Grosse Pointe, Michigan, April 17, 2024 (GLOBE NEWSWIRE) -- Broad Arrow Auctions, a Hagerty (NYSE:HGTY) company, is thrilled to announce the final list of consignments for the exclusive Porsche-only auction in partnership with the first-ever Air|Water standalone event, view the complete Digital Catalogue here. Air|Water is the brainchild of Luftgekühlt founder Patrick Long, who is well-known and respected in the Porsche world and has organized world-class gatherings for the Porsche community to celebrate no ...

Company Overview - Hagerty, Inc. (HGTY) shares increased by 5.8% to $8.93 in the last trading session, with a higher-than-average trading volume, contrasting with a 0.4% loss over the past four weeks [1] - The company is focusing on expanding its Insurance, Membership, and Marketplace businesses, which is expected to lead to consistent profit growth in the future [1] Earnings Expectations - Hagerty is projected to report quarterly earnings of $0.03 per share, reflecting a year-over-year increase of 175% [2] - Expected revenues for the upcoming quarter are $264.32 million, representing a 21.1% increase from the same quarter last year [2] Stock Performance and Analysis - The consensus EPS estimate for Hagerty has remained unchanged over the last 30 days, indicating that stock price movements may not continue without trends in earnings estimate revisions [3] - The stock currently holds a Zacks Rank of 2 (Buy), suggesting positive sentiment among analysts [3] Industry Comparison - Hagerty operates within the Zacks Automotive - Retail and Wholesale - Parts industry, where AutoZone (AZO) has seen a 2% decline in its last trading session and a -5.2% return over the past month [3] - AutoZone's consensus EPS estimate has increased by 0.6% over the past month to $35.72, which is a 4.7% change compared to the previous year [4]

TABLE OF CONTENTS UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2023 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________ to _______ Commission file number: 001-40244 HAGERTY, INC. (Exact name of registrant as specified in its charter) 121 Drivers Edge, Trav ...

For Immediate Release Hagerty Reports 2023 Results Expects Strong Growth and Margin Expansion to Continue in 2024 TRAVERSE CITY, Mich., March 12, 2024 /PRNewswire/ – Hagerty, Inc. (NYSE: HGTY), an automotive enthusiast brand and leading specialty vehicle insurance provider, announced today financial results for the three months and year ended December 31, 2023. "2023 was an excellent year at Hagerty as we successfully executed on our 2023 priorities and delivered results that consistently exceeded expectati ...

& Investor Speakers: McKeel Hagerty | Chief Executive Officer Patrick McClymont | Chief Financial Officer Presentation FORWARD LOOKING STATEMENTS / NON-GAAP FINANCIAL MEASURES HAGERTY Adjusted EBITDA 2 See Appendix for additional information regarding this non-GAAP financial measure. Individuals who have an in-force insurance policy or HDC membership as of a specified point in time. HDC Paid Member Count HDC standalone plus insurance + HDC. A customer with an active/in-force paying HDC membership that has f ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________ to _______ Commission file number: 001-40244 HAGERTY, INC. (Exact name of registrant as specified in its charter) Delaware 86-1213144 121 Drivers Edge, Traverse City, Michigan 49684 (Address of prin ...

: Investor Speakers: McKeel Hagerty | Chief Executive Officer Patrick McClymont | Chief Financial Officer FORWARD LOOKING STATEMENTS / NON-GAAP FINANCIAL MEASURES membership products as well as any new insurance programs and products we offer; (vi) manage the cyclical nature of the insurance business, including through any periods of recession, economic downturn or inflation; (vii) address unexpected increases in the frequency or severity of claims; (viii) comply with the numerous laws and regulations appli ...

Hagerty, Inc. (NYSE:HGTY) Q2 2023 Earnings Conference Call August 8, 2023 10:00 AM ET Company Participants Jason Koval - Senior Vice President, Investor Relations McKeel Hagerty - Chief Executive Officer Patrick McClymont - Chief Financial Officer Conference Call Participants Mark Hughes - Truist Securities Sidney Schultz - Raymond James Financial, Inc. Pablo Singzon - JPMorgan Chase & Co. Operator Greetings, and welcome to the Hagerty Second Quarter 2023 Earnings Call. At this time, all participants are in ...

[Forward-Looking Statements](index=4&type=section&id=Forward-Looking%20Statements) This section outlines the inherent risks and uncertainties associated with forward-looking statements in the report, advising caution against their predictive reliance [Cautionary Statement Regarding Forward-Looking Statements](index=4&type=section&id=Cautionary%20Statement%20Regarding%20Forward-Looking%20Statements) This section highlights that the 10-Q report contains forward-looking statements based on current expectations and projections, which are subject to risks, uncertainties, and assumptions. It advises against relying on these statements as predictions of future events due to the competitive and rapidly changing environment and the emergence of new risks - The report contains forward-looking statements regarding future operating results, financial position, business strategy, plans, products, services, technology offerings, market conditions, growth, trends, expansion, and objectives[10](index=10&type=chunk) - These statements are based on current expectations and projections but are subject to risks, uncertainties, and assumptions, including those detailed in the Annual Report on Form 10-K[11](index=11&type=chunk) - Factors that could cause actual results to differ materially include competition, maintaining strategic relationships, preventing fraud, managing technology disruptions, accelerating product adoption, managing insurance business cycles, addressing claims increases, complying with regulations, managing controlled company risks, and defending litigation[12](index=12&type=chunk) [Glossary of Terms](index=6&type=section&id=Glossary%20of%20Terms) This section defines key technical and company-specific terms used throughout the Quarterly Report on Form 10-Q [Glossary of Terms](index=6&type=section&id=Glossary%20of%20Terms) This section provides definitions for technical and company-specific terms used throughout the Quarterly Report on Form 10-Q, such as BMA, Book of Business, BSCR, Carrier, CUC, Hagerty Re, HDC, IBNR, Loss Ratio, Members, MGA, NPS, PIF, and Written Premium - Key terms defined include **'Members'** (insurance policyholders and HDC paid subscribers), **'MGA'** (Managing General Agent), **'Hagerty Re'** (wholly-owned captive reinsurance subsidiary), and **'PIF'** (Policies in Force)[16](index=16&type=chunk)[19](index=19&type=chunk)[21](index=21&type=chunk)[22](index=22&type=chunk) - Financial and operational metrics like **'Loss Ratio'** (losses and loss adjustment expenses to earned premium in Hagerty Re) and **'Written Premium'** (total insurance premium written by MGA affiliates) are also defined[20](index=20&type=chunk)[22](index=22&type=chunk) - The **'Net Promoter Score (NPS)'** is used as an important measure of overall relationship strength with Members, indicating brand loyalty, engagement, growth, and retention[21](index=21&type=chunk) [Part I – Financial Information](index=7&type=section&id=Part%20I%20%E2%80%93%20Financial%20Information) This part presents the unaudited condensed consolidated financial statements and management's discussion and analysis of the company's financial performance and condition [Item 1. Financial Statements (Unaudited)](index=7&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) This