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Hagerty Reports First Quarter 2023 Results

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On Track to Deliver Strong Growth and Improved Profitability in 2023

  • First quarter 2023 Total Revenue increased 30% year-over-year to $218.4 million
  • First quarter 2023 Written Premium increased 18% year-over-year to $182.9 million
  • First quarter 2023 Membership, marketplace and other revenue increased 63% year-over-year to $26.5 million
  • First quarter 2023 Net Income (Loss) was $(15.0) million compared to $15.9 million in the prior year period
  • First quarter 2023 Adjusted EBITDA of $6.7 million, an increase of $12.7 million compared to $(6.0) million in the prior year period

TRAVERSE CITY, Mich., May 9, 2023 /PRNewswire/ -- Hagerty, Inc. (NYSE: HGTY), an automotive lifestyle brand and a leading specialty insurance provider focused on the global automotive enthusiast market, today announced financial results for the three months ended March 31, 2023.

"We are off to a strong start in 2023, delivering first quarter revenue growth of 30%. These excellent results were powered by robust written premium growth of 18% despite the volatile macroeconomic environment," said McKeel Hagerty, Chief Executive Officer of Hagerty. "We also announced a restructuring that will further accelerate our path to profitability, and as a result, we have raised our full year 2023 outlook for net income and Adjusted EBITDA."

Mr. Hagerty continued, "We continue to invest in the build-out of Hagerty Marketplace and our online platform. Hagerty has compiled the valuation data over the last four decades that provides the transparency for our members to transact with confidence as they shop for their special vehicles. The opportunity within Marketplace is vast, and we will be disciplined in our approach to balance growth with providing the customer support and protection that bolsters our reputation as the trusted brand for auto enthusiasts."

FIRST QUARTER 2023 FINANCIAL HIGHLIGHTS

  • First quarter Total Revenue increased 30% to $218.4 million compared to the prior year period.
  • First quarter Written Premium increased 18% to $182.9 million compared to the prior year period.
  • First quarter Commission and fee revenue grew 19% to $74.6 million compared to the prior year period.
    • Policies in Force Retention was 88% as of March 31, 2023 compared to 89% as of March 31, 2022. Total insured vehicles increased 7% year-over-year to 2.3 million compared to the prior year period.
  • First quarter Loss Ratio was 41.3% compared to 41.4% in the prior year period.
  • First quarter Earned premium increased 32% to $117.2 million compared to the prior year period.
    • Earned premium growth was driven by the 18% Written Premium growth as well as the increased quota share to approximately 80% compared to 70% in the prior year period.
  • First quarter Membership, marketplace and other revenue increased 63% to $26.5 million compared to the prior year period.
    • Broad Arrow Group helped drive $5.8 million in Marketplace revenue during the first quarter.
    • Hagerty Driver's Club (HDC) paid members increased 6% to approximately 768,000 compared to 727,000 as of March 31, 2022.
  • First quarter Operating Income (Loss) was $(16.5) million compared to $(13.0) million in the prior year period.
    • The Company announced a restructuring charge of $5.5 million during the first quarter of 2023 associated with a reduction in force, reduced hiring plans and additional cost containment initiatives. The Company anticipates delivering incremental annualized cost savings of $20 to $25 million, with approximately $15 million to be realized in 2023.
    • First quarter depreciation and amortization was $13.7 million compared to $7.1 million in the prior year period. The increase was driven in part by the $3.6 million impairment of media content assets.
  • First quarter Net Income (Loss) was $(15.0) million compared to $15.9 million in the prior year period.
    • Net Income (Loss) includes the impact from the change in fair value of warrant liabilities, the restructuring charge, as well as the impairment of media content assets.
  • First quarter Adjusted EBITDA was $6.7 million compared to $(6.0) million in the prior year period.
  • First quarter Basic and Diluted Earnings (Loss) per Share was $(0.03).
  • First quarter Adjusted EPS was $(0.04).

