Release Date: May 07, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

Hagerty Inc (NYSE:HGTY) reported an 18% increase in total revenue for Q1 2025, reaching $320 million. The company experienced a 12% growth in written premium, driven by new business count gains and high retention rates. Operating margins improved by 360 basis points, resulting in a 233% increase in net income. Membership, marketplace, and other revenue surged by 60%, boosted by successful auctions. Hagerty Inc (NYSE:HGTY) is expanding its specialty insurance offerings and international marketplace business, positioning for future growth.

Negative Points

The company incurred $10 million in losses due to Southern California wildfires, impacting the loss ratio. Despite strong revenue growth, the technology transformation and expansion efforts are compressing margins in 2025. There is slower than anticipated growth in new customer acquisition, partly due to weather-related factors and internal process changes. The transition to the new technology platform involves significant upfront costs, affecting short-term profitability. Tariffs and supply chain complexities could potentially impact claims costs, although the effect is expected to be muted.

Q & A Highlights

Warning! GuruFocus has detected 2 Warning Signs with HGTY.

Q: Could you provide a refresh on the relative margins generated on marketplace revenues versus the rest of Hagerty? A: Patrick McClymon, CFO: The live auction business was a significant driver this quarter, with strong sales at the AU sale and Amelia Island. These sales are designed to be quite profitable, with contribution profit margins around 30-35%. Compared to other parts of our business, the risk-taking business has about a 10% profit margin, while non-risk-taking areas are in the mid to high single digits but expanding.

Q: What happened with the loss ratio this quarter, especially considering the impact of catastrophes? A: Patrick McClymon, CFO: We book to our annual loss ratio estimate, which includes the impact of catastrophes like the California wildfires. The first quarter typically has a lower loss ratio due to seasonality, so actual experience is in the 30s, but we book to a number that reflects our full-year expectations.

Q: How do tariffs impact Hagerty's business, particularly in terms of loss costs and marketplace operations? A: Patrick McClymon, CFO: We don't see a direct impact from tariffs. While there might be upward pressure on claims costs due to severity, many parts are manufactured domestically, so the impact should be muted. For cars over 25 years old, the tariff remains at 2.5%, so we don't expect significant changes in our marketplace operations.

Story Continues

Q: Can you update us on shopping behavior and the impact of recent events like the LA wildfires? A: Patrick McClymon, CFO: There's a lot of shopping activity industry-wide, driven by large insurers' marketing efforts. Our quote volume remains strong, though growth has been slightly slower than anticipated due to factors like weather and internal changes to reduce friction in our quote flow. We expect growth to ramp up, especially with State Farm's expansion.

Q: Could you expand on the Enthusiast Plus program and its impact on Hagerty's offerings? A: McKeel Hagerty, CEO: Enthusiast Plus is a new program responding to trends of younger buyers interested in newer cars. It allows us to write more business that we currently turn away due to pricing or underwriting reasons. This program will enable us to widen our underwriting funnel and bring more people into the Hagerty world.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.

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