Hagerty, Inc. [HGTY] Filings

10-Q 1 hgty-20230630.htm 10-Q hgty-20230630

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 June 30, 2023


☐			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
(State of incorporation)		(I.R.S. Employer Identification No.)

121 Drivers Edge, Traverse City, Michigan		49684
(Address of principal executive offices)		(Zip code)

	(800) 922-4050
	Registrant's telephone number, including area code

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbols

Name of each exchange on which registered

Class A common stock, par value $0.0001 per share

HGTY

The New York Stock Exchange

Warrants, each whole warrant exercisable for one share
of Class A common stock, each at an exercise price of
$11.50 per share

HGTY.WS

The New York Stock Exchange

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☐	Accelerated filer	☒
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒

The registrant had 84,479,065 shares of Class A Common Stock outstanding and 251,033,906 shares of Class V Common Stock outstanding as of July 21, 2023.

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Table of Contents


Title						Page
Forward Looking Statements						4
Glossary of Terms						6

Part I – Financial Information						7
Item 1. Financial Statements (Unaudited)						7
Condensed Consolidated Statements of Operations						7
Condensed Consolidated Statements of Comprehensive Income (Loss)						8
Condensed Consolidated Balance Sheets						9
Condensed Consolidated Statements of Chang es in Temporary Equity and Stockholders' Equity						11
Condensed Consolidated Statements of Cash Flows						12
Notes Accompanying the Condensed Consolidated Financial Statements						13
Note 1 — Basis of Presentation and Accounting Policies						13
Note 2 — Revenue						17
Note 3 — N o tes Receivable						19
Note 4 — O ther Ass ets						21
Note 5 — Leases						21
Note 6 — Acquisitions and Investments						22
Note 7 — Goodwill and Intangible Assets						24
Note 8 — Provision for Unpaid Losses and Loss Adjustment Expenses						25
Note 9 — Reinsurance						26
Note 10 — Restructuring, Impairment and Related Charges						27
Note 11 — Fair Value Measurements						27
Note 12 — Long-Term Debt						30
Note 13 — Interest Rate Swaps						31
Note 14 — Convertible Preferred Stock						32
Note 1 5 — Stockholders' Equity						34
Note 1 6 — Earnings (Loss) Per Share						35
Note 1 7 — Warrant Liabilities						37
Note 1 8 — S hare -Based Compensation						38
Note 1 9 — Taxation						40
Note 20 — Related-Party Transactions						42
Note 2 1 — Commitments and Contingencies						45
Note 2 2 — Subsequent Events						45
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations						46
Item 3. Quantitative and Qualitative Disclosures About Market Risk						64
Item 4. Controls and Procedures						65

Part II – Other Information						66
Item 1. Legal Proceedings						66
Item 1A. Risk Factors						66
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds						66
Item 3. Defaults Upon Senior Securities						66
Item 4. Mine Safety Disclosures						66
Item 5. Other Information						67
Item 6. Exhibits						68
Signatures						70

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Cautionary Statement Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q, as well as information included in oral statements or other written statements made by us, contain statements that constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. All statements contained in this Quarterly Report on Form 10-Q other than statements of historical fact, including statements regarding our future operating results and financial position, our business strategy and plans, products, services, and technology offerings, market conditions, growth and trends, expansion plans and opportunities, and our objectives for future operations are forward-looking statements. Forward-looking statements can be identified by words such as "anticipate," "believe," "envision," "estimate," "expect," "intend," "may," "plan," "predict," "project," "target," "potential," "will," "would," "could," "should," "continue," "ongoing," "contemplate," and other similar expressions, although not all forward-looking statements contain these identifying words.

We have based these forward-looking statements largely on our current expectations and projections about future events and trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations and objectives, and financial needs. These forward-looking statements are subject to a number of risks, uncertainties, and assumptions, including those described in Part I, Item 1A. "Risk Factors" of our Annual Report on Form 10-K for the year ended December 31, 2022. In light of these risks, uncertainties, and assumptions, the future events and trends discussed in this Quarterly Report on Form 10-Q may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.

Factors that could cause actual results to differ materially from those expressed or implied in forward-looking statements include, among other things, our ability to:

•compete effectively within our industry and attract and retain Members;

•maintain key strategic relationships with our insurance distribution and underwriting carrier partners;

•prevent, monitor and detect fraudulent activity;

•manage risks associated with disruptions, interruptions, outages or other issues with our technology platforms or our use of third-party services;

•accelerate the adoption of our membership products as well as any new insurance programs and products we offer;

•manage the cyclical nature of the insurance business, including through any periods of recession, economic downturn or inflation;

•address unexpected increases in the frequency or severity of claims;

•comply with the numerous laws and regulations applicable to our business, including state, federal and foreign laws relating to insurance and rate increases, privacy, the internet, and accounting matters;

•manage risks associated with being a controlled company; and

•successfully defend any litigation, government inquiries, and investigations.