2023 OUTLOOK - PIVOT TO PROFITABLE GROWTH

Despite the uncertain macro environment, we are off to a strong start to 2023 and are well positioned to deliver sustained profitable growth over the coming years. We are confident that the opportunities we have identified to monetize our addressable market will expand our share, and we have thoughtfully prioritized our growth initiatives in 2023 to significantly improve our profitability and fund our purpose to save driving and fuel car culture for future generations. For full year 2023, we anticipate:

  • Total Revenue growth of 22-26% powered by Written Premium growth of 11-13%
    • Sustain double-digit Written Premium growth trajectory
    • Deliver an unmatched online and live Marketplace experience
    • Drive loyalty, referrals and incremental revenue and profit from Membership
  • Continued evolution into an Integrated Insurance Business
    • Increase Hagerty Re's quota share reinsurance agreement in the U.S. and U.K. to ~80%
  • Significantly improved profitability through Cost Containment measures and Operational  Efficiencies
    • Net Income (Loss) of $(13)-$7 million
    • Adjusted EBITDA of $55-$75 million



2023 Outlook


2023 Change vs 2022


2022 Actuals


Low End Range


High End Range


Low End Range


High End Range

Total Revenue (in thousands)

$787,588


$961,000


$993,000


22 %


26 %

Total Written Premium (in thousands)

$776,664


$862,000


$878,000


11 %


13 %

Net Income (Loss) (in thousands)

$2,403


$(13,000)


$7,000


$(15,403)


$4,597

Adjusted EBITDA (in thousands)

$(1,940)


$55,000


$75,000


$56,940


$76,940

    • 2023 Outlook as of the Company's fourth quarter earnings call on March 14, 2023 was for net income (loss) of $(20,000) to $0 and Adjusted EBITDA of $40,000 to $60,000

 


The definitions and reconciliations of non-GAAP financial measures are provided under the heading Key Performance Indicators and Certain Non-GAAP Financial Measures at the end of this press release.

Conference Call Details

Hagerty will hold a conference call to discuss the financial results today at 10:00 am Eastern Time. A webcast of the conference call, including the Company's Investor presentation highlighting first quarter 2023 financial results, will be available on Hagerty's investor relations website at investor.hagerty.com. The dial-in for the conference call is (877) 423-9813 (toll-free) or (201) 689-8573 (international). Please dial the number 10 minutes prior to the scheduled start time.

A webcast replay of the call will be available at investor.hagerty.com following the call.

Forward Looking Statements

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include all statements that are not historical facts. These forward-looking statements reflect Hagerty's current expectations and projections with respect to its expected future business and financial performance, including, among other things: (i) expected operating results, such as revenue growth and increases in earned premium; (ii) changes in the market for Hagerty's products and services, (iii) Hagerty's plans to expand market share, including planned investments and partnerships; (iv) anticipated business objectives; and (v) the strength of Hagerty's business model. These statements may be preceded by, followed by or include the words "aim," "anticipate," "believe," "estimate," "expect," "forecast," "future," "goal," "intend," "likely," "outlook," "plan," "potential," "project," "seek," "target," "can," "could," "may," "should," "would," "will," the negatives thereof and other words and terms of similar meaning.

A number of factors could cause actual results or outcomes to differ materially from those indicated by these forward-looking statements. These factors include, among other things, Hagerty's ability to: (i) compete effectively within its industry and attract and retain members; (ii) maintain key strategic relationships with its insurance distribution and underwriting carrier partners; (iii) prevent, monitor and detect fraudulent activity; (iv) manage risks associated with disruptions, interruptions, outages with its technology platforms or third-party services; (v) accelerate the adoption of Hagerty's membership products as well as any new insurance programs and products; (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; (vii) comply with the numerous laws and regulations applicable to Hagerty's business, including state, federal and foreign laws relating to insurance and rate increases, privacy, the internet and accounting matters; (ix) manage risks associated with being a controlled company; and (x) other risks and uncertainties indicated from time to time in documents filed or to be filed with the Securities and Exchange Commission (the "SEC") by Hagerty.

