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 ...

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 For the quarterly period ended March 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) Delaware 86-1213144 121 Drivers Edg ...

[Where You Can Find More Information](index=4&type=section&id=Where%20You%20Can%20Find%20More%20Information) [Information Availability](index=4&type=section&id=Information%20Availability) Hagerty, Inc. files annual, quarterly, and current reports with the SEC, which are available on its investor relations website and the SEC's website - Hagerty, Inc. files annual, quarterly, and current reports, and proxy statements with the SEC[11](index=11&type=chunk) - Company reports are available free of charge on investor.hagerty.com and www.sec.gov[11](index=11&type=chunk)[15](index=15&type=chunk) - The investor relations website (investor.hagerty.com) is used for disclosing information to investors, including compliance with Regulation FD[15](index=15&type=chunk) [Forward-Looking Statements](index=4&type=section&id=Forward%20Looking%20Statements) [Cautionary Statement Regarding Forward-Looking Statements](index=4&type=section&id=Cautionary%20Statement%20Regarding%20Forward-Looking%20Statements) This section highlights that the 10-K report contains forward-looking statements subject to risks and uncertainties that could cause actual results to differ materially - The report contains forward-looking statements regarding future operating results, financial position, business strategy, market conditions, growth, and expansion plans[12](index=12&type=chunk) - These statements are subject to risks, uncertainties, and assumptions, including those outlined in 'Part I, Item 1A, "Risk Factors"', which could cause actual results to differ materially and adversely[12](index=12&type=chunk) - Key factors that could cause actual results to differ include competition, maintaining strategic relationships, preventing fraud, managing technology disruptions, accelerating product adoption, COVID-19 impacts, cyclical insurance business, claims frequency/severity, regulatory compliance, and litigation[13](index=13&type=chunk) - The company operates in a competitive and rapidly changing environment, with new risks emerging, and management cannot predict all risks or their full effect on the business[14](index=14&type=chunk) [Glossary of Terms](index=6&type=section&id=Glossary%20of%20Terms) [Key Definitions](index=6&type=section&id=Key%20Definitions) This section defines technical terms used throughout the Annual Report on Form 10-K, covering accounting standards, regulatory bodies, and insurance-specific terminology - The glossary defines technical terms used in the 10-K, including accounting, regulatory, and insurance-specific terminology[17](index=17&type=chunk) - Key terms include 'Members' (insurance policyholders and HDC paid subscribers), 'MGA' (Managing General Agent), 'PIF' (Policies in Force), and 'NPS' (Net Promoter Score)[26](index=26&type=chunk)[27](index=27&type=chunk)[28](index=28&type=chunk)[30](index=30&type=chunk) - Financial terms like 'Loss Ratio' (losses and loss adjustment expenses to earned premium in Hagerty Re) and 'Written Premium' (total insurance premium written on policies) are also defined[24](index=24&type=chunk)[31](index=31&type=chunk) [Part I](index=9&type=section&id=Part%20I) [Item 1. Business](index=9&type=section&id=Item%201.%20Business) Hagerty is a global leader in classic and enthusiast vehicle insurance, leveraging its trusted brand to build an automotive lifestyle platform through four integrated strategic areas - Hagerty is a global market leader in classic and enthusiast vehicle insurance, with a goal to preserve driving and car culture[35](index=35&type=chunk) - The company operates through four integrated strategic product areas: Insurance, Membership, Marketplace, and Media & Entertainment[36](index=36&type=chunk) - Hagerty insures over **2.2 million** classic and enthusiast vehicles worldwide, maintaining an NPS of approximately **83** and an insurance policy retention rate close to **90%** over the last decade[37](index=37&type=chunk)[44](index=44&type=chunk) [Company Overview](index=9&type=section&id=Company%20Overview) Hagerty is a global market leader in classic and enthusiast vehicle insurance, offering superior coverage, excellent customer service, and an integrated ecosystem of products - Hagerty is a global market leader in classic and enthusiast vehicle insurance, known for superior coverage, excellent customer service, and lower prices than traditional carriers[35](index=35&type=chunk) - The company has developed an ecosystem of products and services across Insurance, Membership, Marketplace, and Media & Entertainment, aiming to protect, engage, entertain, and connect with car enthusiasts[36](index=36&type=chunk) - Hagerty insures over **2.2 million** classic and enthusiast vehicles worldwide, boasts an NPS of approximately **83**, and maintains a policy retention rate near **90%** over the past decade[37](index=37&type=chunk) [Industry and Market Opportunity](index=10&type=section&id=Industry%20and%20Market%20Opportunity) The U.S. collector vehicle market is estimated at **45 million** insurable cars, representing **$12 to $15 billion** in annual premiums, with Hagerty holding a **4%** market share - The U.S. collector vehicle market is estimated to have approximately **45 million** insurable cars, representing **$12 to $15 billion** in annual premiums[40](index=40&type=chunk) - Hagerty's market share in the collector vehicle insurance market is estimated at **4%**, despite growing written premium by an average of **15%** per year over the last decade[40](index=40&type=chunk) Hagerty Penetration in Collector Vehicle Market (U.S.) | Type | Total Market (cars, mm) | Hagerty Penetration | | :-------------------- | :---------------------- | :------------------ | | Pre-1981 Classics | 11.3 | 12.1% | | Post 1980 Collectibles | 34.0 | 1.4% | | Total | ~45.3 | 4.1% | - Growth in the collector vehicle market is driven by factors such as post-1980 cars becoming modern collectibles, increasing focus on cars as an investment asset (**8%** historical annual appreciation), baby boomer retirements, millennial interest, expanding automotive subcultures, and increasing supply of premium luxury cars[41](index=41&type=chunk)[43](index=43&type=chunk) [Business Model and Competitive Strengths](index=11&type=section&id=Business%20Model%20and%20Competitive%20Strengths) Hagerty's brand is built on excellent customer service and high retention rates, with diversified revenue streams from its integrated product offerings - Hagerty's brand is built on excellent customer service, an industry-leading NPS of **83**, and an insurance Member retention rate of nearly **90%**[44](index=44&type=chunk) - The company's product offerings (Insurance, Membership, Marketplace, Media & Entertainment) diversify revenue streams and counteract insurance policy attrition by establishing relationships with new owners[44](index=44&type=chunk) [Insurance](index=11&type=section&id=Insurance) Hagerty insures over **2.2 million** classic and enthusiast vehicles globally, controlling pricing and underwriting, and generating revenue from commissions, fees, and earned premium - Hagerty insures over **2.2 million** classic and enthusiast vehicles globally, controlling pricing and underwriting, benefiting from fee-based income, and engaging directly with consumers[45](index=45&type=chunk) - The insurance model generates revenue from commissions and fees (as an MGA) and earned premium (through Hagerty Re, reinsuring a portion of written premium)[46](index=46&type=chunk) - Hagerty utilizes data science for underwriting, risk assessment, market analysis (machine learning for trends), customer service (AI-powered tools), and claims processing (automating tasks, flagging fraud)[47](index=47&type=chunk)[50](index=50&type=chunk) [Commission Revenue](index=11&type=section&id=Commission%20Revenue) Hagerty earns commission revenue for distributing and servicing classic vehicle insurance