Hagerty, Inc. (HGTY) Q2 2025 Earnings Conference Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call summary highlights strong financial metrics, positive strategic initiatives, and optimistic guidance. The company is expanding its insurance offerings, leveraging partnerships, and investing in technology, which are all viewed positively. The Q&A section supports this sentiment, with analysts showing interest in the company's growth strategies and partnership developments. Despite some uncertainties in tax guidance, the overall outlook is favorable, with a reaffirmation of revenue growth targets and net income guidance reflecting significant increases. These factors suggest a likely stock price increase in the short term.
Key Financial Performance
Total Revenue Increased 18% year-over-year to $369 million. This growth was driven by new business count gains and industry-leading retention of 89%.
Written Premium Increased 11% year-over-year. This growth was fueled by new business count gains and expectations for faster growth in the second half as State Farm ramps.
Commission and Fee Revenue Grew 11% year-over-year to $143 million. This was supported by the overall growth in written premiums.
Earned Premium Increased 13% year-over-year to $178 million. The loss ratio remained steady at 42%.
Membership, Marketplace, and Other Revenue Jumped 78% year-over-year to $48 million. This was due to higher inventory sales and the launch of the European auction business.
Operating Profit Reported at $48 million for the second quarter, with operating margins up 70 basis points to 13%. This was achieved through tight cost discipline and translating commission gains into profit growth.
Adjusted EBITDA Increased 20% year-over-year to $64 million. This was due to improved efficiency in the business model.
Net Income Increased 11% year-over-year to $47 million. This was supported by growing capital base and balanced investment strategy.
Net Income Attributable to Class A Common Shareholders Reported at $9 million after attribution of earnings to noncontrolling interest and accretion on preferred stock.
Unrestricted Cash Ended the quarter with $140 million in unrestricted cash.
Total Debt Reported at $176 million, which includes $39 million in back leverage for the portfolio of collateralized loans.
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Operating Highlights
Enthusiast+ program: Launched in Colorado to expand specialty insurance offerings for modern enthusiast vehicles.
European auction business: Launched with higher inventory sales and two additional auctions in Belgium and Switzerland.
International marketplace expansion: Expanded with European auctions, leveraging trust built in the U.S. and partnerships with Zoute Concours and Auto Zurich.
Revenue growth: Total revenue increased by 18% to $369 million in Q2 2025.
Profitability improvement: Operating margins increased by 210 basis points in the first half of 2025, with net income up 46% and adjusted EBITDA up 28%.
Technology replatforming: Invested in cloud-based insurance platform Duck Creek to enable efficiency gains.
Markel fronting arrangement: Signed LOI to control 100% of premium and risk starting in 2026, enhancing profitability and operational control.
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Risk or Challenges
Written Premium Growth: The 11% growth in Written Premium is below the expected 13%-14% for the full year, indicating potential challenges in meeting growth expectations.
Technology Transformation Costs: Higher software licensing costs and increased salaries and benefits due to technology transformation and additional headcount are pressuring G&A expenses.
State Farm Ramp: The growth expectations are tied to the ramp-up of State Farm, which could pose risks if the ramp does not proceed as planned.
Markel Fronting Arrangement: The transition to a new fronting arrangement with Markel, where Hagerty will control 100% of the premium and risk, introduces operational and financial risks during the transition period.
Economic Uncertainty: Economic conditions could impact the collectible car market and Hagerty's ability to grow its membership and marketplace business.
International Expansion: Expanding the marketplace business internationally, including European auctions, carries risks related to market acceptance, operational execution, and regulatory compliance.
Target Market Penetration: The company's penetration of the 35 million car target market is only 6.7%, indicating significant growth potential but also challenges in capturing this market.
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Guidance & Outlook
Revenue Growth: The company increased its 2025 revenue expectations to 13% to 14% growth, driven by similar rates of Written Premium growth and strong gains from the marketplace business.
Profitability: Net income is projected to be $112 million to $120 million, representing a 43% to 53% increase. Adjusted EBITDA is expected to be $162 million to $172 million, up 30% to 38% compared to 2024.
State Farm Partnership: The company anticipates accelerated growth in 2026 fueled by State Farm's ramp and market share gains, welcoming 525,000 current program members.
Enthusiast+ Program: The Enthusiast+ program is expected to become a material growth driver over the medium term, targeting modern enthusiast vehicles with tailored products and pricing.
Market Penetration: The company sees significant growth potential with only 6.7% penetration of the 35 million car target market, focusing on collectible vehicles.
Markel Fronting Arrangement: Starting in 2026, Hagerty will control 100% of the premium and risk under a new fronting arrangement with Markel, expected to increase profitability through additional underwriting and investment income.
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Shareholder Return Plan
The selected topic was not discussed during the call.
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Key Q&A
Q:The Marketplace revenue was quite strong this quarter. Do you have any thoughts on kind of pacing on Q3, Q4 when you look at the events that you've got in front of you? What's the trajectory of that going to be? And then when we look at your full year total revenue guide, how much of that is Marketplace?
A:The strong Q2 performance was driven by private sales, including inventory sales, and pure agency transactions. Growth in the second half will be supported by upcoming auctions in Monterrey, Belgium, Switzerland, and Las Vegas, which were not present last year. These are reflected in the guidance for the second half.
