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Greetings and welcome to the Hagerty Third Quarter 2023 Earnings Call. At this time all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. [Operator Instructions]. As a reminder this conference is being recorded. It is now my pleasure to introduce your host, Jay Koval, Senior Vice President of Investor Relations. Please go ahead.

Thank you, operator, and good morning, everyone, and thank you for joining us to discuss Hagerty's results for the third 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 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 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 financial metrics to 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, Founder and CEO.

Thanks, Jay, and good morning, everyone. We appreciate you taking the time to join our third quarter 2023 earnings call. For classic and enthusiast car owners, November is a look back look forward kind of month. This is when we reminisce about the adventures and misadventures of the past driving season and dream about the spring driving season to come. At Hagerty, we are deep into planning season and how we can better serve our members in 2024 with products and services they need to enjoy their vehicles. But I think it's really important for a team of 1700 people at Hagerty, to stop and to celebrate all that we have accomplished over the last 12 months, simply put we are successfully executing on the strategy we set forth at the end of 2022 to significantly improve our profitability without negatively impacting our high rates of organic growth. From a top line perspective, 2023 growth looks a lot like 2022, but better. Over the first nine months, we have grown written premiums by 16% on top of last year's 15% gains, and total revenue has jumped 28% compared to last year's 27% growth. There is nothing more powerful than sustained compounding growth. The area where 2023 looks dramatically different than 2022 is the bottom line. Last year, at this time, we had minimal adjusted EBITDA. Expense growth was too fast, technology spend, too great, and we weren't delivering the flow through you would expect from a rapidly scaling business model built around a great brand. Fast forward to today, during the first nine months of 2023, we have delivered adjusted EBITDA of $78 million a year-over-year improvement of $78 million. These results would not have been possible without the excellent execution and commitment from our team. Importantly, we have been taking the actions necessary to further improve margins over the coming years. I would point out that we are on track to deliver an 8 percentage point improvement in our adjusted EBITDA margins this year. This 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 that we launched in September, ramped up technology spend as we build out Hagerty's online marketplace, and additional tech investments we are making in the insurance technology platform implementation that will position Hagerty to drive strong flow through of incremental revenue into the incremental profits over the coming years. Let's now dig into a few key highlights of our year-to-date results shown on Slide 3 of our investor deck. This includes a total revenue jump of 28% during the first nine months of 2023 to $755 million. Written premiums grew 16% and commission revenue grew 18% on strong underwriting results. The Hagerty brand and value proposition is resonating with consumers, we're seeing double digit rate increases as the industry endures unprecedented inflationary pressures. And our risk taking entity, Hagerty Reinsurance, earned premium over the first nine months jumped 32% due to the growth in written premium and our increased level of quota share to 80% as we assume more of the risk and premium associated with our stable underwriting capabilities. We are largely through what is thus far been an uneventful cat season in the Atlantic. Membership marketplace and other revenue increased 47% during the first nine months. This high rate of growth was fueled by 20% growth in membership revenue, Thanks largely to new member growth and $25 million of marketplace revenue described on Slide 4. We believe our membership business known as Hagerty Driver's Club is an extra gear for our insurance business by helping fuel high customer satisfaction and retention. A $70 annual fee gives members access to white glove flatbed towing, of subscription to our award winning magazine, discounts on goods, services, and events, full access to our evaluation tools built through decades of experience, and a global membership community that fosters real life human interactions around members shared passion for automobiles. Finally, regarding State Farm, we are pleased to report that the program launched in four initial states in September. State Farm agents in these states are beginning to sell new policies, along with Hagerty Driver's Club memberships, and we will begin to convert their existing class car program members to the new classic plus program administered by Hagerty as we move through 2024. Let me now move on to Slide 6 where we have again increased our 2023 expectations for written premium growth, now expected to be 15% to 16% resulting in total revenue growth of 26% to 27%. On the bottom line, we have driven 10 points of adjusted EBITDA margin expansion over the first nine months. Given the year-to-date performance and our trajectory as we head into the seasonally small fourth quarter, we are also increasing our EBITDA expectations for 2023. For context, we began the year expecting $40 million to $60 million in adjusted EBITDA, and we now anticipate delivering $75 million to $85 million roughly 60% higher than our initial guidance. We are also continuing our evolution towards becoming a fully integrated insurance business, with AM Best recent announcement that we have received a financial strength rating of A- (excellent) for Hagerty Reinsurance. This is a great outcome right out of the gate. We began this journey a decade ago when we inked the original agreement with Markel and moved into a quota share arrangement, assuming more of the premium from our underwriting, creating another profit stream for the company beyond the commission revenue. In summary, we are creating a visible path to becoming a leaner, stronger, and more profitable company that can self-fund our high rates of growth year after year. Our productivity initiatives will drive strong cash flow generation over the coming years on top of the $132 million of year-to-date operating cash flow. Cash flow combined with this summer's capital raise of $105 million positions us to continue to invest and to execute on our long term growth ambitions and to allow us to save driving and to fuel car culture for future generations. Let me now turn the call over to Patrick to cover the third quarter financials in more detail.

