Greetings. Welcome to the Hagerty First Quarter 2024 Earnings Call. [Operator Instructions]. Please note, this conference is being recorded. At this time, I'll now turn the conference over to Jay Koval, Investor Relations. Mr. Koval, you may now begin.

Thank you, operator. Good morning, everyone, and thank you for joining us to discuss Hagerty's results for the first quarter of 2024. I'm joined this morning by McKeel Hagerty, Chief Executive Officer and Chairman; 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 the 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 metrics to the 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.

Thanks, Jay, and good morning, everyone. We appreciate you taking the time to join Hagerty's First Quarter 2024 Earnings Call. The winter chill in Northern Michigan and across much of North America is behind us. Plants are blooming and cars are firing up as we begin the 2024 driving season. To us, it is the best time of the year. Hagerty may be a leading provider of insurance for collectible vehicles in North America, but insurance does not define us. The love of cars does, and that is the key competitive advantage we have utilized to differentiate our approach and to position us to deliver high rates of compounding profitable growth in the years to come. So let me start by thanking our 1,700 Hagerty employees. This team of highly engaged car people has never been better aligned around our strategic growth ambitions and is well positioned to deliver great results for stockholders. Let us dig into the key highlights for our first quarter results shown on Slide 3. This includes commission revenue jumped 19%, fueled by written premium gains and strong underwriting results. Our brand and value proposition fuel consistent mid- to high single-digit growth in new business count. Insurance rates also increased by 3%. This is well below the 10% average rate increase we are seeing from most of the major national insurance carriers as they look to pull down their loss ratios following a period of elevated losses. Those higher average rates out there are causing more people to shop than ever. This is a good thing for us as it helps us power our direct-to-consumer business. Earned premium for our risk-taking entity, Hagerty Reinsurance jumped 29% due to written premium gains and last year's increase in quota share to 80%. Membership, Marketplace and other revenue grew…

Thank you, and good morning, everyone. Let us dig into the first quarter results shown on Slide 6 and 7. In the first quarter, we delivered 24% growth in total revenue to $272 million, robust new business count and improved retention of 89% compared to 88% in the prior year produced written premium gains of 19%. Commission and fee revenue jumped 19% to $89 million, in line with written premium gains on stable underwriting results. Membership, Marketplace and other revenue increased 18% to $31 million. Our Broad Arrow team delivered excellent results at Amelia with sales of $63 million and a 92% sell-through rate. Lower garage and social results partially offset the strong marketplace results. Recall, we dissolved our Garage + Social joint venture during the third quarter of last year to refocus internal resources on more material profit drivers. Earned premium grew 29% to $152 million, driven by the combined impact from written premium gains and a higher reinsurance quota share. Loss ratio came at 41.1% consistent with historical levels. We produce stable and highly predictable underwriting results, thanks to decades of experience ensuring customers special vehicles. Turning now to profitability, shown on Slide 8. We reported a first quarter operating profit of $12 million, an improvement of $29 million over the prior year period as operating margins jumped 1,200 basis points. We decisively moved historically seasonally weak quarter into the black with a 4.5% operating margin. G&A declined 7% and salaries and benefits grew only 2% due to our cost reduction activities. Our margin expansion is even more impressive as we continue to invest in our long-term growth opportunities, including the rollout of the State Farm Classic+ program and launch of the [ Enthusiast+ ] product as we move into 2025. Adjusted EBITDA increased $21 million year-over-year to…

[Operator Instructions]. And our first question is from the line of Mark Hughes with Truist Securities.

You talked a lot about your performance marketing initiatives and other strategies to grow policy count. It seems like your rate posture low single digits, pretty attractive relative to the broader market, as you say. How should we think about the prospects for policy count growth?

I think you answered most of the question and asking it. Yes, we're pleased so far this year. Last year, we had north of 25 million new customers. We expect this year to be something in that same neighborhood. We're a little bit ahead of that pace as we got through the first quarter. But what we're seeing in the marketplace right now is a pretty meaningful increase in daily driver insurance prices is driving a lot of shopping activity and we're benefiting from that, as you described, our prices are only up kind of low single digits relative to a market that we think will be up about 10% this year. And so that's just putting more people at the top of our funnel. And then we're doing a really good job converting. And so we expect to have similar -- on an absolute basis, similar growth this year to what we had last year.