section presents the unaudited condensed consolidated financial statements for Hagerty, Inc., including the statements of operations, comprehensive income (loss), balance sheets, changes in temporary equity and stockholders' equity, and cash flows, along with detailed accompanying notes [Condensed Consolidated Statements of Operations](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) This section presents the company's unaudited condensed consolidated statements of operations for the reported periods Condensed Consolidated Statements of Operations (Unaudited) - Three Months Ended June 30 | Metric (in thousands) | 2023 | 2022 | | :-------------------- | :--- | :--- | | Total revenue | $261,244 | $206,017 | | Total operating expenses | $243,991 | $203,630 | | Operating income (loss) | $17,253 | $2,387 | | Net income (loss) | $15,539 | $(5,543) | | Net income (loss) attributable to Class A Common Stockholders | $2,405 | $(5,536) | | Basic EPS | $0.03 | $(0.07) | | Diluted EPS | $0.03 | $(0.07) | Condensed Consolidated Statements of Operations (Unaudited) - Six Months Ended June 30 | Metric (in thousands) | 2023 | 2022 | | :-------------------- | :--- | :--- | | Total revenue | $479,596 | $373,828 | | Total operating expenses | $478,832 | $384,445 | | Operating income (loss) | $764 | $(10,617) | | Net income (loss) | $514 | $10,323 | | Net income (loss) attributable to Class A Common Stockholders | $306 | $21,971 | | Basic EPS | $0.00 | $0.27 | | Diluted EPS | $0.00 | $(0.02) | [Condensed Consolidated Statements of Comprehensive Income (Loss)](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income%20(Loss)) This section details the company's unaudited condensed consolidated statements of comprehensive income or loss Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited) - Three Months Ended June 30 | Metric (in thousands) | 2023 | 2022 | | :-------------------- | :--- | :--- | | Net income (loss) | $15,539 | $(5,543) | | Other comprehensive income (loss) | $1,440 | $(634) | | Comprehensive income (loss) | $16,979 | $(6,177) | | Comprehensive income (loss) attributable to Class A Common Stockholders | $2,759 | $(6,170) | Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited) - Six Months Ended June 30 | Metric (in thousands) | 2023 | 2022 | | :-------------------- | :--- | :--- | | Net income (loss) | $514 | $10,323 | | Other comprehensive income (loss) | $1,199 | $1,185 | | Comprehensive income (loss) | $1,713 | $11,508 | | Comprehensive income (loss) attributable to Class A Common Stockholders | $601 | $23,156 | [Condensed Consolidated Balance Sheets](index=9&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This section provides the company's unaudited condensed consolidated balance sheets as of the reporting dates Condensed Consolidated Balance Sheets (Unaudited) | Metric (in thousands) | June 30, 2023 | December 31, 2022 | | :-------------------- | :------------ | :---------------- | | Total current assets | $1,179,758 | $936,783 | | Total assets | $1,552,530 | $1,312,518 | | Total current liabilities | $848,599 | $667,355 | | Total liabilities | $1,094,561 | $945,149 | | Total stockholders' equity | $67,415 | $59,252 | | Total liabilities, temporary equity and stockholders' equity | $1,552,530 | $1,312,518 | [Condensed Consolidated Statements of Changes in Temporary Equity and Stockholders' Equity](index=10&type=section&id=Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Temporary%20Equity%20and%20Stockholders'%20Equity) This section outlines the unaudited condensed consolidated statements detailing changes in temporary equity and stockholders' equity - As of June 30, 2023, the company had **8,483,561 shares** of Series A Convertible Preferred Stock issued and outstanding, valued at **$79.16 million**, compared to none at December 31, 2022[29](index=29&type=chunk)[30](index=30&type=chunk) - Class A Common Stock shares outstanding increased from **83,202,969** at December 31, 2022, to **84,405,625** at June 30, 2023[29](index=29&type=chunk)[30](index=30&type=chunk) - Additional paid-in capital increased from **$549.03 million** at December 31, 2022, to **$556.60 million** at June 30, 2023[29](index=29&type=chunk)[30](index=30&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=12&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This section presents the company's unaudited condensed consolidated statements of cash flows for the reported periods Condensed Consolidated Statements of Cash Flows (Unaudited) - Six Months Ended June 30 | Cash Flow Activity (in thousands) | 2023 | 2022 | | :-------------------------------- | :--- | :--- | | Net Cash Provided by Operating Activities | $70,557 | $59,925 | | Net Cash Used in Investing Activities | $(31,301) | $(53,161) | | Net Cash Provided by (Used in) Financing Activities | $53,005 | $(48,500) | | Change in cash and cash equivalents and restricted cash and cash equivalents | $93,170 | $(42,523) | | Ending cash and cash equivalents and restricted cash and cash equivalents | $632,361 | $561,449 | [Note 1 — Basis of Presentation and Accounting Policies](index=13&type=section&id=Note%201%20%E2%80%94%20Basis%20of%20Presentation%20and%20Accounting%20Policies) This note describes the basis of financial statement presentation and significant accounting policies applied by the company - Hagerty is a global market leader in providing insurance for classic cars and enthusiast vehicles, also offering an automotive enthusiast platform[37](index=37&type=chunk) - Revenue streams include commission and fee revenue (as an MGA), earned premium (through Hagerty Reinsurance Limited), and membership, marketplace, and other revenue (HDC memberships, collector car marketplace, events, and storage facilities)[38](index=38&type=chunk)[39](index=39&type=chunk)[43](index=43&type=chunk)[44](index=44&type=chunk)[47](index=47&type=chunk) - The Company consolidates its majority-owned or controlled subsidiaries, including The Hagerty Group and Member Hubs Holding, LLC, using the voting interest method[51](index=51&type=chunk) - Significant estimates include provisions for unpaid losses, fair value of warrant liabilities, TRA liability, business combination valuations, goodwill recoverability, and intangible asset valuation[58](index=58&type=chunk) [Note 2 — Revenue](index=17&type=section&id=Note%202%20%E2%80%94%20Revenue) This note provides a detailed breakdown of the company's revenue streams by distribution channel and geographic area Revenue by Distribution Channel (Three Months Ended June 30, in thousands) | Revenue Type | Agent (2023) | Direct (2023) | Total (2023) | Agent (2022) | Direct (2022) | Total (2022) | | :------------- | :----------- | :------------ | :----------- | :----------- | :------------ | :----------- | | Commission and fee revenue | $46,972 | $40,702 | $87,674 | $40,193 | $35,479 | $75,672 | | Contingent commission revenue | $12,242 | $10,271 | $22,513 | $10,857 | $8,977 | $19,834 | | Membership revenue | — | $13,146 | $13,146 | — | $11,131 | $11,131 | | Marketplace and other revenue | — | $10,429 | $10,429 | — | $5,280 | $5,280 | | **Total revenue from customer contracts** | **$59,214** | **$74,548** | **$133,762** | **$51,050** | **$60,867** | **$111,917** | | Earned premium recognized under ASC 944 | | | $127,482 | | | $94,100 | | **Total revenue** | | | **$261,244** | | | **$206,017** | Revenue by Geographic Area (Three Months Ended June 30, in thousands) | Geographic Area | 2023 (U.S.) | 2023 (Canada) | 2023 (Europe) | 2023 (Total) | 2022 (U.S.) | 2022 (Canada) | 2022 (Europe) | 2022 (Total) | | :---------------- | :---------- | :------------ | :------------ | :----------- | :---------- | :------------ | :------------ | :----------- | | Commission and fee revenue | $77,611 | $8,587 | $1,476 | $87,674 | $66,400 | $7,956 | $1,316 | $75,672 | | Contingent commission revenue | $22,478 | — | $35 | $22,513 | $19,798 | — | $36 | $19,834 | | Membership revenue | $12,254 | $892 | — | $13,146 | $10,288 | $843 | — | $11,131 | | Marketplace and other revenue | $9,061 | $348 | $1,020 | $10,429 | $4,754 | $152 | $374 | $5,280 | | **Total revenue from customer contracts** | **$121,404** | **$9,827** | **$2,531** | **$133,762** | **$101,240** | **$8,951** | **$1,726** | **$111,917** | | Earned premium recognized under ASC 944 | | | | $127,482 | | | | $94,100 | | **Total revenue** | | | | **$261,244** | | | | **$206,017** | [Note 3 — Notes Receivable](index=19&type=section&id=Note%203%20%E2%80%94%20Notes%20Receivable) This note details the company's notes receivable, including loan portfolio characteristics and credit quality indicators - Broad Arrow provides term loans to high-net-worth individuals and businesses, secured by collector cars, with initial maturities up to **two years**[73](index=73&type=chunk) - The primary credit quality indicator is the loan-to-value (LTV) ratio, with a target maximum of **65%**; borrowers are required to reduce LTV if it exceeds the target[75](index=75&type=chunk) Broad Arrow Loan Portfolio Aggregate LTV Ratio (in thousands) | Metric | June 30, 2023 | December 31, 2022 | | :----- | :------------ | :---------------- | | Secured loans | $42,876 | $37,427 | | Estimate of collateral value | $100,053 | $75,802 | | Aggregate LTV ratio | 42.9% | 49.4% | - As of June 30, 2023, one borrower had three outstanding loans totaling **$11.6 million**, representing **27%** of the total loan portfolio, with an LTV ratio of **36%**[79](index=79&type=chunk) [Note 4 — Other Assets](index=23&type=section&id=Note%204%20%E2%80%94%20Other%20Assets) This note provides a breakdown of other assets, including prepaid expenses, investments, and digital media content Other Assets (in thousands) | Asset Type | June 30, 2023 | December 31, 2022 | | :------------------------------------------ | :------------ | :---------------- | | Prepaid sales, general and administrative expenses | $21,810 | $24,234 | | Prepaid software as a service ("SaaS") implementation costs | $19,046 | $18,501 | | Fixed income investments | $16,489 | $12,986 | | Contract costs | $7,482 | $6,576 | | Consignor advances | $6,100 | — | | Inventory | $4,973 | $2,074 | | Digital media content | $2,652 | $5,580 | | Deferred reinsurance premiums ceded | $14,552 | $91 | | Other | $11,787 | $12,691 | | **Total Other Assets** | **$104,891** | **$82,733** | - The reduction in digital media content was primarily due to **$3.8 million** of impairments recorded in the first half of 2023, resulting from lower than anticipated advertising and sponsorship revenue[85](index=85&type=chunk) [Note 5 — Leases](index=23&type=section&id=Note%205%20%E2%80%94%20Leases) This note details the company's lease arrangements, including operating lease expenses and related balance sheet information Operating Lease Expense (in thousands) | Lease Expense Type | Three months ended June 30, 2023 | Three months ended June 30, 2022 | Six months ended June 30, 2023 | Six months ended June 30, 2022 | | :----------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Operating lease expense | $3,153 | $2,233 | $6,300 | $4,283 | | Short-term lease expense | $147 | $66 | $216 | $77 | | Variable lease expense | $842 | $669 | $1,649 | $1,245 | | Sublease revenue | $(134) | $(33) | $(197) | $(45) | | **Lease cost, net** | **$4,008** | **$2,935** | **$7,968** | **$5,560** | Supplemental Balance Sheet Information Related to Operating Leases (in thousands) | Metric | June 30, 2023 | December 31, 2022 | | :-------------------------- | :------------ | :---------------- | | Operating lease ROU assets | $77,640 | $82,398 | | Current lease liabilities | $7,988 | $7,556 | | Long-term lease liabilities | $77,084 | $80,772 | | **Total operating lease liabilities** | **$85,072** | **$88,328** | - The weighted-average lease term as of June 30, 2023, was **9.82 years**, with a weighted-average discount rate of **5.5%**[88](index=88&type=chunk) [Note 6 — Acquisitions and Investments](index=24&type=section&id=Note%206%20%E2%80%94%20Acquisitions%20and%20Investments) This note outlines the company's business combinations and asset acquisitions, including the Broad Arrow and Speed Digital transactions - During the six months ended June 30, 2023 and 2022, the Company completed business combinations and asset acquisitions with aggregate purchase prices of **$2.7 million** and **$18.5 million**, respectively[89](index=89&type=chunk) - In August 2022, Hagerty acquired the remaining **60%** of Broad Arrow for **$73.3 million** in equity consideration, aiming to leverage product offerings and build the Marketplace[91](index=91&type=chunk) - The Broad Arrow acquisition was accounted for as a step acquisition, remeasuring the pre-existing **40%** equity interest to **$48.3 million**, resulting in a **$34.7 million** net gain in Q3 2022[92](index=92&type=chunk) - Goodwill of **$98.6 million** was recognized from the Broad Arrow acquisition, primarily due to expected Marketplace enhancement and the assembled workforce[93](index=93&type=chunk) - In April 2022, Hagerty acquired Speed Digital for **$15.0 million** to enhance the Marketplace business, augment automotive intelligence data, and drive audience engagement[95](index=95&type=chunk) [Note 7 — Goodwill and Intangible Assets](index=26&type=section&id=Note%207%20%E2%80%94%20Goodwill%20and%20Intangible%20Assets) This note provides a reconciliation of goodwill and a breakdown of intangible assets, net of accumulated amortization Goodwill Reconciliation (in thousands) | Metric | 2023 | 2022 | | :-------------------------- | :--- | :--- | | Goodwill as of January 1, | $115,041 | $11,488 | | Goodwill resulting from acquisition | — | $5,044 | | Effect of foreign currency translation | $19 | $(7) | | **Goodwill as of June 30,** | **$115,060** | **$16,525** | Intangible Assets, Net (in thousands) | Asset Type | June 30, 2023 | December 31, 2022 | | :-------------------------- | :------------ | :---------------- | | Renewal rights | $20,221 | $17,282 | | Internally developed software | $119,885 | $109,764 | | Trade names and trademarks | $12,541 | $12,541 | | Relationships and customer lists | $13,898 | $13,890 | | Other | $1,445 | $1,434 | | **Intangible assets** | **$167,990** | **$154,911** | | Less: accumulated amortization | $(64,164) | $(50,887) | | **Intangible assets, net** | **$103,826** | **$104,024** | - Intangible asset amortization expense was **$7.0 million** and **$5.3 million** for the three months ended June 30, 2023 and 2022, respectively[97](index=97&type=chunk) [Note 8 — Provision for Unpaid Losses and Loss Adjustment Expenses](index=27&type=section&id=Note%208%20%E2%80%94%20Provision%20for%20Unpaid%20Losses%20and%20Loss%20Adjustment%20Expenses) This note reconciles the provision for unpaid losses and loss adjustment expenses, detailing reserve estimates Reconciliation of Provision for Unpaid Losses and Loss Adjustment Expenses (in thousands) | Metric | Six months ended June 30, 2023 | Six months ended June 30, 2022 | | :------------------------------------------------ | :----------------------------- | :----------------------------- | | Net reserves, beginning of year | $110,898 | $74,869 | | Total incurred losses and loss adjustment expenses | $101,976 | $75,539 | | Total payments | $41,383 | $26,404 | | **Net reserves, end of period** | **$171,595** | **$123,921** | | **Gross reserves, end of period** | **$172,133** | **$123,921** | - Loss reserve estimates are updated considering