Q4 2023 Key Highlights The company achieved significant growth in total generated premium and revenue in Q4 2023, alongside improved loss ratios and a narrowed adjusted EBITDA loss Q4 2023 Key Performance Indicators (Year-over-Year) | Metric | Q4 2021 | Q4 2022 | Q4 2023 | YoY Change (22-23) | | :--- | :--- | :--- | :--- | :--- | | Total Generated Premium in-Force | $602M | $813M | $1,140M | +40% | | Revenue | $32M | $36M | $64M | +80% | | HHIP Accident Period Loss Ratio | 88% | 78% | 64% | -14pp | | Adjusted EBITDA (Loss) | ($46M) | ($47M) | ($22M) | +53% improvement | - Growth was primarily driven by the Insurance-as-a-Service (IaaS) and Services segments, with their Total Generated Premium (TGP) up 39% and 20% YoY, respectively. These segments now represent 77% of total TGP13 - GAAP operating expenses (excluding loss-related expenses) significantly decreased as a percentage of revenue, from 158% in Q4 2022 to 75% in Q4 2023, demonstrating substantial operating leverage5 - The company's financial position strengthened, with year-end cash and investments of $491 million and Spinnaker (reinsurance carrier) surplus increasing to $191 million from $165 million a year ago14 Letter to Shareholders The CEO highlights a transformative period of significant premium and revenue growth, strategic shifts towards IaaS and de-risking, positioning the company for early profitability - Over the past two years, Total Generated Premium nearly doubled to $1.1 billion and revenue more than doubled to $210 million, while fixed expenses slightly decreased from $140 million to $138 million16 - The company has refocused its consumer agency to find the best policy for each customer, even if it's from one of its 50+ carrier partners, rather than exclusively pushing Hippo's own policies17 - The Spinnaker IaaS business is a key growth driver, serving the MGA market with an industry-leading platform and robust underwriting, achieving growth while expanding operating margins19 - Aggressive actions were taken in H2 2023 to de-risk the Hippo Home Insurance Program, including raising wind/hail deductibles and non-renewing policies in high-catastrophe areas. These changes could reduce direct losses from similar 2023 hailstorms by approximately 55% in 2024 and nearly 80% in 20252122 - With operational streamlining and a strategic shift towards lower volatility businesses, management has greater confidence in achieving profitability goals ahead of schedule and is positioning the company to 'go back on offense' in 20242324 Q4'23 and FY23 Financial & Operational Results Hippo demonstrated significant 2023 operational and financial progress, with strong TGP and revenue growth, improved loss ratios, and reduced expenses, setting the stage for positive Adjusted EBITDA in H2 2024 Total Generated Premium (TGP) Total Generated Premium (TGP) grew 40% in 2023 to over $1.1 billion, driven by IaaS and Services segments, which are projected to reach 85% of TGP by Q4 2024, with total TGP exceeding $1.3 billion in 2024 - TGP increased by 40% in 2023, growing from $811 million to over $1.1 billion32 - The business mix shifted towards more profitable and predictable segments (IaaS and Services), which collectively represented 77% of TGP in Q4 2023, up from 59% in Q4 202132 TGP Growth and Forecast by Segment ($M) | Segment | 2021 | 2022 | 2023 | 2024F | | :--- | :--- | :--- | :--- | :--- | | HHIP | 279 | 358 | 288 | 157 | | Services | 188 | 296 | 360 | 460 | | Insurance-as-a-Service | 157 | 181 | 514 | 630-670 | | Total TGP | 606 | 811 | 1,134 | 1,300-1,370 | - For 2024, TGP is projected to grow to over $1.3 billion, with the Services and IaaS segments expected to represent ~85% of total TGP by Q4 202433 Revenue Revenue grew 75% in 2023 to $210 million, driven by segment growth and improved HHIP reinsurance, with 2024 projections exceeding $340 million and a nearly 60% reduction in severe weather exposure due to XoL reinsurance - Revenue grew 75% in 2023, from $120 million to $210 million, outpacing TGP growth36 - A key driver of revenue growth was a change in the HHIP reinsurance structure. In 2023, the company retained 39% of premium for 46% of the risk, a significant improvement from 2022 where it retained only 12% of premium for 30% of the risk3740 Revenue by Segment ($M) | Segment | 2022 | 2023 | 2024F | | :--- | :--- | :--- | :--- | | HHIP | 64 | 102 | 190-200 | | Services | 37 | 44 | 50-55 | | Insurance-as-a-Service | 37 | 71 | 95-105 | | Total Revenue | 120 | 210 | 340-360 | - The company is transitioning to an excess of loss (XoL) reinsurance structure in 2024, which will better align net earned premium with risk retention and is expected to reduce underlying severe weather exposure by almost 60%424445 Loss and Loss Adjustment Expense Despite high weather losses, the underlying