Greetings, and welcome to the Hagerty First Quarter 2025 Earnings Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce Jay Koval, Senior Vice President of Investor Relations. Please go ahead.

Thank you, Operator, and good morning, everyone. Thank you all for joining us to discuss Hagerty's results for the first quarter of 2025. I'm joined this morning by McKeel Hagerty, Chief Executive Officer and Chairman, and Patrick McClimick, 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 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 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 will turn the call over to McKeel.

Thanks, Jay, and good morning, everyone. We appreciate you taking the time to join Hagerty's first quarter 2025 earnings call. Northern Michigan is known for its long snowy winters and this year was no exception as the last of the snow banks have finally melted our hagerty members are busy preparing their toys for the driving season and we will be there to help them protect and enjoy their special cars we are also ready to welcome a record number of new members who are buying their first enthusiast vehicle or transitioning their vehicle coverage to hagerty given our guaranteed value proposition and the excellent service from hagerty's passionate team of enthusiasts. One team, Hagerty, loves your cars as much as you do, and it shows in our results with yet another solid quarter of top and bottom line growth during the first three months of 2025. So let me start by thanking our 1,700 Hagerty team members for their great execution as we've positioned Hagerty to create value for shareholders for many years to come. Let me dig into the key highlights from our first quarter shown on slide three, where total revenue increased 18%. New business count fueled a 12% increase in written premium and a 13% growth in our commission revenue. Earned premium from our risk-taking entity, Agrity Reinsurance, increased 12%. And membership marketplace and other revenue jumped 60%, propelled by successful auctions at the Amelia Concord and the Academy of Arts University in February. Moving to profitability, during the first three months of this year, our operating margin jumped another 360 basis points, resulting in net income gains of 233 percent and adjusted EBITDA growth of 45 percent. Over a two-year period, first quarter net income increased by 42 million and adjusted EBITDA by 33 million. And we believe the best is yet to come for a margin expansion story thanks to increasing economies of scale as we double our policies in force to 3 million by 2030. Let's move on to slide four and remind you of our 2025 strategic priorities built around three themes, simpler, faster, and better integrated. First and most impactful to our long-term trajectory is to expand our specialty insurance offerings to protect more of the collectible vehicle TAM, including the modern enthusiast vehicle space. Second is to simplify and better integrate our membership experience across products and services, creating revenue synergies and driving cost efficiencies. Third is to expand our marketplace business internationally, leveraging the trust we have built in the United States. This includes our upcoming auction at the Villa d'Este Concorso on Lake Como, Italy, the first of our multi-year partnership with BMW at this prestigious event. Fourth, we will continue to leverage Hagerty's unique and authentic car culture as a key differentiator for future members. The engagement and excellence from One Team Haggerty creates a repeatable winning formula for stakeholders. We are investing in the major technology replatforming that will enable scalable growth while delivering excellent experiences for our members with greater efficiency. Slide 5 goes into more detail around the investments we are making in our technology transformation, including the transition to the cloud-based insurance platform, Duck Creek. we are pleased to report that our 2025 technology investments are running on schedule and on budget as we discussed at length last quarter these near-term investments should result in greater long-term efficiency for our teams and better experiences for our members which should enable future growth and margin expansion our technology spend should trend down as percent of revenue as we accelerate the top line in 2026 and 2027 and drive margins higher. Before Patrick digs into the numbers, I want to highlight a few more reasons why we believe that we are such a compelling investment opportunity. Hagerty is a U.S.-centric company with over 90% of our revenue generated in the United States, positioning us well to weather noise from tariffs. And we operate in a highly regulated and mandated industry that enjoys great defensive characteristics. This creates predictable revenue streams, especially given our excellent retention and persistent share gains for the Hagerty brand. Our track record speaks to a highly differentiated business model that can thrive regardless of the economic cycle. Our compound annual growth rate in written premiums since 2005 is over 13 percent, but even during the darkest moments of the great financial crisis, we maintained high single digit written premium growth while volatile market conditions might make consumers think twice about buying another special car this year or cause consumers to forgo a vacation the extra time spent at home creates opportunities to enjoy their existing enthusiast vehicles pull it all together we believe that we are well positioned to deliver high rates of profitable growth for many years to come let me now turn the call over to patrick to share more details on our first quarter results and our reaffirmed 2025 outlook.

