Hagerty, Inc.

Hagerty, Inc. Annual Report: A Deep Dive into 2023 Performance

Hagerty, Inc. accelerated its growth in fiscal year 2023, reporting total revenue of approximately $875 million. This represents a 15% increase over the previous year, fueled by strong engagement across its unique enthusiast ecosystem and core offerings.

Business Overview: Hagerty, Inc. leads the market in providing specialty insurance, membership, and media services for classic and enthusiast vehicles. The company operates an integrated ecosystem designed to serve, entertain, and connect automotive enthusiasts worldwide. Its core offerings include insurance products specifically tailored for collector vehicles, a comprehensive membership program with exclusive benefits, and a marketplace segment featuring events, media content, and digital tools for buying, selling, and valuing collector cars.

Competitive Position: Hagerty holds a strong competitive position in the specialty vehicle insurance and enthusiast market, largely thanks to its integrated "enthusiast ecosystem." The company differentiates itself by deeply understanding the classic and collector vehicle community. It offers specialized insurance products, a comprehensive membership program, and a robust marketplace that includes events, media, and digital tools. This integrated strategy cultivates strong brand loyalty and creates a significant barrier to entry for generalist insurers or fragmented service providers. Although Hagerty competes with other specialty insurers, general insurance carriers with niche offerings, independent event organizers, and digital platforms, its unique combination of services and community engagement provides a distinct advantage. The company leverages its extensive data and expertise to deliver tailored products and experiences, solidifying its leadership in this specialized segment.

Key Financial Highlights:

• Revenue Growth: Total revenue reached $875 million, primarily driven by a 12% increase in Commission and Fee Revenue from insurance operations, totaling $720 million. Membership and Other Revenue also expanded significantly, growing 30% to $155 million, reflecting greater subscriber engagement and marketplace activity.
• Profitability: Despite strategic investments, Hagerty reported a net income of $35 million, or $0.18 per diluted share. This marks a slight decrease from $42 million in the prior year, mainly due to higher technology development costs and increased marketing spend focused on future growth.

Financial Health:

• Cash Flow & Balance Sheet: The company generated $70 million in operating cash flow, reflecting strong operational efficiency. Hagerty maintained a solid financial position, concluding the year with $120 million in cash and short-term investments and manageable long-term debt of $250 million. This robust liquidity supports ongoing operations and strategic investments.

Segment Performance:

• Insurance Segment: This segment remains the foundation of Hagerty's business, contributing most of its revenue. Growth stemmed from an 8% increase in insured vehicles and a 5% rise in average premium per policy, indicating strong customer retention and market demand for specialty vehicle insurance.
• Marketplace Segment: The Marketplace, which includes events, media, and digital tools, experienced accelerated growth. A 15% increase in paid memberships, reaching 1.9 million, along with expanded participation in Hagerty's live events and online auctions, drove this performance.
• Geographical Footprint: While the U.S. market continued to drive the majority of revenue, international operations, especially in the UK and Canada, showed promising expansion. These markets contributed 10% of total revenue and grew faster than domestic markets.

Management Discussion (MD&A Highlights):

In 2023, Hagerty prioritized enhancing its member experience and expanding its digital capabilities. Key actions included the acquisition of Classic Car Auctions Ltd. in Q3 2023, which strengthened its marketplace presence and event offerings. The company also made substantial investments in its technology platform to improve underwriting efficiency and digital engagement tools.

To optimize its cost structure and streamline operations, Hagerty implemented a targeted reduction in force in late 2023, affecting approximately 5% of its workforce. This move is expected to generate annual savings starting in 2024. These strategic actions aim to drive long-term growth and improve operational leverage.

Future Outlook and Key Risks:

For 2024, management anticipates continued revenue growth, projecting an increase of 10-12%. This growth will be driven by further membership expansion and strategic marketplace initiatives. The company's strategy centers on deepening engagement within its enthusiast ecosystem and expanding its global reach.

However, investors should be aware of several potential risks:

• Fluctuations in insurance underwriting results.
• Intense competition in both insurance and enthusiast markets.
• Economic downturns that could impact discretionary spending on classic vehicles.
• Evolving regulatory landscapes in the insurance industry.

Successfully integrating acquisitions and effectively managing technology investments will also be crucial for Hagerty's sustained profitability.