughtfully invest in our long-term growth opportunities. This includes the technology and people necessary to support the rollout of the State Farm Classic program, ramped up technology spend as we build out Hagerty's online marketplace, and additional tech investments we are making with the insurance technology platform implementation and launch of Enthusiast Plus later in 2024. In the aggregate, we delivered fourth quarter net income of $9 million compared to a loss of $32 million a year earlier. The $41 million improvement in net income was primarily driven by the significantly improved operating margins as well as a $9 million swing in the fair value adjustment related to our private and public warrants. GAAP basic earnings per share was $0.14 based on 85 million weighted average shares of Class A common stock outstanding. Our adjusted EBITDA during the fourth quarter was $10 million, a $12 million improvement over the $2 million loss during the prior year period. Let me now turn to our full year 2023 margins, cash flow, and balance sheet. Full year operating income came in at over $10 million as our efforts to drive profitable growth resulted in 960 basis points of margin expansion helped by a 4% decline in G&A. Operating cash flow in 2023 jumped 142% to $134 million and our productivity initiatives will drive even stronger cash flow generation over the coming years. Cash and liquidity at the end of December was $250 million, with net of only $23 million. And after receiving the 2023 contingent underwriting commission payment from Markel in February, our unrestricted cash exceeded our long-term debt. Going forward, DUC payments will be made on a monthly basis. Let me wrap up with our 2024 outlook shown on Slide 11. Given the consistently strong and durable top line momentum in our business, we are sharing an initial outlook for top line revenue growth of 15% to 17%, cared by 13% to 14% growth in written premium as we expect yet another year of record additions to our membership base. Our full year outlook incorporates a strong start to the year as 2023 business momentum has carried into January and February. Hagerty's value proposition has never been stronger, built around guaranteed value, automotive expertise, and favorable increases in the low single digits versus the industry's double-digit growth. In 2024, we expect strong operating leverage to the bottom line, with net income more than doubling to a range of $61 million to $70 million, up 116% to 148%, and adjusted EBITDA of $124 million to $135 million, growth of 41% to 53%. The combined ratio is anticipated to be similar to 2023 at under 90%. Our EBITDA range equates to incremental margins of over 30% since 2022 as we have refined our business model to deliver the excellent service for which we are known, but with the margins and returns you would expect from a great branded business model. Equally important, we are strategically investing to position the company for high rates of sustained growth over the coming years as we launch our Enthusiast Plus business in late 2024 and State Farm ramps up in 2025. In summary, we are executing well on our plan for both growth and profitability and are on track to significantly grow cash flow over the coming years. This includes a return to low double-digit adjusted EBITDA margins in 2024. We just 2 years after setting ambitious targets to get back to these levels. But the best is yet to come as investments in our people and technology allow us to deliver 30% incremental margins for the foreseeable future, creating value for shareholders. With that, let us now open the call to your questions.

Our first question is from Greg Peters with Raymond James. Please proceed.

This is Sid on for Greg. You called out expanding offerings in the post-1980s collectible space. And just curious if that cohort had any differences in the loss profile compared to the pre-1980s or anything that might make your loss ratio differ from what we've seen historically as you grow that part of your business?

Hi, Sid. It's McKeel and thanks for being on today. We've been running a lot of experiments in these segments for years using the existing program. And this is why you build more sophisticated pricing models. As we go forward, we're going to be opening the aperture of the types of vehicles that we can accept. They're coming our way now, but we don't have the right kind of pricing model for them. And so while in the early phases, you could expect slightly different pure loss ratios from those segments. The idea is that you build the pricing and you build the cost structure to be able to handle that in our sort of normal range of how we look at them from an overall results standpoint. So loss ratios will be slightly different, but that's the new business model that we're building.

And then maybe can you just remind us if the quota share steps up again from the 80% in 2023? Or is it stable with what we saw last year?

It stepped up last year to 80%, and that's the ceiling. So what's happening this year is any customers that those policies weren't under the 80% just based on timing of when they were signed, get stepped up. So it will be a little bit of a tail in 2024, but we're now at 80% across the board.

Our next question is from Maxwell Fritscher with Truist Securities. Please proceed.

I'm calling in for Mark Hughes. Sorry if I missed this, but can you provide a figure for the gross sales value of the live auctions for the full year '23?

Live auction total sales?

Yes. I believe that's been given in the past and just curious.

I don't think we've disclosed that as I think we've closed individual sales, but I don't think we've got disclosure of the full number.

Yes. So Max, we're sharing a number of $29 million for the full year that would include live auctions plus online and some financing.

