Good morning, welcome to HCI Group's conference call to discuss Centerbridge's investment in TypTap. My name is Kate, I will be your conference operator this morning. At this time, all participants will be in a listen-only mode. Before we begin today's call, I would like to remind everyone that this conference call is being recorded and will be available for replay through April 1st, 2021, starting later this afternoon. The call is also being broadcast live via webcast available via webcast on the investor information section of HCI Group's website at www.hcigroup.com. I would now like to turn the call over to Rachel Swansiger, investor relations for HCI. Rachel, please proceed. Thank you, good morning. Welcome to HCI Group's conference call to discuss Centerbridge's investment in TypTap Insurance Group. With me on today's call is Paresh Patel, HCI and TypTap chairman and chief executive officer, HCI chief financial officer Mark Harmsworth, and TypTap Insurance Company's president, Kevin Mitchell. To access today's webcast, please visit the investor information section of our corporate website at www.hcigroup.com. Before we begin, I would like to take the opportunity to remind our listeners that today's presentation and responses to questions may contain forward-looking statements made pursuant to the Private Securities Litigation Reform Act of 1995. Words such as anticipate, estimate, expect, intend, plan, project, other similar words and expressions are intended to signify forward-looking statements. Forward-looking statements are not guarantees of future results and conditions, rather are subject to various risks and uncertainties. Some of these risks and uncertainties are identified in the company's filings with the Securities and Exchange Commission. Should any risks or uncertainties develop into actual events, these developments could have material adverse effects on the company's business, financial conditions, and results of operations. HCI Group disclaims all the obligations to update any forward-looking statements. With that, I would like to turn the call over to Paresh. Paresh? Thank you, Rachel, welcome everyone. I hope everyone is healthy and staying safe. It's an exciting time for both HCI and TypTap Insurance Group. TypTap is our InsurTech company consisting primarily of the insurance operations of TypTap Insurance Company and the software development arm known as Exzeo. TypTap is like an oak tree that HCI has been nurturing from an acorn for several years. As you saw on Friday, we announced TypTap Insurance Group received a $100 million investment from Centerbridge Partners, who are a leading New York-based private investment firm. The purpose of this call is to discuss TypTap and the Centerbridge investment. Matters specifically involving HCI will be discussed at HCI's next earnings call, which is on March 11th. Centerbridge's $100 million investment represents about 11.75% of TypTap Insurance Group and implies a post-money valuation of approximately $850 million for TypTap Insurance Group. In a few minutes, TypTap Insurance Company President, Kevin Mitchell, will review the transaction details and share why we are so excited to be partnering with Centerbridge. The strategic infusion of capital by Centerbridge provides TypTap with the important resources to support national expansion and to accelerate its corporate mission, which is to simplify the insurance experience for agents, consumers, and of course, our own operations while generating profits. TypTap's data analytics, and internally developed technologies have allowed us to drastically simplify the underwriting process. For example, an insurance agent answers only two underwriting questions for flood insurance or four questions for homeowners insurance. Our system then finalizes the quote, and if the quote is accepted, binds the policy. Instead of pages of questions, TypTap's modern system greatly streamlines and simplifies the underwriting process so our agents can get a binding quote in less time than it takes to make a cup of coffee. We have revolutionized the process by pre-gathering almost all of the data needed to furnish a quote and using automation, making the process quick, simple, and profitable. This automated database process allows us to select policies that deliver profitable results while at the same time mitigating risk. Unlike other insurance companies that evaluate risk on a zip code or a neighborhood level, we evaluate risk on a much more micro level, house by house. Since 2018, when we launched TypTap's homeowners insurance product, premium growth has exploded. Total TypTap premiums, including flood, have increased sevenfold in the last two years. TypTap ended 2020 with $105 million of annual recurring premium. TypTap achieved this level of growth organically with a very low cost of customer acquisition. I'll now turn it over to Kevin to walk us through the transaction details. Kevin? Thanks, Paresh. It is a pleasure to speak with all of you today. We're excited to be partnering with Centerbridge. As Paresh mentioned, Centerbridge's $100 million investment represents approximately 11.75% of TypTap. We believe the investment implies a TypTap valuation of approximately $850 million. We believe Centerbridge's investment validates TypTap's unique technology, profitable underwriting model, and strong growth record. In exchange