policies, averaging **32%** of written premium, with high retention and low loss ratios - Hagerty earns commission revenue for distributing and servicing classic and collector vehicle/boat insurance policies in the U.S., Canada, and U.K[48](index=48&type=chunk) - On average, commissions equal **32%** of written premium, with up to an additional **10%** in contingent underwriting commissions based on targeted loss ratios[48](index=48&type=chunk) - The company has a strong track record with nearly **90%** retention rates and low loss ratios averaging under **40%** over the last decade[48](index=48&type=chunk) - Hagerty's 'Guaranteed Value' insurance policy differentiates it by insuring vehicles at true replacement cost, unlike standard auto insurance which uses depreciated value[49](index=49&type=chunk) [Omnichannel Distribution](index=11&type=section&id=Omnichannel%20Distribution) Hagerty employs an omnichannel distribution strategy, selling insurance directly to consumers, through independent agents, and via strategic partnerships with other insurers - Hagerty employs an omnichannel distribution approach, selling insurance through direct-to-consumer, independent agents/brokers, and strategic distribution partnerships[50](index=50&type=chunk) - Direct sales account for approximately **45%** of total U.S. auto written premium, driven by multiple annual touchpoints with engaged Members[51](index=51&type=chunk) - The independent agent and broker channel generates about **33%** of total U.S. auto written premium through relationships with over **45,000** agents and brokers[53](index=53&type=chunk) - Partnership channel, including **9 of the top 10** largest auto insurers, accounts for approximately **22%** of total written premium, offering specialty products to their clients[54](index=54&type=chunk) [Strategic Agreements](index=12&type=section&id=Strategic%20Agreements) Hagerty maintains key strategic agreements with State Farm, Markel Corporation, and Aviva Canada Inc. for distribution and underwriting of its specialty insurance products - Hagerty has a master alliance agreement with State Farm (since 2020) to provide its customers access to Hagerty's features and services, expected to begin in H2 2023, adding ~**19,200** State Farm agents to its partnership channel[57](index=57&type=chunk)[58](index=58&type=chunk) - Markel Corporation's subsidiary, Essentia Insurance Company, is the exclusive dedicated carrier for Hagerty's U.S. and U.K. MGA specialty classic and collector vehicle insurance policies, with agreements expiring end of 2030[59](index=59&type=chunk)[60](index=60&type=chunk) - Aviva Canada Inc. serves as the carrier for Hagerty's Canadian MGA specialty classic and collector vehicle insurance program, with terms expiring in 2030[61](index=61&type=chunk) [Earned Premium](index=13&type=section&id=Earned%20Premium) Hagerty Re, a captive reinsurance subsidiary, reinsures a portion of written premium, recognizing it as earned premium revenue, with a U.S. quota share increasing to **70%** in 2022 - Hagerty Re, a wholly owned captive reinsurance subsidiary formed in Bermuda in 2017, reinsures a portion of written premium, recognizing it as earned premium revenue[62](index=62&type=chunk) - Hagerty Re's reinsurance capabilities allow for efficient capital deployment and consistent underwriting results, with an attractive average loss ratio of **43%** over the last three years, significantly better than the auto insurance industry average of ~**66%**[62](index=62&type=chunk) - Hagerty Re's U.S. and U.K. quota share (retained risk) increased from **60%** in 2021 to **70%** in 2022, and is set to increase to at least **80%** in 2023[62](index=62&type=chunk) [Membership](index=13&type=section&id=Membership) Hagerty's Membership offerings build a loyal community of car enthusiasts through diverse engagement points, including the Hagerty Drivers Club and Hagerty Garage + Social facilities - Hagerty's Membership offerings aim to build a loyal community of car lovers through diverse engagement points, including physical events and digital platforms[63](index=63&type=chunk)[64](index=64&type=chunk) - Hagerty Drivers Club (HDC) has approximately **753,000** Members, providing access to magazines, events, valuation tools, roadside services, and discounts[65](index=65&type=chunk) - Approximately three-quarters of new insurance policyholders purchase an HDC subscription[65](index=65&type=chunk) - Hagerty Garage + Social offers premium, climate-controlled clubhouses and car storage facilities in strategic U.S. and Canadian markets, providing a physical brand experience and community interaction[66](index=66&type=chunk) [Marketplace](index=14&type=section&id=Marketplace) Marketplace leverages Hagerty's ecosystem to facilitate buying and selling collector cars through live/online auctions and private sales, supported by asset-backed financing and valuation tools - Marketplace leverages Hagerty's ecosystem to facilitate buying and selling collector cars through live/online auctions (Broad Arrow) and private sales (Hagerty Classifieds, Collectors Garage)[67](index=67&type=chunk)[69](index=69&type=chunk) - The U.S. collector car market is valued at approximately **$1.0 trillion**, with about **300,000** transactions worth **$12.5 billion** observed in Hagerty's U.S. insurance book in 2022[67](index=67&type=chunk) - Hagerty acquired the remaining **60%** of Broad Arrow in August 2022 for **$73.3 million** in equity, after an initial **$15.3 million** investment for **40%** in January 2022, to further build Marketplace[68](index=68&type=chunk) - Marketplace also offers asset-backed financing (Broad Arrow Capital) and utilizes Hagerty Valuation Tools (HVT), accessed by over **three million** people annually, for pricing data[69](index=69&type=chunk) [Media & Entertainment](index=14&type=section&id=Media%20%26%20Entertainment) Hagerty Media & Entertainment creates ongoing engagement with Members and prospective Members through quality content and world-class car events, monetized via ticket sales and sponsorships - Hagerty Media & Entertainment creates ongoing engagement with Members and prospective Members through quality content and world-class car events[70](index=70&type=chunk) - Hagerty Media produces digital, print, and video content, including the Hagerty Drivers Club Magazine, premium video content (**2.5 million** YouTube subscribers), social media (**4.7 million** followers), and thousands of articles[71](index=71&type=chunk) - Hagerty sponsors or owns over **1,800** automotive events annually, including major Concours d'Elegance events like Greenwich, Detroit, and The Amelia, monetized through ticket sales and sponsorships[72](index=72&type=chunk) [Business Attributes](index=15&type=section&id=Business%20Attributes) Hagerty protects its intellectual property through trademarks and patents, experiences seasonality in revenue, faces competition from specialty and standard insurers, and manages its investment portfolio for yield and liquidity - Hagerty relies on trademarks, patents (two in U.S., one in Canada, expiring 2030-2033), copyrights, trade secrets, and license agreements to protect its intellectual property[73](index=73&type=chunk)[74](index=74&type=chunk)[75](index=75&type=chunk) - Revenue streams, particularly commission and fee revenue, exhibit seasonality, peaking in Q2 and diminishing through the year, with the lowest levels in Q4 and early Q1, due to vehicle driving and purchasing patterns[77](index=77&type=chunk) - Hagerty's business model and integrated ecosystem are considered unique, with competition primarily from other specialty insurance companies and standard auto insurers (with whom they often partner)[78](index=78&type=chunk) - The investment portfolio is primarily in cash, short-term investments, and Canadian Sovereign and Provincial fixed income securities, managed for yield, capital conservation, and liquidity[79](index=79&type=chunk) [Employees and Human Capital Resources](index=16&type=section&id=Employees%20and%20Human%20Capital%20Resources) Hagerty's culture is a strategic