The forward-looking statements herein represent the judgment of Hagerty as of the date of this release and Hagerty disclaims any intent or obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments, or otherwise. This press release should be read in conjunction with the information included in the Company's other press releases, reports and other filings with the SEC. Understanding the information contained in these filings is important in order to fully understand Hagerty's reported financial results and our business outlook for future periods.

About Hagerty, Inc. (NYSE: HGTY)

Hagerty is an automotive lifestyle brand committed to saving driving and fueling car culture for future generations. The company is a leading provider of specialty vehicle insurance, expert car valuation data and insights, live and digital car auction services, immersive events and automotive entertainment custom made for the 67 million Americans who self-describe as car enthusiasts. Hagerty also operates in Canada and the UK and is home to Hagerty Drivers Club, a community of more than 750,000 who can't get enough of cars. As a purpose-driven organization, Hagerty Impact aims to be a catalyst for positive change across the issues that matter most to our teams, our members, the broader automotive community, our shareholders and the planet at large. For more information, please visit www.hagerty.com or connect with us on Facebook, Instagram and Twitter.

More information can be found at newsroom.hagerty.com.

Hagerty, Inc. 
Condensed Consolidated Statements of Operations (Unaudited)



Three months ended March 31,


2023


2022


$ Change


% Change









REVENUE:

in thousands (except percentages)

Commission and fee revenue

$       74,612


$       62,461


$       12,151


19.5 %

Earned premium

117,231


89,132


28,099


31.5 %

Membership, marketplace and other revenue

26,509


16,218


10,291


63.5 %

Total revenue

218,352


167,811


50,541


30.1 %

OPERATING EXPENSES:








Salaries and benefits

55,232


46,476


8,756


18.8 %

Ceding commission

55,425


42,378


13,047


30.8 %

Losses and loss adjustment expenses

48,412


36,919


11,493


31.1 %

Sales expense

35,113


28,437


6,676


23.5 %

General and administrative services

21,381


19,458


1,923


9.9 %

Depreciation and amortization

13,743


7,147


6,596


92.3 %

Restructuring, impairment and related charges, net

5,535



5,535


100.0 %

Total operating expenses

234,841


180,815


54,026


29.9 %

OPERATING INCOME (LOSS)

(16,489)


(13,004)


(3,485)


(26.8) %

Change in fair value of warrant liabilities

(515)


31,686


(32,201)


(101.6) %

Interest and other income (expense)

5,647


(684)


6,331


925.6 %

INCOME (LOSS) BEFORE INCOME TAX EXPENSE

(11,357)


17,998


(29,355)


(163.1) %

Income tax benefit (expense)

(3,668)


(2,030)


(1,638)


80.7 %

Income (loss) from equity method investment, net of tax


(102)


102


(100.0) %

NET INCOME (LOSS)

(15,025)


15,866


(30,891)


(194.7) %

Net loss (income) attributable to non-controlling interest

12,926


11,641


1,285


11.0 %

NET INCOME (LOSS) ATTRIBUTABLE TO
CONTROLLING INTEREST

$       (2,099)


$       27,507


$     (29,606)


(107.6) %









Earnings (loss) per share of Class A Common Stock:








Basic

$         (0.03)


$           0.33





Diluted

$         (0.03)


$         (0.01)













Weighted-average shares of Class A Common Stock
outstanding:








Basic

83,227


82,433





Diluted

83,227


335,903





 

Hagerty, Inc. 
Condensed Consolidated Balance Sheets (Unaudited)



March 31,

2023


December 31,

2022





ASSETS

in thousands (except share amounts)

Current Assets:




Cash and cash equivalents

$                   63,367


$                   95,172

Restricted cash and cash equivalents

444,024


444,019

Accounts receivable

62,843


58,255

Premiums receivable

135,026


100,700

Commissions receivable

15,978


60,151

Notes receivable

33,716


25,493

Deferred acquisition costs, net

113,686


107,342

Other current assets

57,775


45,651

Total current assets

926,415


936,783

Notes receivable

12,707


11,934

Property and equipment, net

24,617


25,256

Lease right-of-use assets

80,462


82,398

Intangible assets, net

102,786


104,024

Goodwill

115,041


115,041

Other long-term assets

39,925


37,082

TOTAL ASSETS

$              1,301,953


$              1,312,518

LIABILITIES AND EQUITY




Current Liabilities:




