Hippo (US:HIPO)2023-05-08 16:00Part I. Financial Information Item 1. Consolidated Financial Statements The consolidated financial statements for Q1 2023 reflect increased assets, decreased equity due to net loss, and revenue growth Consolidated Balance Sheets As of March 31, 2023, total assets increased to $1,604.7 million, while stockholders' equity decreased to $543.0 million, reflecting the net loss Consolidated Balance Sheet Summary | Financial Metric | March 31, 2023 (in millions) | December 31, 2022 (in millions) | | :--- | :--- | :--- | | Total Assets | $1,604.7 | $1,568.9 | | Total Investments | $431.4 | $445.9 | | Cash and cash equivalents | $188.9 | $194.5 | | Total Liabilities | $1,061.7 | $975.4 | | Loss and loss adjustment expense reserve | $305.2 | $293.8 | | Unearned premiums | $365.7 | $341.3 | | Total Stockholders' Equity | $543.0 | $593.5 | Consolidated Statements of Operations and Comprehensive Loss Total revenue grew 62% to $39.8 million, but expenses rose to $107.6 million, leading to a net loss of $69.8 million for Q1 2023 Consolidated Statements of Operations Summary | Metric (in millions) | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Total Revenue | $39.8 | $24.5 | | Net earned premium | $13.8 | $9.0 | | Commission income, net | $17.4 | $11.5 | | Total Expenses | $107.6 | $90.8 | | Losses and loss adjustment expenses | $37.7 | $22.5 | | Net Loss Attributable to Hippo | $(69.8) | $(67.6) | | Net Loss Per Share | $(3.01) | $(3.01) | Consolidated Statements of Stockholders' Equity Total stockholders' equity decreased by $50.5 million to $543.0 million in Q1 2023, primarily due to a $68.1 million net loss Consolidated Statements of Stockholders' Equity Summary | Equity Component (in millions) | Balance at Jan 1, 2023 | Q1 2023 Changes | Balance at Mar 31, 2023 | | :--- | :--- | :--- | :--- | | Total Stockholders' Equity | $593.5 | $(50.5) | $543.0 | | Net Loss | - | $(68.1) | - | | Stock-based compensation | - | $17.4 | - | | Other comprehensive income | - | $1.7 | - | Consolidated Statements of Cash Flows Net cash used in operating activities improved to $35.7 million, while investing activities generated $13.8 million in Q1 2023 Consolidated Statements of Cash Flows Summary | Cash Flow Activity (in millions) | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Net cash used in operating activities | $(35.7) | $(58.6) | | Net cash provided by (used in) investing activities | $13.8 | $(378.2) | | Net cash used in financing activities | $(1.9) | $(0.3) | | Net (decrease) in cash | $(23.8) | $(437.1) | Notes to Consolidated Financial Statements Key notes detail segment realignment, increased reinsurance retention, a $50 million share repurchase, and a post-quarter property purchase - The company realigned its operations into three new reportable segments: Services, Insurance-as-a-Service, and Hippo Home Insurance Program21107 - For its 2023 reinsurance treaties, the company expects to retain a significantly higher portion of premium (approximately 40% for primary homeowners and 58% for the builder channel) before purchasing catastrophe protection, compared to approximately 10% in 2022585960 - In March 2023, the Board authorized a $50.0 million share repurchase program and approved a one-time repricing of certain employee stock options, resulting in an incremental share-based compensation charge of $3.6 million91100 - Subsequent to the quarter end, on April 18, 2023, a subsidiary purchased a property in Austin, Texas for approximately $26.0 million in cash to be used as office space117 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses 59% TGP growth to $244.9 million, stable Gross Loss Ratio at 76%, increased Net Loss Ratio to 273%, and a $52.1 million Adjusted EBITDA loss Reinsurance The company significantly increased its 2023 reinsurance retention to 40-58% of premium, up from 10% in 2022, and maintains 1-in-250-year catastrophe coverage - For the 2023 primary homeowners reinsurance treaty, the company expects to retain approximately 40% of the premium through its subsidiaries, a significant increase from about 10% in 2022132128 - For business from its builder channel, the company expects to retain approximately 53% of the premium in 2023133 - The company