advantage, focusing on talent attraction, professional development, and a remote-first model, with **1,874** employees as of December 31, 2022 - Hagerty's culture, shaped by its people, is a strategic advantage, focusing on hiring, challenging work, and professional/personal development[80](index=80&type=chunk) - In 2022, the company adopted a remote-first model to attract top talent and provide flexibility[80](index=80&type=chunk) - As of December 31, 2022, Hagerty had **1,874** total employees (**1,866** full-time) and has received awards like the Gallup Exceptional Workplace Award (2021) and 'Great Place to Work' certification for six years[81](index=81&type=chunk) - The company offers comprehensive benefits for health and wellness, a pay-for-performance compensation culture aligned with company performance and stock-based awards, and focuses on diversity and inclusion initiatives[82](index=82&type=chunk)[83](index=83&type=chunk)[84](index=84&type=chunk)[85](index=85&type=chunk) [Business Combination](index=16&type=section&id=Business%20Combination) On December 2, 2021, The Hagerty Group completed a business combination with Aldel Financial Inc., resulting in Hagerty, Inc. operating under an 'Up-C' structure with its stock trading on the NYSE - On December 2, 2021, The Hagerty Group completed a business combination with Aldel Financial Inc. (now Hagerty, Inc.) and Aldel Merger Sub LLC[87](index=87&type=chunk) - Following the closing, Hagerty, Inc. is organized as a C corporation and owns an equity interest in The Hagerty Group in an 'Up-C' structure, where substantially all assets and liabilities are held by The Hagerty Group[89](index=89&type=chunk) - Class A Common Stock and Public Warrants began trading on the NYSE under 'HGTY' and 'HGTY.WS' respectively, on December 3, 2021[87](index=87&type=chunk) [Item 1A. Risk Factors](index=18&type=section&id=Item%201A.%20Risk%20Factors) This section outlines numerous risks that could materially and adversely affect Hagerty's business, financial condition, or results of operations, spanning operational, industry-specific, legal, and financial categories - Hagerty's business is subject to risks related to attracting and retaining Members, dependence on insurance distribution and underwriting partners, and preventing fraudulent activity[93](index=93&type=chunk)[94](index=94&type=chunk)[96](index=96&type=chunk)[97](index=97&type=chunk) - Operational risks include reliance on key management and unique culture, competition, challenges in integrating acquisitions (like Broad Arrow), and potential disruptions from cyberattacks or technology platform failures[99](index=99&type=chunk)[101](index=101&type=chunk)[102](index=102&type=chunk)[104](index=104&type=chunk)[106](index=106&type=chunk)[176](index=176&type=chunk) - Insurance-specific risks involve regulatory approvals for products, compliance with extensive regulations, dependence on a limited number of underwriting carriers (e.g., Essentia, Aviva), rate increase approvals, and unexpected increases in claims frequency or severity, including from catastrophic events[131](index=131&type=chunk)[134](index=134&type=chunk)[138](index=138&type=chunk)[141](index=141&type=chunk)[150](index=150&type=chunk)[152](index=152&type=chunk) - Risks related to the company's securities include potential dilution from future stock issuances, substantial sales by large stockholders, exercisable warrants, and the dual-class stock structure limiting shareholder influence[199](index=199&type=chunk)[204](index=204&type=chunk)[206](index=206&type=chunk)[210](index=210&type=chunk)[212](index=212&type=chunk) - Tax-related risks stem from Hagerty, Inc. being a holding company dependent on distributions from The Hagerty Group to pay taxes and obligations under the Tax Receivable Agreement (TRA), with potential for substantial and accelerated payments[222](index=222&type=chunk)[225](index=225&type=chunk)[226](index=226&type=chunk) [Risk Factors Summary](index=18&type=section&id=Risk%20Factors%20Summary) Hagerty faces risks related to member attraction, partner dependence, fraud, technology, regulatory compliance, claims, acquisition integration, and its stock structure - The business faces risks related to attracting and retaining Members, dependence on insurance partners, fraud prevention, and reliance on a skilled management team[93](index=93&type=chunk) - Other key risks include technology platform issues, cyberattacks, limited operating history of new products, susceptibility to inflation/interest rates, compliance with laws/regulations, and unexpected claims increases[93](index=93&type=chunk) - Specific risks also cover reinsurer non-payment, interpretation of coverage, integration of Broad Arrow, dependence on The Hagerty Group for payments, and stock structure issues (dual-class, control by HHC)[93](index=93&type=chunk) [Risks Related to Our Business](index=19&type=section&id=Risks%20Related%20to%20Our%20Business) Hagerty's business faces risks from member retention, partner dependence, fraud, key personnel, competition, acquisitions, cyberattacks, new product profitability, payment processing, economic conditions, and intellectual property protection - Continued business and revenue growth depend on the ability to continuously attract and retain Members; failure to meet consumer expectations or unfavorable pricing changes could lead to decline[94](index=94&type=chunk)[95](index=95&type=chunk) - A large percentage of revenue is derived from a few distribution partners; loss or termination of these relationships could adversely affect the business[96](index=96&type=chunk) - Inability to prevent, monitor, or detect fraudulent activity (policy acquisitions, claims, marketplace sales) could result in increased costs, litigation, regulatory fines, and reputational harm[97](index=97&type=chunk)[98](index=98&type=chunk) - Reliance on the CEO, senior management, and key employees means their departure could severely impact the business; maintaining a unique culture is also critical for success[99](index=99&type=chunk)[101](index=101&type=chunk) - Future growth and profitability may be affected by new market entrants or competitors developing preferred offerings, especially from large, well-capitalized companies[102](index=102&type=chunk) - Future acquisitions or investments carry strategic, execution, and compliance risks, potentially leading to unforeseen liabilities, expenses, or impairment charges[104](index=104&type=chunk)[105](index=105&type=chunk) - Cyberattacks, disruptions to technology platforms, or reliance on third-party providers could impair operations, lead to data breaches, reputational harm, and significant financial/operational resources expenditure[106](index=106&type=chunk)[107](index=107&type=chunk)[108](index=108&type=chunk) - Some membership products have limited operating history, making profitability forecasts difficult; new products may not achieve anticipated profitability[109](index=109&type=chunk) - Payment processing risks, including reliance on limited services and potential fraud, could adversely affect results of operations[110](index=110&type=chunk)[111](index=111&type=chunk)[112](index=112&type=chunk) - Rising inflation and interest rates may affect demand for products/services and increase borrowing costs, impacting financial condition[113](index=113&type=chunk)[114](index=114&type=chunk) - Growing foreign operations expose the company to foreign currency exchange rate fluctuations, potentially negatively impacting financial results[115](index=115&type=chunk) - Technology platform malfunctions could lead to business loss, breach of contracts, non-compliance, and financial losses due to incorrect pricing or claims processing[116](index=116&type=chunk) - Future success depends on developing and maintaining confidential technology; changes in laws or misappropriation of data could harm competitive position[117](index=117&type=chunk)[118](index=118&type=chunk)[119](index=119&type=chunk) - Changes in social attitudes towards collector vehicles (e.g., electric/autonomous vehicles) could reduce demand for