Hagerty(US:HGTY)2025-08-04 14:53Part I – Financial Information Item 1. Financial Statements (Unaudited) This section presents Hagerty's unaudited condensed consolidated financial statements for the quarterly period ended June 30, 2025 Condensed Consolidated Statements of Operations The company reported significant year-over-year revenue growth and improved net income for the periods ending June 30, 2025 Key Operational Results (in thousands, except per share amounts) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Total Revenue | $368,699 | $313,225 | $688,292 | $584,933 | | Operating Income | $47,699 | $38,067 | $73,427 | $50,291 | | Net Income | $47,202 | $42,657 | $74,495 | $50,856 | | Net Income Attributable to Class A Common Stockholders | $9,098 | $8,539 | $15,594 | $5,350 | | Basic EPS | $0.09 | $0.09 | $0.16 | $0.06 | | Diluted EPS | $0.09 | $0.09 | $0.16 | $0.06 | Condensed Consolidated Balance Sheets Total assets grew to $2.04 billion, with corresponding increases in liabilities and equity as of June 30, 2025 Balance Sheet Summary (in thousands) | Account | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Total Assets | $2,040,575 | $1,709,338 | | Cash and cash equivalents | $140,300 | $104,784 | | Investments | $601,574 | $589,527 | | Total Liabilities | $1,379,724 | $1,101,169 | | Long-term debt, net | $153,383 | $104,968 | | Total Equity | $578,038 | $523,506 | Condensed Consolidated Statements of Cash Flows Operating cash flow decreased while financing activities provided cash, reversing a prior-year trend for H1 2025 Cash Flow Summary for Six Months Ended June 30 (in thousands) | Activity | 2025 | 2024 | | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | $97,714 | $122,255 | | Net Cash Used in Investing Activities | ($31,839) | ($479,937) | | Net Cash Provided by (Used in) Financing Activities | $29,480 | ($50,783) | | Change in cash and cash equivalents | $97,741 | ($408,754) | Notes to Financial Statements Details the company's business model, accounting policies, revenue, investments, debt, and related-party transactions - Hagerty operates as a Managing General Agent (MGA) for collector car insurance, reinsuring approximately 80% of the risk through its subsidiary, Hagerty Re34 - The company has one reportable segment, with the CEO acting as the Chief Operating Decision Maker (CODM), who evaluates performance based on consolidated measures like net income45 - In July 2024, the company completed a warrant exchange, issuing 3.9 million shares of Class A Common Stock for 19.5 million warrants76 - Significant related-party transactions exist with Markel (underwriting and reinsurance) and State Farm (alliance agreement, reinsurance, and a term loan)191192196 Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Details strong revenue growth, a proposed new fronting arrangement with Markel, and analysis of key performance indicators Overview and Recent Developments Hagerty, a leader in collector car insurance, announced a non-binding letter of intent for a new fronting arrangement with Markel - On July 24, 2025, Hagerty announced a non-binding letter of intent for a Proposed Fronting Arrangement with Markel, expected to be effective January 1, 2026210 - Under the proposed arrangement, Hagerty Re would control 100% of the premium and assume 100% of the risk for policies written through Essentia, paying Markel an initial 2% fronting fee211 Key Performance Indicators Total Written Premium grew 11.3% and Policies in Force increased by 3.5% as of June 30, 2025 Key Performance Indicators - Six Months Ended June 30 | Metric | 2025 | 2024 | % Change | | :--- | :--- | :--- | :--- | | Total Written Premium | $600,312 thousand | $539,459 thousand | 11.3% | | Hagerty Re Loss Ratio | 42.2% | 41.1% | 1.1 ppt | | New Business Count - Insurance | 143,181 | 148,335 | (3.5)% | | Adjusted EBITDA | $103,352 thousand | $80,440 thousand | 28.5% | Key Performance Indicators - As of Period End | Metric | June 30, 2025 | Dec 31, 2024 | % Change | | :--- | :--- | :--- | :--- | | Policies in Force | 1,559,798 | 1,506,451 | 3.5% | | Policies in Force Retention | 88.7% | 89.0% | (0.3) ppt | | HDC Paid Member Count | 907,963 | 875,822 | 3.7% | Results of Operations Total revenue increased 17.7% and