Hagerty, Inc. Q2 FY2025 earnings call

Key Points

• Summer was a great driving season with Hagerty on track to welcome a record number of new members in 2025.
• First half of 2025: Total revenue up 18%, operating margins jumped 210 basis points, net income up 46%, adjusted EBITDA growth 28%.
• 2025 strategic priorities: Expand specialty insurance offerings (e.g., Enthusiast+ program in Colorado), simplify and integrate Membership experience, expand marketplace business internationally (e.g., additional European auctions), and invest in technology replatforming.
• Fronting arrangement with Markel: Moving to 100% premium and risk control starting 2026, expected to bring incremental underwriting profit and investment income benefits.
• Second quarter 2025 results: Total revenue $369M, up 18%; Operating profit $48M, operating margins 13%; Adjusted EBITDA $64M, up 20%; Net income $47M, up 11%.

Total revenue increased 18%. Written Premium saw an 11% increase fueled by new business count, and Commission revenue grew 12%. Earned Premium for Hagerty Reinsurance rose 12%. Membership, marketplace and other revenue jumped 78% due to higher inventory sales and the launch of European auction business. Revenue contribution details: Total revenue at 100%, Written Premium around 11% of total, Commission revenue around 12%, Earned Premium for Hagerty Reinsurance around 12%, Membership, marketplace and other revenue at 78%.

Guidance

• Increased 2025 revenue expectations to 13%-14% growth, powered by Written Premium growth and marketplace business gains.
• Net income outlook revised to $112M-$120M (up 43%-53%) and adjusted EBITDA to $162M-$172M (up 30%-38%) compared to 2024.
• Aim to double Policies in Force to 3 million by 2030.

Risks

• Forward-looking statements subject to various risks and uncertainties that could cause actual results to differ from expectations, as detailed in SEC filings.
• Technology spend and integration challenges could impact efficiency gains.
• Market dynamics, including competition and economic factors, could affect business performance.

Q: How is the Marketplace revenue pacing for Q3, Q4 and what portion of full year total revenue is Marketplace?

A: Patrick McClymont mentioned strong second quarter Marketplace revenue with incremental auctions in Europe (e.g., Belgium, Switzerland, Las Vegas) driving growth, and Marketplace revenue was 78% in Q2. Second half growth will come from new auctions and private sales activity.

Q: What's the outlook for 2026 technology spending?

A: Patrick McClymont explained that $20M in incremental spending includes $15M for technology related to the new platform (Enthusiast+) and $5M for Marketplace, with revenue expected to ramp up in 2026 as the platform is used and Marketplace activities generate revenue.

Q: How does the Markel shift impact the bottom line?

A: Patrick McClymont stated that picking up the incremental 20 percentage points of quota share to 100% will bring incremental underwriting profit (expected 11 points of operating profit) and increased investment income on the earned premium within Hagerty Re, offset by some staffing and scope of work adjustments.

Q: Characterize the current market shopping behavior and broader space dynamics?

A: Patrick McClymont said the market is balanced with most top insurance companies seeing muted unit growth except for Progressive, and Hagerty's quote bond remains strong with attractive offerings.

Q: Details on Europe expansion and addressable market?

A: McKeel Hagerty mentioned expanding auctions in Europe with partnerships (e.g., Zoute Concours, Auto Zurich) following successful Villa d'Este auction, and the addressable market for collectible vehicles in Europe is significant with growth potential.

Q: State Farm integration progress and objectives?

A: McKeel Hagerty said State Farm integration is live in 17+ states, with new business in 4 states and rollover of existing business starting, aiming for 25 states by end of year and full state coverage over the next couple of years.

Q: Background on the Markel fronting arrangement change?

A: McKeel Hagerty explained it's a natural evolution from the initial quota share arrangement, starting in 2013 with the intention to eventually take full risk, and mutually agreed upon with Markel for economic benefits to Hagerty.

Q: Marginal economics of State Farm arrangement?

A: Patrick McClymont said State Farm is a pure agency relationship with no quota share to Hagerty, with commissions still attractive as distribution costs are avoided, and the business has 525,000 vehicles initially with potential for growth.

Q: Pricing trends and competition?

A: McKeel Hagerty noted valuation is soft to flat but holding steady, and competition in the collector car niche is normal with no fundamental concerns, while Patrick McClymont added average premiums are in line with expectations and rate changes have washed through the book.

Q: Vehicles per policy and initiatives to increase it?

A: McKeel Hagerty mentioned the Enthusiast+ program and technology replatforming (Apex platform) as initiatives to say yes to more business, including adding vehicles to policies and attracting newer customers, which should address increasing vehicles per policy over time.