products and services[120](index=120&type=chunk) - An inadequate diversity, equity, and inclusion strategy could negatively impact brand image, employee engagement, and sales[121](index=121&type=chunk) - Performance of the investment portfolio is subject to various risks, including interest rate fluctuations, which could adversely affect financial results[122](index=122&type=chunk)[123](index=123&type=chunk)[124](index=124&type=chunk) - Need for additional capital in the future may not be met or may be on unfavorable terms, impacting liquidity and ability to fund operations or expansion[125](index=125&type=chunk)[126](index=126&type=chunk) - Reliance on accounting estimates creates a risk of material misstatement if assumptions are incorrect[127](index=127&type=chunk) - The COVID-19 pandemic has caused and may continue to cause disruptions, delays, increased costs, and reduced demand, potentially triggering or intensifying other risks[128](index=128&type=chunk)[129](index=129&type=chunk)[130](index=130&type=chunk) [Risks Related to Our Insurance Services](index=26&type=section&id=Risks%20Related%20to%20Our%20Insurance%20Services) Hagerty's insurance services face risks from regulatory approvals, compliance, dependence on underwriting partners, rate approvals, claims frequency/severity, catastrophic events, and reinsurance counterparty risk - Insurance products require regulatory approval, leading to significant expenses and potential delays in development and filing before revenue generation[131](index=131&type=chunk)[132](index=132&type=chunk)[133](index=133&type=chunk) - Operating as an MGA in a highly regulated environment exposes the company to compliance risks, potential penalties, and enforcement actions if regulations are not met or interpretations differ[134](index=134&type=chunk)[135](index=135&type=chunk)[136](index=136&type=chunk)[137](index=137&type=chunk) - Dependence on a limited number of key underwriting carrier partners (Essentia, Aviva, Markel) means termination or financial difficulties of these partners could adversely affect profitability and business continuity[138](index=138&type=chunk)[139](index=139&type=chunk)[140](index=140&type=chunk) - Regulatory environments requiring rate approvals, dictating underwriting/pricing, or mandating loss-sharing arrangements can adversely affect financial condition and profitability[141](index=141&type=chunk) - Underwriting companies and Hagerty's agencies are subject to regulatory examinations and audits, which could result in adverse findings, enforcement actions, fines, or remedial actions[142](index=142&type=chunk)[143](index=143&type=chunk)[144](index=144&type=chunk)[145](index=145&type=chunk)[146](index=146&type=chunk) - Restrictions on collecting or utilizing vehicle usage and driving data could impair cost-effective underwriting and negatively impact revenue and earnings[147](index=147&type=chunk) - The cyclical nature of the insurance business, including periods of excess underwriting capacity and unfavorable premium rates, could adversely affect business[148](index=148&type=chunk) - Reinsurance for catastrophic losses may become unavailable or more expensive, forcing Hagerty Re to retain more risk or require greater capital investment[149](index=149&type=chunk) - Unexpected increases in claims frequency or severity (due to driving behaviors, macroeconomics, weather, medical costs, litigation, vehicle values) could adversely affect operations and financial condition[150](index=150&type=chunk)[151](index=151&type=chunk) - Severe weather events, catastrophes, and unnatural events are unpredictable and can cause significant losses or disruptions, exacerbated by climate change impacts[152](index=152&type=chunk)[153](index=153&type=chunk)[154](index=154&type=chunk) - Inaccurate pricing and underwriting of insurance programs could lead to insufficient premiums, reduced competitiveness, or adverse effects on profitability[155](index=155&type=chunk)[156](index=156&type=chunk)[157](index=157&type=chunk)[158](index=158&type=chunk) - Reinsurance subjects Hagerty Re to counterparty risk, where reinsurers may fail to pay claims due to insolvency, materially affecting financial condition[159](index=159&type=chunk) - Unexpected changes in the interpretation of coverage or policy provisions (limitations, exclusions) could lead to higher than anticipated losses and expenses[160](index=160&type=chunk) - Hagerty Re's ultimate loss liability could exceed reserves, impacting financial condition and ability to accept risk, and potentially leading to loss of Bermuda license if solvency requirements are not met[161](index=161&type=chunk)[162](index=162&type=chunk)[163](index=163&type=chunk) - Expansion into new insurance products and jurisdictions may incur additional costs, slower growth, and lower profitability than projected, facing challenges like regulatory approvals and competitive environments[164](index=164&type=chunk)[165](index=165&type=chunk)[166](index=166&type=chunk)[167](index=167&type=chunk)[168](index=168&type=chunk) - Reliance on third-party technology and intellectual property for pricing, underwriting, and claims could be adversely impacted if these providers become unavailable or provide inaccurate information[169](index=169&type=chunk) - Denial of claims or failure to accurately and timely pay claims could damage brand, lead to regulatory actions, litigation, and adversely impact business[170](index=170&type=chunk)[171](index=171&type=chunk)[172](index=172&type=chunk) - A downward change in Essentia's financial strength rating could adversely affect Hagerty's ability to conduct business through them[173](index=173&type=chunk) - Hagerty Re is subject to Bermuda regulatory requirements (BSCR, solvency margin, liquidity ratios, operational requirements); failure to comply could lead to license restrictions or revocation[174](index=174&type=chunk)[175](index=175&type=chunk) [Risks Related to Hagerty Marketplace](index=34&type=section&id=Risks%20Related%20to%20Hagerty%20Marketplace) Hagerty Marketplace faces risks from integrating Broad Arrow, retaining key specialists, intense competition, potential losses from claims on valuable cars, and limited operating history of Broad Arrow Capital - Failure to successfully integrate Broad Arrow operations or realize anticipated synergies and cost savings could materially and adversely affect the Marketplace business vertical[176](index=176&type=chunk)[177](index=177&type=chunk) - Broad Arrow's success is highly dependent on retaining key specialists and management due to its service-based nature and unique business culture[178](index=178&type=chunk) - Intense competition in the global collector car sales market and variability in demand/quality of consigned cars can impact ability to obtain consignments and commission margins[179](index=179&type=chunk)[180](index=180&type=chunk)[181](index=181&type=chunk) - Exposure to losses from title, warranty, or other claims related to damage or theft of valuable collector cars could harm business and reputation[182](index=182&type=chunk)[183](index=183&type=chunk) - Broad Arrow Capital (BAC) has limited operating history, and minimal loan losses may not be indicative of future experience; realizing proceeds from collateral sales may be delayed or limited[184](index=184&type=chunk) - Changes to tax laws or reporting obligations in various jurisdictions could adversely impact the volume of collector vehicle inventory available for Marketplace and increase compliance risks[185](index=185&type=chunk) [Legal, Regulatory and Political Risks](index=35&type=section&id=Legal%2C%20Regulatory%20and%20Political%20Risks) Hagerty is exposed to extensive and complex legal and regulatory requirements across jurisdictions, with potential impacts from future changes in laws, interpretations, and intellectual property protection - Extensive and complex legal/regulatory requirements across jurisdictions (privacy, anti-corruption, sanctions, advertising, underwriting, claims, licensing) pose compliance risks, potentially increasing operating costs and limiting