actual claims data, prior reserve performance, industry trends, and internal actuarial reviews[99](index=99&type=chunk) [Note 9 — Reinsurance](index=28&type=section&id=Note%209%20%E2%80%94%20Reinsurance) This note details Hagerty Re's assumed and ceded premiums, along with its catastrophe and quota share reinsurance agreements Hagerty Re's Total Premiums Assumed and Ceded (in thousands) | Premiums (Three Months Ended June 30) | 2023 | 2022 | | :------------------------------------ | :--- | :--- | | Assumed | $188,456 | $139,627 | | Ceded | $(8,541) | — | | **Net** | **$179,915** | **$139,627** | | Premiums Earned (Three Months Ended June 30) | 2023 | 2022 | | Assumed | $132,123 | $96,504 | | Ceded | $(4,641) | $(2,404) | | **Net** | **$127,482** | **$94,100** | - Hagerty Re purchases catastrophe reinsurance for capital protection and earnings stability, with coverage split between accounts with TIV up to **$5.0 million** and High-Net-Worth Accounts[102](index=102&type=chunk) - Hagerty Re also cedes a portion of risk on High-Net-Worth Accounts assumed from Evanston through quota share agreements, including **20%** of physical damage exposure and an additional **50%** of overall exposure effective March 1, 2023[103](index=103&type=chunk) [Note 10 — Restructuring, Impairment and Related Charges](index=30&type=section&id=Note%2010%20%E2%80%94%20Restructuring,%20Impairment%20and%20Related%20Charges) This note outlines charges related to restructuring initiatives, asset impairments, and reductions in force - In 2022, the Company initiated a 'remote first' work model, leading to **$18.3 million** in restructuring charges, including severance costs (**$8.0 million** for RIF, **$4.2 million** for VRP) and asset impairments (**$4.7 million** for ROU assets, **$1.5 million** for leasehold improvements)[106](index=106&type=chunk) - In Q1 2023, a further reduction in force (2023 RIF) resulted in **$5.5 million** in charges, comprising **$5.1 million** in severance and a **$0.4 million** impairment of digital media content assets[107](index=107&type=chunk) - In Q2 2023, an additional **$2.8 million** in charges were recognized, including **$2.6 million** for operating lease ROU assets and leasehold improvements due to office space rationalization, and **$0.2 million** in severance[108](index=108&type=chunk) Restructuring Liability Reconciliation (in thousands) | Metric | Amount | | :------------------------------------------ | :----- | | Balance at December 31, 2022 | $9,470 | | Costs incurred and charged to expense | $8,384 | | Costs paid or otherwise settled | $(16,995) | | **Balance at June 30, 2023** | **$859** | [Note 11 — Fair Value Measurements](index=30&type=section&id=Note%2011%20%E2%80%94%20Fair%20Value%20Measurements) This note describes the company's fair value measurements for financial assets and liabilities, including warrant liabilities and interest rate swaps - The Company's significant recurring fair value measurements relate to interest rate swaps (**Level 2**) and warrant liabilities (Public Warrants: **Level 1**; Private Placement, Underwriter, OTM, PIPE Warrants: **Level 3**)[111](index=111&type=chunk)[113](index=113&type=chunk)[114](index=114&type=chunk) Fair Value of Financial Assets and Liabilities (June 30, 2023, in thousands) | Financial Instrument | Total | Level 1 | Level 2 | Level 3 | | :------------------- | :---- | :------ | :------ | :------ | | **Financial Assets:** | | | | | | Interest rate swaps | $3,146 | — | $3,146 | — | | **Financial Liabilities:** | | | | | | Public warrants | $13,512 | $13,512 | — | — | | Private placement warrants | $689 | — | — | $689 | | Underwriter warrants | $77 | — | — | $77 | | OTM warrants | $4,937 | — | — | $4,937 | | PIPE warrants | $28,615 | — | — | $28,615 | | **Total Liabilities** | **$47,830** | **$13,512** | **—** | **$34,318** | Level 3 Warrant Liabilities Reconciliation (in thousands) | Warrant Type | Balance at Dec 31, 2022 | Change in fair value of warrant liabilities | Balance at June 30, 2023 | | :------------- | :---------------------- | :---------------------------------------- | :----------------------- | | Private Placement Warrants | $673 | $16 | $689 | | Underwriter Warrants | $75 | $2 | $77 | | OTM Warrants | $4,706 | $231 | $4,937 | | PIPE Warrants | $27,227 | $1,388 | $28,615 | | **Total** | **$32,681** | **$1,637** | **$34,318** | - Fixed income investments, held in a trust account for reinsurance requirements, are classified as held-to-maturity and are **Level 2** in the fair value hierarchy[119](index=119&type=chunk)[120](index=120&type=chunk) [Note 12 — Long-Term Debt](index=34&type=section&id=Note%2012%20%E2%80%94%20Long-Term%20Debt) This note details the company's long-term debt, including its credit facility and notes payable Long-Term Debt (in thousands) | Debt Type | June 30, 2023 | December 31, 2022 | | :---------- | :------------ | :---------------- | | Credit Facility | $75,008 | $105,000 | | Notes payable | $5,833 | $3,280 | | **Total debt outstanding** | **$80,841** | **$108,280** | | Less: current portion | — | — | | **Total long-term debt outstanding** | **$80,841** | **$108,280** | - The Credit Facility has an aggregate commitment of **$230.0 million**, with an uncommitted incremental facility of up to **$50.0 million**, and expires in October 2026[124](index=124&type=chunk)[125](index=125&type=chunk) - The effective weighted-average borrowing rate for the Credit Facility was **7.38%** for the six months ended June 30, 2023[126](index=126&type=chunk) - Hagerty Re obtained a debt financing commitment from State Farm for an unsecured term loan credit facility of **$25.0 million**, subject to BMA approval and other conditions[131](index=131&type=chunk) [Note 13 — Interest Rate Swaps](index=36&type=section&id=Note%2013%20%E2%80%94%20Interest%20Rate%20Swaps) This note explains the company's use of interest rate swap agreements to manage exposure to variable interest rate fluctuations - Hagerty uses interest rate swap agreements to fix the interest rate on a portion of its variable rate debt, reducing exposure to interest rate fluctuations[132](index=132&type=chunk) - As of June 30, 2023, one outstanding interest rate swap, entered in December 2020 with an original notional amount of **$35.0 million**, matures in December 2025; it was amended in September 2022 to replace LIBOR with Term SOFR, setting the fixed swap rate at **0.81%**[133](index=133&type=chunk) - The Company designated its interest rate swap as a cash flow hedge, with changes in fair value recorded in 'Derivative instruments' within the Condensed Consolidated Statements of Comprehensive Income (Loss)[134](index=134&type=chunk) [Note 14 — Convertible Preferred Stock](index=37&type=section&id=Note%2014%20%E2%80%94%20Convertible%20Preferred%20Stock) This note details the issuance, terms, and characteristics of the Series A Convertible Preferred Stock - On June 23, 2023, the Company issued **8,483,561 shares** of Series A Convertible Preferred Stock for an aggregate purchase price of **$80.0 million**, with net proceeds of **$79.2 million**[135](index=135&type=chunk)[137](index=137&type=chunk) - Investors include State Farm, Markel, and persons related to Hagerty Holding Corp (HHC), all considered related parties[136](index=136&type=chunk) - Dividends on the Series A Convertible Preferred Stock are cumulative, accrue at **7% per annum**, compounded annually, and can be paid in cash or additional shares[142](index=142&type=chunk) - The preferred stock is convertible into Class A Common Stock at the holder's option, with an initial conversion price of **$11.79**, subject to adjustment[143](index=143&type=chunk) - As of June 30, 2023, the estimated redemption