for its investment, Centerbridge received from TypTap preferred stock and dividends and other customary rights. They also received from HCI a four-year warrant to purchase 750,000 HCI common shares at $54.40 per share. The preferred shares automatically convert to common shares upon completion of an IPO that meets certain parameters. In connection with their investment, Centerbridge will appoint one director to both the HCI and TypTap boards. We have gotten to know the Centerbridge team well over the last several months and are impressed with their deep knowledge of the insurance and technology space. We look forward to working with their team and benefiting from their collective experience and guidance. As some of you know, we have begun rolling out TypTap nationally. We believe the total addressable U.S. homeowners market is $105 billion. Our growth goal for 2021 is for TypTap to surpass $200 million of recurring premiums. Our ten-year goal is to generate $5 billion in revenue with a 10% operating margin. I'll turn the call back over to Paresh for final remarks. Thanks, Kevin. There are a few takeaways I want to leave with you before I open the call to questions. One, TypTap premiums have grown sevenfold in the last two years to end at $105 million. Two, the total addressable market of U.S. homeowners is $105 billion, and our goal is to capture 5% of that over the next ten years. Finally, this Centerbridge investment represents the first step operating entity. With that, we are ready to open the call to your questions. Operator, please provide the appropriate instructions. Thank you, sir. Ladies and gentlemen, the floor is now open for questions. If you have any questions or comments, please press star one on your phone at this time. We do ask, if you are listening via speakerphone, to please pick up your handset for optimum sound quality. Once again, if you have any questions or comments, please press star one now. Our first question today is coming from Matthew Carletti. Please announce your affiliation, then pose your question. Thanks. Good morning. Matthew Carletti with JMP. First off, congrats on the deal, guys. Really nicely done. I'd like to ask, I guess the first question is around some of the terms of the deal. I understand there might be only so much you think you can disclose, but specifically as it relates to the preference shares. You mentioned in the press release a dividend and liquidation redemption preferences. Just curious what that dividend looks like or what you can tell us in terms of some of those terms. The language around convert to common upon a qualified IPO. Are there any parameters there you can tell us specifically? Is there anything around timing or valuation? Thanks, Matt. In terms of the questions, I think there was a whole slew of items in there. The preferred shares, I think, initially carry a coupon of around 5%. It does change over time, but that's what it is. The IPO metrics, where it converts into common, had to do with basically the valuation of the company. They're not really time-based, but more of a valuation based. As long as we do an appropriate IPO, and raise enough capital at an appropriate valuation, the preferred turns into common stock. I think all of the details and all of these things probably will be laid out in excruciating detail in the 8-K that we file shortly on the matter, yeah? Okay. Wonderful. More just strategic items. Can you help us with, you gave us a little bit of a better picture there. You provided the $200 million guidance in 2021 before, now we kind of have the path to a $1 billion-plus by 2025. Can you help us a little bit with what that looks like? We have the phases and the states and so forth, but you've made some good progress along the way. Can you just help us with that path from $100 million in 2020 to a $1 billion in 2025 and what we should be looking for in terms of the big steps that you guys are getting there as you expect? Yes. Look, Matt, as we've been demonstrating for the last few years, TypTap is on a trajectory that's doubling in size every year. Right. It's now getting bigger and bigger. Last year we doubled from $50 million-$100 million. The year before we had really grown. As you sort of start doing this stuff, it starts adding up. By the end of 2021, we'll be over $200 million. Then you've still got four more years to go. I don't think that doubling will continue forevermore, but I think we might go from $200 million to $400 million to $600 million to $800 million to $1 billion. That's the kind of easy ramp you could get to $1 billion. In terms of the mix of that business, I think that when we get to that $1 billion, there should be premium coming from throughout the U.S. in a number of different states, et cetera. It might include products beyond homeowners and flood as well. It's just step by step where we go. Wherever we are, we say what the next iteration is that we need to do, off we go. Does that help? Okay, great. It does, yeah. Then just last question from me. You guys have always been, I think, sitting in Florida, pretty good with reinsurance and exposure management and things like that. I think one of the best amongst peers. Can you provide us any updated thoughts or how you're thinking about you're going nationwide. We did see a historic frequency of windstorm in 2020 that impacted a lot of your peers that