growth[186](index=186&type=chunk)[187](index=187&type=chunk)[188](index=188&type=chunk)[189](index=189&type=chunk) - Future regulatory changes, including new laws or interpretations, could limit or impact Hagerty's business model, increasing compliance costs and potentially leading to fines or adverse consequences[190](index=190&type=chunk)[191](index=191&type=chunk)[192](index=192&type=chunk) - Changes in regulations related to autonomous vehicles and petroleum-based vehicles could significantly alter the core insurance model and company purpose[193](index=193&type=chunk)[197](index=197&type=chunk) - New legislation or legal requirements impacting the internet and mobile applications could affect communication with Members, harm the business model, and lead to reputational damage or litigation[195](index=195&type=chunk) - Inadequate protection of intellectual property rights could adversely impact products, services, and brand, with risks from competitors, employees, contractors, and vendors[196](index=196&type=chunk) [Risks Relating to Ownership of Our Securities](index=38&type=section&id=Risks%20Relating%20to%20Ownership%20of%20Our%20Securities) Ownership of Hagerty's securities carries risks including dilution from future issuances, potential stock price decline from sales, limited investor attractiveness as an emerging growth company, and concentrated voting power due to its dual-class structure - Future issuances of Class A Common Stock (incentive plans, acquisitions) could dilute existing ownership, and future sales by stockholders could lower the stock price[199](index=199&type=chunk)[200](index=200&type=chunk)[201](index=201&type=chunk)[202](index=202&type=chunk)[203](index=203&type=chunk)[204](index=204&type=chunk)[205](index=205&type=chunk) - Exercisable warrants could increase the number of shares eligible for resale, resulting in dilution to stockholders and potentially depressing the market price[206](index=206&type=chunk) - As an 'emerging growth company,' taking advantage of disclosure exemptions may make securities less attractive to investors and comparisons to other public companies more difficult[207](index=207&type=chunk) - Hagerty qualifies as a 'controlled company' under NYSE listing standards, allowing exemptions from certain corporate governance requirements, which may limit stockholder protections[208](index=208&type=chunk)[209](index=209&type=chunk) - The dual-class common stock structure concentrates voting power with two stockholders (Markel and HHC), limiting other shareholders' ability to influence important transactions, including change of control[210](index=210&type=chunk)[212](index=212&type=chunk)[213](index=213&type=chunk)[214](index=214&type=chunk)[215](index=215&type=chunk)[216](index=216&type=chunk) - The company may redeem unexpired warrants prior to their exercise at a disadvantageous time for holders, potentially making them worthless[217](index=217&type=chunk) - No current plans to pay cash dividends mean investors may not receive a return unless they sell their Class A Common Stock for a price greater than paid[218](index=218&type=chunk) - Anti-takeover provisions in organizational documents could delay or prevent a change of control, limiting stockholders' ability to obtain a premium for their shares[219](index=219&type=chunk)[220](index=220&type=chunk) - The Amended and Restated Charter designates the Delaware Court of Chancery as the exclusive forum for certain actions, potentially limiting stockholders' ability to choose a favorable judicial forum[221](index=221&type=chunk) [Risks Related to Tax](index=42&type=section&id=Risks%20Related%20to%20Tax) Hagerty, Inc. is a holding company dependent on distributions from The Hagerty Group to meet tax and TRA obligations, with potential for substantial and accelerated payments, and risks from tax law changes - Hagerty, Inc. is a holding company dependent on distributions from The Hagerty Group to pay taxes, make payments under the TRA, and cover other expenses; financial deterioration of The Hagerty Group could impair this ability[222](index=222&type=chunk)[223](index=223&type=chunk) - Payments under the Tax Receivable Agreement (TRA) to Legacy Unit Holders for tax benefits may be substantial and could accelerate upon certain events (e.g., breach, bankruptcy, change of control), potentially exceeding actual cash tax savings and negatively impacting liquidity[225](index=225&type=chunk)[226](index=226&type=chunk)[227](index=227&type=chunk) - If The Hagerty Group becomes a publicly traded partnership taxable as a corporation, it could lead to significant tax inefficiencies and inability to recover TRA payments[229](index=229&type=chunk)[230](index=230&type=chunk)[231](index=231&type=chunk) - Increases in tax rates, changes in tax laws, or disagreements with tax authorities can adversely affect business, financial condition, and results of operations[232](index=232&type=chunk)[233](index=233&type=chunk)[234](index=234&type=chunk)[235](index=235&type=chunk) [General Risk Factors](index=44&type=section&id=General%20Risk%20Factors) The price of Hagerty's securities may be volatile or decline due to various factors, including market expectations, economic conditions, strategic actions, and future sales by stockholders - The price of Hagerty's securities may be volatile or decline regardless of operating performance due to various factors, including market expectations, economic conditions, strategic actions, and litigation[236](index=236&type=chunk)[237](index=237&type=chunk)[239](index=239&type=chunk) - Future sales, or the perception of future sales, by the company or its stockholders in the public market could cause the market price for Class A Common Stock to decline[241](index=241&type=chunk)[242](index=242&type=chunk)[243](index=243&type=chunk)[244](index=244&type=chunk) - If securities analysts cease coverage or downgrade the stock, it could lead to a decline in stock price and trading volume[245](index=245&type=chunk) [Item 1B. Unresolved Staff Comments](index=46&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) This section states that there are no unresolved staff comments from the SEC - There are no unresolved staff comments[246](index=246&type=chunk) [Item 2. Properties](index=46&type=section&id=Item%202.%20Properties) Hagerty's corporate headquarters are in Traverse City, Michigan, with additional leased office spaces globally, and a network of Hagerty Garage + Social locations, as the company transitions to a 'remote first' work model - Corporate headquarters are in Traverse City, Michigan, with approximately **109,500 square feet** of office space under a lease expiring in March 2036[247](index=247&type=chunk) - Additional leased office spaces are located in Ohio, Colorado, Connecticut, Michigan (U.S.), Canada, the U.K., and Germany[247](index=247&type=chunk) - In 2022, Hagerty adopted a 'remote-first' work model and plans to sublease portions of its office spaces in Ohio, Colorado, Connecticut, Michigan, and Ontario[248](index=248&type=chunk) - The company operates a network of Hagerty Garage + Social locations in New York, Illinois, Washington, Florida (3 locations), California (2 locations), and Ontario (Canada)[249](index=249&type=chunk) [Item 3. Legal Proceedings](index=46&type=section&id=Item%203.