Hippo Reports First Quarter 2024 Financial Results

Rhea-AI Summary

Hippo (NYSE: HIPO) reported its first quarter 2024 financial results, highlighting an accelerating growth with total generated premium up 20% YoY, revenue up 114%, and improved loss ratios. The company showed substantial operating leverage with declining expenses and improved Adjusted EBITDA. Cash and investments rose to $511 million, marking the first cash flow positive quarter. Hippo's financial strength is reflected in its Spinnaker surplus of $197 million. The company continues its growth trajectory with confidence in expected profitability moving forward.

Positive

• Accelerating growth with total generated premium up 20% YoY

• Revenue increased by 114% YoY to $85 million

• Improved loss ratios, with HHIP loss ratio improving by 21pp YoY

• Decline in expenses with GAAP S&M, T&D, and G&A collectively declining from 135% to 48% of revenue YoY

• Net Loss and Adjusted EBITDA improved, with GAAP net loss down 49% YoY and Adjusted EBITDA loss down 62% YoY

• Financial strength with cash and investments rising to $511 million, marking the first cash flow positive quarter

• Spinnaker surplus up to $197 million from $169 million a year ago

Negative

• None.

Insights

Financial Analyst

Hippo's recent financial results highlight some positive developments, including a 20% year-over-year increase in Total Generated Premium (TGP), which indicates a robust demand for its services. One particular aspect that stands out is the revenue surge by 114% year-over-year to $85 million. This can be attributed to improved monetization strategies in its Hippo Home Insurance Program (HHIP). Moreover, the substantial reduction in General and Administrative (G&A), Sales and Marketing (S&M) and Technology and Development (T&D) expenses, from 135% of revenue to 48%, demonstrates strong cost control measures which are important for achieving profitability. The improvement in HHIP's gross loss ratio from 101% to 80% year-over-year is indicative of enhanced underwriting and claims management. Additionally, the first positive cash flow quarter coupled with an increase in cash and investments points toward Hippo's improving financial health. However, investors should consider the net loss of $36 million, though reduced by 49% year-over-year and an Adjusted EBITDA loss of $20 million, which, despite being improved by 62% year-over-year, still indicates that the company is not yet profitable. These financial metrics show a company in transition and investors should weigh the impressive revenue growth and cost efficiencies against the ongoing losses when evaluating Hippo's investment potential.

Market Research Analyst

Hippo's strong performance in their niche of proactive home protection insurance is reflective of a favorable market response to insurance technology (InsurTech) innovations. The company's pivot towards services and Insurance-as-a-Service (IaaS), leading to these segments contributing 80% to TGP, aligns with broader industry trends of diversified revenue streams. The positive shift in the revenue mix, coupled with their strategic move away from high Catastrophic (CAT) risk areas, suggests a forward-thinking approach in mitigating risk while expanding market share. Market dynamics also show an increased consumer interest in tech-enabled insurance offerings that can potentially drive down costs and improve customer experience. Hippo's financials should be viewed through the lens of these trends, where short-term losses may be offset by long-term gains in market share and brand strength. Investors should also consider the scalability of Hippo's business model, as evidenced by the growing surplus in their Spinnaker subsidiary. These results may signal the company's preparedness for future growth and its potential resilience in a competitive insurance market.

Insurance Industry Expert

Examining Hippo's gross loss ratios, particularly the 21% year-over-year improvement in the HHIP Q1 gross loss ratio, is a noteworthy signal of operational efficiency and effective risk management, especially in an industry where margins can be thin. The improvement in both gross Property and Casualty (PCS) and Non-PCS loss ratios underscores Hippo's capability in managing CAT exposure and other non-catastrophic losses which are essential in the volatile home insurance market. The increase in the Spinnaker surplus, from $169 million to $197 million, demonstrates a growing financial cushion that can support Hippo's underwriting activities. This acts as a buffer against potential claims, which could serve to reassure stakeholders about the company's solvency and ability to absorb shocks from significant insurable events. While the figures presented are promising, it's important for investors to keep an eye on the company's path to profitability. The drive towards a positive Adjusted EBITDA is critical and though the trajectory seems favorable, the insurance industry's inherent risk profile requires continuous vigilance regarding underwriting practices and claims management.