had expanded quite a bit. We're now dealing with, I'd say a pretty historic unmodeled Texas loss. How are you guys thinking about managing both frequency and severity, as you become a more nationwide company? Great question, Matt. Actually two things. A lot of the large carriers don't like doing business in Florida because they just can't figure out how to make it work. TypTap obviously has succeeded at making Florida work. The other thing is a lot of our other Florida peers expanded beyond Florida as a means to sort of diversify and move away from Florida. We are not expanding with that frame of mind. We're expanding. We like Florida. We like the business we have here, and it's going to keep growing. We're adding other states to Florida, and that is an important distinction, that we're adding other states as opposed to we are moving away from Florida. What I mean by that is that each state that we approach, we look at it and say, "What does it take for that business to be profitable as a standalone business?" We're not trying to just bolt it on to Florida. That distinction, while it may seem subtle, is extremely vital. When we expand, for example, to the Northeast, which we're supposed to do later this year, we will probably be buying a separate tower for the Northeast business. It will have to stand and be profitable by itself. We're not trying to say it leverages Florida's size and scale to be profitable. That applies throughout the rest of the expansion as well. That is a major difference to the model people have followed in the past. Great. Thank you. Congrats and best of luck going forward. Thanks. Thanks, Matt. Thank you. Our next question today is coming from Mark Hughes. Please announce your affiliation, then pose your question. Yeah, thank you. It's Truist Securities. Kevin, you'd mentioned 10%. I didn't hear it clearly. Is that a 10% underwriting margin was the target? Is that what you said? Yeah, that's correct. Then, Mark, if you wouldn't mind, remind me on the capital situation at TypTap, maybe at year end versus Homeowners Choice at year end, and how much at the hold co. I can talk about TypTap. We'll talk about HCI, the holding company, on the earnings call next week. In terms of statutory capital to the end of the year, there's about $38.5 million in TypTap Insurance Company, and as the guys mentioned, that's supporting about $105 million of premiums in force. The insurance company's pretty well capitalized at the end of 2020, before this. Understood. Exzeo, I wonder if you could give us a few thoughts at this point, whether that was central to the investment, how you see that from a value creation perspective on a go forward basis. It was always part of TypTap Insurance Group, because TypTap Insurance Company does nothing but utilize Exzeo technology to do all the wonderful things I talked about in my prepared remarks. Exzeo builds the technology, TypTap utilizes it. It makes the two pieces. One's insurance and one's tech. They belong together, and that's why we put them together in TypTap Insurance Group. There's no separation there, yeah. Understood. So we can think about valuation as we think about it today, you'll talk about Homeowners Choice on the call, how do you foresee that legacy business developing over time once we presumably separate TypTap or do so in the future? How do we look at Homeowners Choice? Again, Mark, not to be difficult, we will be discussing Homeowners Choice and HCI's prospects on the March 11th call. Yeah. Right? The key thing here that we wanted everybody to walk away from is that TypTap is now, as we had sort of set that our goal was many months ago, was to be looked at and can be separated out and valued and is designed to be both capitalized and a separately operating entity. We have just taken a huge leap in making that happen today, yeah? Yeah. I agree. I'm just trying to do a sum of the parts, just thinking about it that way now that we've got a new kind of valuation marker on this one. Yeah. Could you talk about I know you- Mark, you'd like to help me with that one, right? Yeah, please. One of our shareholders actually called up over the weekend and was congratulating us kind of thing, but they sort of pointed out that I think TypTap is now being valued collectively, with the Centerbridge portion of it, et cetera, at about twice the market cap of the entire HCI Group was, let's say, on Thursday night. Right. That's the comment about you've sort of been growing an asset from an acorn, and it's been hidden from you until it suddenly springs into life like it does today. That's roughly the scope of what has just happened, yeah? Yep. I know you're going to give us some details on the 8-K. I'm just trying to understand the nature of the preferred, Centerbridge's investment here. To what extent is this, they're clearly getting a coupon, a moderate coupon, but they do have a coupon. What sort of protections do they have? Just want to understand the nature of this as an equity investment rather than a kind of a debt-like investment. If you could amplify on that, it would be helpful. Absolutely. Look, because in the nature of these deals, what people do is it initially comes in as a preferred investment. A preferred investment has a coupon. Like I said, it's initially, I think it's out there at 5%, which isn't that much different to the kinds of dividends we already