%20Legal%20Proceedings) Hagerty is periodically involved in various claims and legal actions in the ordinary course of business, which are not expected to have a material adverse effect on its financial position - Hagerty is involved in various claims and legal actions in the ordinary course of business[250](index=250&type=chunk) - The company does not believe the ultimate resolution of these actions will have a material adverse effect on its financial position, results of operations, liquidity, or capital resources[250](index=250&type=chunk) - Future litigation to defend proprietary rights could incur defense and settlement costs and divert management resources[251](index=251&type=chunk) [Item 4. Mine Safety Disclosures](index=46&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to Hagerty, Inc - This item is not applicable[252](index=252&type=chunk) [Part II](index=47&type=section&id=Part%20II) [Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=47&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) Hagerty's Class A Common Stock and Public Warrants trade on the NYSE, with **12** record holders of Class A Common Stock as of March 1, 2023, and no current intention to pay cash dividends - Hagerty's Class A Common Stock and Public Warrants are traded on the NYSE under symbols 'HGTY' and 'HGTY.WS'[254](index=254&type=chunk) - As of March 1, 2023, there were **12** record holders of Class A Common Stock and two record holders of Class V Common Stock[255](index=255&type=chunk) - The company does not currently intend to pay cash dividends on Class A Common Stock, retaining future earnings for operations, expansion, and debt repayment[218](index=218&type=chunk)[256](index=256&type=chunk) - Hagerty, Inc. is a holding company, and its ability to pay dividends depends on distributions from The Hagerty Group, which are expected to be less than amounts distributed to Hagerty Group Unit Holders due to taxes, TRA payments, and expenses[257](index=257&type=chunk) - As a smaller reporting company, Hagerty is not required to provide a stock performance graph[259](index=259&type=chunk) - In August 2022, as part of the Broad Arrow Acquisition, Hagerty issued **713,684** shares of Class A Common Stock to foreign Contributors and **4,724,560** Hagerty Group Units to domestic Contributors, exchangeable for Class A Common Stock starting in 2023[260](index=260&type=chunk) [Market Information](index=47&type=section&id=Market%20Information) Hagerty's Class A Common Stock and Public Warrants are traded on the NYSE under the symbols 'HGTY' and 'HGTY.WS' - Hagerty's Class A Common Stock and Public Warrants are traded on the NYSE under the symbols 'HGTY' and 'HGTY.WS', respectively[254](index=254&type=chunk) [Stockholders of Record](index=47&type=section&id=Stockholders%20of%20Record) As of March 1, 2023, there were **12** record holders of Class A Common Stock and two record holders of Class V Common Stock, along with various warrant holders - As of March 1, 2023, there were **12** record holders of Class A Common Stock and two record holders of Class V Common Stock[255](index=255&type=chunk) - Additionally, there were **31** record holders of PIPE Warrants, two of OTM Warrants, and nine of Public Warrants, Private Placement Warrants, and Underwriter Warrants combined[255](index=255&type=chunk) [Dividend Policy](index=47&type=section&id=Dividend%20Policy) Hagerty does not currently intend to pay cash dividends on its Class A Common Stock, prioritizing future earnings for operations, expansion, and debt repayment - Hagerty does not currently intend to pay cash dividends on its Class A Common Stock, prioritizing future earnings for operations, expansion, and debt repayment[218](index=218&type=chunk)[256](index=256&type=chunk) - Any future dividend declarations will be at the sole discretion of the Board, considering economic conditions, financial performance, cash needs, capital requirements, and contractual/regulatory restrictions[256](index=256&type=chunk) - As a holding company, Hagerty's ability to pay dividends depends on distributions from The Hagerty Group, which are expected to be less than amounts distributed to Hagerty Group Unit Holders due to taxes, TRA payments, and expenses[257](index=257&type=chunk) [Stock Performance Graph](index=47&type=section&id=Stock%20Performance%20Graph) As a smaller reporting company, Hagerty is not required to provide a stock performance graph - Hagerty is a smaller reporting company and is not required to provide a stock performance graph[259](index=259&type=chunk) [Recent Sales of Unregistered Securities](index=48&type=section&id=Recent%20Sales%20of%20Unregistered%20Securities) In August 2022, as part of the Broad Arrow Acquisition, Hagerty issued **713,684** shares of Class A Common Stock and **4,724,560** Hagerty Group Units to contributors - On August 16, 2022, as part of the Broad Arrow Acquisition, Hagerty issued **713,684** shares of Class A Common Stock to certain foreign Contributors, subject to a 5-year lockup[260](index=260&type=chunk) - Additionally, **4,724,560** Hagerty Group Units were issued to domestic Contributors, exchangeable for Class A Common Stock on a one-for-one basis over a 5-year period, starting in 2023[260](index=260&type=chunk) [Item 6. [ Reserved ]](index=48&type=section&id=Item%206.%20%5B%20Reserved%20%5D) This item is reserved and not applicable - This item is reserved and not applicable[261](index=261&type=chunk) [Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=48&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on Hagerty's financial condition, results of operations, and liquidity for 2022 and 2021, covering recent developments, KPIs, revenue, expenses, and critical accounting estimates - Hagerty is a global market leader in classic and enthusiast vehicle insurance, offering an automotive enthusiast platform that protects, engages, entertains, and connects with Members[264](index=264&type=chunk) - The Broad Arrow Acquisition in August 2022 (following an initial **40%** investment in January 2022) led to consolidation of Broad Arrow's financials and a **$34.7 million** revaluation gain on the previously held equity method investment[265](index=265&type=chunk)[266](index=266&type=chunk)[267](index=267&type=chunk) - The Business Combination on December 2, 2021, resulted in Hagerty, Inc. operating as a C corporation with an 'Up-C' structure, holding an equity interest in The Hagerty Group[268](index=268&type=chunk)[269](index=269&type=chunk) Key Performance Indicators (2022 vs. 2021) | Indicator | 2022 | 2021 | | :---------------------------- | :---------- | :---------- | | Total Written Premium | $776,664 | $674,305 | | Loss Ratio | 45.3% | 41.3% | | New Business Count (Insurance)| 234,520 | 244,478 | | Policies in Force | 1,315,977 | 1,247,056 | | Policies in Force Retention | 88.0% | 89.1% | | Vehicles in Force | 2,234,461 | 2,103,185 | | HDC Paid Member Count | 752,754 | 718,583 | | Net Promoter Score | 83.0 | 82.0 | | Total Revenue | $787,588 | $619,079 | | Operating Income (Loss) | $(67,566) | $(10,070) | | Net Income (Loss) | $2,403 | $(61,354) | | Basic Earnings (Loss) Per Share| $0.39 | $(0.56) | | Adjusted EBITDA | $(1,940) | $25,350 | | Adjusted Earnings (Loss) Per Share| $(0.20) | $(0.05) | - Total Revenue increased by **27.2%** to **$787.6 million** in 2022, driven by increases in earned premium (**36.3%**), membership, marketplace, and other revenue (**49.5%**), and commission and fee revenue (**13.1%**)[291](index=291&type=chunk)[292](index=292&type=chunk)[296](index=296&type=chunk)[297](index=297&type=chunk) - Operating expenses increased by **35.9%** to **$855.2 million** in 2022, primarily due to higher ceding commission (**35.6%**), losses and loss adjustment expenses (**49.4%**), sales expense (**31.0%**), and general and administrative services (**38.0%**)[291](index=291&type=chunk)[301](index=301&type=chunk)[302](index=302&type=chunk)[304](index=304&type=chunk)[305](index=305&type=chunk)[306](index=306&type=chunk) - Net income (loss) improved significantly from **$(61.4) million** in 2021 to **$2.4 million** in 2022, largely due to a **$41.9 million** gain from change in fair value of warrant liabilities and a **$34.7 million** revaluation gain on previously held equity method investment[291](index=291&type=chunk)[309](index=309&type=chunk)[310](index=310&type=chunk) - Cash provided by operating activities increased by **30.9%** to **$55.3 million** in 2022, primarily due to increased cash from operating assets and liabilities, partially offset by a decrease in net income (loss) after excluding non-cash adjustments[321](index=321&type=chunk)[322](index=322&type=chunk) - Hagerty maintains a strong balance sheet and capital position, with sufficient liquidity from cash, short-term investments, cash flows from operations, and a **$230.0 million** Credit Facility to meet needs for at least the next 12 