You should not rely on forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, performance, or events and circumstances reflected in the forward-looking statements will occur. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the effect of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. The forward-looking statements in this Quarterly Report on Form 10-Q represent our views as of the date of this Report. We undertake no obligation to update any of these forward-looking statements for any reason after the date of this Quarterly Report on Form 10-Q or to conform these statements to actual results or revised expectations.

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Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and any amendments to those reports, are available free of charge on our website, investor.hagerty.com, under the heading "Financials & Filings" immediately after they are filed with, or furnished to, the Securities and Exchange Commission ("SEC"). We use our investor relations website, investor.hagerty.com, as a means of disclosing information which may be of interest or material to our investors and for complying with disclosure obligations under Regulation FD. Accordingly, investors should monitor our investor relations website, in addition to following our press releases, SEC filings, public conference calls, webcasts, and social media channels. Information contained on or accessible through, including any reports available on, our website or social media channels is not a part of, and is not incorporated by reference into, this Quarterly Report on Form 10-Q or any other report or document we file with the SEC. Any reference to our website in this Form 10-Q is intended to be an inactive textual reference only.

Unless the context requires otherwise, the terms "we", "our", "us", "Hagerty", and "the Company" as used in this Quarterly Report on Form 10-Q refer to Hagerty, Inc., formerly known as Aldel Financial Inc. ("Aldel"), and our consolidated subsidiaries, including The Hagerty Group, LLC ("The Hagerty Group").

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Glossary of Terms

The following is a glossary of selected terms used throughout this Quarterly Report on Form 10-Q that are technical in nature and/or are specific to the operations of the Company:

BMA Bermuda Monetary Authority, established under the Bermuda Monetary Authority Act of 1969. The BMA supervises, regulates and inspects financial institutions operating from within its jurisdiction.

Book of Business Insurance policies bound by us with our Carriers (as defined below) on behalf of our insurance Members (as defined below).

BSCR Bermuda Solvency Capital Requirement, which is the Bermuda Monetary Authority's risk-based capital model that was developed to enhance the capital adequacy framework for the insurance sector.

Carrier An insurance company.

CUC Contingent Underwriting Commission, a profit-share earned by the Company from a carrier based on the written or earned premium and loss ratio results for a calendar-year.

Hagerty Re Hagerty Reinsurance Limited, our wholly-owned captive reinsurance subsidiary domiciled in Bermuda.

HDC Hagerty Drivers Club membership program.

IBNR Incurred but not reported, a reserve account used as a provision for claims and/or events that have transpired but have not yet been reported to the Carrier.

Loss Ratio Expressed as a percentage, the ratio of (i) losses and loss adjustment expenses incurred to (ii) earned premium in Hagerty Re.

Members Insurance policyholders and HDC paid subscribers.

MGA Managing General Agent, an insurance agent or broker that has been granted underwriting authority by an insurance carrier.

NPS Net Promoter Score, which is used as an important measure of the overall strength of our relationship with Members. As a leading auto enthusiast brand, we use NPS as a barometer for Hagerty brand loyalty and engagement, and is a strong indicator of growth and retention.

PIF Policies in Force, which is the number of current and active insurance policies as of the applicable period end date.

Written Premium The total amount of insurance premium written by our MGA affiliates on policies that were bound by our insurance carrier partners during the applicable period.

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PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Hagerty, Inc.

Condensed Consolidated Statements of Operations (Unaudited)


	Three months ended June 30,				Six months ended June 30,
	2023		2022		2023		2022

REVENUE:	in thousands (except per share amounts)
Commission and fee revenue	$	110,187	$	95,506	$	184,799	$	157,967
Earned premium	127,482		94,100		244,713		183,232
Membership, marketplace and other revenue	23,575		16,411		50,084		32,629
Total revenue	261,244		206,017		479,596		373,828
OPERATING EXPENSES:
Salaries and benefits	53,572		53,271		108,804		99,747
Ceding commission	60,350		45,255		115,775		87,633
Losses and loss adjustment expenses	53,564		38,620		101,976		75,539
Sales expense	41,941		37,455		77,054		65,892
General and administrative services	21,318		20,729		42,699		40,187
Depreciation and amortization	10,397		8,300		24,140		15,447
Restructuring, impairment and related charges, net	2,849		—		8,384		—
Total operating expenses	243,991		203,630		478,832		384,445
OPERATING INCOME (LOSS)	17,253		2,387		764		(10,617)
Change in fair value of warrant liabilities	(1,754)		(5,400)		(2,269)		26,286
Interest and other income (expense)	3,770		(353)		9,417		(1,037)
INCOME (LOSS) BEFORE INCOME TAX EXPENSE	19,269		(3,366)		7,912		14,632
Income tax benefit (expense)	(3,730)		(2,138)		(7,398)		(4,168)
Income (loss) from equity method investment, net of tax	—		(39)		—		(141)
NET INCOME (LOSS)	15,539		(5,543)		514		10,323
Net loss (income) attributable to non-controlling interest	(13,134)		7		(208)		11,648
NET INCOME (LOSS) ATTRIBUTABLE TO CLASS A COMMON STOCKHOLDERS	$	2,405	$	(5,536)	$	306	$	21,971

Earnings (loss) per share of Class A Common Stock:
Basic	$	0.03	$	(0.07)	$	—	$	0.27
Diluted	$	0.03	$	(0.07)	$	—	$	(0.02)

Weighted-average shares of Class A Common Stock outstanding:
Basic	84,371		82,452		83,820		82,443
Diluted	85,563		82,452		84,424		334,702

The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.