And so I just saw the motor vehicle insurance CPI numbers come through my email for February and shows that they're still very much outpacing the cost of repairs and parts. And so it leads me to my question, are you still able to continue to take price as inflation is cooling? I know your model is a bit different from those ensuring everyday drivers. But just your thoughts around that would be helpful.

Yes. No, thank you. We're continuing on the March to make sure that we're adequately priced across all the jurisdictions. But yet, as you're seeing, the big industry is in a lot of turmoil. They're playing a lot of catch-up than some people are expecting. But we will see some single-digit rate increases continuing through 2024. But it's as you noted, significantly lower than how the standard industry is reacting right now. But we're really noting one thing there, and that is these are our peers. They're not our competitors. We partner with a lot of these companies. And so we're very aware of all the rate actions that they're taking. We're just continuing to be open for business for them and trying to serve their customers well.

Our next question is from Pablo Singzon with JPMorgan. Please proceed.

First question, I was wondering if you could give a sense of how much of the post-1980 scores you're turning away now? And I suppose you could potentially cover once the new underwriting algorithms are set up. And we heard you about the new subsidiary that you acquired, and I assume that the best will flow through there, but just sort of a sense of the business that you're turning away today and what that could mean in terms of written premiums once everything is set up?

We believe our total addressable market is approximately 46 million vehicles. This new product and the CNIC acquisitions are strategic steps to help us serve that entire market more efficiently. We expect this will enable us to maintain our growth rates. We receive hundreds of thousands of quotes each year that don’t fit our current program, and by introducing this product, we can capitalize on those opportunities and continue our growth trajectory.

Would it be fair to say that the very top of the funnel that you're seeing more or less coincides with the distribution of the TAM, right, where most of the vehicles are actually newer? Is that a fair assumption to make?

So is the top of the funnel kind of pro-rata with TAM is your question?

Correct. Correct, where the majority of collector vehicles or post-1980 is the weight of your funnel sort of like in line with that distribution of the overall market?

Yes, it continues to trend in that direction. The newer vehicles and the new activity have more velocity than some of the things that have been established for a while.

And you just look at the sheer numbers, Pablo this is McKeel, you just look at the sheer build numbers of the types of vehicles we're interested in, in those decades, and they just significantly increase in the '80s, '90s, and 2000s. And that's our TAM. That's our future. And that's where we're seeing it, and that's what we're trying to get ready for.

Yes. Okay. And then my last question. There was good growth this quarter at 19%, but I noticed an increase in the pricing and exposure component of that growth number. Insured vehicles are up 6.5%, meaning about 12 points are attributed to pricing and insured value growth. Is there anything to consider in that regard? Should we expect that benefit to continue into 2024? So a mix of price increases reflected in written premium along with the increases in values you're seeing in your portfolio?

Yes. So I think the guidance that we've provided in terms of written premium growth in 2024, the 13% to 14% and that reflects a similar level of new customer growth that we had in 2023, so in excess of 250,000 new customers. So we continue to grow the size of the book and that equates to something in the mid-single digits and then the balance is coming from rate, which continues to flow through and some value increases.

We have reached the end of our question-and-answer session. I would like to turn the conference back over to McKeel for closing comments.

Thank you, operator, and thanks to you all for your continued support and interest in Hagerty. We have carefully built a highly differentiated business model over the last 4 decades that is just beginning to hit its stride as we help consumers protect, buy, sell, and enjoy their prized vehicles. As I mentioned on our last call, our omnichannel distribution delivers high rates of commissionable revenue growth, the backbone of Hagerty. Membership supports the growth and profitability in our insurance business through excellent retention, creating a recurring base of revenue and profits. We expect Hagerty Marketplace will eventually become a highly accretive business, but today, we are seeing significant resources to become the trusted and preferred platform in this rapidly growing market. We also continue our multiyear evolution toward increasing our flexibility and control over our underwriting profits while decreasing costs for members with the recent acquisition of CNIC. New products will enable us to fuel top line commission growth and capture more of the profit from underwriting premiums. Before I sign off, I would be remiss not to mention the passing of my dear mother Louis Hagerty on February 4. She was the Matriarch of Hagerty and an amazing entrepreneur. While the initial business was built around ensuring wooden boats, it was my mother who accurately predicted that ensuring collector cars would be a great addition because people take good care of their toys. And she was right as she usually was. While the last few weeks have been difficult emotionally, we are grateful for the many lives that she touched and we are just beginning to tap the surface for this amazing business as we celebrate our 40th year and execute on the next decade of profitable growth. We hope to see you at future Hagerty events, and we look forward to sharing our first quarter results with you in 2 months. Until then, never stop driving.

Thank you. This will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.