PALO ALTO, Calif., May 2, 2024 /PRNewswire/ -- Hippo (NYSE: HIPO), the home insurance group focused on proactive home protection, today announced its consolidated financial results for the three months that ended March 31, 2024.

Complete financial results and full year guidance for 2024 can be found in the company's shareholder letter in the Investor Relations section of Hippo's website at https://investors.hippo.com.      

"The critical work we began last year to reduce CAT exposure and streamline our operations, without sacrificing growth, continued in the first quarter," said Hippo President and CEO Rick McCathron. "Our growth accelerated in Q1, and we expect it to accelerate further later this year as we continue to reopen and expand business where we have a competitive advantage and confidence in expected profitability as we progress toward positive Adjusted EBITDA."

First Quarter Highlights

Accelerating Growth; Favorable Mix-Shift                                                           

• Consolidated Total Generated Premium ("TGP") up 20% YoY, with Services and Insurance-as-a-Service ("IaaS") representing 80% of TGP
• Services and IaaS driving TGP growth, up 37% and 25% YoY, respectively in Q1
• Revenue up 114% YoY to $85 million; significantly better Revenue monetization in Hippo Home Insurance Program ("HHIP")

Continued HHIP Loss Ratio Improvement                                                                       

• HHIP Q1 gross loss ratio improved 21pp YoY to 80%
• Q1 gross PCS loss ratio improved 20pp YoY; improved rate and reduced exposure to severe weather
• Q1 gross Non-PCS loss ratio improved 1pp YoY, despite a mix shift away from high CAT areas

Generating Substantial Operating Leverage                                                                   

• GAAP S&M, T&D, and G&A, collectively declined from 135% of revenue a year ago to 48% in Q1
• These expenses declined 24% YoY, a reduction of $13 million YoY

Net Loss and Adjusted EBITDA continuing to improve                                                 

• Q1 GAAP net loss attributable to Hippo down 49% YoY to $36 million
• Q1 Adjusted EBITDA loss down 62% YoY to $20 million

Financial Strength                                                                           

• Cash and investments, excluding restricted cash, rose QoQ to $511 million; first cash flow positive quarter
• Spinnaker surplus of $197 million, up from $169 million a year ago

Conference Call and Webcast Information 
Date: Thursday, May 2, 2024
Time: 8:00 a.m. Eastern Time / 5:00 a.m. Pacific Time
Dial In: +1 833 470 1428 (U.S.) / Global Dial-In Numbers
Conf ID: 301084
Webcast:  https://events.q4inc.com/attendee/320834360

A replay of the webcast will be made available after the call in the investor relations section of the company's website at https://investors.hippo.com/ 

Information about Key Operating Metrics/Non-GAAP Financial Measures

We define gross loss ratio expressed as a percentage, as the ratio of the gross losses and loss adjustment expenses, to the gross earned premium. We define TGP as the aggregate written premium placed across all of our business platforms for the period presented. We measure TGP as it reflects the volume of our business irrespective of choices related to how we structure our reinsurance treaties, the amount of risk we retain on our own balance sheet, or the amount of business written in our capacity as an MGA, agency, or as an insurance carrier/reinsurer. We define adjusted EBITDA, a Non-GAAP financial measure, as net loss attributable to Hippo excluding interest expense, income tax expense, depreciation, amortization, stock-based compensation, net investment income, restructuring charges, impairment expense, other non-cash fair market value adjustments, contingent consideration for one of our acquisitions, and other transactions, which may include certain legal fees and settlement costs, that we consider to be unique in nature. We exclude these items from Adjusted EBITDA because we do not consider them to be directly attributable to our underlying operating performance.  This Non-GAAP financial measure is in addition to, and not a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP and should not be considered as an alternative to net income, operating income or any other performance measures derived in accordance with GAAP.  Reconciliations of this Non-GAAP financial measure to its most directly comparable GAAP counterpart is included in the shareholder letter referenced above.  We believe that these non-GAAP measures of financial results provide useful supplemental information to investors about Hippo.

