Hagerty Reports Third Quarter 2023 Results; Increases 2023 Outlook

• Third quarter 2023 Total Revenue increased 27% to $275.6 million compared to the prior year period and year-to-date 2023 Total Revenue increased 28% to $755.2 million compared to the prior year period
• Third quarter 2023 Written Premium increased 15% year-over-year to $255.6 million, and year-to-date 2023 Written Premium increased 16% to $714.3 million compared to the prior year period
• Third quarter 2023 Membership, marketplace and other revenue increased 37% year-over-year to $32.6 million, and year-to-date 2023 Membership, marketplace and other revenue increased 47% to $82.7 million compared to the prior year period
• Third quarter 2023 Net Income decreased 23% to $18.6 million compared to the prior year period, and year-to-date 2023 Net Income decreased 45% to $19.1 million compared to the prior year period
• Third quarter 2023 Adjusted EBITDA of $37.4 million, an increase of $47.4 million compared to the prior year period, and year-to-date 2023 Adjusted EBITDA of $78.4 million, an increase of $78.4 million compared to the prior year period

TRAVERSE CITY, Mich., Nov. 8, 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 and nine months ended September 30, 2023.

"We again delivered strong revenue and cash flow growth in our third quarter, with a revenue increase of 27% and operating cash flow growth of 83% to $62 million," said McKeel Hagerty, Chief Executive Officer of Hagerty. "2023 is turning out to be a banner year for Hagerty, with year-to-date revenue growth of 28%, propelled by written premium gains of 16%, earned premium growth of 32%, and membership and marketplace gains of 47%. Our focus on creating a more profitable business has driven dramatically improved margins through operational efficiencies, cost discipline, and economies of scale. Given our sustained business momentum, we now expect to hit the upper end of our prior full year revenue guidance of 23-27% and are once again increasing our 2023 outlook for both net income and Adjusted EBITDA, powered by better-than-expected flow-through to the bottom line."

Mr. Hagerty continued, "Hagerty is at the beginning of what we believe will be a multi-year period of sustained revenue growth and strong incremental margins. I couldn't be prouder of One Team Hagerty's work as they fuel the passion for driving by helping car enthusiasts protect, buy and sell, and enjoy their vehicles."