See Note 20 for information regarding Related-Party Transactions.

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Hagerty, Inc.

Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)


	Three months ended June 30,				Six months ended June 30,
	2023		2022		2023		2022

	in thousands
Net income (loss)	$	15,539	$	(5,543)	$	514	$	10,323
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments	1,110		(1,022)		1,347		(748)
Derivative instruments	330		388		(148)		1,933
Other comprehensive income (loss)	1,440		(634)		1,199		1,185
Comprehensive income (loss)	16,979		(6,177)		1,713		11,508
Comprehensive loss (income) attributable to non-controlling interest	(14,220)		7		(1,112)		11,648
Comprehensive income (loss) attributable to Class A Common Stockholders	$	2,759	$	(6,170)	$	601	$	23,156

The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.

See Note 20 for information regarding Related-Party Transactions.

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Hagerty, Inc.

Condensed Consolidated Balance Sheets (Unaudited)


	June 30, 2023		December 31, 2022

ASSETS	in thousands (except share amounts)
Current Assets:
Cash and cash equivalents	$	114,252	$	95,172
Restricted cash and cash equivalents	518,109		444,019
Accounts receivable	76,794		58,255
Premiums receivable	193,268		100,700
Commissions receivable	42,317		60,151
Notes receivable	30,991		25,493
Deferred acquisition costs, net	140,098		107,342
Other current assets	63,929		45,651
Total current assets	1,179,758		936,783
Notes receivable	11,885		11,934
Property and equipment, net	23,399		25,256
Lease right-of-use assets	77,640		82,398
Intangible assets, net	103,826		104,024
Goodwill	115,060		115,041
Other long-term assets	40,962		37,082
TOTAL ASSETS	$	1,552,530	$	1,312,518
LIABILITIES, TEMPORARY EQUITY AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable, accrued expenses and other current liabilities	$	78,686	$	77,049
Losses payable and provision for unpaid losses and loss adjustment expenses	172,133		167,257
Commissions payable	101,739		77,075
Due to insurers	128,622		68,171
Advanced premiums	34,173		17,084
Unearned premiums	303,585		235,462
Contract liabilities	29,661		25,257
Total current liabilities	848,599		667,355
Long-term lease liabilities	77,084		80,772
Long-term debt	80,841		108,280
Warrant liabilities	47,830		45,561
Deferred tax liability	16,501		12,850
Contract liabilities	18,336		19,169
Other long-term liabilities	5,370		11,162
TOTAL LIABILITIES	1,094,561		945,149
Commitments and Contingencies (Note 21)	—		—
TEMPORARY EQUITY
Preferred stock, $0.0001 par value (20,000,000 shares authorized, 8,483,561 Series A Convertible Preferred Stock issued and outstanding as of June 30, 2023 and no shares issued and outstanding as of December 31, 2022)	79,159		—
STOCKHOLDERS' EQUITY
Class A Common Stock, $0.0001 par value (500,000,000 shares authorized, 84,405,625 and 83,202,969 issued and outstanding as of June 30, 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 June 30, 2023 and December 31, 2022)	25		25
Additional paid-in capital	556,595		549,034
Accumulated earnings (deficit)	(489,296)		(489,602)
Accumulated other comprehensive income (loss)	83		(213)
Total stockholders' equity	67,415		59,252
Non-controlling interest	311,395		308,117
Total equity (Note 15)	378,810		367,369
TOTAL LIABILITIES, TEMPORARY EQUITY AND STOCKHOLDERS' EQUITY	$	1,552,530	$	1,312,518

The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.

See Note 20 for information regarding Related-Party Transactions.

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Hagerty, Inc.