Thank you, McKeel, and good morning, everyone. McKeel shared some of the highlights from the first nine months, so let's dig into the third quarter results shown on Slide 7 and 8. In the third quarter, we delivered 27% growth in total revenue to $276 million with written premium growth of 15% powered by robust growth from the new business count and a bump in retention. Commission and fee revenue grew 21% to $103 million due to the written premium gains and the normalization of contingent underwriting commissions in the absence of Hurricane Kim. The membership, marketplace and other revenue jumped 37% to $33 million versus the third quarter of 2022, when we acquired full ownership of the Broad Arrow Group. Marketplace revenue came in $6 million higher due in part to the progressive ramp of our online marketplace. Earned premium grew 30% to $140 million driven by new written premium growth and the 10 point increase in our contractual reinsurance quota share in 2023 to 80%. Our loss ratio came in at 41% consistent with historical levels. We deliver stable underwriting results in large part due to the passion and care that our members describe to their prized possessions. Now turning to profitability shown on Slide 9, we reported third quarter operating profit of $16 million an increase of $37 million over prior year period. Operating profit included a $4 million loss and impairment related to the termination of the garage and social joint venture and failed drive share. These actions resulted from the strategic review of our business and our decision to focus our people and resources on the clear opportunities to profitably grow our insurance, membership and marketplace businesses. In the aggregate, we delivered third quarter net income of $19 million compared to $24 million a year earlier. In 2022, net income $24 million benefited from a $35 million reevaluation gain related to buying the rest of Broad Arrow Group, as well as $11 million swing in fair value adjustment related to our private and public warrants. So the underlying business produced meaningfully improved net income results primarily driven by the significantly improved operating margins as we successfully execute on our profitable growth ambitions. GAAP earnings per share was $0.04 based on $84 million weighted average shares of Class A stock outstanding. Our adjusted EBITDA during the third quarter was $37 million, a $47 million improvement over the $10 million loss in the prior year period. And operating cash flow in the third quarter jumped 83% to $62 million. Let me now move on to our revised 2023 outlook which we have increased for the third straight quarter this year shown on Slide 10. As McKeel mentioned given the consistently strong visible top line momentum in our business, we are increasing our outlook for total revenue growth to 26% to 27%, powered by written premium growth of 15% to 16% as we add around a quarter of a million new members in 2023. Moving down to P&L, we've again increased our profit expectations for the full year. We now expect positive net income of $2 million to $12 million and full year adjusted EBITDA of $75 million to $85 million. In summary, we are delivering exactly what we set out to do a year ago as we began planning for 2023. We've been able to maintain our top line momentum while implementing actions that are driving a swift return towards historic double digit margins. Importantly, we are taking the steps necessary to sustain these high rates of growth and flow through to the bottom line over the coming years. With that, let us now open the call to your questions.

Thank you. [Operator Instructions]. Your first question comes from Greg Peters with Raymond James. Please go ahead.

Hey, good morning. This is Sid on for Greg. First, I believe I read something from Hagerty insider on the strength of the collectible car market weakening a bit this year. So just curious on how the strength of the market may or may not affect the results of your marketplace.

Well, thank you. And we're really pleased to be able to continue publishing, insights into the marketplace and we think it really helps people make informed decisions about buying and selling. We definitely saw a softening at the top end of car market starting back in Monterey in August, where virtually all of the live auctions saw a little bit of softness as well as, kind of weakening interest in the top end of the market. However, the resilience around people continuing to hold on to their vehicles, build their collections remains. So it might slow down a little bit at the volume at the top end. But we're not really seeing a significant change in how we can go forward and build out a bit of a larger calendar of events for the future years. That being said, we're going to be really careful to make sure that this new business, delivers exactly what we needed to do going forward.