Accounts payable, accrued expenses and other current liabilities

$                   75,186


$                   77,049

Losses payable and provision for unpaid losses and loss adjustment expenses

161,955


167,257

Commissions payable

62,991


77,075

Due to insurers

87,712


68,171

Advanced premiums

34,506


17,084

Unearned premiums

247,253


235,462

Contract liabilities

25,662


25,257

Total current liabilities

695,265


667,355

Long-term lease liabilities

78,845


80,772

Long-term debt

89,030


108,280

Warrant liabilities

46,076


45,561

Deferred tax liability

13,846


12,850

Contract liabilities

18,669


19,169

Other long-term liabilities

3,506


11,162

TOTAL LIABILITIES

945,237


945,149

Commitments and Contingencies


STOCKHOLDERS' EQUITY




Preferred stock, $0.0001 par value (20,000,000 shares authorized, no shares issued and
outstanding as of March 31, 2023 and December 31, 2022, respectively)


Class A common stock, $0.0001 par value (500,000,000 shares authorized, 83,338,436 and
83,202,969 issued and outstanding as of March 31, 2023 and December 31, 2022, respectively)

8


8

Class V common stock, $0.0001 par value (300,000,000 authorized, 251,033,906 shares
issued and outstanding as of March 31, 2023 and December 31, 2022)

25


25

Additional paid-in capital

554,049


549,034

Accumulated earnings (deficit)

(491,701)


(489,602)

Accumulated other comprehensive income (loss)

(272)


(213)

Total stockholders' equity

62,109


59,252

Non-controlling interest

294,607


308,117

Total equity

356,716


367,369

TOTAL LIABILITIES AND EQUITY

$              1,301,953


$              1,312,518

 

Hagerty, Inc. 
Condensed Consolidated Statements of Cash Flows (Unaudited)



Three months ended

March 31,


2023


2022





OPERATING ACTIVITIES:

in thousands

Net income (loss)

$           (15,025)


$            15,866

Adjustments to reconcile net income (loss) to net cash from operating activities:




Change in fair value of warrant liabilities

515


(31,686)

Depreciation and amortization expense

13,743


7,147

Provision for deferred taxes

937


462

Loss on disposals of equipment, software and other assets

472


198

Stock-based compensation expense

4,113


Other

593


152

Changes in operating assets and liabilities:




Accounts, premiums and commission receivable

3,777


19,950

Deferred acquisition costs

(6,344)


(3,459)

Losses payable and provision for unpaid losses and loss adjustment expenses

(5,302)


2,520

Commissions payable

(14,084)


(14,765)

Due to insurers

19,510


16,362

Advanced premiums

17,422


15,559

Unearned premiums

11,791


6,272

Other assets and liabilities, net

(20,390)


(25,564)

Net Cash Provided by Operating Activities

11,728


9,014

INVESTING ACTIVITIES:




Purchases of property, equipment and software

(8,133)


(10,532)

Acquisitions, net of cash acquired

(6,076)


(6,028)

Purchase of previously held equity method investment


(15,250)

Issuance of notes receivable

(7,833)


Collection of notes receivable

415


Purchase of fixed income securities

(4,348)


Maturities of fixed income securities

1,150


Other investing activities

22


13

Net Cash Used in Investing Activities

(24,803)


(31,797)

FINANCING ACTIVITIES:


Payments on long-term debt

(47,250)


(41,500)

Proceeds from long-term debt

27,871


22,500

Contribution from non-controlling interest

500


Net Cash Used in Financing Activities

(18,879)


(19,000)

Effect of exchange rate changes on cash and cash equivalents and restricted cash
and cash equivalents

154


6





Change in cash and cash equivalents and restricted cash and cash equivalents

(31,800)


(41,777)

Beginning cash and cash equivalents and restricted cash and cash equivalents

539,191


603,972

Ending cash and cash equivalents and restricted cash and cash equivalents

$           507,391


$           562,195


Hagerty, Inc. 
Key Performance Indicators and Certain Non-GAAP Financial Measures

Key Performance Indicators

The tables below present a summary of our Key Performance Indicators, including important operational metrics, as well as certain GAAP and non-GAAP financial measures as of and for the periods presented. We use these Key Performance Indicators to evaluate our business, measure our performance, identify trends against planned initiatives, prepare financial projections and make strategic decisions. We believe these Key Performance Indicators are useful in evaluating the Company's performance when read together with our Condensed Consolidated Financial Statements prepared in accordance with GAAP. 


