Release Date: August 06, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Hagerty Inc (HGTY, Financial) reported a 20% growth in total revenue for Q2 2024, reaching $313 million.
- Written premium grew by 16%, driven by robust new business count and improved retention rates.
- Operating margins expanded by 550 basis points to over 12%, resulting in a significant improvement in profitability.
- The company upgraded its full-year outlook for revenue and profit growth, expecting revenue between $1.16 billion and $1.18 billion.
- Hagerty Inc (HGTY) successfully hired key executives, including Jeff Briglia as President of Insurance and Sean McMullin from Amazon to lead the digital marketplace.
Negative Points
- Membership revenue growth was offset by lower garage and social revenue due to fewer locations post joint venture dissolution.
- Salaries and benefits grew by 8% due to merit increases and higher accruals for incentive compensation.
- The tax rate came in below expectations, raising questions about future tax liabilities.
- Interest and other income showed volatility, with a significant sequential increase from $7 million to $12 million.
- The company faces ongoing challenges in maintaining and expanding its market share amidst industry-wide rate increases.
Q & A Highlights
Q: The hiring about Sean McMullan to run the digital marketplace, anything you can say about kind of his early priorities what you envision there as he takes over?
A: McKeel Hagerty, CEO & Chairman: We're really excited to have Sean join the team. His experience at Amazon, particularly in the Amazon Music division, will help us knit together the complexity of our digital marketplace with other tools like valuation and digital acquisition. His focus will be on growing the core underlying business and integrating these tools effectively.
Q: Thinking about the consistent growth in written premium, how has the pricing impact in the market evolved over the last 12-24 months?
A: Patrick McClymont, CFO: Overall market pricing is expected to be up around 10% this year, while we are taking a more modest rate increase of about 3%. This lower rate increase helps us grow quickly by offering a compelling value proposition to our customers.
Q: Is the 30% incremental margin a good target on a go-forward basis for profitability?
A: Patrick McClymont, CFO: We expect to maintain around 30% incremental margins for the full year 2024, with continued margin expansion in the future. Our goal is to achieve high-teens to 20% overall operating profit margins over the next two to three years.
Q: The tax rate came in below expectations this quarter. Was there anything unusual, and how should we think about the go-forward tax rate?
A: Patrick McClymont, CFO: There was nothing unusual this quarter. The tax rate should remain consistent with where it has been.
Q: Interest and other income improved significantly on a sequential basis. What drove that, and how should we think about its contribution going forward?
A: Patrick McClymont, CFO: The improvement is driven by increased cash flow from expanded margins and a renegotiated arrangement with McKeel. We have also implemented a new investment strategy, moving from cash to investment-grade bonds, which should yield better returns going forward.
Q: Can we assume that the $12 million of income from interest and other income in 2Q will be maintained going forward?
A: Patrick McClymont, CFO: Given the current interest rate environment, it is reasonable to assume that we can maintain this level for the balance of the year.
Q: What are the strategic priorities for Hagerty's digital marketplace under Sean McMullan's leadership?
A: McKeel Hagerty, CEO & Chairman: Sean will focus on growing the core digital marketplace and integrating it with other tools like valuation and digital acquisition to create a seamless user experience.
Q: How has the market pricing environment affected Hagerty's growth and value proposition?
A: Patrick McClymont, CFO: While the overall market is seeing rate increases of around 10%, Hagerty's more modest 3% rate increase has helped us attract new customers and grow quickly by offering a compelling value proposition.
Q: What are the expectations for Hagerty's operating profit margins in the coming years?
A: Patrick McClymont, CFO: We expect to achieve high-teens to 20% overall operating profit margins over the next two to three years, with continued margin expansion driven by operational efficiencies and scale.
Q: How has Hagerty's new investment strategy impacted its financial performance?
A: Patrick McClymont, CFO: The new strategy, which involves investing in investment-grade bonds rather than cash, has allowed us to achieve better returns with less risk, contributing positively to our financial performance.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