Okay. Yeah. That makes sense. And then just curious on the increased guidance for the year. When we go back to the original adjusted EBITDA guidance compared now, can you just discuss, I guess, what has come in better than expected this year relative to the original expectations?

Well, it's really kind of up and down the P&L. So from a revenue standpoint, our written premium growth is a bit higher than what we had expected. Our new business count is a bit higher than what we expected. So the underlying strength in the core insurance business is a key driver. And then as you move down the P&L, we did take additional cost out. So we had a restructuring in the first quarter of this year that was not contemplated in the original guidance, and then we kept pushing to make sure that we were being as disciplined as possible, and making sure the benefits of that restructuring flowed through. So, better top line performance, making some changes on the cost structure, keeping discipline on the cost structure, we've had a good first three quarters of the year. And the way that fourth quarter started, October was another strong month consistent with what we saw earlier in the year. And we continue to feel good about the performance right now. And that gave -- that put us in a position where we're confident to tighten up the top end of the range on some of the guidance and then increase the range on EBITDA.

Alright. Thanks for the answers.

Next question is Dan Lukpanov with Dowling & Partners. Please go ahead.

Hey, guys. Good morning. It's good to hear the progress on the State Farm Partnership but just curious, can you discuss other similar opportunities that you see? Anything on the pipeline?

Thank you. Yeah, we’re very excited to, after a lot of work, getting State Farm up and running and launched and continuing to test that of all the wiring to make sure that it can work well going forward with a large expected volume of business coming in. We have a number of other discussions in the pipeline. We're not announcing any of them yet, but we're definitely working on some of these. We're mindful of the fact that the larger industry is very, very focused on their own sometimes challenged results. But even with our existing partners, and we work with many of the largest insurance distributors out there, is that Hagerty is open for business. We're here to help take care of their specialty vehicle needs. And that's opening up new opportunities, ways that we think we can expand our offerings for them, expand the types of vehicles that they previously would have thought of as being in our category. So we're feeling quite good about it and look forward to talking about maybe some additional names on the list in the coming year.

Thanks. Interesting. And I'm not sure to which extent you guys track this, but just curious how your loss ratio profile compares between the classic cars and collectible cars or enthusiastic cars, if you will. And I get that you probably try to price them so they're a level, but maybe in terms of volatility, do you see the loss ratio in collectibles, for example, being more volatile in a classic portfolio?

No, well, thank you. Obviously, our -- the main business, the biggest part of our business is in that kind of classic collectible car, real vintage cars. And the beauty of it is the stability of it. It's not volatile at all. The underlying physical damage loss ratios remain really very steady. And in fact, this year returned to our historic levels. And on the liability side, which we had discussed in previous calls had some worse results last year largely due to, several years of liability claims coming through due to the pandemic in a one year period of time. Those two have been landing really right on expectations. So this is a steady, steady book of business when it comes to loss ratio and anything that would look like volatility. And I think that's proving out this year very nicely.

Yeah. Definitely, particularly given the severity trends that we've seen this year, but I'm clear on the classics, but how about collectibles? I know you have a small market share in that segment, but just curious if the loss ratio profile, there is similar to classics at all. And now do you –

I just want to make sure I'm understanding the question. So, yeah, I mean, the way we look at it and the way we've talked, we spent a lot of time talking about our total addressable market, we make a differentiation between vehicles pre-1981, and all of those 1981 and earlier are, we call classic or collectible cars, kind of vintage collective cars. And that's the big stable book. The newest part of our business is in this post 1981 vehicle segment. And we're seeing more and more and more of that from a consumer demand standpoint. A lot of our new business volumes are coming from that segment. And while we have a lesser penetration there in that larger market, it's mostly because it's we've been in business for almost 40 years. And so the bulk of the business that big renewing book every year is that older classic collectible. We refer to this newer segment generically has enthusiast vehicles. So that is not a word that is used out in a car world to refer to anything. We use it. It doesn't, no one want to say, hey. I have an enthusiast car. So, for us we refer to that as enthusiast vehicles, and it too is performing very, very well. Of course, post 1981, these vehicles are, not as new as we might think sometimes. So, we're happy with both of those segments. I hope that answer. I'm just trying to clarify terms.