Three months ended

March 31,


2023


2022

Operational Metrics




Total Written Premium (in thousands)

$        182,850


$        154,790

Loss Ratio

41.3 %


41.4 %

New Business Count (Insurance)

51,762


47,514





GAAP Measures




Total Revenue (in thousands)

$        218,352


$        167,811

Operating Income (Loss) (in thousands)

$        (16,489)


$        (13,004)

Net Income (Loss) (in thousands)

$        (15,025)


$         15,866

Basic Earnings (Loss) Per Share

$            (0.03)


$             0.33





Non-GAAP Financial Measures




Adjusted EBITDA (in thousands)

$           6,705


$          (5,959)

Adjusted Earnings (Loss) Per Share

$            (0.04)


$            (0.04)




March 31,

2023


December 31,
2022

Operational Metrics




Policies in Force

1,335,008


1,315,977

Policies in Force Retention

87.9 %


88.0 %

Vehicles in Force

2,275,387


2,234,461

HDC Paid Member Count

767,872


752,754

Net Promoter Score (NPS)

83


83


Non-GAAP Financial Measures

Adjusted EBITDA

We define Adjusted EBITDA as consolidated Net income (loss) excluding interest and other income (expense), income tax (expense) benefit, and depreciation and amortization, adjusted to exclude (i) restructuring, impairment and related charges, net; (ii) changes in fair value of warrant liabilities; (iii) stock-based compensation expense; (iv) when applicable, the net gain or loss from asset disposals; and (v) when applicable, certain other unusual items.

We present Adjusted EBITDA because we consider it to be an important supplemental measure of the Company's performance and believe it is frequently used by securities analysts, investors, and other interested parties in the evaluation of companies in our industry. Management uses Adjusted EBITDA as a measure of the operating performance of  our business on a consistent basis, as it removes the impact of items not directly resulting from our core operations.

By providing this non-GAAP financial measure, together with a reconciliation to net income (loss), which is the most comparable GAAP measure, we believe we are enhancing investors' understanding of our business and our results of operations, as well as assisting investors in evaluating how well we are executing our strategic initiatives. However, Adjusted EBITDA has limitations as an analytical tool, and should not be considered in isolation, or as an alternative to, or a substitute for net income (loss) or other financial statement data presented in our Condensed Consolidated Financial Statements as indicators of financial performance. Hagerty's Adjusted EBITDA may be determined or calculated differently than similarly titled measures of other companies in our industry, which could reduce the usefulness of this non-GAAP financial measure when comparing our performance to that of other companies.

The following table reconciles Adjusted EBITDA for the three months ended March 31, 2023 and 2022 to the most directly comparable GAAP measure, which is Net income (loss):



Three months ended

March 31,



2023


2022








in thousands

Net income (loss)

$           (15,025)


$            15,866

Interest and other (income) expense

(5,647)


684

Income tax (benefit) expense

3,668


2,030

Depreciation and amortization

13,743


7,147

Restructuring, impairment and related charges, net

5,535


Change in fair value of warrant liabilities

515


(31,686)

Stock-based compensation expense

3,916


Adjusted EBITDA

$              6,705


$             (5,959)






The following table reconciles Adjusted EBITDA for the year ended December 31, 2023 Outlook to the most directly comparable GAAP measure, which is Net income (loss):



2023 Low


2023 High








in thousands

Net income (loss)

$           (13,000)


$              7,000

Interest and other (income) expense

(10,750)


(10,750)