Condensed Consolidated Statements of Changes in Temporary Equity and Stockholders' Equity (Unaudited)


	Temporary Equity			Stockholders' Equity
	Series A Convertible Preferred Stock			Class A Common Stock			Class V Common Stock			Additional Paid in Capital		Accumulated Earnings (Deficit)		Accumulated Other Comprehensive Income/(Loss)		Total Stockholders' Equity		Non-controlling Interest		Total Equity
in thousands	Shares	Amount		Shares	Amount		Shares	Amount
Balance at December 31, 2022	—	$	—	83,203	$	8	251,034	$	25	$	549,034	$	(489,602)	$	(213)	$	59,252	$	308,117	$	367,369
Net income (loss)	—	—		—	—		—	—		—		(2,099)		—		(2,099)		(12,926)		(15,025)
Other comprehensive income (loss)	—	—		—	—		—	—		—		—		(59)		(59)		(182)		(241)
Issuance of shares under employee plans	—	—		17	—		—	—		—		—		—		—		—		—
Share-based compensation	—	—		—	—		—	—		4,113		—		—		4,113		—		4,113
Conversion of Hagerty Group Units to Class A Common Stock	—	—		119	—		—	—		1,045		—		—		1,045		(1,045)		—
Non-controlling interest issued capital	—	—		—	—		—	—		—		—		—		—		500		500
Reallocation between controlling and non-controlling interest	—	—		—	—		—	—		(143)		—		—		(143)		143		—
Balance at March 31, 2023	—	—		83,339	8		251,034	25		554,049		(491,701)		(272)		62,109		294,607		356,716
Net income (loss)	—	—		—	—		—	—		—		2,405		—		2,405		13,134		15,539
Other comprehensive income (loss)	—	—		—	—		—	—		—		—		355		355		1,085		1,440
Issuance of shares under employee plans	—	—		926	—		—	—		906		—		—		906		—		906
Share-based compensation	—	—		—	—		—	—		4,109		—		—		4,109		—		4,109
Conversion of Hagerty Group Units to Class A Common Stock	—	—		141	—		—	—		1,266		—		—		1,266		(1,266)		—
Issuance of Series A Preferred Convertible Stock, net of issuance costs	8,484	79,159		—	—		—	—		—		—		—		—		—		—
Non-controlling interest issued capital	—	—		—	—		—	—		—		—		—		—		100		100
Reallocation between controlling and non-controlling interest	—	—		—	—		—	—		(3,735)		—		—		(3,735)		3,735		—
Balance at June 30, 2023	8,484	$	79,159	84,406	$	8	251,034	$	25	$	556,595	$	(489,296)	$	83	$	67,415	$	311,395	$	378,810

The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.

See Note 20 for information regarding Related-Party Transactions.

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Hagerty, Inc.

Condensed Consolidated Statements of Changes in Temporary Equity and Stockholders' Equity (Unaudited)


	Temporary Equity		Stockholders' Equity
	Redeemable Non-controlling Interest		Class A Common Stock			Class V Common Stock			Additional Paid in Capital		Accumulated Earnings (Deficit)		Accumulated Other Comprehensive Income/(Loss)		Total Stockholders' Equity		Non-controlling Interest		Total Equity
in thousands			Shares	Amount		Shares	Amount
Balance at December 31, 2021	$	593,277	82,327	$	8	251,034	$	25	$	160,189	$	(482,276)	$	(1,727)	$	(323,781)	$	1,305	$	(322,476)
Net income (loss) before exchange agreement amendment	(11,205)		—	—		—	—		—		(3,679)		—		(3,679)		(172)		(3,851)
Other comprehensive income (loss) before exchange agreement amendment	—		—	—		—	—		—		—		1,657		1,657		—		1,657
Exercise of warrants	—		125	—		—	—		1,906		—		—		1,906		—		1,906
Redemption value adjustment for redeemable non-controlling interest	1,560,418		—	—		—	—		(162,095)		(1,398,325)		—		(1,560,420)		—		(1,560,420)
Removal of the redeemable feature of the non-controlling interest	(2,142,490)		—	—		—	—		528,615		1,398,325		—		1,926,940		215,550		2,142,490
Net income (loss) subsequent to exchange agreement amendment	—		—	—		—	—		—		31,187		—		31,187		(264)		30,923
Other comprehensive income (loss) subsequent to exchange agreement amendment	—		—	—		—	—		—		—		162		162		—		162
Balance at March 31, 2022	—		82,452	8		251,034	25		528,615		(454,768)		92		73,972		216,419		290,391
Net income (loss)	—		—	—		—	—		—		(5,536)		—		(5,536)		(7)		(5,543)
Other comprehensive income (loss)	—		—	—		—	—		—		—		(634)		(634)		—		(634)
Share-based compensation	—		—	—		—	—		4,307		—		—		4,307		—		4,307
Non-controlling interest issued capital	—		—	—		—	—		—		—		—		—		1,000		1,000
Balance at June 30, 2022	$	—	82,452	$	8	251,034	$	25	$	532,922	$	(460,304)	$	(542)	$	72,109	$	217,412	$	289,521

The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.

See Note 20 for information regarding Related-Party Transactions.

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Hagerty, Inc.

