Hippo Holdings Inc (HIPO) Q1 2024 Earnings Call Transcript Highlights: Key Financial ...

GuruFocus Research

Fri, May 3, 2024, 1:07 AM 4 min read

Total Generated Premium (TGP): Grew to $294 million, a 20% increase year-over-year.
Adjusted EBITDA: Improved loss by $32.3 million year-over-year to $19.8 million in Q1.
Revenue: Rose 114% year-over-year to $85 million.
Gross Loss Ratio: Improved by 21 percentage points to 80% from 101% in Q1 of the previous year.
Net Loss Ratio: Improved by 455 percentage points to 100%.
Operating Expenses: Declined by 87 percentage points of revenue, from 135% of revenue last year to 48% this quarter.
Cash Flow: Cash and cash equivalents increased by $6.8 million during the quarter.

Warning! GuruFocus has detected 3 Warning Sign with HIPO.

Release Date: May 02, 2024

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

Positive Points

Hippo Holdings Inc reported accelerated top line growth and is on track to achieve its 2024 operational and financial goals.
The company successfully reduced its catastrophe exposure and streamlined operations without sacrificing overall growth.
Hippo Holdings Inc saw a significant improvement in its adjusted EBITDA loss, reducing it by $32.3 million year-over-year.
The total generated premium grew by 20% year-over-year to $294 million, driven by successful third-party policy offerings.
Hippo Holdings Inc achieved a milestone by increasing its cash balance for the first time without raising additional capital.

Negative Points

Despite efforts to rebalance geographical exposure, top line growth could have been higher without these adjustments.
The company experienced losses from a large hailstorm in March, affecting Texas and Missouri, indicating ongoing vulnerability to weather-related events.
The reduction in catastrophe exposure led to a temporary shrinkage of the Hippo home insurance program by 29%.
The attritional loss ratio improvement was masked by a mix shift away from higher catastrophe-exposed geographies, complicating the assessment of underwriting improvements.
While the company is moving towards positive adjusted EBITDA, it is not consistently cash flow positive yet, indicating potential financial instability.

Q & A Highlights

Q: Good morning and congrats on achieving the free-cash-flow milestone. On the sales and marketing spend, it seems to come in a bit lighter than expected. Is there a seasonality pattern there, or do you think it will remain at these levels as you continue to achieve this strong level P/T? A: Stewart Ellis, CFO of Hippo Holdings, explained that sales and marketing, along with other fixed cost line items, are expected to remain roughly at these levels for a while. He highlighted that not all dollars of incremental TGP require new customer acquisition costs, particularly in the Insurance as a Service segment, allowing for efficient growth. Richard McCathron, CEO, added that growth related to cross-selling to existing customers also contributes without additional marketing spend.

: Why was the very strong P2P growth of 37% in services only translating to 16% revenue growth? A: Stewart Ellis clarified that within the Services segment, different businesses like the agency and First Connect platform have varying monetization rates. The First Connect platform, growing quickly, monetizes at a lower percentage of TGP due to its nature as a marketplace, affecting overall revenue growth despite strong P2P performance.

Q: Can you provide some insights into the attritional loss ratio improvement in the HHIP segment? What are the underlying factors affecting this improvement? A: Stewart Ellis acknowledged that the attritional loss ratio improved more substantially on a like-for-like basis than reported. He attributed this to rate increases and underwriting improvements, despite a mix shift away from cat-exposed business which would typically increase the loss ratio. He expects further improvements as these rates and underwriting changes fully integrate into the business.

Q: Regarding the rate increase on a written basis from HHIP, which came in at 33% year over year, how far along is this relative to what you think is needed over time? A: Richard McCathron responded that most corrective rate actions to achieve price adequacy have been filed and approved, with the majority now working their way through the business. He noted that while the heavy lifting of rate adjustments is done, incremental rate adjustments will continue as needed based on ongoing trends.

Q: Can you give an overview of the capital and capacity situation, particularly how much unencumbered capital is at the holding company and at Spinnaker? A: Stewart Ellis explained that they maintain flexibility to move capital around the organization as needed to support investment and growth. He assured that they have sufficient liquidity and flexibility in their capital structure. Richard McCathron added that Spinnaker is well-capitalized to support growth in the insurance as a service business.

Q: Given the breakdown of annual cat load with 41% expected in Q2, can you provide the typical mix for the other quarters? A: Stewart Ellis provided the breakdown: approximately 29% in Q1, 19% in Q3, and 11% in Q4, reflecting the geographic exposure and nature of weather-related risks. Richard McCathron emphasized that while these are based on historical averages, actual weather events do not strictly adhere to these patterns, and ongoing efforts to reduce exposure to high-risk areas may influence these figures.

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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