Q:The $20 million in incremental technology spending, what's the outlook when we think about 2026? Is that all going to go away? Or is that going to drop by half?
A:The $20 million spending includes $15 million for technology and $5 million for Marketplace. This spending is pre-revenue and supports the launch of the new technology platform, Enthusiast+. It is not expected to go away but will be leveraged as revenues from insurance and Marketplace grow over time.
Q:The earnings impact from the Markel shift, other things equal, is that -- how would we look at that contribution to the bottom line?
A:The shift to 100% quota share from 80% will provide incremental underwriting profit and investment income. The underwriting profit is expected to be around 11 points of operating profit on the incremental 20 points, and investment income is currently at 4.4%. Staffing up for the new scope of work will slightly offset these benefits.
Q:When you think about the shopping behavior of the customers, how would you characterize the market right now in terms of just the potential flow related to the dynamics across the broader space?
A:The market is balanced, with unit growth below expectations for most companies except Progressive, which is growing aggressively. Hagerty's quote bond remains strong and up year-over-year, but the market is not as frothy as in previous years.
Q:I wanted to go back to your expansion in Europe. And maybe you can help -- and I know you've talked about this before. So just maybe remind me about what you see in terms of the addressable market for your business as we think about the next couple of years.
A:Hagerty is expanding in Europe with auctions as the lead step. Successful auctions at Villa d'Este, Zoute Concours in Belgium, and Auto Zurich are driving growth. The focus is on high-demand categories like modern enthusiast cars. The company plans to expand its auction calendar and private sales capability in Europe over the next few years.
Q:Can we go to State Farm? I know this is -- seems like it's beginning to really impact your financials. Maybe you can give us a sense of how -- where you are in the process of the State Farm integration and rolling out your business to their -- all of their agents.
A:Hagerty is live in 17 states with State Farm, focusing on new business. The process of rolling over existing books in 4 states has started, with plans to expand to 25 states by year-end. The integration is complex but progressing well, with strong new business numbers from motivated State Farm agents.
Q:Do you have an objective like to be in 30 states by the end of the year? Or -- I mean, ultimately, I guess, your objective is to be in all of those states, but maybe there's nuances at State Farm that prevent just a straight-line rollout.
A:The goal is to be in 25 states by year-end, with plans to expand to all available states over the next few years. Some states like California may lag due to regulatory challenges, and State Farm does not operate in every state.
Q:The tax rate in the first half has been running a little low. Do you have an expected tax rate for the second half of the year?
A:No specific tax rate guidance for the second half is available due to the complexity of the partnership structure and the impact of new legislation. The tax implications are included in the net income guidance but remain subject to analysis.
Q:On the State Farm arrangement, the marginal economics on that business, given the kind of the risk structure, I think State Farm retaining risk. How does that work just in terms of the latest thoughts on how it flows through the P&L with that Written Premium being quite strong, but then kind of flowing through the rest of the income statement a little differently?
A:State Farm retains the risk, and Hagerty earns a commission of around 30% on the book of business. This is lower than the core MGA commission due to the absence of distribution costs. The business is expected to be profitable, with additional revenue from HTC sales to State Farm members.
Q:One question on pricing or premium per vehicle trends. It looks like it's trending down a bit. The overall market, we kind of can see loss costs are from 9% and competition is building. Any comments there?
A:Average premium trends are stable and in line with expectations. Valuations in the collector car market are flat but steady. Hagerty is not seeing significant changes in competition within its niche.
Q:If we create a KPI called vehicles per policy, it doesn't seem like it moves around much, of course. I think it's gone up a tiny bit over the last couple of years. Is there anything we should be thinking about in terms of initiatives to increase vehicles per policy?
A:Hagerty's vehicles per policy is around 1.7. The launch of Enthusiast+ aims to say yes to more inbound business and attract new customers, potentially increasing average premiums. This initiative is expected to drive growth in the coming months and quarters.
Q:Review of Unclear Management Responses
A:The management avoided providing a specific tax rate for the second half of the year, citing the complexity of the partnership structure and the impact of new legislation. Additionally, they did not provide a detailed breakdown of the full-year total revenue guide attributable to Marketplace revenue.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
American muscle
Associates Inc
Auto Zurich
BMO Capital
Belgium Auto
CEO Scott
Capital Markets
Chairman CEO
Chase Co
Co Research
Colorado week
Commission Premium
Communications Chairman
Concours Belgium
Conference reminder
Creek cloud
Division Douglas
Division Kevin
Division Zaremski
Douglas Hughes
ET Greetings
Enthusiast Duck
Enthusiast program
Equity Research
Essentia premium
Force Slide
Inc Research
Koval
McKeel
Research Division
arrangement
launch
product service
world
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Hagerty, Inc. (HGTY) Q2 2025 Earnings Conference Call Transcript
Positive8-4
The earnings call summary highlights strong financial metrics, positive strategic initiatives, and optimistic guidance. The company is expanding its insurance offerings, leveraging partnerships, and investing in technology, which are all viewed positively. The Q&A section supports this sentiment, with analysts showing interest in the company's growth strategies and partnership developments. Despite some uncertainties in tax guidance, the overall outlook is favorable, with a reaffirmation of revenue growth targets and net income guidance reflecting significant increases. These factors suggest a likely stock price increase in the short term.
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