Condensed Consolidated Statements of Cash Flows (Unaudited)


	Six months ended June 30,
	2023		2022

OPERATING ACTIVITIES:	in thousands
Net income (loss)	$	514	$	10,323
Adjustments to reconcile net income (loss) to net cash from operating activities:
Change in fair value of warrant liabilities	2,269		(26,286)
Depreciation and amortization expense	24,140		15,447
Provision for deferred taxes	3,480		2,553
Impairment of operating lease right-of-use assets	1,147		—
Loss on disposals of equipment, software and other assets	1,668		361
Share-based compensation expense	8,222		4,307
Other	958		229
Changes in operating assets and liabilities:
Accounts, premiums and commission receivable	(93,549)		(54,294)
Deferred acquisition costs	(32,756)		(23,307)
Losses payable and provision for unpaid losses and loss adjustment expenses	4,876		14,570
Commissions payable	24,664		14,795
Due to insurers	60,174		52,486
Advanced premiums	17,043		15,032
Unearned premiums	68,123		49,395
Other assets and liabilities, net	(20,416)		(15,686)
Net Cash Provided by Operating Activities	70,557		59,925
INVESTING ACTIVITIES:
Capital expenditures	(16,251)		(21,520)
Acquisitions, net of cash acquired	(7,084)		(13,520)
Purchase of previously held equity method investment	—		(15,250)
Issuance of notes receivable	(11,015)		—
Collection of notes receivable	6,235		—
Purchase of fixed income securities	(6,172)		(2,448)
Maturities of fixed income securities	2,964		1,216
Other investing activities	22		(1,639)
Net Cash Used in Investing Activities	(31,301)		(53,161)
FINANCING ACTIVITIES:
Payments on long-term debt	(99,250)		(91,500)
Proceeds from long-term debt	71,590		42,000
Proceeds from issuance of preferred stock, net of issuance costs	79,159		—
Contribution from non-controlling interest	600		1,000
Proceeds from issuance of common stock under employee stock purchase plan	906		—
Net Cash Provided by (Used in) Financing Activities	53,005		(48,500)
Effect of exchange rate changes on cash and cash equivalents and restricted cash and cash equivalents	909		(787)

Change in cash and cash equivalents and restricted cash and cash equivalents	93,170		(42,523)
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	$	632,361	$	561,449

The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.

See Note 20 for information regarding Related-Party Transactions.

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Hagerty, Inc.

Notes To Condensed Consolidated Financial Statements (Unaudited)

1 — Basis of Presentation and Accounting Policies

In these notes to the Condensed Consolidated Financial Statements, the terms "we," "Hagerty," and "the Company" refer to Hagerty, Inc., and its consolidated subsidiaries, including The Hagerty Group, LLC ("The Hagerty Group"), unless the context requires otherwise.

Description of Business — Hagerty is a global market leader in providing insurance for classic cars and enthusiast vehicles. In addition, Hagerty provides an automotive enthusiast platform that engages, entertains and connects with its insurance policyholders and Hagerty Drivers Club ("HDC") paid subscribers, collectively referred to herein as "Members," and other car enthusiasts. The Company’s headquarters are located in Traverse City, Michigan.

The Company operates through various subsidiaries, which generate the following revenue streams:

Commission and fee revenue

As a Managing General Agency ("MGA"), Hagerty earns commission and fee revenue for the underwriting, sale and servicing of classic car, enthusiast vehicle and marine insurance policies written through personal and commercial lines agency agreements with multiple insurance carriers in the United States ("U.S."), Canada and the United Kingdom ("U.K.").

Earned premium

Reinsurance premiums are earned through Hagerty Reinsurance Limited ("Hagerty Re"), which is registered as a Class 3A reinsurer under the Bermuda Insurance Act 1978. Hagerty Re reinsures the classic car, enthusiast vehicle and marine risks written through Hagerty's MGA entities in the U.S., Canada and the U.K. Earned premium is recorded net of premiums ceded to third-party reinsurers.

The policies sold by Hagerty's U.S. MGAs are underwritten by Essentia Insurance Company ("Essentia") and reinsured with Essentia's affiliate, Evanston Insurance Company ("Evanston"). In turn, Hagerty Re assumes a portion of the risk and earns premiums through a quota share agreement with Evanston. Essentia and Evanston are wholly-owned subsidiaries of Markel Corporation ("Markel"), which is a related party. Refer to Note 20 — Related-Party Transactions for additional information.

The policies sold by Hagerty's Canadian MGA are underwritten by Aviva Canada Inc. ("Aviva"), through Aviva's Canadian subsidiary, Elite Insurance Company ("Elite"). In turn, Hagerty Re assumes a portion of the risk and earns premiums through a quota share agreement with Elite.

The policies sold by Hagerty's U.K. MGA are underwritten by Markel International Insurance Company Limited ("Markel International"). In turn, Hagerty Re assumes a portion of the risk and earns premiums through a quota share agreement with Markel International, a wholly-owned subsidiary of Markel, which is a related party. Refer to Note 20 — Related-Party Transactions for additional information. As U.K. law requires unlimited liability coverage, Hagerty Re purchases reinsurance to limit its liability to £1,000,000 per claim.

