Greetings and welcome to the Hagerty Third Quarter 2024 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce Jay Koval, Senior Vice President of Investor Relations. Thank you. You may begin.

Thank you, operator. Good morning everyone and thank you for joining us to discuss Hagerty's results for the third quarter of 2024. I'm joined this morning by McKeel Hagerty, Chief Executive Officer and Chairman; 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, 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 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 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 8-K 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 2024 earnings call. The last of the most stubborn leaves have finally fallen to the ground, signaling the end to yet another great driving season in North America. With year-to-date written premium growth of 16%, Hagerty customers were out enjoying their special cars in larger numbers than ever. In fact, we are on track to add a record 275,000 new members in 2024 as our impressive portfolio of value-added offerings from events and live auctions, the Hagerty Drivers Club, and media continues to fuel mid-teens compounding revenue growth year in and year out with a visible path to expanding margins including large gains in 2024. Now, as you've all seen in the news over the last month, Hurricanes Helene and Milton were large destructive catastrophes. Fortunately, we have a disciplined approach to underwriting and our team of 1,700 Hagerty employees was well prepared to help members with their losses. Events like these are typically a perilous time for insurance carriers as a botched customer service experience can lead to attrition and low Net Promoter Scores. One of our Florida members was on hold with his home insurance carrier the entire time it took for us to process his loss in person at our on-site pop-up center at the Porsche dealership in Clearwater, Florida and deposited money into his account. We take pride in working closely with our members to get them back out on the road with minimal friction leading to even higher Net Promoter Scores after a claim than before. Thank you to One Team Hagerty for helping us generate our NPS of 82, more than double the industry average. It's a key differentiator that not only fuels our direct business but also helps us create long-lasting partnerships with national carriers who look to Hagerty for the expertise and white glove service that car enthusiasts deserve for their prized possessions. Our top-line momentum persisted into the third quarter with total revenue growth of 20% over the first nine months of 2024. It also marks the seventh straight quarter of translating this incremental revenue into greater profitability. Year-to-date operating income excluding Helene's $25 million impact came in approximately five times higher than the prior year period. Importantly, our revenue growth and margin expansion generated $190 million of operating cash flow during the first nine months of the year, up 43%. Let me share a few other key highlights shown on Slide 3. Revenue gains were driven by commission and fee growth of 16% in line with written premium gains as we added 220,000 new members during the first nine months. Earned premium for our risk-taking entity Hagerty Reinsurance jumped 24% due to written premium growth and historical increases in quota share. Membership Marketplace and other revenue grew 20% with Marketplace up 54% due to strong results from our Monterey live auction, higher inventory sales, and an increase in financing revenue. Year-to-date profitability improved significantly over the prior year period with operating margin expansion of 440 basis points despite Helene's negative 280 basis point drag on margins. Our cost discipline drove a year-to-date decline in G&A of 4% and allowed us to hold growth in salaries and benefits to just 1%. Year-to-date loss ratio was 47%, 6 points higher than the prior year due to unusual catastrophe losses during the first three quarters including, of course, Helene. This resulted in operating income of $60 million and adjusted EBITDA of $105 million. Slides 4 and 5 are reminders of the 2024 priorities that are driving our operational efficiencies including, first, improving loyalty to drive retention and referrals; second, enhancing the member experience in a cost-effective and efficient way; third, building Hagerty Marketplace into the most trusted place to buy, sell, and finance collectible vehicles; and fourth, increasing our flexibility and control over our underwriting profits as we look to launch our Enthusiast Plus business in early 2025 through our newly acquired insurance company which closed during the third quarter. Let me now turn to our updated 2024 outlook. Given our underlying results during the first nine months and strong business momentum into the fourth quarter, we are increasing our full-year revenue outlook. We now expect total revenue of approximately $1.18 billion on written premium growth of 15%. Our underlying profit outlook is in line with prior expectations and our new outlook including estimated losses from Helene and Milton of $30 million is for net income of $65 million to $74 million and adjusted EBITDA of $110 million to $120 million. Our focus and execution on top-line growth and margin initiatives should result in the profitability that allows us to lengthen our leadership position. Patrick will cover the outlook in more detail, but I believe the headline numbers don't adequately reflect the underlying profitability of our business, particularly as we invest in key growth initiatives such as the State Farm rollout, the launch of Enthusiast Plus, and the build-out of Hagerty Marketplace in 2025, all of which should pave the way for sustained profit growth and value creation for shareholders over the coming years. Let me now turn the call over to Patrick.