value of the Series A Convertible Preferred Stock was **$123.4 million**, recorded within Temporary Equity[138](index=138&type=chunk) [Note 15 — Stockholders' Equity](index=39&type=section&id=Note%2015%20%E2%80%94%20Stockholders'%20Equity) This note provides information on the company's Class A and Class V Common Stock, Series A Convertible Preferred Stock, and Hagerty Group Units - As of June 30, 2023, there were **84,405,625 shares** of Class A Common Stock outstanding (one vote per share) and **251,033,906 shares** of Class V Common Stock outstanding (10 votes per share)[152](index=152&type=chunk)[153](index=153&type=chunk) - The Company issued **8,483,561 shares** of Series A Convertible Preferred Stock on June 23, 2023, with a par value of **$0.0001 per share**[155](index=155&type=chunk) Ownership of Hagerty Group Units | Ownership | June 30, 2023 (Units Owned) | June 30, 2023 (Ownership Percentage) | December 31, 2022 (Units Owned) | December 31, 2022 (Ownership Percentage) | | :-------------------------------- | :-------------------------- | :----------------------------------- | :------------------------------ | :----------------------------------- | | Hagerty Group Units held by Hagerty, Inc. | 84,405,625 | 24.8% | 83,202,969 | 24.5% | | Hagerty Group Units held by other unit holders | 255,499,164 | 75.2% | 255,758,466 | 75.5% | | **Total** | **339,904,789** | **100.0%** | **338,961,435** | **100.0%** | - During the six months ended June 30, 2023, **259,302 Hagerty Group Units** were exchanged for an equal amount of Class A Common Stock[157](index=157&type=chunk) [Note 16 — Earnings (Loss) Per Share](index=40&type=section&id=Note%2016%20%E2%80%94%20Earnings%20(Loss)%20Per%20Share) This note details the calculation of basic and diluted earnings per share for the company - Basic EPS is calculated using Net income (loss) available to Class A Common Stockholders divided by the weighted average number of Class A Common Stock outstanding[163](index=163&type=chunk) - Diluted EPS includes the effect of potentially dilutive securities such as unexercised warrants, unvested share-based compensation, non-controlling interest Hagerty Group Units, and Series A Convertible Preferred Stock[164](index=164&type=chunk) Basic and Diluted EPS (Three Months Ended June 30, in thousands, except per share amounts) | Metric | 2023 | 2022 | | :------------------------------------------------ | :--- | :--- | | Net income (loss) available to Class A Common Stockholders, Basic | $2,388 | $(5,536) | | Weighted-average shares of Class A Common Stock outstanding, Basic | 84,371 | 82,452 | | **Basic EPS** | **$0.03** | **$(0.07)** | | Net income (loss) available to Class A Common Stockholders, Diluted | $2,405 | $(5,536) | | Weighted-average shares of Class A Common Stock outstanding, Diluted | 85,563 | 82,452 | | **Diluted EPS** | **$0.03** | **$(0.07)** | Basic and Diluted EPS (Six Months Ended June 30, in thousands, except per share amounts) | Metric | 2023 | 2022 | | :------------------------------------------------ | :--- | :--- | | Net income (loss) available to Class A Common Stockholders, Basic | $305 | $21,971 | | Weighted-average shares of Class A Common Stock outstanding, Basic | 83,820 | 82,443 | | **Basic EPS** | **$0.00** | **$0.27** | | Net income (loss) available to Class A Common Stockholders, Diluted | $307 | $(6,546) | | Weighted-average shares of Class A Common Stock outstanding, Diluted | 84,424 | 334,702 | | **Diluted EPS** | **$0.00** | **$(0.02)** | [Note 17 — Warrant Liabilities](index=42&type=section&id=Note%2017%20%E2%80%94%20Warrant%20Liabilities) This note describes the company's warrant liabilities, their fair value measurement, and the impact on financial results - As of June 30, 2023, the Company had **19,483,550 warrants** outstanding, including Public, Private Placement, Underwriter, OTM, and PIPE Warrants[167](index=167&type=chunk)[176](index=176&type=chunk) - Warrants are accounted for as liabilities and measured at fair value each reporting period, with changes recognized in the Condensed Consolidated Statements of Operations[174](index=174&type=chunk) - The Company recognized a **$1.8 million loss** and a **$5.4 million loss** from changes in fair value of warrant liabilities for the three months ended June 30, 2023 and 2022, respectively[174](index=174&type=chunk) - For the six months ended June 30, 2023 and 2022, the Company recognized a **$2.3 million loss** and a **$26.3 million gain**, respectively, from changes in fair value of warrant liabilities[174](index=174&type=chunk) [Note 18 — Share-Based Compensation](index=44&type=section&id=Note%2018%20%E2%80%94%20Share-Based%20Compensation) This note outlines the company's share-based compensation plans and the associated expense recognized - The 2021 Equity Incentive Plan authorizes issuance of up to **38.3 million** Class A Common Stock shares to employees and non-employee directors, with approximately **30.4 million shares** available for future grants as of June 30, 2023[177](index=177&type=chunk) Share-Based Compensation Expense (in thousands) | Expense Type | Three months ended June 30, 2023 | Three months ended June 30, 2022 | Six months ended June 30, 2023 | Six months ended June 30, 2022 | | :----------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Restricted stock units | $3,393 | $3,592 | $6,626 | $3,592 | | Performance restricted stock units | $716 | $715 | $1,431 | $715 | | Employee stock purchase plan | — | — | $165 | — | | **Total share-based compensation expense** | **$4,109** | **$4,307** | **$8,222** | **$4,307** | - Unrecognized compensation expense related to RSUs as of June 30, 2023, was **$26.4 million**, expected to be recognized over a weighted average period of **3.23 years**[183](index=183&type=chunk) - The CEO was granted performance-based RSUs in April 2022, with a grant date fair value of **$19.2 million**, vesting based on Class A Common Stock price targets (**$20, $25, $30 per share**)[184](index=184&type=chunk) [Note 19 — Taxation](index=47&type=section&id=Note%2019%20%E2%80%94%20Taxation) This note explains the company's tax structure, income tax expense reconciliation, and Tax Receivable Agreement liability - The Hagerty Group is taxed as a pass-through entity, while Hagerty, Inc. is taxed as a corporation and pays federal, state, and local taxes on allocated income[187](index=187&type=chunk) - Hagerty Re, domiciled in Bermuda, has an irrevocable election under Section 953(d) of the U.S. IRC to be taxed as a U.S. domestic corporation on its worldwide income[189](index=189&type=chunk) Income Tax Expense (Benefit) Reconciliation (Six Months Ended June 30, in thousands, except percentages) | Item | 2023 ($) | 2023 (%) | 2022 ($) | 2022 (%) | | :------------------------------------ | :------- | :------- | :------- | :------- | | Income tax (benefit) expense at statutory rate | $1,661 | 21% | $3,073 | 21% | | State taxes | $103 | 1% | $(142) | (1)% | | Loss not subject to entity-level taxes | $4,311 | 55% | $4,692 | 32% | | Foreign rate differential | $(185) | (2)% | $(175) | (1)% | | Change in valuation allowance | $252 | 3% | $2,002 | 14% | | Change in fair value of warrant liability | $477 | 6% | $(5,520) | (38)% | | Permanent items | $510 | 7% | $238 | 2% | | Other, net | $269 | 3% | — | 0% | | **Income tax expense** | **$7,398** | **94%** | **$4,168** | **29%** | - The estimated value of the Tax Receivable Agreement (TRA) liability was **$0.6 million** at June 30, 2023, a decrease of **$2.6 million** from December 31, 2022, due to limitations on utilizing tax benefits[199](index=199&type=chunk) [Note 20 — Related-Party Transactions](index=50&type=section&id=Note%2020%20%E2%80%94%20Related-Party%20Transactions) This