Membership, marketplace and other revenue

The Company earns subscription revenue through HDC membership offerings. HDC memberships are sold as a bundled product which give Members access to a number of products and services, including Hagerty Drivers Club Magazine, automotive enthusiast events, Hagerty's proprietary vehicle valuation tool, emergency roadside services and special vehicle-related discounts.

The Company earns fee-based revenue from its Marketplace offerings, which include the buying and selling of collector cars through classified listings, live auctions, time-based online auctions, and brokered private sales. In addition, Marketplace earns finance revenue from term loans made to high-net-worth individuals and businesses secured by collector cars.

In January 2022, the Company entered into a joint venture with Broad Arrow Group, Inc. and its consolidated subsidiaries ("Broad Arrow"), pursuant to which Hagerty invested $15.3 million in cash in exchange for equity ownership of approximately 40% of Broad Arrow. Then, in August 2022, the Company acquired the remaining 60% of Broad Arrow in exchange for approximately $73.3 million of equity consideration consisting of Class A Common Stock and limited liability units in The Hagerty Group ("Hagerty Group Units"). As a result of this acquisition, the Company and Broad Arrow expect to further leverage their respective product offerings and continue to build Marketplace. Refer to Note 6 — Acquisitions and Investments for additional information.

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The Company also owns and operates collector car events, including The Amelia and Greenwich Concours d'Elegance, through which revenue is earned from ticket sales and sponsorships. Lastly, the Company operates Hagerty Garage + Social, a network of world-class vehicle storage and exclusive social club facilities for classic, collector and exotic car owners.

Basis of Presentation — The Company's Condensed Consolidated Financial Statements are prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") and pursuant to the regulations of the Securities and Exchange Commission and include the accounts of Hagerty, Inc., which is comprised of The Hagerty Group with its consolidated subsidiaries. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted from this report, as permitted by such rules and regulations.

The Company's Condensed Consolidated Financial Statements reflect all normal recurring adjustments and accruals that are, in the opinion of management, necessary for a fair statement of its financial position and results of operations for the interim periods presented.

These financial statements should be read in conjunction with the Consolidated Financial Statements and Notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2022. The results of operations for the three and six months ended June 30, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023.

Principles of Consolidation — The Company's Condensed Consolidated Financial Statements contain the accounts of Hagerty, Inc. and its majority-owned or controlled subsidiaries. The Company is the sole managing member of The Hagerty Group and, as a result, consolidates the financial statements of The Hagerty Group. The Company had economic ownership of 24.8% and 24.5% of The Hagerty Group as of June 30, 2023 and December 31, 2022, respectively. In addition, Member Hubs Holding, LLC ("MHH"), which operates as Hagerty Garage + Social, is an approximately 80% owned subsidiary of The Hagerty Group. The Company consolidates these entities using the voting interest method in accordance with Accounting Standards Codification ("ASC") Topic 810, Consolidations ("ASC 810"). Non-controlling interest is presented separately on the Condensed Consolidated Statements of Operations, the Condensed Consolidated Statements of Comprehensive Income (Loss), the Condensed Consolidated Balance Sheets, and the Condensed Consolidated Statements of Changes in Temporary Equity and Stockholders' Equity.

From January 2022 to August 2022, the Company owned approximately 40% of Broad Arrow, which was accounted for as an equity method investment. Subsequent to the acquisition of the remaining 60% of Broad Arrow in August 2022, Broad Arrow became a wholly-owned subsidiary of the Company and, as a result, the financial statements of Broad Arrow are now consolidated as a part of Hagerty. Refer to Note 6 — Acquisitions and Investments for additional information.

All intercompany accounts and transactions have been eliminated in consolidation.

Business Combination — On December 2, 2021, (the "Closing"), The Hagerty Group completed a business combination with Aldel Financial Inc. ("Aldel"), and Aldel Merger Sub LLC ("Merger Sub"), a Delaware limited liability company and wholly-owned subsidiary of Aldel (the "Business Combination"). In connection with the Closing, Aldel changed its name from Aldel Financial Inc. to Hagerty, Inc.

Following the Closing, the Company is organized as a C corporation and owns an equity interest in The Hagerty Group in what is commonly known as an "Up-C" structure in which substantially all of the assets and liabilities of the Company are held by The Hagerty Group.

Emerging Growth Company — The Company currently qualifies as an "emerging growth company" under the Jumpstart Our Business Startups Act of 2012 and can delay the adoption of new or revised accounting standards until those standards would apply to private companies.

The Company intends to avail itself of this extended transition period and, therefore, the Company may not be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies or have opted out of using such extended transition period.

Use of Estimates — The preparation of the Company's Condensed Consolidated Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and the disclosure of contingent assets and liabilities as of the date of the Condensed Consolidated Financial Statements, as well as the reported amounts of revenue and expenses during the reporting period. Although the estimates are considered reasonable, actual results could materially differ from those estimates.