Thank you and good morning everyone. Let me walk you through our results for the three months ended September 30, shown on Slide 6 and 7. In the third quarter, we delivered 17% growth in total revenue to $323 million. Written premiums grew 13% due primarily to robust new business count and retention that improved to 89%. This performance is in line with expectations, as we are maintaining a selective approach to growth. Commission and fee revenue jumped 13% to $116 million in line with written premium gains. Membership, Marketplace, and other revenue increased 27% to $42 million. Our membership business delivered high single-digit growth in new members, as we launch new partnerships and began to introduce HDC local chapters. We also continue to invest in our Broad Arrow team of automotive specialists, resulting in 26% growth at our Monterey sale, taking share against the muted industry backdrop. Earned premium grew at 19% to $166 million. Our underlying loss ratio came in at 44%, and fully loaded loss ratio was 60%, which included $25 million in catastrophe claims from Hurricane Helene. Year-to-date loss ratio of 47% included seven points of catastrophe impacts. With ceding commission for Hagerty Re, our risk-taking entity at 47% of earned premium, our combined ratio of 94% is slightly above our long-term target of 90% due to the catastrophe losses. Despite the elevated combined ratio, Hagerty Re delivered a very healthy 26% return on equity. Turning now to profitability, shown on Slides 8 and 9. We reported a third-quarter operating profit of $10 million. Operating profit excluding Helene would have been roughly double the prior year as underlying margins continue to climb higher on tight cost discipline and operational efficiencies. We better leveraged existing G&A, down 6% in the quarter and salaries and benefits declined by 8%, both in part by lower incentive compensation. Adjusted EBITDA declined $13 million year-over-year to $24 million as improved margins were offset by Helene's $25 million of losses. On the bottom line, we delivered a third-quarter net income of $19 million in line with the prior year's results. Net income was helped by the continued growth in our capital base and better diversified investments offset by post-tax catastrophe losses of $20 million. The loss related to the change in fair value and settlement of our private and public warrants in the quarter was negative $1 million. As a reminder, we completed our warrant exchange in the third quarter, whereby we issued 3.9 million shares of Class A common stock in exchange for all 19.5 million warrants. Net income attributable to Class A common shareholders was $3 million after attribution of earnings to the noncontrolling interest and accretion on the preferred stock. GAAP basic and diluted earnings per share was $0.03 for the quarter based on 90 million weighted average shares of Class A common stock outstanding. Adjusted earnings per share defined as consolidated net income before the gains and losses related to our warrants divided by fully diluted shares of $360 million came in at $0.05 for the third quarter and $0.22 for the first nine months of 2024. Thanks to the $190 million of operating cash flow that McKeel mentioned, we ended September with an unrestricted cash balance of $147 million versus long-term debt of $123 million. Long-term debt excluding back leverage for Broad Arrow Capital's portfolio of loans collateralized by collector cars was only $77 million. Let me wrap up with our updated 2024 outlook shown on Slide 10. As McKeel mentioned, we increased our outlook for total revenue growth to a range of 18% to 19% powered by 15% written premium gains. High rates of top-line growth combined with operational efficiencies and the benefits of scale are driving strong operating leverage and even faster rates of bottom-line growth. Our revised outlook now incorporates $30 million of pre-tax impact from Helene and Milton or $24 million post-tax. This results in a new net income range of $65 million to $74 million and adjusted EBITDA of $110 million to $120 million. In summary, we are executing well on our plan to deliver compounding revenue growth, margin expansion, and cash flow production and are investing in the initiatives that should sustain our high rates of profit growth over the coming years. With that, let us now open the call to your questions.

Thank you. We will now be conducting a question-and-answer session. The first question comes from Pablo Singzon with JPMorgan. Please go ahead.

Hi, good morning. My first question is on expenses. As you had both pointed out good expense control with G&A down and salaries up low single digits year-to-date. I guess, if you take a step back and think about where Hagerty could go in the next few years, right? Is this sort of business where you can grow revenues mid-teens but keep expense growth at recent levels? Or will there be some catch-up in expenses at some point?

Hey, Pablo good morning. Thank you for the question. Yeah, we do believe that the business is built to deliver that mid-teens written premium growth, obviously a bit faster growth in the marketplace business. So that side of the equation I think is pretty straightforward. On the cost side what you've seen for the last couple of years, we've put a lot of effort into rightsizing the cost structure and maintaining discipline on that. That will continue. And so we do expect to see margin expansion over time. We'll give guidance for 2025 on our fourth quarter call. As McKeel mentioned it is a period where we are making investments in some pretty important initiatives. Obviously the State Farm, which will really ramp up next year. And then also we're going through our technology transformation, implementing what we call Apex, the Duck Creek implementation, and all the related systems. And so we are in a phase of investment. We expect that we'll continue to see some margin expansion. And then as we get through those investments then we'd expect to see it leg up again. So it's the trajectory that we've been talking about. We're going to stay disciplined on the cost side and we do believe that our revenues will grow faster than our costs and we'll be able to deliver some leverage.