note details significant transactions and equity interests involving related parties such as State Farm and Markel Related Party Equity Interests (as of June 30, 2023) | Equity Interest | Markel (Shares/Units) | Markel (% of total outstanding) | State Farm (Shares/Units) | State Farm (% of total outstanding) | | :------------------------------------ | :-------------------- | :------------------------------ | :------------------------ | :-------------------------------- | | Hagerty, Inc. Class A Common Stock | 3,000,000 | 3.6% | 50,000,000 | 59.2% | | Hagerty, Inc. Class V Common Stock | 75,000,000 | 29.9% | — | — | | Hagerty, Inc. Series A Convertible Preferred Stock | 1,590,668 | 18.8% | 5,302,226 | 62.5% | | Hagerty Group Units | 75,000,000 | 22.1% | — | — | - State Farm and Hagerty have a master alliance agreement for an alliance insurance program, expected to begin in H2 2023, with State Farm paying Hagerty an advanced commission of **$20.0 million** in 2020[203](index=203&type=chunk) - Effective March 1, 2023, Hagerty Re entered a quota share reinsurance agreement to cede **50%** of High-Net-Worth Accounts risks from Evanston to Oglesby Reinsurance Company, an affiliate of State Farm[205](index=205&type=chunk) - Hagerty's affiliated MGAs have personal and commercial lines with Markel-affiliated carriers, with Markel-affiliated due to insurer liabilities of **$116.4 million** (**91%** of total) and commission revenue of **$100.7 million** (**93%** of total) for Q2 2023[206](index=206&type=chunk) - Hagerty Re reinsured approximately **80%** of U.S. MGA risks and **80%** of U.K. MGA risks through Markel affiliates for the six months ended June 30, 2023[207](index=207&type=chunk) [Note 21 — Commitments and Contingencies](index=53&type=section&id=Note%2021%20%E2%80%94%20Commitments%20and%20Contingencies) This note addresses the company's legal claims, regulatory investigations, and other commitments and contingencies - The Company is involved in various claims and legal actions in the ordinary course of business, but management does not believe the outcome will have a material adverse effect on its financial condition[212](index=212&type=chunk) - In 2021, the Company experienced a data security incident related to its online insurance quote feature, which is subject to regulatory investigations; an estimated liability was accrued in Q2 2023, deemed immaterial to the financial statements[213](index=213&type=chunk) [Note 22 — Subsequent Events](index=53&type=section&id=Note%2022%20%E2%80%94%20Subsequent%20Events) This note reports on subsequent events evaluated by management up to the report's authorization date - Management evaluated subsequent events through August 8, 2023, and identified no material subsequent events requiring reporting[214](index=214&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=54&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the Company's financial condition and results of operations, including an overview of the business, key performance indicators, detailed analysis of revenue and operating expenses, and a discussion of liquidity and capital resources [Overview](index=54&type=section&id=Overview) This section provides a high-level introduction to the company's business model as a leader in classic car insurance and automotive lifestyle - Hagerty is a global market leader in classic car and enthusiast vehicle insurance, known for strong net promoter scores, superior coverage, excellent customer service, and competitive pricing[218](index=218&type=chunk) - The Company has leveraged its insurance brand to build a leading automotive lifestyle brand, aiming to protect, engage, entertain, and connect with Members and car enthusiasts to 'save driving and car culture for future generations'[218](index=218&type=chunk) [Business Review](index=54&type=section&id=Business%20Review) This section discusses management's ongoing review of business components, which may lead to sales, reorganizations, or impairment charges - Management is conducting a review of certain business components, which may lead to sales or reorganizations and potential future impairment charges related to certain assets[219](index=219&type=chunk) [Key Performance Indicators](index=54&type=section&id=Key%20Performance%20Indicators) This section presents key operational and financial metrics used to evaluate the company's performance Key Performance Indicators (Operational Metrics) | Operational Metric | June 30, 2023 | December 31, 2022 | | :----------------- | :------------ | :---------------- | | Policies in Force | 1,365,718 | 1,315,977 | | PIF Retention | 88.0% | 88.0% | | Vehicles in Force | 2,319,953 | 2,234,461 | | HDC Paid Member Count | 791,895 | 752,754 | | Net Promoter Score (NPS) | 83 | 83 | Key Performance Indicators (Financial Measures, in thousands) | Financial Metric | Three months ended June 30, 2023 | Three months ended June 30, 2022 | Six months ended June 30, 2023 | Six months ended June 30, 2022 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total Written Premium | $275,895 | $237,697 | $458,745 | $392,487 | | Loss Ratio | 42.0% | 41.0% | 41.7% | 41.2% | | New Business Count — Insurance | 80,140 | 74,922 | 131,902 | 122,436 | | Total Revenue | $261,244 | $206,017 | $479,596 | $373,828 | | Operating Income (Loss) | $17,253 | $2,387 | $764 | $(10,617) | | Net Income (Loss) | $15,539 | $(5,543) | $514 | $10,323 | | Basic Earnings (Loss) Per Share | $0.03 | $(0.07) | $0.00 | $0.27 | | Adjusted EBITDA | $34,367 | $16,065 | $41,072 | $10,106 | | Adjusted Earnings (Loss) Per Share | $0.05 | $0.00 | $0.01 | $(0.04) | [Components of Our Results of Operations](index=55&type=section&id=Components%20of%20Our%20Results%20of%20Operations) This section outlines the primary revenue streams and operating expense categories contributing to the company's financial results - Revenue is generated from commission and fees (insurance policy sales), earned premium (reinsurance), and membership, marketplace, and other services (HDC, collector car sales, events, storage)[223](index=223&type=chunk)[224](index=224&type=chunk)[226](index=226&type=chunk)[228](index=228&type=chunk)[229](index=229&type=chunk)[230](index=230&type=chunk) - Operating expenses include salaries and benefits, ceding commission, losses and loss adjustment expenses, sales expense, general and administrative services, and depreciation and amortization[231](index=231&type=chunk)[232](index=232&type=chunk)[233](index=233&type=chunk)[234](index=234&type=chunk)[236](index=236&type=chunk)[237](index=237&type=chunk)[238](index=238&type=chunk) - Other items affecting results include changes in fair value of warrant liabilities (non-operating income/expense) and interest and other income/expense (interest income/expense, TRA liability changes)[239](index=239&type=chunk)[240](index=240&type=chunk) [Results of Operations](index=59&type=section&id=Results%20of%20Operations) This section provides a detailed analysis of the company's financial performance, including revenue and expense trends for the reported periods Total Revenue (in thousands) | Period | 2023 | 2022 | Change ($) | Change (%) | | :------------------------------------ | :--- | :--- | :--------- | :--------- | | Three months ended June 30 | $261,244 | $206,017 | $55,227 | 26.8% | | Six months ended June 30 | $479,596 | $373,828 | $105,768 | 28.3% | Operating Income (Loss) (in thousands) | Period | 2023 | 2022 | Change ($) | Change (%) | | :------------------------------------ | :--- | :--- | :--------- | :--------- | | Three months ended June 30 | $17,253 | $2,387 | $14,866 | 622.8% | | Six months ended June 30 | $764 | $(10,617) | $11,381 | 107.2% | Net Income (Loss) (in