And then in the Marketplace, you described the 5 cars per day. Is that something that is a steady build? Or is it in the model? Is there some point where there's a potential inflection where the -- maybe the network effect takes over, and you have more of a step function in activity there?

Well, thanks, Mark. McKeel. Yes, for now, it's the steady build, and it's this really delicate balance between supply and demand that we actually have quite a wait list of cars wanting to be listed and as part of the marketplace and to go on with one of the live auctions. But if you go -- if you dump too many cars into the mix and demand drops, then your sell-through rate lower. And so it's this really steady build at this point. But yes, I mean, the team sitting out there thinking, okay, out in the future once we get past this sort of first big phase of the steady build, you should start seeing greater acceleration there. And we're really pleased with -- is that the digital product teams that are out there building the marketplace, they're adding features to this every 2 weeks and we just have this great steady supply coming out of our customer base. So we're excited for the future, but it's a steady build for now.

Yes. And then what's the latest update on State Farm?

So latest update with State Farm is we're live in the 4 states, which are we've talked about before. And it's actually going very, very well in those 4 states, a little bit ahead of plan. Lots and lots of testing going on before we can add the additional states, but a lot of optimism on both sides, and we're just continuing to work through the start-up phase. So we're here. We wish it was a lot more states right now, but we're also happy that the tests in these first 4 are going so well.

[Operator Instructions]. The next question is from the line of Pablo Singzon with JPMorgan.

Growth in insured values and price increases contributed more than 13 points of revenue premium growth this quarter, right? And I think that was up from last year. Do you think that current -- this current level is sustainable? And what are you -- what assumption is embedded in your premium growth outlook?

Yes. For us, the key drivers are going to be new customer growth, rate growth and then changes in value. And all 3 have been contributing as we just answered the previous call, it's sort of low to mid-single digits on premium. And then the balance is kind of split between changes in value and new customer growth. And right now, after kind of 4-plus months into the year, momentum has remained strong. And so as we look for the balance of this year, we're very comfortable and we affirmed our guidance. We're very comfortable with that. As we get beyond and into 2025 and 2026. In the core business, right now, it looks as though that kind of growth will continue and what we'll be accelerating our growth in '25 and '26 is the ramp-up of State Farm, which begins in earnest in 2025. And then also the [ Enthusiast+ ] product we talked about, which we were not going to start selling until early 2025. So those 2 years should have even higher growth because of those 2 new programs. And in the underlying core business, we continue to see very attractive growth and nothing that leads us to believe that, that's slowing down.

And then on the Enthusiast product, any way to size how that will ramp up beginning '25? It's a new product, obviously, it's a big part of the classic car market that you're not tapping [ sort of ] full potential yet today, but sort of your thoughts on how that business might ramp in the next few years.

We're going to take sort of an appropriate and deliberate pace to it because it is a new product. And so we'll be launching in 4 states initially in the early part of next year. We'll use that to do some learning and make sure that we've got the product right, make sure we've got the pricing right. And then we'll start to add incremental states over the course of 2025. My guess is it won't be until 2026, that we're kind of fully rolled out. We're excited about it, but it is new. It's an evolution of our existing products, and so we want to make sure we do a thoughtful way.

We have reached the end of the question-and-answer session. I'll turn the call over to McKeel Hagerty for closing remarks.

All right. Thank you, operator, and thanks to all of you for your continued support and interest in Hagerty. We have carefully built a highly differentiated business model over the last 4 decades, and that is just beginning to hit its stride. As we help members protect, buy, sell and enjoy their price vehicles. As I mentioned on our last call, our omnichannel distribution delivers high rates of commissionable revenue growth. Membership supports the profitability of our insurance business through excellent retention and Net Promoter Scores from happy members. We are investing significant resources to build Hagerty Marketplace into the trusted and preferred platform in this rapidly growing market. And we also continue our multiyear evolution towards increasing our flexibility and control over our underwriting profits. This allows us to maintain high rates of written premium growth as we further penetrate the 46 million collectible cars in the United States. We will be hosting an in-person event for investors on May 31 in Greenwich, Connecticut, where we will share more color on how we are positioning the company for long-term growth and margin expansion. We hope to see you there as the entire weekend of the Greenwich Concours d'Elegance should be a lot of fun for all. Until then, never stop driving.

This will conclude today's conference. You may disconnect your lines at this time. Thank you for your participation.