pay our common shareholders. You have that. The other part of it is, in terms of rights that you have as a preferred shareholder, it's basically a four-year preferred share issuance. Four years from now, if in the worst-case scenario, we have an obligation to repay their $100 million with interest, should we come to that point. Obviously, neither Centerbridge nor us are going into this deal thinking that if they ever get paid their money back with interest, that was a desirable outcome. That's the downside protection that you'd normally get in these kinds of preferred share issuances. Of course, should we complete an IPO at an appropriate valuation, as we sort of talked about earlier, the preferred shares convert into common, then everybody is in the same playing field. Right. Just as you say there, 5% dividend doesn't hit their hurdle rates, so their assumption is. Yeah Better things will happen, clearly. Okay. Thank you. Thank you. Thank you. Once again, ladies and gentlemen, if you have any questions or comments, please press star one. Operator, we're ready for the next question. Your next question is coming from Bill Broomall. Please announce your affiliation, then pose your question. Great. Thank you. Dowling & Partners. I just had a quick one first on the mechanics. Looking at the statutory filings, I saw that in Q3 and the beginning of Q4 in November, you made a change to the statutory structure of the firm where you formed TypTap Insurance Group. Just for my benefit, is Centerbridge making the investment in TypTap Insurance Group, the new formed, which now sits as its own separate tower in your organizational structure? Hey, Bill, it's Kevin. Yes. The investment's in TypTap Insurance Group, the insurance company, and then obviously the Exzeo technology. The money's coming at the insurance group level, yeah? Yep. Okay, got it. Thank you. The second one I had was in your Q2 earnings call, when you were first talking about nationwide expansion, kind of left the door open to a lot of different options to help facilitate to get you to your goals. At the time, you talked about outside investment, joint ventures, a lot of different things. I was wondering what made Centerbridge a great partner for you in going this route, to help support your aspirations? Great question. What I would say is that we found kindred spirits in Centerbridge. Those of you that have been following us for years know that we are the kind of folks who look at things, and we see opportunities where people just see obstacles. We found in Centerbridge were people who view the world very similarly. They looked at TypTap and saw opportunity. Everybody else Since everybody else, a number of other people looked at it and said, "Oh, it's part of a public company, how do you break it out?" Et cetera. They saw nothing but obstacles. Centerbridge did their homework and this opportunity, and they were the first guys to do it, and that made them extremely wonderful to us, yeah? They liked basically the combination of both a tech and an insurance capability that we have, yeah? Got you. Maybe just one last one from me. I know you're getting licenses and approvals in all these different states, it's moving along quite nicely, the Northeast will quickly ramp up given what you announced at the end of the year. Outside of that type of unique transaction, how has the agent response been outside of Florida to what extent you've had them so far in terms of your technology and getting up to speed on your TypTap story and what you're trying to accomplish? Hey, Bill, it's Kevin. We've received a lot of outreach from agents across the country, specifically with a lot of the franchise models out there that deal with us in Florida. Right now they're just interested to know when TypTap is going to enter their specific state. The reason they're interested to join TypTap is they see the true efficiency that it brings their respective agency. Got it. No, that's helpful. Maybe one last one, I guess is, in the InsurTech sphere of companies that are out there, the universe, we've seen examples of companies that are growing for growth's sake and trying to ramp up the premium really quickly and then we'll fix pricing later and that will come with time, and we can burn cash. Can you maybe elaborate on how you think about cash burn or for lack of better words, and growth, and how you might compare those or weigh those when you're thinking about this state expansion, and how quickly you might want to ramp it up or what targets you need to see that you'll start out slow and then you'll see the numbers will show up where they do, and you'll think, "Okay, we can grow a little bit more." Can you just help us think about that? Obviously Centerbridge has aspirations for growth in there, but I'm assuming they don't want their money just to be burned into new states. There's got to be some profitability standpoint from that standpoint. Yeah. Can you maybe help us think through that? Absolutely. Look, actually, this is one of the things that made the partnership happen, because we had a long conversation about that. We've got to where we have because we tend to be very good stewards of capital. Just because we have money doesn't mean we'll spend it lots on advertising and rapid growth. It has to earn a return, and we have a 14-year track record of doing that in the public domain. We