months[313](index=313&type=chunk)[314](index=314&type=chunk)[327](index=327&type=chunk) [Overview](index=48&type=section&id=Overview) Hagerty is a global market leader in classic and enthusiast vehicle insurance, offering an automotive enthusiast platform that protects, engages, entertains, and connects with its Members - Hagerty is a global market leader in providing insurance for classic cars and enthusiast vehicles[264](index=264&type=chunk) - The company offers an automotive enthusiast platform that protects, engages, entertains, and connects with its Members and other car enthusiasts, aiming to save driving and car culture[264](index=264&type=chunk) [Recent Developments Affecting Comparability](index=48&type=section&id=Recent%20Developments%20Affecting%20Comparability) Hagerty's financial comparability was affected by the August 2022 Broad Arrow acquisition, which resulted in a **$34.7 million** revaluation gain, and the December 2021 Business Combination establishing an 'Up-C' structure - Hagerty acquired the remaining **60%** equity interest of Broad Arrow in August 2022 for **$73.3 million** in equity, after an initial **$15.3 million** investment for **40%** in January 2022[265](index=265&type=chunk) - The Broad Arrow acquisition resulted in a **$34.7 million** revaluation gain on the previously held **40%** equity method investment, recognized in the Consolidated Statements of Operations for 2022[267](index=267&type=chunk) - The Business Combination on December 2, 2021, transformed Aldel Financial Inc. into Hagerty, Inc., operating under an 'Up-C' structure where Hagerty, Inc. holds an equity interest in The Hagerty Group[268](index=268&type=chunk)[269](index=269&type=chunk) [Key Performance Indicators and Certain Non-GAAP Financial Measures](index=49&type=section&id=Key%20Performance%20Indicators%20and%20Certain%20Non-GAAP%20Financial%20Measures) Hagerty uses KPIs and non-GAAP financial measures to evaluate business performance, identify trends, and make strategic decisions, with the Loss Ratio increasing to **45.3%** in 2022 due to Hurricane Ian and reserve strengthening - Hagerty uses Key Performance Indicators (KPIs) and certain non-GAAP financial measures to evaluate business performance, identify trends, prepare financial projections, and make strategic decisions[271](index=271&type=chunk) Key Performance Indicators (2022 vs. 2021) | Indicator | 2022 | 2021 | | :---------------------------- | :---------- | :---------- | | Total Written Premium | $776,664 | $674,305 | | Loss Ratio | 45.3% | 41.3% | | New Business Count (Insurance)| 234,520 | 244,478 | | Policies in Force | 1,315,977 | 1,247,056 | | Policies in Force Retention | 88.0% | 89.1% | | Vehicles in Force | 2,234,461 | 2,103,185 | | HDC Paid Member Count | 752,754 | 718,583 | | Net Promoter Score | 83.0 | 82.0 | | Total Revenue | $787,588 | $619,079 | | Operating Income (Loss) | $(67,566) | $(10,070) | | Net Income (Loss) | $2,403 | $(61,354) | | Basic Earnings (Loss) Per Share| $0.39 | $(0.56) | | Adjusted EBITDA | $(1,940) | $25,350 | | Adjusted Earnings (Loss) Per Share| $(0.20) | $(0.05) | - The Loss Ratio increased to **45.3%** in 2022 (from **41.3%** in 2021) due to **$10.0 million** in net losses from Hurricane Ian (adding **2.5%**) and a **$6.5 million** strengthening of U.S. auto liability reserves (adding **1.6%**)[274](index=274&type=chunk) [Components of Our Results of Operations](index=51&type=section&id=Components%20of%20Our%20Results%20of%20Operations) Hagerty's revenue is generated from commissions, earned premium, and membership/marketplace/other services, while operating expenses include salaries, ceding commission, losses, sales, general and administrative, and depreciation - Revenue is generated from commission and fees (MGA activities), earned premium (Hagerty Re reinsurance), and membership, marketplace, and other services (HDC, Garage + Social, Broad Arrow, events, media)[275](index=275&type=chunk)[276](index=276&type=chunk)[278](index=278&type=chunk)[279](index=279&type=chunk)[280](index=280&type=chunk)[281](index=281&type=chunk) - Commission and fee revenue includes contingent underwriting commissions (CUC) based on calendar-year performance of the insurance book of business[277](index=277&type=chunk) - Operating expenses consist of salaries and benefits, ceding commission, losses and loss adjustment expenses, sales expense, general and administrative services, and depreciation and amortization[282](index=282&type=chunk) - Ceding commission is paid by Hagerty Re to insurance carriers for policy acquisition costs, averaging **47%** and **48%** of net earned premium in 2022 and 2021, respectively[284](index=284&type=chunk) - Losses and loss adjustment expenses represent Hagerty Re's estimated share of losses and settlement costs, including reported and incurred but not reported (IBNR) claims[285](index=285&type=chunk) [Results of Operations](index=53&type=section&id=Results%20of%20Operations) Hagerty's total revenue increased by **27.2%** to **$787.6 million** in 2022, driven by earned premium and membership/marketplace growth, while operating expenses rose by **35.9%**, leading to a net income of **$2.4 million** Consolidated Statements of Operations Summary (2022 vs. 2021) | Item | 2022 ($ thousands) | 2021 ($ thousands) | $ Change | % Change | | :-------------------------------------------- | :----------------- | :----------------- | :--------- | :--------- | | **REVENUE:** | | | | | | Commission and fee revenue | 307,238 | 271,571 | 35,667 | 13.1% | | Earned premium | 403,061 | 295,824 | 107,237 | 36.3% | | Membership, marketplace and other revenue | 77,289 | 51,684 | 25,605 | 49.5% | | **Total revenue** | **787,588** | **619,079** | **168,509**| **27.2%** | | **OPERATING EXPENSES:** | | | | | | Salaries and benefits | 199,542 | 171,901 | 27,641 | 16.1% | | Ceding commission | 191,150 | 140,983 | 50,167 | 35.6% | | Losses and loss adjustment expenses | 182,402 | 122,080 | 60,322 | 49.4% | | Sales expense | 140,781 | 107,483 | 33,298 | 31.0% | | General and administrative services | 89,068 | 64,558 | 24,510 | 38.0% | | Depreciation and amortization | 33,887 | 22,144 | 11,743 | 53.0% | | Restructuring, impairment and related charges, net| 18,324 | — | 18,324 | 100.0% | | **Total operating expenses** | **855,154** | **629,149** | **226,005**| **35.9%** | | **OPERATING INCOME (LOSS)** | **(67,566)** | **(10,070)** | **(57,496)**| **571.0%** | | Change in fair value of warrant liabilities | 41,899 | (42,540) | 84,439 | 198.5% | | Revaluation gain on previously held equity method investment| 34,735 | — | 34,735 | 100.0% | | Interest and other income (expense) | 2,028 | (1,993) | 4,021 | 201.8% | | **INCOME (LOSS) BEFORE INCOME TAX EXPENSE** | **11,096** | **(54,603)** | **65,699** | **120.3%** | | Income tax benefit (expense) | (7,017) | (6,751) | (266) | (3.9)% | | Income (loss) from equity method investment, net of tax| (1,676) | — | (1,676) | (100.0)% | | **NET INCOME (LOSS)** | **2,403** | **(61,354)** | **63,757** | **103.9%** | - Commission and fee revenue increased by **13.1%** to **$307.2 million** in 2022, driven by a **6.5%** increase in renewal policy premiums and higher average premiums on new policies (up **14.5%** YoY), partially offset by a **$4.1 million** reduction in expected CUC payout due to higher loss ratios[292](index=292&type=chunk)[293](index=293&type=chunk)[294](index=294&type=chunk)[295](index=295&type=chunk) - Earned premium revenue increased by **36.3%** to **$403.1 million** in 2022, primarily due to a **$120.4 million** (**34.0%**) increase in written premiums assumed, with Hagerty Re's U.S. quota share increasing from **60%** in 2021 to **70%** in 2022[296](index=296&type=chunk) - Membership, marketplace and other revenue grew by **49.5%** to **$77.3 million** in 2022, with membership fees up **11.4%** (**$4.6 million**) and other revenue (sponsorship, admission, advertising) up **66.0%** (**$7.3 million**), largely due to newly acquired events[297](index=297&type=chunk)[298](index=298&type=chunk)[300](index=300&type=chunk) - Salaries and benefits increased by **16.1%** to **$199.5 million** in 2022, mainly due to a net increase of approximately **200** employees (**12%**) to support growth and acquisitions[301](index=301&type=chunk) - Ceding commission expense rose by **35.6%** to **$191.2 million** in 2022, primarily due to the increase in U.S. quota share percentage from **60%** to **70%** and higher U.S. premium volume ceded to Hagerty Re[302](index=302&type=chunk) - Losses and loss adjustment expenses increased by **49.4%** to **$182.4 million** in 2022, driven by the increased U.S. quota share, **$10.0 million** in net losses from Hurricane Ian, and a **$6.5 million** strengthening of U.S. auto liability reserves[304](index=304&type=chunk) - Sales expense increased by **31.0%** to **$140.8 million** in 2022, mainly due to a **$19.0 million** increase in travel and promotion costs (newly acquired events, advertising) and a **$7.6 million** increase in broker expense[305](index=305&type=chunk) - General and administrative services expenses increased by **38.0%** to **$89.1 million** in 2022, primarily due to **$11.2 million** in public company operating expenses, **$3.7 million** in software licenses, and **$2.5 million** in occupancy costs for new Hagerty Garage + Social locations[306](index=306&type=chunk) - Depreciation and amortization expense increased by **53.0%** to **$33.9 million** in 2022, driven by higher capital assets from software development investment (**$8.9 million** increase) and intangible asset additions from acquisitions (**$1.8 million** increase)[307](index=307&type=chunk) - Restructuring, impairment and related charges of **$18.3 million** were recognized in 2022, including **$12.2 million** for a voluntary retirement program and reduction in force, and **$6.2 million** for operating lease ROU asset impairments[308](index=308&type=chunk) - A **$41.9 million** gain from change in fair value of warrant liabilities was recognized in 2022, compared to a **$42.5 million** loss in 2021[309](index=309&type=chunk) - A **$34.7 million** revaluation gain on previously held equity method investment was recognized in 2022, related to the remeasurement of the **40%** equity interest in Broad Arrow prior to its acquisition[310](index=310&type=chunk) - Income tax expense increased slightly to **$7.0 million** in 2022, primarily due to increased income before tax expense within Broad Arrow[311](index=311&type=chunk) [Liquidity and Capital Resources](index=56&type=section&id=Liquidity%20and%20Capital%20Resources) Hagerty maintains a strong balance sheet and capital position, with liquidity from cash, investments, operations, and a **$230.0 million** Credit Facility, expected to be sufficient for the next 12 months - Hagerty prioritizes maintaining a strong balance sheet and capital position, managing liquidity globally across all operating subsidiaries[313](index=313&type=chunk) - Sources of liquidity include cash on hand, short-term investments, net working capital, cash flows from operations, and the Credit Facility, expected to be sufficient for the next 12 months[314](index=314&type=chunk) - Primary liquidity needs include funding business operations (technology investments), servicing borrowings, paying income taxes, and making payments under the Tax Receivable Agreement (TRA)[315](index=315&type=chunk) - Hagerty Re, the reinsurance subsidiary, is self-funded primarily through existing capital and net cash flows from operations, holding approximately **$398.8 million** in cash and restricted cash as of December 31, 2022[316](index=316&type=chunk) - Hagerty Re is subject to Bermuda Solvency Capital Requirement (BSCR) and dividend restrictions; it maintained sufficient statutory capital and surplus as of December 31, 2022, with **$32.9 million** available for dividends without prior approval in 2023[318](index=318&type=chunk)[319](index=319&type=chunk) [Comparative Cash Flows](index=57&type=section&id=Comparative%20Cash%20Flows) Net cash provided by operating activities increased by **30.9%** to **$55.3 million** in 2022, while investing activities used **$91.5 million**, and financing activities shifted to a net use of **$28.1 million** Cash Flow Summary (2022 vs. 2021) | Activity | 2022 ($ thousands) | 2021 ($ thousands) | $ Change | % Change | | :---------------------------- | :----------------- | :----------------- | :---------- | :---------- | | Net cash provided by operating activities | $55,328 | $42,281 | $13,047 | 30.9% | | Net cash used in investing activities | $(91,521) | $(68,994) | $(22,527) | (32.7)% | | Net cash provided by (used in) financing activities | $(28,084) | $332,071 | $(360,155) | (108.5)% | - Net cash provided by operating activities increased by **30.9%** to **$55.3 million** in 2022, primarily due to a **$25.1 million** increase in cash from operating assets and liabilities (driven by increased U.S. quota share, claims severity, and Hurricane Ian timing), partially offset by a **$12.1 million** decrease in net income (loss) after excluding non-cash adjustments[322](index=322&type=chunk)[323](index=323&type=chunk) - Net cash used in investing activities increased by **32.7%** to **$91.5 million** in 2022, mainly due to **$44.4 million** in property, equipment, and software investments, **$15.4 million** in acquisitions (net of cash), and a **$15.3 million** investment in Broad Arrow[324](index=324&type=chunk) - Net cash used in financing activities was **$28.1 million** in 2022, a significant shift from **$332.1 million** provided in 2021, primarily due to net repayments of **$28.1 million** on long-term debt in 2022 compared to **$66.5 million** in net borrowings and **$269.0 million** net cash inflows from the Business Combination in 2021[325](index=325&type=chunk) [Financing Arrangements](index=58&type=section&id=Financing%20Arrangements) The Hagerty Group's Credit Facility provides **$230.0 million** in commitments, with **$105.0 million** outstanding as of December 31, 2022, and the company uses interest rate swaps to mitigate variable debt exposure - The Hagerty Group's Credit Facility, amended in September and December 2022, provides **$230.0 million** in commitments, with **$105.0 million** outstanding as of December 31, 2022[326](index=326&type=chunk)[327](index=327&type=chunk) - The Credit Facility expires in October 2026, accrues interest at Term SOFR Rate plus a margin (effective rate **6.57%** in 2022), and is collateralized by company assets (excluding certain subsidiaries)[327](index=327&type=chunk)[328](index=328&type=chunk) - Hagerty was in compliance with financial covenants (fixed charge coverage ratio, leverage ratio) under the Credit Agreement as of December 31, 2022[329](index=329&type=chunk) - Hagerty uses interest rate swap agreements to fix interest rates on variable debt, mitigating exposure to fluctuations; one swap with a notional amount of **$35.0 million** (fixed rate **0.81%**) matures in December 2025[330](index=330&type=chunk)[331](index=331&type=chunk)[332](index=332&type=chunk) - The Tax Receivable Agreement (TRA) requires Hagerty, Inc. to pay Legacy Unit Holders **85%** of cash tax savings from tax basis adjustments and other benefits, with payments expected to be substantial[333](index=333&type=chunk)[334](index=334&type=chunk) [Contractual Obligations](index=59&type=section&id=Contractual%20Obligations) As of December 31, 2022, Hagerty's total contractual obligations amounted to **$240.9 million**, primarily comprising debt, operating leases, and purchase commitments Contractual Obligations as of December 31, 2022 ($ thousands) | Obligation | Total | 2023 | 2024 | 2025 | 2

"Investor Speakers: McKeel Hagerty | Chief Executive Officer Patrick McClymont | SVP & Chief Financial Officer FORWARD LOOKING STATEMENTS / NON-GAAP FINANCIAL MEASURES (vi) adverse impacts from the COVID-19 pandemic and current and future variants of the virus; (vii) manage the cyclical nature of the insurance business, including through any periods of recession, economic downturn or inflation; (viii) unexpected increases in the frequency or severity of claims; (ix) compliance with the numerous laws and reg ...