operating income grew 46.0% for H1 2025, driven by higher premiums and marketplace sales - For Q2 2025, commission and fee revenue grew 11.2% YoY, driven by policy renewals with a 14.3% increase in underlying premiums due to rate increases241242 - Q2 2025 Marketplace revenue surged by $20.5 million YoY, driven by higher inventory sales and the inaugural auction at Concorso d'Eleganza Villa d'Este248 - For H1 2025, the Hagerty Re loss ratio was 42.2%, which included $10.3 million in pre-tax catastrophe losses from the Southern California wildfires in January 2025276 - H1 2025 Sales expense increased 39.2% YoY, mainly due to a $27.5 million increase in cost of sales from higher marketplace inventory sales277 Liquidity and Capital Resources The company maintains sufficient liquidity through cash, operations, and credit facilities, despite a decrease in operating cash flow - Primary liquidity sources are cash balances, operating cash flows, and borrowings from the 2025 JPM Credit Facility and the BAC Credit Facility285 - In March 2025, the company entered into a new $375.0 million senior unsecured revolving credit facility with JPM, maturing in March 2030289290 - Net cash from operating activities decreased by $24.5 million in H1 2025 compared to H1 2024, primarily due to the timing of CUC settlements and catastrophe claim payments304307 - The estimated value of the Tax Receivable Agreement (TRA) Liability was $5.1 million as of June 30, 2025312 Non-GAAP Financial Measures Adjusted EBITDA increased 28.5% to $103.4 million and Adjusted EPS rose to $0.21 for H1 2025 Reconciliation of Net Income to Adjusted EBITDA (in thousands) | Line Item | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | | Net income | $74,495 | $50,856 | | Interest and other (income) expense, net | ($12,718) | ($19,586) | | Income tax expense | $11,650 | $10,940 | | Depreciation and amortization | $18,321 | $20,574 | | EBITDA | $91,748 | $62,784 | | Loss related to warrant liabilities, net | — | $8,081 | | Share-based compensation expense | $9,538 | $8,926 | | Other unusual items | $2,066 | $736 | | Adjusted EBITDA | $103,352 | $80,440 | Adjusted EPS Calculation | Metric | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | | Adjusted consolidated net income (Numerator) | $74,495 thousand | $58,937 thousand | | Fully dilutive shares outstanding (Denominator) | 360,971 thousand | 359,428 thousand | | Adjusted EPS | $0.21 | $0.16 | Quantitative and Qualitative Disclosures About Market Risk The company reports no material changes to its market risk during the first six months of 2025 - There have been no material changes to the company's market risk during the first six months of 2025328 Controls and Procedures Management concluded that disclosure controls and procedures were effective with no material changes to internal controls - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of June 30, 2025330 - No changes occurred during the quarter that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting331 Part II – Other Information Legal Proceedings The company faces no legal actions expected to have a material adverse effect on its financial position - The company is subject to various claims and legal actions from the ordinary course of business but does not expect them to have a material adverse effect332 Risk Factors New risks include the potential failure of the proposed Markel fronting arrangement and the impact of rising interest rates - A new risk factor highlights the uncertainty surrounding the finalization and potential benefits of the Proposed Fronting Arrangement with Markel, noting it is subject to negotiation, definitive documentation, and regulatory approvals336337 - The company identifies rising interest rates and tariffs as a risk that could increase costs and reduce consumer demand for discretionary items like collector cars, potentially harming business results338 Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities or use of proceeds during the period - None339 Other Information No director or executive officer adopted or terminated a Rule 10b5-1 trading arrangement during the second quarter - During Q2 2025, no director or executive officer adopted or terminated a Rule 10b5-1 trading arrangement342