have that discipline, and where we really sort of looked at it the right way was that what we do and what we've always done is we'll do five things. Some of them will work, some of them won't. The ones that work, we'll do more of, and the ones that don't, we said we tend to shut off very quickly, right? We are not shy about turning off things that don't work. It has always been in our nature. For those of you that have watched our track record over the years, there have been years when we actually shrank the business because we're not getting paid to take the risk. I think when we had those discussions with Centerbridge, I think it was one of the attractions of the deal that you're looking at an InsurTech company that worries about economic viability, and growth, as opposed to just growth at all costs. I'm paraphrasing your question back at you, yeah? Yeah. Perfect. Thank you. That's all I had. Thank you. Thank you. Our next question today is coming from Bill Garvey. Please announce your affiliation, then pose your question. Hilton Capital Management. Kudos, Paresh and Kevin for this great transaction. I have a couple questions and then just a comment. Currently, how many states is TypTap operating in, and how many additional licenses would you expect to have by the end of the year? Yeah. Hey, Bill, this is Kevin. Right now, we operate in write business in Florida. We've received certificates of authority in 11 other states. We're busily working to get on board and writing policies in those respective states. The rest of the states, the initial 20, will come online this year. In addition to that, we have the Northeast states that we're working with regulators right now, the UPC transaction, which is Massachusetts, Rhode Island, Connecticut, New Jersey. Okay. When you sat down with Centerbridge and you started to have this discussion, a lot of times, the reason people make money is because they don't go invest in something. They have a void there. Are there areas in the country that you have said, because you guys have always operated where the risk matrix is, as Paresh pointed out, as important, if not more important, than writing business. Are there places where you have decided, Texas was mentioned, maybe California, where you said, "Listen, the risk is greater than a potential premium." Is that a decision that will be made, I assume, by the TypTap board and in conjunction with Centerbridge? What's the protocol that's going to be in place for further expansion with this partner that you have going forward? Great question, Bill. The part of this whole thing about separate operating and capitalized entity is we have formed a separate TypTap board. The only overlapping board members between the TypTap board and the HCI board are basically myself and the Centerbridge representative, a gentleman named Eric Hoffman. We are the only two board members that overlap. Everybody else is separate. The second part about that is, as you would expect any board to do, they will look at the business case of why a state should be expanded into, but equally well, the same board will also look at this and say, unless there's a profit opportunity, we don't just go into a state just for the sake of it. Currently, as you've seen our expansion, we have not yet applied for licenses in Texas, California, New York, Louisiana, and it is nothing against those states in particular. It's just for various reasons, it doesn't make sense for us as a business to be there yet. Who knows over the next decades, a long time over that timeframe, we probably will end up in all those places, but just not yet. Okay. Paresh, you mentioned that the money, that $100 million, is going in on the insurance, so it's going in on the HCI side for them to own that 11.75 or 875, and with the warrants. Are those dollars that HCI is receiving, are those slated to only be utilized on the TypTap side, or are they slated to be used over the whole entity on the insurance side? Bill, sorry. I think we were trying to communicate that the $100 million came into the TypTap Insurance Group. Okay. It is basically under the control of the TypTap board, yeah? It's strictly for the TypTap operation, has nothing to do with the other parts of HCI, whether it be on the holding company side or on the Florida insurance side. Correct. Well, Florida. Yeah. The other Florida insurance carrier, Homeowners Choice. Okay. The only other item I would tell you is because of the timing of the transaction, HCI Group had loaned TypTap Insurance Group $22 million at the end of last year. Part of this transaction, that's the only money that's going to leave the TypTap Insurance Group is the repayment of that $22 million loan. Everything else stays in the TypTap Insurance Group and will be allocated by the TypTap Insurance Group board, yeah? Okay. Just as a comment, obviously, as a longtime investor in HCI, whether it be on the equity or the debt side, we're thrilled with this transaction. I think your expectation that this only supports the company growing 200%, you may be sandbagging some investors out there because I think long-term with the way you're going in fintech and just the overall ability to take those two things, insurance and technology, and blend them together, I think the sky's the limit. Once again, congratulations for such a great job. Bill, thank you, and it's good to hear such