Thank you and good morning everyone. Let me dig into the first quarter in more detail shown on slide six and seven. In the first quarter we delivered 18% growth in total revenue to 320 million. New business count gains combined with industry-leading retention of 89% drove a 12% jump in written premium. Mission and fee revenue jumped 13% to over $100 million in line with written premium gains on stable underwriting results. Earned premium grew 12% to $169 million. Our loss ratio of 42% incorporates $10 million in losses from the Southern California wildfires. And membership, marketplace, and other revenue increased 60% to $50 million. Our Broad Hour team delivered excellent results at both Amelia and the American Academy of Art University sale. I would note that the no-reserve AAU auction epitomized the power of the Hagerty ecosystem. We utilized the strength of our live auction platform and team of specialists, our valuation expertise, and our strong balance sheet to acquire the collection and sell 105 vehicles in a jam-packed room with over 500 registered bidders present. In just our third year, 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. Needless to say, we are very excited about our upcoming auction at the historic Villa d'Est Concours, the first of many auctions to be held outside of the United States. Turning now to profitability, shown on slide 8, we reported an operating profit of $26 million in the first quarter, a 110% increase as operating margins jumped 360 basis points to 8% in the seasonally small quarter for us. While there were some modest timing items that benefit the quarter, we are maintaining tight discipline on the cost structure of our MGA to efficiently translate our double-digit commission gains into profit growth. G&A increased 12% due primarily to higher software licensing costs from our technology transformation, and salaries and benefits grew 5% due to merit increases. Our MGA membership and marketplace businesses accounted for nearly half of our total revenue in the quarter, with rapidly expanding margins. One Team Hagerty is making great strides forward on our long-term growth opportunities, including the rollout of the State Farm Classic Plus program to 25 states by the end of 2025, which should power accelerated commission revenue growth for our MGA into 2026 and 2027. We are also tracking well to launch Enthusiast Plus in Colorado later this year as we target more of the modern enthusiast vehicles that we are currently declining. Adjusted EBITDA increased 45% to $40 million and is up six-fold from the first quarter of 2023. Adjusted EBITDA margins continued their steady march higher, surpassing 12% in the quarter, as we improved the efficiency of our business model. Our growing capital base at Hagerty Rhee and balanced investment strategy resulted in $7 million investment income despite the market volatility. In total, we delivered first quarter net income of $27 million, compared to $8 million a year earlier, an increase of 233%. Net income attributable to Class A common shareholders was $6 million, after attribution of earnings to the non-controlling interest and accretion on the preferred stock. And GAAP basic and diluted earnings per share was $0.07, based on 90 million shares of Class A common stock outstanding we ended the quarter with 128 million in cash and 147 million of total debt which includes 32 million in back leverage for our profitable portfolio of loans to customers that are collateralized by collectible cars we also increased the capacity of our unsecured credit agreement to 375 million in the quarter adding bmo to the syndicate the amended facility has lower borrowing costs and a maturity of 2030. Let me wrap up with our 2025 outlook shown on slide nine. Given the solid first quarter results and business momentum, we are reaffirming our 2025 guidance for the top line revenue growth of 12 to 13 percent, powered by 13 to 14 percent gains in rent and premium. We expect to deliver strong operating leverage to the bottom line with net income of $102 to $110 million, up 30 to 40 percent, and adjusted EBITDA of $150 to $160 million, up 21 to 29 percent. In summary, we are executing well against our 2025 strategic priorities and positioning Hagerty for high rates of compounding profit growth. With that, let us now open the call to your questions.

Ladies and gentlemen, if you would like to ask a question please press star one on your telephone keypad and the confirmation tone will indicate your line is in the question queue you may press star two if you would like to remove your question from the queue for participants using speaker equipment it may be necessary to pick up your handset before pressing the star keys one moment please while we pull for questions and the first question comes from the line of pablo singron with jp morgan please proceed Hi, good morning.

Patrick, you touched on this a bit in your comments, but I was wondering if you could provide a refresh on the relative margins to generate our marketplace revenues versus the rest of Hagerty. I'd assume in a quarter like this one where you saw strong growth in marketplace, you probably got a decent amount of mixed benefits with respect to margins just on top of normal operating leverage. So if you just, you know, maybe parse out the relative contribution of marketplace this quarter, whether in terms of, you know, dollar EBITDA or basis point the margins at the outlook. Thank you.