purchases non-proportional excess of loss (XOL) catastrophe reinsurance to protect against events with a probability of no more than 0.4%, equivalent to a 1-in-250-year event13564 Key Operating and Financial Metrics and Non-GAAP Measures Key metrics show TGP grew 59% to $244.9 million, Gross Loss Ratio remained 76%, Net Loss Ratio increased to 273%, and Adjusted EBITDA loss widened to $52.1 million Key Operating and Financial Metrics | Metric | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Total Generated Premium | $244.9M | $153.7M | | Adjusted EBITDA | $(52.1)M | $(48.5)M | | Gross Loss Ratio | 76% | 76% | | Net Loss Ratio | 273% | 250% | - The Hippo Home Insurance Program Gross Loss Ratio (HPGLR) was 101% in Q1 2023. Excluding reserve releases, the Non-PCS component improved to 60% from 78% in the prior year, indicating benefits from pricing and underwriting actions196198 Results of Operations Total revenue grew 62% to $39.8 million, while total expenses increased 19% to $107.6 million, driven by a 68% rise in loss adjustment expenses Results of Operations Summary | Line Item (in millions) | Q1 2023 | Q1 2022 | % Change | | :--- | :--- | :--- | :--- | | Total Revenue | $39.8 | $24.5 | 62% | | Net earned premium | $13.8 | $9.0 | 53% | | Commission income, net | $17.4 | $11.5 | 51% | | Total Expenses | $107.6 | $90.8 | 19% | | Losses and loss adjustment expenses | $37.7 | $22.5 | 68% | | Technology and development | $11.6 | $14.7 | (21)% | | Sales and marketing | $22.4 | $24.9 | (10)% | | Net Loss Attributable to Hippo | $(69.8) | $(67.6) | 3% | Liquidity and Capital Resources The company maintains liquidity with $220.7 million in cash and $431.4 million in investments, and improved operating cash flow to $(35.7) million - The company held $220.7 million in cash and restricted cash and $431.4 million in investments as of March 31, 2023217 - Net cash used in operating activities decreased to $35.7 million in Q1 2023 from $58.6 million in Q1 2022220221 - The company has an undrawn borrowing capacity of $40.3 million from the Federal Home Loan Bank (FHLB) of New York218 Item 3. Quantitative and Qualitative Disclosures About Market Risk There have been no significant changes to the company's market risk exposure since December 31, 2022 - There have been no significant changes to the company's market risk exposure since December 31, 2022229 Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2023, with no material changes to internal controls - Management concluded that disclosure controls and procedures were effective as of the end of the reporting period230 - There were no changes in internal control over financial reporting during the quarter that materially affected, or are reasonably likely to materially affect, internal controls232 Part II. Other Information Item 1. Legal Proceedings The company is involved in a civil lawsuit by a former employee, Eyal Navon, alleging breach of contract, fraud, and insider trading - Hippo and its co-founder are defendants in a civil action brought by former employee Eyal Navon, with allegations including breach of contract, fraud, and insider-trading7475 - The company denies all claims and is engaged in fact discovery, with a trial date set for November 6, 202377 Item 1A. Risk Factors No material changes have occurred regarding the risk factors disclosed in the company's 2022 Form 10-K - No material changes have occurred regarding the risk factors disclosed in the company's 2022 Form 10-K235 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The Board authorized a $50.0 million share repurchase program in March 2023, with 15,472 shares repurchased for $0.2 million Share Repurchase Program Details | Period | Total Shares Purchased | Average Price Paid | Maximum Value Remaining (in millions) | | :--- | :--- | :--- | :--- | | Jan 2023 | 0 | $0.00 | $50.0 | | Feb 2023 | 0 | $0.00 | $50.0 | | Mar 2023 | 15,472 | $15.46 | $48.8 | - A share repurchase program of up to $50.0 million was authorized in March 2023 with no expiration date237 Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including required CEO and CFO certifications and XBRL data - The filing includes required CEO and CFO certifications under Sections 302 and 906 of the Sarbanes-Oxley Act242