support from one of our long-term shareholders, yeah? Thank you. All right. Have a great day. Thanks. Thank you. Our next question today is coming from Ray Cabillot. Please announce your affiliation, then pose your question. I'm with Farnam Street Capital. Paresh and Kevin, congratulations. This seems like an awesome transaction. I was wondering if you could discuss the economics of your customers a little bit. My understanding is internet and app-based, and specifically property and casualty insurers, tend towards renters and kind of lower premiums, and it's a little bit harder to generate profitability. I was wondering if you could discuss your customer base and it kind of fits more into that category, or is your average premium a little bit higher than kind of a renter or starter home type of customer? Hey, Ray, this is Kevin. We really focus on the middle market. For us, it's a middle-market homeowner, and in Florida, on average, the annual premium is approximately $3,000. That's gonna change as you embark on other states, but that's where it sits right now in Florida. That's where we see the opportunity is, and as Paresh and I mentioned during our opening remarks of the $105 billion TAM, a huge chunk of that is the middle market space, and that's gonna give us the opportunity to underwrite and select the profitable risks across the country. Ray, building upon that, the other side of this, if you think across different products, we aim where we think the homeowners market is, or the property market is in the U.S., which is homeowners. The market homeowners, Kevin. We are not aiming at somebody who's renting today and will eventually get to buying a house. We are aiming at the people who already own a house and providing them a good product or a great product at a good price. The rapid growth of TypTap in Florida sort of just puts up the numbers that shows that. We're going to now take that to the rest of the country. The neat thing about what we're doing is once we acquire a customer, we don't really need them to do anything. We just want them to be there, go about their daily lives and continue doing what they're doing, and we'll do just fine. That gives us a very different model to some of the aspirational other business models that are out there, which expect to have a customer evolve with the carrier over multiple years and multiple life transitions. We're not counting on any of those things, yeah. Mm-hmm. As a bit of a follow-up, in Florida, you grew rapidly from zero at very profitable levels, surprisingly profitable levels. I know every state will be different, growth rates will be different, economics will be different, but is the expectation that most of the states or as you're entering states, you're turning to a profitable level at a relatively quick rate? We always hope for that, right? I will tell you that if you step back and think about it this way, right? Actually, by the way, today is the five-year anniversary of the first policy that TypTap ever wrote, right? There was zero revenue this time five years ago, we've grown from that to this. Obviously, as Kevin mentioned earlier, that's entirely been done in Florida. People sometimes look at that and say, "Oh, you just did it in Florida." Let's put Florida into context. Florida is such a tough market that most of the large national players curtailed their operations in Florida a decade and a half ago because they said it's difficult to make money here. Most of the industry over the last five years hasn't really had a good outcome. In the middle of all of that, TypTap, with its technology, has grown from zero to $100 million and done so with very good economics. It's almost like as we go to these other states, we kind of are paraphrasing that New York line, right? If you can make it in Florida, you can make it anywhere. Yeah? Thank you. That helps a lot with the understanding. Again, congratulations. This is an awesome transaction for the future of the company and your growth opportunities. Thank you. Thank you. We feel the same way, yeah. Thank you. Thanks, Ray. Thank you. Our next question today is a follow-up from Mark Hughes. Your line is live. Yeah, thank you. Just curious on the timing of the need of the capital, kind of what underwriting leverage you anticipate with TypTap. If you've got $38.5 million there, what's the leverage ratio target? It sounds like some capital will be sitting on the sidelines, at least for a little bit. Is that fair? Yes. Mark, simple math. $38 million, $105 million of surplus is, you could sort of say 3 to 1. You could probably stretch it a little bit from there as well. I think we have enough capital on hand to probably and we'd have to do some positioning correctly and everything else. We could probably grow this business with the capital on hand to easily north of about $400 million. Just with the capital- That may be on hand from the Centerbridge transaction, yeah? We have a lot of runway ahead of us. Yeah. Okay. Thank you. Thank you. Thank you. That's all the time we have for today's call. We want to thank everybody for participating in the call today, and we look forward to updating you on future developments. Thank you all. Thank you, ladies and gentlemen. This does conclude today's conference call. You may disconnect your phone lines at this time and have a wonderful day. Thank you for your participation.