Sure. Good morning, Pablo. Thanks for the call, for the question. Yes, we've talked about the driver in this quarter really was the live auction business. And so we had the AU sale that went quite well. We had Amelia Island. And so we really, we benefited from strong sales in both of those. And I think what we talked about is the way we think about those sales really on a contribution profit basis. And so you kind of design a sale where you know what your costs are to put on that sale, and then you try to put together a book of business that puts you in a position where you're going to cover all those costs and produce reasonable margins. And so, before you get to sort of overhead allocation, those kind of things, these are designed that if they go well, they should be quite profitable. So, contribution profit margins, you know, 30, 35% type numbers. And so, when you have two good sales, that's the kind of contribution we were getting in the first quarter. And then, of course, there's overhead and central costs and those kind of things that that you've got to burden the business for um but it is quite profitable and when you compare that to the other parts of our business you know risk-taking business is about a 10 profit margin business the outside of risk taking and insurance um you know we're sort of mid to high single digits right now but expanding that will continue to grow over time but the nature of the marketplace business is it when working well it will be a very profitable business on a margin basis hopefully that's helpful Yes, it was.

Thanks for the detail. And then just jump into another topic. Strong risk results this quarter, right, with the threshold coming in the low 40s, even with the catastrophe. So if you X out those catastrophes, that puts your loss ratio in the mid-30s, right, which I think is much lower than where you've historically run. So if you could just provide perspective on what happened X catastrophes with respect to the loss ratio. Thank you.

Well, the first thing is just how we think about seasonality and losses. And so the way we think about it is going into a year, we come up with what we assume will be our full year loss ratio, and then we book to that. And so typically in the first and second quarter, we're just booking to that full year loss ratio, even though that those are typically seasonally low quarters for us from a loss perspective. And then in the third quarter and fourth quarter, we'll either keep looking to that estimate that we had at the beginning of the year, or we'll make adjustments one way or the other. And the reason why this all makes sense for us is we're so seasonal, right? The driving activity happens late Q2 and Q3. So it's not until we get to the end of Q3 that we've got to sense what the driving season looked like. And then that's also end of Q3, you're kind of right in the midst of cat season. And so that's when we'd make any adjustment. So the way to think about what happened in the first quarter is we booked to our annual number. It includes what happened in California with cats. And so you're right. If you stripped up those cats, you would be down in the 30s. And typically, the first quarter is a much lower loss ratio quarter for us. So the actual experience is going to be in the 30s. We booked to something that's more likely. That's the mechanics behind it. Did that answer the question?

Yes, it does. Thanks again.

You bet. Thanks, Bobo.

And the next question comes from the line of Matt Carletti with JMP Securities. Please proceed.

Hi. Yes, this is David. I'm for Matt. I had a couple of questions, if that's all right. First, if you could just provide an update on the impact of tariffs. A large pier earlier this reporting season suggested a one-time made the high single-digit lost cost impact, presumably slightly higher in auto and lower in home. So how would the anticipated impact on Hagrid's book compare?

Sure. Thanks for the question, David. Good morning. The way we're thinking about tariffs, we don't see it as having what I'd call a direct impact on our business. We can start with the insurance business. And the way that we think about it is, over time, you would expect that it would create some sort of upward pressure on, you know, claims costs related to severity. The tricky part for us is so many of the vehicles are, it's a big dispersion in terms of the types of vehicles and the age of vehicles and the supply chains for parts for each of those vehicles can be very different. And oftentimes a lot of these things, these are not on the run parts, right? These are things that are being manufactured in small batches and oftentimes they're manufactured domestically. And so while there should be over time some upward pressure, we think it will be quite muted for our business. So really hard to predict because of the nature of the supply chains for the different cars that we're serving, but we think it'll be pretty muted for us. We also think about in terms of the marketplace business and our interpretation of the rules, and obviously things are moving around, but our interpretation is that cars that are 25 years years old and older, there's no change in the tariff regime. It was a 2.5% tariff. It's still a 2.5% tariff. So we think about high-value cars being imported into the United States, and those are the kind of cars that we're helping people sell at auction or privately, no change from tariffs on that side. So we'll watch and see. We're monitoring it closely, but we think it'll be relatively muted for us.