thousands) | Period | 2023 | 2022 | Change ($) | Change (%) | | :------------------------------------ | :--- | :--- | :--------- | :--------- | | Three months ended June 30 | $15,539 | $(5,543) | $21,082 | 380.3% | | Six months ended June 30 | $514 | $10,323 | $(9,809) | (95.0)% | - Commission and fee revenue increased by **15.4%** for Q2 2023 and **17.0%** for H1 2023, driven by policy renewals (**17.3%** premium increase in Q2) and new policies (**3.9%** average premium increase in Q2)[243](index=243&type=chunk)[244](index=244&type=chunk)[245](index=245&type=chunk)[265](index=265&type=chunk)[266](index=266&type=chunk)[267](index=267&type=chunk) - Earned premium increased by **35.5%** for Q2 2023 and **33.6%** for H1 2023, primarily due to Hagerty Re's U.S. quota share increasing from **70% to 80%** and consistent growth in subject premiums[248](index=248&type=chunk)[271](index=271&type=chunk) - Membership, marketplace and other revenue increased by **43.7%** for Q2 2023 and **53.5%** for H1 2023, driven by HDC membership growth, expansion of Hagerty Garage + Social locations, and Broad Arrow's marketplace activities[250](index=250&type=chunk)[251](index=251&type=chunk)[252](index=252&type=chunk)[273](index=273&type=chunk)[274](index=274&type=chunk)[275](index=275&type=chunk) - Operating expenses increased across most categories, with significant increases in ceding commission (**33.4%** in Q2, **32.1%** in H1) and losses and loss adjustment expenses (**38.7%** in Q2, **35.0%** in H1) correlating with earned premium growth[255](index=255&type=chunk)[256](index=256&type=chunk)[278](index=278&type=chunk)[279](index=279&type=chunk) - Restructuring, impairment and related charges totaled **$2.8 million** in Q2 2023 and **$8.4 million** in H1 2023, primarily from office space rationalization and digital media content impairment[260](index=260&type=chunk)[283](index=283&type=chunk)[284](index=284&type=chunk) - Interest and other income (expense) shifted from expense to income, primarily due to increased interest income on cash balances from higher variable interest rates and a decrease in the TRA liability value[262](index=262&type=chunk)[287](index=287&type=chunk) [Liquidity and Capital Resources](index=68&type=section&id=Liquidity%20and%20Capital%20Resources) This section discusses the company's sources and uses of liquidity, capital structure, and compliance with financial regulations - On June 23, 2023, the Company issued **$80.0 million** in Series A Convertible Preferred Stock and Hagerty Re obtained a **$25.0 million** debt financing commitment from State Farm[290](index=290&type=chunk) - Sources of liquidity include cash on hand, short-term investments, net working capital, cash flows from operations, and Credit Facility borrowings[291](index=291&type=chunk) - Primary liquidity needs are funding business operations (including technology investments), servicing debt, paying income taxes, and potential payments under the TRA[291](index=291&type=chunk) - Hagerty Re maintained sufficient statutory capital surplus to comply with Bermuda Solvency Capital Requirement (BSCR) regulations as of June 30, 2023[294](index=294&type=chunk) - The maximum dividend Hagerty Re could pay in 2023 without prior BMA approval is **$32.9 million**[295](index=295&type=chunk) Comparative Cash Flows (Six Months Ended June 30, in thousands) | Cash Flow Activity | 2023 | 2022 | Change ($) | Change (%) | | :------------------------------------ | :--- | :--- | :--------- | :--------- | | Net Cash Provided by Operating Activities | $70,557 | $59,925 | $10,632 | 17.7% | | Net Cash Used in Investing Activities | $(31,301) | $(53,161) | $21,860 | 41.1% | | Net Cash Provided by (Used in) Financing Activities | $53,005 | $(48,500) | $101,505 | 209.3% | - Net cash from operating activities increased by **$10.6 million**, driven by organic growth and cost containment, partially offset by increased receivables and other current assets[298](index=298&type=chunk)[299](index=299&type=chunk)[300](index=300&type=chunk) - Net cash used in investing activities decreased by **$21.9 million**, mainly due to lower spending on internally developed software and acquisitions, and no comparable Broad Arrow equity investment in 2023[301](index=301&type=chunk) - Net cash from financing activities increased by **$101.5 million**, primarily due to **$79.2 million** net proceeds from Series A Convertible Preferred Stock issuance[302](index=302&type=chunk) Contractual Obligations (as of June 30, 2023, in thousands) | Obligation Type | Total | 2023 | 2024 | 2025 | 2026 | 2027 | Thereafter | | :------------------ | :---- | :--- | :--- | :--- | :--- | :--- | :--------- | | Debt | $80,841 | — | $3,434 | $2,399 | $75,008 | — | — | | Interest payments | $1,429 | $375 | $716 | $338 | — | — | — | | Operating leases | $111,294 | $6,177 | $12,299 | $11,876 | $11,244 | $11,052 | $58,646 | | Purchase commitments | $11,106 | $5,573 | $5,265 | $268 | — | — | — | | **Total** | **$204,670** | **$12,125** | **$21,714** | **$14,881** | **$86,252** | **$11,052** | **$58,646** | [Critical Accounting Policies and Estimates](index=72&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) This section highlights the significant accounting policies and estimates that require management's judgment and affect financial reporting - The preparation of financial statements requires management to make assumptions and estimates that affect reported results, involving complexity and judgment[315](index=315&type=chunk) - Management evaluates significant accounting estimates regularly, using historical experience and other reasonable assumptions, with actual results potentially differing materially from estimates[315](index=315&type=chunk) [New Accounting Standards](index=73&type=section&id=New%20Accounting%20Standards) This section refers to Note 1 for descriptions of recently adopted and issued accounting standards - New accounting standards are described in Note 1 — Basis of Presentation and Accounting Policies[317](index=317&type=chunk) [Non-GAAP Financial Measures](index=73&type=section&id=Non-GAAP%20Financial%20Measures) This section defines and reconciles non-GAAP financial measures such as Adjusted EBITDA and Adjusted EPS - Adjusted EBITDA is defined as consolidated Net income (loss) excluding interest and other income (expense), income tax (expense) benefit, and depreciation and amortization, adjusted for restructuring charges, changes in fair value of warrant liabilities, share-based compensation, asset disposals, and other unusual items[318](index=318&type=chunk) Adjusted EBITDA Reconciliation (in thousands) | Metric | Three months ended June 30, 2023 | Three months ended June 30, 2022 | Six months ended June 30, 2023 | Six months ended June 30, 2022 | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income (loss) | $15,539 | $(5,543) | $514 | $10,323 | | Interest and other (income) expense | $(3,770) | $353 | $(9,417) | $1,037 | | Income tax (benefit) expense | $3,730 | $2,138 | $7,398 | $4,168 | | Depreciation and amortization | $10,397 | $8,300 | $24,140 | $15,447 | | Restructuring, impairment and related charges, net | $2,849 | — | $8,384 | — | | Change in fair value of warrant liabilities | $1,754 | $5,400 | $2,269 | $(26,286) | | Share-based compensation expense | $4,018 | $4,307 | $7,934 | $4,307 | | Other unusual items | $(150) | $1,110 | $(150) | $1,110 | | **Adjusted EBITDA** | **$34,367** | **$16,065** | **$41,072** | **$10,106** | - Adjusted EPS is defined as consolidated Net income (loss), less the change in fair value of warrants, divided by outstanding and total potentially dilutive securities[322](index=322&type=chunk) Adjusted EPS Reconciliation | Metric | Three months ended