Yeah, that's helpful. Thank you.

[Operator Instructions] Next question comes from Pablo Singzon with JPMorgan. Please go ahead.

Hi. Thank you. So the first question is to what extent is Hagerty's ability to write the business implements by disruption in the broader personalised market price, whether it's customers seeing large increases under renewals or insurers not going through the right business in certain states.

Hey, Pablo. It's Patrick. Hope you're doing well. So I just want to make sure I got it. So I think you're asking, it's a challenging broader market for standard auto and what implications that has for our ability to write new business --

To the extent that you partner with these institutions, and you might use the same distributors, right, recognizing that you have a different book, but there is some -- there's still some interconnection there.

So I think what Pablo's asking is if disrupted market that has implications for standard auto, we are in partnership with each of these does it have implications for our ability to grow with them? Is that fair Pablo?

That's exactly right.

Yes. Okay. So yes, no, thank you. And it's a good question. And the disruption has really been almost two years long. So let's just be clear about it. We definitely saw changes in how some of our big partners were reacting to the market last year 2022. They're very, very focused on their own results and their own growth. That being said, where we're talking about agency companies, companies that work with agents, whether they're big, the big, old classic, captive agency businesses. Those agents still need access to growth. They're trying to manage the loss ratios in their book. They're worried about availability in certain markets like California, but we've still been open for business with them, even in states like California. So in many cases, where some of the big companies and their agents are kind of struggling to maintain their renewals, we've been a kind of a bright spot for them. And so our growth this year is even across all lines. And we're all distribution points, like referred to it as our omnichannel direct agent and broker. And then we kind of break out those big partnerships where we get larger, larger flow through of the business. So, we're open for business and it's going well for us.

Got it. That’s helpful McKeel. And then second question just on the sale of DriveShare and Garage Social. What kind of go forward impact will that have on, I guess, EBITDA? Right? I'm assuming, these are not highly profitable businesses under tiny, but any perspective you can provide on the impact of those sales going forward?

Yes. You'll see in the disclosure, there was a restructuring charge that we took or divestiture charge that we took related to those just north of $4 million. And both Garage and Social, and DriveShare were loss making. So it'll be accretive to EBITDA.

Okay. And then the last question I had, maybe for you, Patrick, just hoping you can give some perspective on what run rate investment income looks for a heavier these days. Right? So maybe just talk about how much, investable cash or assets you have in the balance sheet and what sort of yields are you getting. Thank you.

Yes. The easiest way to think about it is just look at the cash within Hagerty Re and focus on well, within Hagerty Re, it’s both the restricted and unrestricted and it's in the neighborhood of $600 million worth of assets. And right now, we're invested heavily in cash like instruments, but that means you're earning 5%, 5.25%. And so that'll give you a sense what the current run rate is. And then for now, we're going to stick with things that are cash like. So what you can run cash balances around, you'll be able to calculate what our run rate earnings would be. It's very simple and straightforward right now.

Alright. Perfect. Thank you.

There are no further questions at this time. I would like to turn the floor over to McKeel for closing comments.

Thank you, operator, and thank you for those who ask questions. And thanks to all of you for your continued support and interest in Hagerty. We have a unique and highly differentiated business model that is just beginning to hit its stride as we help consumers protect buy sell and enjoy their prized vehicles. Commissionable revenue as a high growth insurance distributor is the backbone of Hagerty, supported by our membership proposition, and will continue to be a primary profit driver given expectations for sustained double digit growth through our omnichannel distribution. Our marketplace is in its infancy, but we're very encouraged by the first year results and ability to deliver profitable growth and our move towards controlling our destiny and reducing frictional costs as a full stack insurer will allow us to capture more of the profit from our strong and stable underwriting results. We have delivered consistent low to mid-teens written premium growth over the last decade. The financial rigor we have implemented over the last year is allowing us to maintain these high rates of growth, while delivering the bottom line results that will fund our growth ambitions and create value for shareholders over the coming years. Thanks again to our amazing team members at Hagerty, and we are excited to share more thoughts with you all. And the good things to come in 2024 on our next earnings call. Until then, never stop driving.