non-PCS loss ratio improved by 13 percentage points to 63% in 2023, with 2024 targets for HHIP gross non-PCS loss ratio at 52-58% and net loss ratio at 85-90% due to rate increases and reduced exposure - The 2023 non-PCS loss ratio improved by 13 percentage points to 63%, compared to 76% in 2022, indicating better underlying underwriting performance masked by outsized weather losses47 - Aggressive actions, including raising deductibles and selective non-renewals, combined with a 28% written rate increase in Q4 2023, have structurally improved the risk profile of the business4950 HHIP Loss Ratio Targets for 2024 | Metric | 2023 Actual | 2024 Forecast | | :--- | :--- | :--- | | Gross Non-PCS Loss Ratio | 63% | 52-58% | | Expected PCS Cat Load | 41% | 20% | | Total Gross Loss Ratio | 103% | 72-78% | - The HHIP net loss ratio is expected to improve significantly from 256% in 2023 to 85-90% in 2024, driven by gross loss ratio improvements and more effective reinsurance. The Q4 2024 net loss ratio is expected to be under 75%5355 Fixed Expenses and Operating Leverage The company demonstrated significant operating leverage in 2023 by reducing fixed expenses from $166 million to $138 million, falling from 138% to 66% of revenue, with further 20% absolute reductions projected for 2024 Fixed Expense and Operating Leverage Improvement | Metric | 2022 | 2023 | 2024F | | :--- | :--- | :--- | :--- | | Revenue | $120M | $210M | $340-360M | | Fixed Expense | $166M | $138M | $105-110M | | Fixed Expense % of Revenue | 138% | 66% | <31% | - Fixed expenses declined year-over-year from $166 million in 2022 to $138 million in 202357 - For 2024, fixed expenses are expected to decline by more than 20% in absolute dollar terms, reflecting the full benefit of late 2023 cost reduction measures58 Adjusted EBITDA Hippo's Q4 2023 Adjusted EBITDA loss narrowed by over 50% to $22 million, with a projected full-year 2024 loss of $41-51 million (over 75% improvement), and positive Adjusted EBITDA expected in H2 2024 - The Q4 2023 Adjusted EBITDA loss was $22 million, a more than 50% improvement from the $47 million loss in Q4 202262 - The company forecasts a full-year 2024 Adjusted EBITDA loss of only $41-51 million, down over 75% from 202363 - Hippo expects to turn Adjusted EBITDA positive during the second half of 2024, with Q4 2024 being fully Adjusted EBITDA positive63 Summary of 2024 Guidance For 2024, Hippo anticipates strong growth with TGP exceeding $1.3 billion and revenue surpassing $340 million, projecting significant loss profile improvement and positive Adjusted EBITDA in H2, with a full-year loss of $41-51 million 2024 Full-Year Guidance | Metric | 2024 Guidance | | :--- | :--- | | Total Generated Premium (TGP) | > $1.3 billion | | Revenue | > $340 million | | HHIP Gross Loss Ratio | 72-78% | | HHIP Net Loss Ratio | 85-90% (under 75% in Q4) | | Adjusted EBITDA Loss | $41-51 million | | Minimum Cash at Adj. EBITDA positive | > $400 million | - The company expects to be Adjusted EBITDA positive in Q4 2024, with over 90% of the full-year loss occurring in the first half65 Appendix: Financial Statements & Reconciliations The appendix provides detailed financial data, including key operating metrics, consolidated statements, and cash flows for Q4 and FY 2023, along with non-GAAP reconciliations and supplemental breakdowns for comprehensive performance insight Key Operating and Financial Metrics This section summarizes key Q4 and FY 2023 financial results, highlighting significant growth in TGP and revenue, and substantial improvement in Net Loss and Net Loss Ratio compared to prior periods Key Metrics (in millions) | Metric | Q4 2023 | Q4 2022 | FY 2023 | FY 2022 | | :--- | :--- | :--- | :--- | :--- | | Total Generated Premium | $268.0 | $233.4 | $1,134.3 | $811.1 | | Total Revenue | $64.5 | $35.8 | $209.7 | $119.7 | | Net Loss attributable to Hippo | $(42.3) | $(63.1) | $(273.1) | $(333.4) | | Adjusted EBITDA | $(22.3) | $(47.3) | $(200.6) | $(206.4) | | Gross Loss Ratio | 45% | 42% | 71% | 76% | | Net Loss Ratio | 80% | 222% | 169% | 239% | Consolidated Financial Statements This section presents the core unaudited financial statements, including Consolidated Statements of Operations, Balance Sheets, and Cash Flows, detailing the company's financial performance and position for FY2023 Consolidated Statements of Operations This statement details revenues and expenses, showing a net loss attributable to Hippo of $273.1 million for FY2023 FY 2023 vs FY 2022 Statement of Operations Highlights (in millions) | Line Item | Year Ended Dec 31, 2023 | Year Ended Dec 31, 2022 | | :--- | :--- | :--- | | Total Revenue | $209.7 | $119.7 | | Losses and loss adjustment expenses | $181.7 | $101.4 | | Total Expenses | $472.2 | $444.9 | | Net loss attributable to Hippo | $(273.1) | $(333.4) | Consolidated Balance Sheets This statement presents the company's financial position, with total assets of $1.52 billion and total stockholders' equity of $377.9 million as of year-end 2023 Balance Sheet Highlights (in millions) | Line Item | Dec 31, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Total investments | $348.8 | $445.9 | | Cash and cash equivalents | $142.1 | $194.5 | | Total Assets | $1,524.7 | $1,568.9 | | Total Liabilities | $1,140.0 | $975.4 | | Total Hippo stockholders' equity | $377.9 | $589.9 | Consolidated Statements of Cash Flows This statement outlines cash movements, indicating net cash used in operating activities of $92.4 million for FY2023 Statement of Cash Flows Highlights (in millions) | Line Item | Year Ended Dec 31, 2023 | Year Ended Dec 31, 2022 | | :--- | :--- | :--- | | Net cash used in operating activities | $(92.4) | $(161.5) | | Net cash provided by (used in) investing activities | $57.6 | $(405.9) | | Net cash used in financing activities | $(14.6) | $(6.8) | | Net decrease in cash | $(49.4) | $(574.2) | Non-GAAP Reconciliations and Supplemental Information This section provides crucial context by reconciling GAAP Net Loss to Adjusted EBITDA and offering supplemental breakdowns of TGP, Gross and Net Loss Ratios, and Insurance Related Expenses for deeper performance insight Reconciliation of Adjusted EBITDA This section details the adjustments made to reconcile GAAP Net Loss to the non-GAAP measure of Adjusted EBITDA Reconciliation of Net Loss to Adjusted EBITDA (in millions) | Line Item | FY 2023 | FY 2022 | | :--- | :--- | :--- | | Net loss attributable to Hippo | $(273.1) | $(333.4) | | Adjustments (Net investment income, SBC, D&A, etc.) | $72.5 | $127.0 | | Adjusted EBITDA | $(200.6) | $(206.4) | Supplemental Financial Information This section provides additional details on loss ratios, including PCS and non-PCS components, and other financial metrics - For FY 2023, the Gross Loss Ratio was 71%, with 20% from PCS (catastrophe) losses and 51% from non-PCS losses. This compares to a 76% Gross Loss Ratio in FY 202289 - The HHIP Gross Loss Ratio, excluding prior accident year development and PCS events, was 61% in FY 2023, a significant improvement from 73% in FY 2022, showing better underlying performance93 Segment Information This section breaks down financial performance by segment, highlighting strong revenue growth and improved operating income in IaaS, and reduced losses in HHIP and Services for Q4 2023 Q4 2023 Segment Performance (in millions) | Segment | Revenue | % Change YoY | Adjusted Operating Income (Loss) | YoY Change | | :--- | :--- | :--- | :--- | :--- | | Services | $11.5 | 4% | $(7.3) | 46% improvement | | Insurance-as-a-Service | $22.1 | 84% | $6.8 | 325% improvement | | Hippo Home Insurance Program | $31.1 | 70% | $(22.4) | 37% improvement | | Total | $64.5 | 80% | $(22.3) | 53% improvement | FY 2023 Segment Performance (in millions) | Segment | Revenue | Adjusted Operating Income (Loss) | | :--- | :--- | :--- | | Services | $44.3 | $(37.6) | | Insurance-as-a-Service | $70.7 | $18.3 | | Hippo Home Insurance Program | $102.1 | $(180.3) | | Total | $209.7 | $(200.6) | Important Disclosures This section contains standard legal disclosures, defining non-GAAP financial measures and key operating metrics, and providing a safe harbor statement for forward-looking projections subject to various risks and uncertainties Non-GAAP Financial Measures The company defines its non-GAAP measures, such as Adjusted EBITDA, and key operating metrics like Total Generated Premium, Gross Loss Ratio, and Net Loss Ratio, used to assess business volume and underwriting performance - Adjusted EBITDA is defined as net loss attributable to Hippo excluding interest, taxes, depreciation, amortization, stock-based compensation, net investment income, and other unique charges66 - Total Generated Premium (TGP) is defined as the aggregate written premium placed across all business platforms, reflecting business volume irrespective of reinsurance structure or risk retention69 Forward-Looking Statements This section warns that forward-looking statements regarding future performance and profitability are not guarantees and are subject to numerous risks and uncertainties, including competition, reinsurance, and catastrophe losses - The report contains forward-looking statements regarding financial forecasts, business strategy, and the timing of achieving profitability, which are based on current expectations and not predictions of actual performance7172 - Key risks that could affect future results include the ability to achieve profitability, competition, reinsurance availability and pricing, accuracy of underwriting models, and the impact of severe weather events74
Hippo (HIPO) - 2023 Q4 - Annual Results