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Significant estimates made by management include, but are not limited to: (i) the provision for unpaid losses and loss adjustment expenses, including incurred but not reported ("IBNR") claims; (ii) the fair value of the Company's warrant liabilities; (iii) the amount of the liability associated with the Tax Receivable Agreement ("TRA"); (iv) the valuation and accounting for the assets acquired and liabilities assumed in business combinations; (v) the fair values of the reporting units used in assessing the recoverability of goodwill; and (vi) the valuation and useful lives of intangible assets. Although some variability is inherent in these estimates, the Company believes that the current estimates are reasonable in all material respects. These estimates are reviewed regularly and adjusted as necessary. Adjustments related to changes in estimates are reflected in the Company’s results of operations in the period during which those estimates changed.

Segment Information — The Company has one operating segment and one reportable segment. The Company’s Chief Operating Decision Maker ("CODM") is the Chief Executive Officer ("CEO"), who makes resource allocation decisions and assesses performance based on financial information presented on a consolidated basis. The Company’s management approach is to utilize an internally developed strategic decision making framework with its Members and customers at the center of all decisions, which requires the CODM to have a consolidated view of the operations so that decisions can be made in the best interest of Hagerty and its Members.

Foreign Currency Translation — The Company translates its foreign currency denominated assets and liabilities into U.S. dollars at current rates of exchange as of the balance sheet date, and foreign currency denominated income and expense items at the average exchange rate for the reporting period. Translation adjustments resulting from exchange rate fluctuations are recorded in "Foreign currency translation adjustments", a component of Accumulated other comprehensive income (loss). Foreign currency transaction gains and losses are recognized within "Interest and other income (expense)" in the Condensed Consolidated Statements of Operations.

Supplemental Cash Flow Information — The following table provides a reconciliation of cash and cash equivalents and restricted cash and cash equivalents as of June 30, 2023 and 2022:


	June 30, 2023		June 30, 2022

	in thousands
Cash and cash equivalents	$	114,252	$	180,165
Restricted cash and cash equivalents	518,109		381,284
Total cash and cash equivalents and restricted cash and cash equivalents	$	632,361	$	561,449

The table below presents information regarding the Company's non-cash investing activities, as well as the cash paid for interest and taxes for the six months ended June 30, 2023 and 2022:


	Six months ended June 30,
	2023		2022

NON-CASH INVESTING ACTIVITIES:	in thousands
Capital expenditures	$	212	$	4,389
Acquisitions	$	1,742	$	7,500



CASH PAID FOR:
Interest	$	3,312	$	2,037
Income taxes	$	6,500	$	5,250

The issuance of Class A Common Stock resulting from the vesting of restricted stock units is a non-cash financing activity. Refer to Note 18 — Share-Based Compensation for information related to share-based compensation.

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Recently Adopted Accounting Standards

Leases — In February 2016, the Financial Accounting Standards Board (the "FASB") issued ASC 842, which supersedes the lease requirements in ASC Topic 840, Leases. ASC 842 requires the recognition of an asset and liability for the rights and obligations created by a leased asset, whether classified as an operating lease or a finance lease. The Company adopted ASC 842 effective January 1, 2022 using the modified retrospective approach and elected not to recast comparative prior year periods. Upon adoption, the Company measured and recorded its operating lease liabilities at the present value of the remaining rental payments. Corresponding right-of-use ("ROU") assets were recorded based on the amount of the lease liabilities, adjusted by any unamortized lease incentives, deferred rent accruals and initial direct costs. The adoption of ASC 842 resulted in the recognition of initial ROU assets and lease liabilities of $72.8 million as of January 1, 2022.

ASC 842 also requires sellers in a sale-leaseback transaction to recognize the entire gain from the sale of an underlying asset at the time of sale rather than over the leaseback term. The carrying value of the deferred gain on the single sale-leaseback transaction executed by the Company prior to January 1, 2022 was approximately $4.3 million and was recorded as an increase to "Accumulated Earnings (Deficit)" and "Non-controlling Interest" within the Condensed Consolidated Statements of Changes in Temporary Equity and Stockholders' Equity at adoption.

The adoption of ASC 842 did not have a material impact on the Condensed Consolidated Statements of Operations or Condensed Consolidated Statements of Cash Flows.

The Company also elected the package of practical expedients provided by ASC 842, which allowed it to: (i) not reassess whether expired or existing contracts contained leases, (ii) not reassess previous lease classification, and (iii) not revalue initial direct costs for existing leases. The Company also elected the lessee practical expedient to combine lease and non-lease components in the accounting for leases of all asset classes. In addition, the Company did not elect the hindsight practical expedient. The expense of operating leases under ASC 842 is generally recognized on a straight-line basis which is calculated as the total lease cost divided by the lease term and is recognized in the Condensed Consolidated Statements of Operations.

