Hagerty(US:HGTY)2022-08-10 20:22Part I – Financial Information Financial Statements (Unaudited) Hagerty, Inc.'s unaudited condensed consolidated financial statements for Q2 2022 detail operations, balance sheet, cash flows, and related accounting notes Condensed Consolidated Statements of Operations Q2 2022 saw total revenues rise 23.1% to $206.0 million, but operating income declined significantly, resulting in a net loss Condensed Consolidated Statements of Operations Highlights (in thousands) | Metric | Q2 2022 | Q2 2021 | Change (%) | H1 2022 | H1 2021 | Change (%) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $206,017 | $167,409 | 23.1% | $373,828 | $296,609 | 26.0% | | Operating Income (Loss) | $2,387 | $14,274 | (83.3)% | $(10,617) | $9,178 | (215.7)% | | Net Income (Loss) | $(5,543) | $12,503 | (144.3)% | $10,323 | $5,652 | 82.6% | | Net Income (Loss) Attributable to Controlling Interest | $(5,536) | $12,594 | (144.0)% | $21,971 | $5,788 | 279.6% | | Diluted EPS | $(0.07) | N/A | N/A | $(0.02) | N/A | N/A | Condensed Consolidated Balance Sheets Total assets increased to $1.13 billion, liabilities rose to $845.5 million, and equity shifted to a positive $289.5 million Condensed Consolidated Balance Sheet Highlights (in thousands) | Metric | June 30, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Total Assets | $1,134,981 | $1,041,871 | | Cash and cash equivalents | $180,165 | $275,332 | | Restricted cash and cash equivalents | $381,284 | $328,640 | | Total Liabilities | $845,460 | $771,070 | | Long-term debt | $87,000 | $135,500 | | Warrant liabilities | $61,174 | $89,366 | | Total Equity | $289,521 | $(322,476) | Condensed Consolidated Statements of Cash Flows Operating cash flow decreased to $59.9 million, while investing and financing activities used $53.2 million and $48.5 million respectively Condensed Consolidated Statements of Cash Flows Highlights (in thousands) | Activity | H1 2022 | H1 2021 | | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | $59,925 | $68,074 | | Net Cash Used in Investing Activities | $(53,161) | $(35,169) | | Net Cash Used in Financing Activities | $(48,500) | $13,344 | | Change in cash and cash equivalents | $(42,523) | $46,423 | Notes to Consolidated Financial Statements Notes detail accounting policies, revenue disaggregation, business combinations, acquisitions, and related-party transactions - The company operates as a global market leader in insurance for classic and enthusiast vehicles, with revenue streams from commissions, reinsurance premiums earned via its Bermuda-based captive (Hagerty Re), and membership subscriptions (HDC)474849 - In April 2022, Hagerty acquired Speed Digital LLC for $15.0 million to enhance its Hagerty Marketplace business. In January 2022, it invested $15.3 million for a 40% stake in Broad Arrow Group, Inc. as a joint venture9899 - The company has significant related-party transactions with Markel Corporation, which provides underwriting for its MGA subsidiaries and participates in reinsurance agreements. For H1 2022, commission revenue from Markel-affiliated carriers was $146.3 million, and earned premium from them was $175.4 million162163 - On August 9, 2022, the company entered into a definitive agreement to acquire the remaining 60% of Broad Arrow stock for $64.8 million in Class A Common Stock and exchangeable units168 Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q2 2022 performance, highlighting 23.1% revenue growth, key KPIs, expense increases, and liquidity Q2 2022 vs Q2 2021 Results of Operations (in thousands) | Metric | Q2 2022 | Q2 2021 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $206,017 | $167,409 | $38,608 | 23.1% | | Commission and fee revenue | $95,506 | $83,443 | $12,063 | 14.5% | | Earned premium | $94,100 | $70,437 | $23,663 | 33.6% | | Total Operating Expenses | $203,630 | $153,135 | $50,495 | 33.0% | | Operating Income (Loss) | $2,387 | $14,274 | $(11,887) | (83.3)% | Key Performance Indicators | Metric | June 30, 2022 | June 30, 2021 | | :--- | :--- | :--- | | Total Written Premium (Q2) | $237.7M | $208.1M | | Loss Ratio (Q2) | 41.0% | 41.4% | | Policies in Force | 1,292,138 | N/A (1,247,056 at YE21) | | HDC Paid Member Count | 742,825 | N/A (718,583 at YE21) | - The increase in earned premium revenue was driven by underlying growth ($21.3 million) and an increase in the U.S. quota share percentage with its reinsurance partner ($2.3 million)234 - Operating expenses increased primarily due to higher salaries and benefits from a 15% YoY increase in headcount, increased ceding commissions tied to higher earned premiums, and higher sales expenses related to newly acquired events and advertising237238242 Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, Hagerty is exempt from providing quantitative and qualitative disclosures about market risk - As a smaller reporting company, Hagerty is exempt from providing quantitative and qualitative disclosures about market risk293 Controls and Procedures Management concluded disclosure controls were effective as of June 30, 2022, with no material changes to internal controls - Management concluded that disclosure controls and procedures were effective as of June 30, 2022295 - No material changes were made to internal controls over financial reporting during the second quarter of 2022296 Part II – Other Information Legal Proceedings The company is subject to ordinary course legal claims not expected to materially affect its financial position or operations - The company is subject to ordinary course legal claims but does not expect them to have a material adverse effect on its financial condition or results of operations299 Risk Factors No material changes to the company's risk factors have occurred since the 2021 Annual Report on Form 10-K - No material changes to the Risk Factors disclosed in the 2021 Annual Report on Form 10-K have occurred as of the date of this quarterly report302 Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities or use of proceeds were reported during the period - None303 Defaults Upon Senior Securities No defaults upon senior securities were reported - None305 Mine Safety Disclosures This item is not applicable to the company - Not applicable307 Other Information No other information was reported for this item - None309 Exhibits This section lists exhibits filed with the Form 10-Q, including agreements, governance documents, and certifications - Exhibits filed include the Business Combination Agreement, corporate governance documents, warrant agreements, and CEO/CFO certifications312