Income tax (benefit) expense

14,300


14,300

Depreciation and amortization

41,700


41,700

Restructuring, impairment and related charges, net

5,535


5,535

Change in fair value of warrant liabilities

515


515

Stock-based compensation expense

16,700


16,700

Adjusted EBITDA

$            55,000


$            75,000






Adjusted EPS

We define Adjusted Earnings (Loss) Per Share ("Adjusted EPS") as consolidated Net income (loss) attributable to both our controlling and non-controlling interest, less the change in fair value of our warrants divided by our outstanding and total potentially dilutive securities. The total potentially dilutive securities includes (1) the weighted-average issued and outstanding shares of Class A Common Stock; (2) all issued and outstanding non-controlling interest Hagerty Group Units; (3) all unexercised warrants; and (4) all unissued stock-based compensation awards.

In the third quarter of 2022, we began removing (1) the change in fair value of our warrants and (2) the revaluation gain on previously held equity method investment from consolidated Net income (loss) attributable to both our controlling and non-controlling interest for purposes of calculating Adjusted EPS. For comparability, references to prior period non-GAAP measures have been updated to show the effect of removing the change in the fair value of our warrants from Adjusted EPS. We believe this updated presentation of Adjusted EPS enhances investors' understanding of our financial performance from activities occurring in the ordinary course of our business.

The most directly comparable GAAP measure is basic earnings per share ("Basic EPS"), which is calculated as Net income (loss) attributable to controlling interest divided by the weighted average of Class A Common Stock outstanding during the period.

We present Adjusted EPS because we consider it to be an important supplemental measure of our operating performance and believe it is used by investors and securities analysts in evaluating the consolidated performance of other companies in our industry. We also believe that Adjusted EPS, which compares our consolidated Net income (loss) (which includes our controlling and non-controlling interest) with our outstanding and potentially dilutive shares, provides useful information to investors regarding our performance on a fully consolidated basis.

Management uses Adjusted EPS:

  • as a measurement of operating performance of our business on a fully consolidated basis;
  • to evaluate the performance and effectiveness of our operational strategies; and
  • as a preferred predictor of core operating performance, comparisons to prior periods and competitive positioning.

We caution investors that Adjusted EPS is not a recognized measure under GAAP and should not be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP, including Basic EPS, and that Adjusted EPS, as we define it, may be defined or calculated differently by other companies. In addition, Adjusted EPS has limitations as an analytical tool and should not be considered as a measure of profit or loss per share.

The following table reconciles Adjusted EPS to the most directly comparable GAAP measure, which is Basic EPS:



Three months ended March 31,



2023


2022








in thousands (except per share
amounts)

Numerator:




Net income (loss) attributable to controlling interest(1)

$             (2,099)


$            27,507

Net income (loss) attributable to non-controlling interest

(12,926)


(11,641)

Consolidated net income (loss)

(15,025)


15,866

Change in fair value of warrant liabilities

515


(31,686)

Adjusted consolidated net income (loss)(2)

$           (14,510)


$           (15,820)





Denominator:




Weighted average shares of Class A Common Stock outstanding — basic(1)

83,227


82,433

Total potentially dilutive securities outstanding:




Conversion of non-controlling interest Hagerty Group Units to

Class A Common Stock

255,640


251,034

Total warrants outstanding

19,484


19,484

Total unissued stock-based compensation awards

6,870


Potentially dilutive shares outstanding

281,994


270,518

Fully dilutive shares outstanding(2)

365,221


352,951






Basic EPS = (Net income (loss) attributable to controlling interest / Weighted-
average shares of Class A Common Stock outstanding)(1)

$               (0.03)


$                0.33






Adjusted EPS = (Adjusted consolidated net income (loss) / Fully dilutive shares
outstanding)(2)

$               (0.04)


$               (0.04)






(1)  Numerator and Denominator of the GAAP measure Basic EPS

(2)  Numerator and Denominator of the non-GAAP measure Adjusted EPS

 

Cision View original content:https://www.prnewswire.com/news-releases/hagerty-reports-first-quarter-2023-results-301818751.html

SOURCE Hagerty

Hagerty, Inc.

NYSE:HGTY

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