June 30, 2023 | Three months ended June 30, 2022 | Six months ended June 30, 2023 | Six months ended June 30, 2022 | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Adjusted consolidated net income (loss) (in thousands) | $17,293 | $(143) | $2,783 | $(15,963) | | Fully dilutive shares outstanding (in thousands) | 373,161 | 359,821 | 372,610 | 359,812 | | **Adjusted EPS** | **$0.05** | **$0.00** | **$0.01** | **$(0.04)** | [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=75&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section discusses the Company's exposure to market risks, primarily focusing on interest rate risk, liquidity risk, and concentration risk, and how these risks are managed - As of June 30, 2023, the Company had approximately **$40.0 million** of variable rate indebtedness (**49%** of total debt) after considering interest rate swaps, with an average interest rate of **7.38%** for the six months ended June 30, 2023[330](index=330&type=chunk) - A **100-basis point** change in borrowing rates would result in an annual interest payment change of approximately **$0.4 million**[330](index=330&type=chunk) - The Company manages liquidity risk by managing its capital structure to ensure sufficient liquidity for obligations and liabilities[333](index=333&type=chunk) - The Company has significant concentration risk, relying on Markel and its subsidiaries for approximately **95%** of commission revenues and **97%** of assumed premium for the six months ended June 30, 2023[334](index=334&type=chunk) [Item 4. Controls and Procedures](index=77&type=section&id=Item%204.%20Controls%20and%20Procedures) This section confirms the effectiveness of the Company's disclosure controls and procedures and reports no material changes in internal controls over financial reporting during the quarter - Management, including the CEO and CFO, evaluated the effectiveness of disclosure controls and procedures as of June 30, 2023, and concluded they were effective[335](index=335&type=chunk)[336](index=336&type=chunk) - No changes to internal control over financial reporting occurred during the three months ended June 30, 2023, that materially affected or are reasonably likely to materially affect internal control over financial reporting[337](index=337&type=chunk) [Part II – Other Information](index=78&type=section&id=Part%20II%20%E2%80%93%20Other%20Information) This part includes disclosures on legal proceedings, risk factors, equity sales, and other miscellaneous information [Item 1. Legal Proceedings](index=78&type=section&id=Item%201.%20Legal%20Proceedings) This section states that the Company is involved in various claims and legal actions in the ordinary course of business, but management does not believe their ultimate resolution will have a material adverse effect on its financial position, results of operations, liquidity, or capital resources - The Company is involved in various claims and legal actions in the ordinary course of business[339](index=339&type=chunk) - Management does not believe the ultimate resolution of these actions will have a material adverse effect on the Company's financial position, results of operations, liquidity, or capital resources[339](index=339&type=chunk) [Item 1A. Risk Factors](index=78&type=section&id=Item%201A.%20Risk%20Factors) This section indicates that there have been no material changes to the Company's risk factors since the Annual Report on Form 10-K for 2022, except for a new risk factor related to the Series A Convertible Preferred Stock - No material changes to risk factors were identified since the 2022 Annual Report on Form 10-K, except for a new risk factor related to the issuance of Series A Convertible Preferred Stock[341](index=341&type=chunk) - There is no established public trading market for the Series A Convertible Preferred Stock, and the Company does not expect one to develop, limiting its liquidity[342](index=342&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=78&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section details the private placement of Series A Convertible Preferred Stock, including the issuance amount, purchase price, investors, and the intended use of proceeds - On June 23, 2023, the Company issued **8,483,561 shares** of Series A Convertible Preferred Stock for an aggregate purchase price of **$80.0 million** (**$9.43 per share**) in a private placement[343](index=343&type=chunk) - Investors included State Farm, Markel, and persons related to HHC[343](index=343&type=chunk) - The net proceeds of **$79.2 million**, after deducting issuance costs, are expected to be used for general corporate purposes[345](index=345&type=chunk) - The Series A Convertible Preferred Stock is convertible into Class A Common Stock at an initial conversion price of **$11.79**, subject to adjustments[344](index=344&type=chunk) [Item 3. Defaults Upon Senior Securities](index=78&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This section states that there were no defaults upon senior securities - There were no defaults upon senior securities[346](index=346&type=chunk) [Item 4. Mine Safety Disclosures](index=78&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This section indicates that mine safety disclosures are not applicable to the Company - Mine safety disclosures are not applicable[347](index=347&type=chunk) [Item 5. Other Information](index=80&type=section&id=Item%205.%20Other%20Information) This section provides information on Rule 10b5-1 trading plans, specifically noting a plan adopted by a director to sell shares for tax withholding obligations - Executive officers may engage in open-market sales of shares from deferred equity awards, in accordance with the Insider Trading Policy and Rule 10b5-1 trading plans[348](index=348&type=chunk)[349](index=349&type=chunk) - On March 22, 2023, director Laurie Harris adopted a 10b5-1 Plan to sell **50%** of the vested value of **8,341 Class A Common Stock shares** to satisfy tax withholding obligations[350](index=350&type=chunk) [Item 6. Exhibits](index=81&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the Quarterly Report on Form 10-Q, including agreements, certificates, and certifications - The exhibits include the Business Combination Agreement, Amended and Restated Certificate of Incorporation and By-Laws, Certificate of Designations for Series A Convertible Preferred Stock, various Warrant Agreements, and the Eighth Amendment to the Credit Agreement[353](index=353&type=chunk) - Also included are the Securities Purchase Agreement, Registration Rights Agreement, Fifth Amended and Restated Limited Liability Company Agreement, Amendment No 1 to Tax Receivable Agreement, and CEO/CFO certifications[353](index=353&type=chunk) [Signatures](index=83&type=section&id=Signatures) This section contains the duly authorized signatures of the registrant's Chief Executive Officer and Chief Financial Officer, affirming the submission of the report - The report is signed on behalf of Hagerty, Inc by McKeel O Hagerty, Chief Executive Officer, and Patrick McClymont, Chief Financial Officer, on August 8, 2023[357](index=357&type=chunk)[358](index=358&type=chunk)[359](index=359&type=chunk)

Hagerty, Inc. (HGTY) Q1 2023 Earnings Conference Call May 9, 2023 10:00 AM ET Corporate Participants Jay Koval - Senior Vice President, Investor Relations McKeel Hagerty - Chief Executive Officer Patrick McClymont - Chief Financial Officer Conference Call Participants Mark Hughes - Truist Sid Schultz - Raymond James Pablo Singzon - JPMorgan Operator Greetings, and welcome to the Hagerty First Quarter 2023 Earnings Call. At this time, all participants are in a listen-only mode. A brief question-and-answer se ...