Hagerty, Inc. — FY2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. This is an annual filing; it does not provide a clear standalone Q4 results summary. Hagerty operates a collector-vehicle insurance and membership business, reinsures a significant portion of its insurance risk, and offers collector-car auctions, sales and financing through Marketplace.
Key financial and operating metrics
| Metric | 2023 | 2022 |
|---|---|---|
| Total revenue | $1,000.2 million | $787.6 million |
| Operating income (loss) | $10.4 million | $(67.6) million |
| Net income | $28.2 million | $2.4 million |
| Basic / diluted EPS | $0.19 / $0.09 | $0.39 / $(0.07) |
| Adjusted EBITDA (non-GAAP) | $88.2 million | $(1.9) million |
| Net cash from operating activities | $133.7 million | $55.3 million |
| Total written premium | $907.2 million | $776.7 million |
| Hagerty Re loss ratio | 41.5% | 45.3% |
Revenue increased 27.0%. Commission and fee revenue rose 19.0% to $365.5 million; earned premium increased 32.0% to $531.9 million; and membership, marketplace and other revenue grew 33.1% to $102.8 million. Operating margin was approximately 1.0%, compared with negative 8.6% in 2022; net margin was approximately 2.8%, versus 0.3%. Adjusted EBITDA is a company-defined non-GAAP measure and should not be treated as a substitute for GAAP earnings.
Policies in force increased 6.5% to 1.40 million; insured vehicles rose 6.5% to 2.38 million; paid HDC members increased to 815,007 from 752,754. Policy retention was 88.7%, up from 88.0%; NPS was 82, versus 83.
Material changes versus 2022
- Hagerty returned to positive operating income, while revenue and operating cash flow grew substantially. Net income also increased, but basic EPS declined from $0.39 to $0.19; diluted EPS moved from a loss to income.
- The loss ratio improved partly because 2022 included $10.0 million of Hurricane Ian catastrophe losses, which did not recur, as well as better 2023 underwriting results. Hagerty Re’s U.S. quota share rose from 70% to approximately 80%, contributing to higher earned premium and incurred losses.
- Interest and other income increased to $22.8 million, principally reflecting higher interest income on cash balances. Earnings also include non-cash warrant revaluation effects; the warrant-liability gain was $11.5 million in 2023 versus $41.9 million in 2022. 2022 also included a $34.7 million Broad Arrow revaluation gain.
- 2023 included $8.8 million of restructuring and impairment charges and $4.0 million of losses and impairments related to the Garage + Social reorganization and DriveShare sale. The company cited a strategy of focusing resources on businesses with stronger growth and profit potential.
Liquidity, debt and capital
At year-end, cash and cash equivalents were $108.3 million, with an additional $616.0 million of restricted cash, for combined cash and restricted cash of $724.3 million. Much of the restricted balance relates to insurance trust and collateral requirements and is not freely available for general corporate use. Management said available liquidity sources were expected to support anticipated operating needs and commitments.
Total debt was $134.9 million, including $77.3 million outstanding under the $230 million JPMorgan revolver, $25.8 million under the BAC facility, a $25.0 million State Farm term loan and $6.9 million of notes payable. The JPM facility matures in October 2026; the State Farm loan bears 8% interest and matures in 2033. Hagerty reported compliance with applicable credit covenants at year-end. Operating cash flow was $133.7 million; investing cash outflow was $52.6 million and financing cash inflow was $103.2 million.
The company raised $80.0 million through Series A convertible preferred stock in June 2023. The preferred stock accrues cumulative dividends at 7% annually, compounded, and has conversion and redemption provisions; its estimated redemption value was $123.4 million at year-end under the specified earliest-redemption scenario. The filing reports $35.0 million of interest-rate swaps and estimates that a 100-basis-point change in rates would alter annual interest payments by about $0.7 million, based on year-end variable-rate debt.
Outlook, commentary and risks
- The filing gives no numerical revenue, earnings or cash-flow guidance. Management describes the collector-car market as a growth opportunity and highlights the potential to expand in post-1980 collectible vehicles, where estimated Hagerty market share is lower. Results are seasonal, with more revenue and profitability generally in Q2 and Q3.
- Beginning in 2024, the Markel agency agreement raises the base commission rate on U.S. personal auto business to 37%; profit-share factors range from negative 5% to positive 5% of written premium, and 80% of expected contingent underwriting commission is to be paid monthly. Markel accounted for approximately 95% of 2023 commission revenue, making the relationship a key concentration to monitor.
- On January 12, 2024, Hagerty agreed to acquire Consolidated National Insurance Company for approximately $18.4 million, subject to adjustments and closing conditions; completion was expected in Q2 2024. The company said the acquisition could support underwriting control and new products.
- Key risks include insurance-carrier and distribution-partner dependence, regulatory constraints on rates and products, loss-reserve estimation and claim severity, catastrophe exposure and reinsurance counterparty risk, inflation and interest rates, cybersecurity and privacy compliance, and volatility in collector-car values that may affect Marketplace and lending.
- A 2021 incident involving unauthorized access to the online quote feature remains subject to coordinated regulatory investigations. Hagerty accrued an estimated liability in 2023 that it said was not material; potential fines, penalties or settlements could differ and were not estimable. Management said ordinary-course litigation was not expected to have a material adverse effect.
- Governance and capital structure merit attention: Hagerty is a controlled company with a dual-class share structure; Class V shares carry ten votes each. The company does not currently plan to pay cash dividends. The auditor issued an unqualified opinion on the financial statements; management concluded disclosure controls and internal control over financial reporting were effective, but the auditor was not required to attest to internal-control effectiveness.
Important facts for investors to verify
- Whether the improved loss ratio persists after separating underlying underwriting performance from the non-recurrence of Hurricane Ian losses, and how claims and reserves develop.
- How the 2024 Markel commission and profit-share terms affect commission revenue, cash collection and profitability, and whether Hagerty can diversify partner concentration.
- How much reported cash is unrestricted and available to the parent and operating businesses, given the substantial restricted-cash balance and subsidiary-level capital requirements.
- The cost and financing implications of the preferred stock’s cumulative 7% dividend and potential redemption, alongside debt maturities, rates and covenant headroom.
- CNIC acquisition closing, final price and subsequent operating results; and Marketplace performance, including Broad Arrow growth and exposure to collector-car market fluctuations.
- Progress and any final resolution of the data-security investigations, along with changes in loss reserves, tax-asset valuation allowances and potential Tax Receivable Agreement obligations.