THIRD QUARTER 2023 FINANCIAL HIGHLIGHTS

• Third quarter 2023 Total Revenue increased 27% to $275.6 million compared to the prior year period and year-to-date 2023 Total Revenue increased 28% to $755.2 million compared to the prior year period.
• Third quarter 2023 Written Premium increased 15% to $255.6 million compared to the prior year period, and year-to-date 2023 Written Premium increased 16% to $714.3 million compared to the prior year period.
• Third quarter 2023 Commission and fee revenue increased 21% to $103.2 million compared to the prior year period, and year-to-date 2023 Commission and fee revenue increased 18% to $288.0 million compared to the prior year period.
  • Policies in Force Retention was 88.2% as of September 30, 2023 compared to 88.0% as of September 30, 2022. Total insured vehicles increased 6% year-over-year to 2.4 million compared to the prior year period.
• Third quarter 2023 Loss Ratio was 41.1% compared to 56.4% in the prior year period. Year-to-date 2023 Loss Ratio was 41.5% compared to 46.8% in the prior year period. The year-over-year improvement was due in part to better underwriting results in the current year. In addition, prior year results included $10.0 million of catastrophe losses related to Hurricane Ian.
• Third quarter 2023 Earned premium increased 30% to $139.8 million compared to the prior year period, and year-to-date 2023 Earned premium increased 32% to $384.5 million compared to the prior year period.
  • Earned premium growth was driven by the strong Written Premium growth as well as the increased quota share to approximately 80% compared to 70% in the prior year period.
  • AM Best assigned a financial strength rating of A- (Excellent) to Hagerty Reinsurance Limited.
• Third quarter 2023 Membership, marketplace and other revenue increased 37% year-over-year to $32.6 million compared to the prior year period, and year-to-date 2023 Membership, marketplace and other revenue increased 47% to $82.7 million compared to the prior year period.
  • Third quarter 2023 Marketplace revenue increased 87% to $13.0 million compared to the prior year period, and year-to-date 2023 Marketplace revenue increased 210% to $24.9 million compared to the prior year period.
  • Third quarter 2023 Membership revenue increased 22% to $13.8 million compared to the prior year period, and year-to-date 2023 Membership revenue increased 20% to $39.5 million compared to the prior year period.
    • Hagerty Driver's Club (HDC) paid members increased 8% to approximately 807,000 compared to the prior year period.
• Third quarter 2023 Operating Income of $16.1 million compared to a Loss of $(21.2) million in the prior year period, and year-to-date 2023 Operating Income of $16.9 million compared to a Loss of $(31.8) million in the prior year period.
  • Year-to-date 2023 results include restructuring charges of $8.9 million primarily associated with a reduction in force, reduced hiring plans and cost containment initiatives.
  • Year-to-date 2023 results includes losses and impairments of $4.1 million related to the termination of the Garage + Social joint venture and the sale of DriveShare.
  • Year-to-date 2023 depreciation and amortization was $34.9 million compared to $24.3 million in the prior year period. The increase was driven by a higher base of capital assets related to the digital platform which increased the expense by $4.8 million, as well as the $4.3 million impairment of media content assets during the first nine months of the year.
• Third quarter 2023 Net Income of $18.6 million compared to $24.3 million in the prior year period, and year-to-date 2023 Net Income of $19.1 million compared to $34.6 million in the prior year period.
  • Net Income includes the impact from the change in fair value of warrant liabilities, the restructuring charges, as well as the impairment of media content assets.
• Third quarter 2023 Adjusted EBITDA of $37.4 million compared to $(10.0) million in the prior year period, and year-to-date 2023 Adjusted EBITDA of $78.4 million compared to $0.1 million in the prior year period.
• Third quarter 2023 Basic Earnings per Share was $0.04 and Diluted Earnings per Share was $0.04, and year-to-date 2023 Basic Earnings per Share was $0.04 and year-to-date Diluted Earnings per Share was $0.04.
  • Third quarter 2023 Adjusted EPS was $0.05, and year-to-date 2023 Adjusted EPS was $0.05.

2023 OUTLOOK — GROWTH AND PROFITABILITY

Despite the uncertain macro environment, we are delivering strong results in 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 26-27% powered by Written Premium growth of 15-16%
  • 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. & U.K. to ~80%
• Significantly improved profitability through cost containment measures and operational efficiencies
  • Net Income of $2-12 million
  • Adjusted EBITDA of $75-85 million

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 third quarter and year-to-date 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 U.K. and is home to Hagerty Drivers Club, a community of over 800,000 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, Twitter and LinkedIn.

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

Category: Financial

Source: Hagerty

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) changes in fair value of warrant liabilities; (ii) share-based compensation expense; and when applicable, (iii) restructuring, impairment and related charges, net; (iv) the net gain or loss from asset disposals; (v) losses and impairments related to divestitures; (vi) revaluation gain on previously held equity method investment; and (vii) 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 to the most directly comparable GAAP measure, which is Net income (loss):

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):

Adjusted EPS

We define Adjusted Earnings (Loss) Per Share ("Adjusted EPS") as consolidated Net income (loss), less the change in fair value of our warrants and, when applicable, the revaluation gain on previously held equity method investment divided by our outstanding and total potentially dilutive securities, which includes (i) the weighted-average issued and outstanding shares of Class A Common Stock; (ii) all issued and outstanding non-controlling interest Hagerty Group Units; (iii) all unexercised warrants; (iv) all unissued share-based compensation awards; and (v) all issued and outstanding shares of the Series A Convertible Preferred Stock.

The most directly comparable GAAP measure is basic earnings per share ("Basic EPS"), which is calculated as Net income (loss) available to Class A Common Stockholders divided by the weighted average number of Class A Common Stock shares 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 securities analysts, investors and other interested parties in evaluating the consolidated performance of other companies in our industry. We also believe that Adjusted EPS, which compares our consolidated Net income (loss) 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:

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SOURCE Hagerty