That's very helpful. Thank you. And just one more question. Last quarter, you spoke a bit about how your business is seasonal and start seeing more shopping activity come March or April. You also mentioned how the LA Flyers were having a cooling effect on that activity a bit, similar to what you've seen in other CAT events or cold weather events. So sitting here now in May, can you update us on what you've seen over the past 30 to 60 days with respect to shopping behavior?

Sure. Yeah. Good question. You know, it's interesting. There's, industry-wide, you're seeing a lot of shopping activity right now, and you're seeing some of the large daily driver insurers really leaning in from a marketing perspective and driving that shopping activity. Some of that flows through to us. Just activity creates more at the top of the funnel. So, our quote volume continues to be strong, um and that has held up you know over the course of the first quarter into the second quarter as well we have seen a little bit slower growth than what we had anticipated and planned for and as we did our diagnostic of that there's a few things going on some is the factors you described right when there are these large events that typically results in a pause particularly for our type of vehicle some of it can be weather related and it was a long winter and a sort of a tough winter where people were not able to get their cars out on the road early. And so that can tamp down some of the activity for our type of cars. And then there's a number of changes that we've made internally to make sure that we're taking friction out of sort of our quote flow. And so we're trying different things to make sure that we're driving the right level of activity. It's a little bit slower than what we'd have anticipated. We've always talked about 2025 being an interesting year where it's very back end loaded in terms of new customer growth. And a lot of that is related to State Farm, which ramps up. We're now in seven states with State Farm. We entered three more states in the last quarter. We're going to start the process of doing conversion of State Farm's existing customers. The letters for our first four states have already gone out, so that means by summertime, we'll be converting those customers. And then we'll do the same with the three states that we've just entered. By the end of this year, we think we'll be in around 25 or more states with State Farm. And so that really drives a lot of the growth that we are seeing occur this year. It'll be in the second half. So off to a solid, but sort of not as quick start as we anticipated for 2025, but we think that it'll ramp up quite quickly as we get into the driving season and particularly the State Farm activity. Thank you.

Ladies and gentlemen, again, if you would like to ask a question, it's star one.

And the next question comes from the line of Mark Hughes with True securities please proceed yeah thank you good morning the uh membership good morning membership and marketplace revenue up very strong this quarter up 60 sounds like you've got some good events in the pipeline um any uh sense or visibility for what it might be for the full year in terms of the growth there um yes as we said on the call we've affirmed our guidance and you should interpret that to be across the entire business good start to the year in live auctions we've got the schedule for the balance of the year we had one additional auction that

happened in the second quarter which was a good outcome that was our Porsche only sale that we did at air and water a couple of weeks ago and so that came kind of in line with what we did in the previous year as always Monterey is big for us and so that'll be in August we've got the new sale coming up in italy all that's baked into our guidance so off to a good start but it's a little bit early for us to to conclude that we need to change our guidance on it but we're pleased with the outcome so far very good you you had uh mentioned the enthusiast cars that you've been declining um you know but you're taking steps i think it sounds like to open up that opportunity.

Could you expand on that? What was your point there?

Mark, it's McKeel. I'll comment on that. As we've talked about, we're launching really a new program that will operate in parallel with our core program. We're referring to it as Enthusiast Plus. And this is really in response to this changing both, I guess, kind of demographic and vehicle preference trend that we've been tracking for a number of years, where as younger buyers and collectors get into the space, they're interested in newer cars that our core classic collector car insurance program and pricing structure didn't entirely contemplate. So we get a lot of that interest today, and we turn a lot of it away for pricing or underwriting reasons. And so this whole effort to acquire and stand up the Driver's Edge Insurance Company, Our Duck Creek Apex technology platform is really in response to that. So we can widen the aperture of our underwriting funnel and to be able to write more of the business that's already coming our way. So we're excited about it, but it's a complicated, long process to get one of these new programs and insurance companies up and running. And we're excited to get that going a little bit later this year, starting in Colorado. and then we'll be in my view off to the races it's been a it's been a dream of ours to get it to get it going to be able to bring more people into the haggardy world and and uh that's how we're going to do it yeah are these cars are they uh kind of uh more in the border they they're more like daily drivers or people drive them more often um but they're uh they still are older more classic vehicles is that the complication well i you know i like to remind people that the you know the mazda miata is now over 30 years old has a type of car that we get a lot of interest in and you know these are 10 15 20 000 cars that are beloved by the people that own them and yes they can be driven more there many of them you know it wasn't that long ago that they were still under warranty but they are the special two-seater convertible that you can go out and enjoy on a sunny afternoon. So the usage profile generally matches everything that we've been doing for all of these decades, but the car is a little bit more modern, a little bit more reliable. And yes, sometimes you will see them, you know, driven more than, you know, five, six, 800 miles a year, but still we think within a very under underwritable, a very pricing target that we can get similar kind of results that we've been able to achieve through the years. So we write some of this business today. We've kind of stretched our pricing and rating models about as far as we can with those. And that's why we're standing up the new program.