Forward-looking statements safe harbor

Certain statements included in this press release that are not historical facts are forward-looking statements for purposes of the safe harbor provisions under the United States Private Securities Litigation Reform Act of 1995. Forward-looking statements generally are accompanied by words such as "believe," "may," "will," "estimate," "continue," "anticipate," "intend," "expect," "should," "would," "plan," "predict," "potential," "seem," "seek," "future," "outlook," and similar expressions that predict or indicate future events or trends or that are not statements of historical matters. These forward-looking statements include, but are not limited to, statements regarding estimates and forecasts of financial results and other operating and performance metrics, our business strategy, our cost reduction efforts, the quality of our products and services, and the potential growth of our business. These statements are based on the current expectations of Hippo's management and are not predictions of actual performance. Actual events and circumstances are difficult or impossible to predict and will differ from assumptions, and many actual events and circumstances are beyond the control of Hippo. These forward-looking statements are subject to a number of risks and uncertainties, including our ability to navigate extensive insurance industry regulations and the scrutiny of state insurance regulators, our ability to achieve or maintain profitability in the future; our ability to retain and expand our customer base and grow our business, including our builder network; our ability to manage growth effectively; risks relating to Hippo's brand and brand reputation; denial of claims or our failure to accurately and timely pay claims; the effects of intense competition in the segments of the insurance industry in which we operate; the availability and adequacy of reinsurance, including at current coverage, limits or pricing; our ability to underwrite risks accurately and charge competitive yet profitable rates to our customers, and the sufficiency of the analytical models we use to assess and predict exposure to catastrophe losses; risks related to our proprietary technology and our digital platform; outages or interruptions or delays in services provided by our third party providers, including our data vendors; risks related to our intellectual property; the seasonal and cyclical nature of our business; the effects of severe weather events and other natural or man-made catastrophes, including the effects of climate change, global pandemics, and terrorism; continued disruptions from the COVID-19 pandemic; any overall decline in economic activity; regulators' identification of errors in the policy forms we use, the rates we charge, and our customer communications including, but not limited to, cancellations, non-renewals and reinstatements through market conducts, complaints, or other inquiries; the effects of existing or new legal or regulatory requirements on our business, including with respect to maintenance of risk-based capital and financial strength ratings, data privacy and cybersecurity, and the insurance industry generally; and other risks set forth in the sections entitled "Risk Factors" in our Annual Report on Form 10-K and Quarterly Reports on Form 10-Q. If any of these risks materialize or our assumptions prove incorrect, actual results could differ materially from the results implied by these forward-looking statements. There may be additional risks that Hippo does not presently know, or that Hippo currently believes are immaterial, that could also cause actual results to differ from those contained in the forward-looking statements. In addition, forward-looking statements reflect Hippo's expectations, plans, or forecasts of future events and views as of the date of this press release. Hippo anticipates that subsequent events and developments will cause Hippo's assessments to change. However, while Hippo may elect to update these forward-looking statements at some point in the future, Hippo specifically disclaims any obligation to do so. These forward-looking statements should not be relied upon as representing Hippo's assessments of any date subsequent to the date of this press release. Accordingly, undue reliance should not be placed upon the forward-looking statements.

About Hippo
Hippo is protecting the joy of homeownership, helping to safeguard customers' most important financial asset by harnessing the power of real-time data, smart home technology, and a growing suite of home services to deliver proactive home protection.

Hippo Holdings Inc. operating subsidiaries include Hippo Insurance Services, Hippo Home Care, First Connect Insurance Services, Spinnaker Insurance Company, Spinnaker Specialty Insurance Company, and Mainsail Insurance Company. Hippo Insurance Services is a licensed property casualty insurance agent with products underwritten by various affiliated and unaffiliated insurance companies. For more information, including licensing details, visit http://www.hippo.com.

Contacts
Investors:
Sammy Ng
Investors@hippo.com

Press:
Mark Olson
press@hippo.com

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SOURCE Hippo Holdings Inc.