Got you. And then just on the attritional loss ratio ex-Helene right? I think Patrick you had mentioned, 44%, right? So that's a bit higher than where you guys have traditionally run. Anything unusual that came up this quarter that brought you to 44% instead of 41% or 40%?

No. As we've always talked about over the years, the range of loss ratios has been mid-30s, sometimes up to the mid-40s. And so it can move around and it can certainly move around in a given quarter. There's nothing structural that we're seeing that is concerning to us. The big loss ratio for the quarter was certainly the catastrophe event. But the underlying loss ratio we still feel confident about.

Okay. And then last for me. So the losses from Helene and Milton, are those losses something you hope to recoup through pricing? Or is this water under the bridge? And going forward it will just be a matter of risk selection terms? So basically, I guess, simplistically would these losses have any implications for how you're pricing business on a go forward basis?

Well, we always include in our pricing a catastrophe load. And so the question is what actually happens. So in 2022, we had a catastrophe event in Ian, in 2023 we had nothing. This year obviously we've got the two catastrophes and those are reflected in the updated guidance. So I guess the answer is yes. We're always looking at what our pricing is and what we need to load in relative to catastrophes. And as our modeling suggests that we need to make changes there, those will flow through. You have seen us pretty consistently increasing our rates. A lot of that lately has been more on the liability side. But if we conclude that we need to do something on the catastrophe side, then yes, we'll feather that in over time.

Thank you. The next question comes from Mark Hughes with Truist Securities. Please go ahead.

Yeah. Thank you. Good morning. I wonder if you've seen any kind of change in shopping behavior. I think with the auto rates going up pretty substantially across the industry, it's my understanding. I think that's helped you, because you've got a good price point and people have been more likely to be looking around. Do you notice any change in trend in that behavior? Number one, is that a fair assessment? And then two, how do you see that lately in terms of new business?

Thanks, Mark. It’s McKeel. That’s a great question. We’ve discussed before how the hardening of the auto insurance rate market has indeed prompted more people to shop around, particularly in certain states where rates are rising or coverage is being limited due to regulatory conditions or actions by individual carriers. This situation benefits us as it increases the volume of business available in the market. As we approach summer, predictions suggest that the rate increases may be slowing down in the regular auto markets. We have certainly received that feedback from some of our key partners that you’re familiar with. It seems like the spike in people shopping might be leveling off. However, it will be interesting to observe the impact of this hurricane season and see if some states, which are hoping for reduced rate increases, may need to make further adjustments. We’re not currently considering that ourselves, as we believe our pricing and underwriting strategies work effectively in states that are susceptible to flooding. It’s also important to note that Helene was primarily a flooding event, while Milton was mainly a wind event, leading to very different circumstances. Overall, we are benefiting from what’s happening in the market, and it will be intriguing to see how everything ultimately resolves.

Looking back at 2023, the industry rates increased by 14%, while our rates saw a rise of 3% to 4%. We anticipate that the industry will likely finish with an overall increase of around 10%, and we expect to maintain a similar increase of 3% to 4%. These rate hikes fuel shopping activity. As McKeel pointed out, when consumers do shop, our rates are increasing, and our rate gap with the industry is broader than ever. This is because we price different products appropriately, but we consider the risk in a different way, which is significant. This year, we expect to acquire approximately 275,000 new customers compared to about 250,000 last year. We believe our value proposition is particularly strong right now, contributing to our growth.

I would like to turn the floor over to McKeel for closing remarks.

Thank you, operator and thanks to all of you for joining us today, during this busy election week. We have carefully curated the Hagerty brand over the last four decades around a shared passion for the automobile. And that campaign continues today to bring together car lovers. We've built a unique and highly differentiated business model that allows us to help members protect, buy, sell, and enjoy their special cars. We believe we have the recipe for success that should position us to further penetrate the 46 million collectible car opportunity in the United States delivering durable, profitable growth year-after-year. With only 5% market share today, we believe we have a long runway ahead. We will share our outlook for 2025 on our fourth quarter earnings call, as we have done in the past. But we are highly encouraged by our business momentum as well as the quality of our team's execution that should allow us to sustain high rates of profit growth and create value for all stakeholders. Until then, never stop driving.

This concludes today's teleconference. You may disconnect your lines at this time. And thank you for your participation.