Understood. And Patrick, on the Duck Creek spending in your reaffirmed outlook, you highlight again the $10 million from the wildfires and then $20 million from the Duck Creek technology spend. And when we rolled that forward into 2026, how much of that recurs or, you know, would be ongoing or does that, is that just isolated to 2025? You could remind me on that to be great.

Sure. So the 20 million that we talked about, about two-thirds of that is technology related and really is what we call apex, which is the biggest part of apex is Duck Creek. but it's also the other changes in technology and integrations as part of you know the modernization of our stack and so about two-thirds is technology related the other third really is people related and some of that is standing up the team that we need to take on our european expansion within marketplace um we're not just doing one auction over there we're going to be in business over there and so we're building out a team and capabilities so much related to all the volume that'll be coming online for State Farm. Got to step up for some of that activity. So that's how we got to that $20 million. And the intent was to help people understand that that compresses our margins in 2025. We are spending those dollars now in support of growing our business. And we're spending those dollars, in some cases, in advance of the revenue, right? So we're hiring up a team in Europe. We're having our first auction in May. we won't be at a full schedule for a couple of years and so it's a margin drag as we get to that stabilization same concept with state farm right we've got to hire those people and and we're onboarding them before the full revenue comes online and obviously the case for technology so that was the intent is to give people a way to bridge uh sort of the margin story our margins have expanded quite rapidly the rate of expansion flows in 2025 largely because of this 20 million We're not signaling that it's a one-time, right? Those dollars don't go away. The technology spend – we've spent a bunch of capital dollars that turn into depreciation, and then we'll be paying for the licenses for the new technology platform, and the heads obviously don't go away because we've got a bigger book of business on a go-forward basis. So it's not a one-time concept. It's more of a bridge concept. Is that helpful?

It is, yeah. it becomes kind of the baseline of expenses, but then you're layering on the revenue associated with that and leveraging that over time. It sounds like the way to think about that. Yeah. So that's it. Yeah. Okay. Very good. Thank you.

And the last question will come again from the line of Pablo Singron with J.P. Morgan. Please proceed.

Hi. Thanks for taking my follow-up. So I just wanted to follow quickly on the $20 million of annual expenses. How much of that showed up this quarter and how should it stay since the year? Thank you.

Pretty rateably, actually, because the technology, we signed up all those licenses, we're paying for them now. Some of the work is still construction in progress and it hasn't fully been put into action and therefore we haven't started depreciation on it.

Then maybe a little bit of a wrap over the course of the year.

The people, most of the hiring that happens in q1 and q2 for that uh so i would say it's it's probably of that 20 million you know there's probably 15 to 15-ish percent was in the first quarter and then just kind of gradually increase it from there but jay said yeah ballpark let's good way to think about it okay thank you thank you this will conclude the question and answer session i'd like to hand the call back to Nikhil Haggerty for closing remarks.

Thank you, operator, and thanks to all of you for your continued support and interest in Haggerty. Driving season is here, and so is show season. Our Greenwich, Connecticut Concours d'Elegance weekend is coming up on May 31st and June 1st in Greenwich, Connecticut. And we will also be hosting our annual investor event on Friday, May 30th at the Delamar Greenwich Harbor, right there on the site of the Concours event. So So hopefully some of you will be interested in joining us there, and we look forward to seeing you. We hope you will be able to learn more about us as we think about positioning our company to double our PIF count to 3 million by 2030 through our highly differentiated business model. The entire Greenwich Concours weekend should be a lot of fun and hope you can attend. And for those of you who happen to find yourselves in Italy the weekend before, we would love to have you join us at the Villa d'Este Auction and Concours on May 24th and 25th. Until then, never stop driving.

This concludes today's conference. You may disconnect your lines at this time. Enjoy the rest of your day.