Credit Losses — In June 2016, the FASB issued Accounting Standards Update ("ASU") No. 2016-13, Financial Instruments - Credit Losses (ASC Topic 326): Measurement of Credit Losses on Financial Instruments, which amends previously issued guidance regarding the impairment of financial instruments by creating an impairment model that is based on expected losses rather than incurred losses. The standard requires financial assets measured on the amortized cost basis to be presented at the net amount expected to be collected. The following financial assets held by the Company are within the scope of ASU No. 2016-13: (i) Accounts receivable, (ii) Premiums receivable, (iii) Commissions receivable, (iv) Notes receivable and (v) certain fixed income securities. The amount of any required allowance for expected credit losses is determined utilizing historical loss rates, which are then adjusted, if necessary, for specific financial assets that are judged to have a higher-than-normal risk profile. Additional credit loss allowances may also be recorded after taking into account macro-economic and industry risk factors. For Notes receivable, to the extent necessary, the amount of any required allowance for credit losses takes into account the estimated realizable value of the collateral securing the loan. The Company adopted ASU No. 2016-13 on January 1, 2023 without a material effect on the Company's Condensed Consolidated Financial Statements and with no required cumulative-effect adjustment to "Accumulated earnings (deficit)" within the Condensed Consolidated Statements of Changes in Temporary Equity and Stockholders' Equity.

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2 — Revenue

Disaggregation of Revenue — The following table presents Hagerty's revenue by distribution channel offering, as well as a reconciliation to total revenue for the three and six months ended June 30, 2023 and 2022:


	Agent		Direct		Total

	in thousands
	Three months ended June 30, 2023
Commission and fee revenue	$	46,972	$	40,702	$	87,674
Contingent commission revenue	12,242		10,271		22,513
Membership revenue	—		13,146		13,146
Marketplace and other revenue	—		10,429		10,429
Total revenue from customer contracts	59,214		74,548		133,762
Earned premium recognized under ASC 944					127,482
Total revenue					$	261,244

	Three months ended June 30, 2022
Commission and fee revenue	$	40,193	$	35,479	$	75,672
Contingent commission revenue	10,857		8,977		19,834
Membership revenue	—		11,131		11,131
Marketplace and other revenue	—		5,280		5,280
Total revenue from customer contracts	51,050		60,867		111,917
Earned premium recognized under ASC 944					94,100
Total revenue					$	206,017


	Agent		Direct		Total

	in thousands
	Six months ended June 30, 2023
Commission and fee revenue	$	78,659	$	66,841	$	145,500
Contingent commission revenue	21,681		17,618		39,299
Membership revenue	—		25,693		25,693
Marketplace and other revenue	—		24,391		24,391
Total revenue from customer contracts	100,340		134,543		234,883
Earned premium recognized under ASC 944					244,713
Total revenue					$	479,596

	Six months ended June 30, 2022
Commission and fee revenue	$	66,392	$	58,152	$	124,544
Contingent commission revenue	18,232		15,191		33,423
Membership revenue	—		21,449		21,449
Marketplace and other revenue	—		11,180		11,180
Total revenue from customer contracts	84,624		105,972		190,596
Earned premium recognized under ASC 944					183,232
Total revenue					$	373,828

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The following table presents Hagerty's revenue disaggregated by geographic area, as well as a reconciliation to total revenue for the three and six months ended June 30, 2023 and 2022:


	U.S.		Canada		Europe		Total

	in thousands
	Three months ended June 30, 2023
Commission and fee revenue	$	77,611	$	8,587	$	1,476	$	87,674
Contingent commission revenue	22,478		—		35		22,513
Membership revenue	12,254		892		—		13,146
Marketplace and other revenue	9,061		348		1,020		10,429
Total revenue from customer contracts	121,404		9,827		2,531		133,762
Earned premium recognized under ASC 944							127,482
Total revenue							$	261,244

	Three months ended June 30, 2022
Commission and fee revenue	$	66,400	$	7,956	$	1,316	$	75,672
Contingent commission revenue	19,798		—		36		19,834
Membership revenue	10,288		843		—		11,131
Marketplace and other revenue	4,754		152		374		5,280
Total revenue from customer contracts	101,240		8,951		1,726		111,917
Earned premium recognized under ASC 944							94,100
Total revenue							$	206,017


	U.S.		Canada		Europe		Total

	in thousands
	Six months ended June 30, 2023
Commission and fee revenue	$	132,208	$	10,957	$	2,335	$	145,500

Hagerty, Inc. [HGTY] Filings
Hagerty, Inc. [HGTPW] Filings
Hagerty, Inc. [HGTY-WT] Filings
10-Q	[2023-08-08]
10-Q	[2023-05-09]
10-K	[2023-03-14]
10-Q	[2022-11-10]
10-Q	[2022-08-10]
10-Q	[2022-05-09]
10-K	[2022-03-24]
S-1	[2021-12-21]
10-Q	[2021-11-12]
10-Q	[2021-08-10]
10-Q	[2021-05-13]
S-1	[2021-02-16]

Hagerty, Inc. [HGTY] Filings

Hagerty, Inc. [HGTPW] Filings

Hagerty, Inc. [HGTY-WT] Filings