Hagerty, Inc. (HGTY) is a market leader in providing insurance for classic cars and enthusiast vehicles. Through its unique insurance model, the company acts as a Managing General Agent (MGA) by underwriting, selling, and servicing classic car and enthusiast vehicle insurance policies. The company then reinsures a large portion of the risks written by its MGA subsidiaries through its wholly owned subsidiary, Hagerty Reinsurance Limited ("Hagerty Re").

Business Overview

In addition to its insurance offerings, Hagerty provides Hagerty Drivers Club (HDC) memberships, which can be bundled with its insurance policies and give subscribers access to an array of products and services, including Hagerty Drivers Club Magazine, automotive enthusiast events, the company's proprietary vehicle valuation tool, emergency roadside assistance, and special vehicle-related discounts. To complement its insurance and membership offerings, Hagerty also operates Hagerty Marketplace, where car enthusiasts can buy, sell, and finance collector cars.

Financials

Hagerty's differentiated approach has enabled the company to deliver strong financial performance. In 2023, the company reported annual revenue of $1,011,756,000 and annual net income of $15,881,000. The company also generated robust annual operating cash flow of $144,949,000 and annual free cash flow of $118,546,000.

For the first quarter of 2024, Hagerty reported total revenue of $271,708,000, a 24.4% increase compared to the same period in 2023. This growth was driven by a 19.1% increase in commission and fee revenue to $88,840,000, a 29.3% increase in earned premium to $151,619,000, and an 18.0% increase in membership, marketplace, and other revenue to $31,249,000.

Key Performance Factors

The company's strong performance in the first quarter was underpinned by several key factors:

1. Hagerty's written premium grew 19.0% year-over-year, fueled by a 19.2% increase in renewal policies and a 23.2% increase in new policies. This growth was driven by the company's best-in-class value proposition, which includes guaranteed value, automotive expertise, and favorable relative rate increases in the low single digits.

2. Hagerty's Marketplace business delivered excellent results, with sales increasing 57.9% to $10.5 million. This was driven by the successful Broad Arrow auction at The Amelia, as well as higher levels of private sale revenues and an increase in finance revenue associated with the lending activities of Broad Arrow Capital LLC (BAC).

3. The company's focus on operational efficiency and cost containment initiatives resulted in a 1,200 basis point improvement in operating margins, which jumped to 4.5% in the first quarter. This margin expansion was driven by a 7.1% decrease in general and administrative expenses and a 1.6% increase in salaries and benefits, despite the company's continued investments in long-term growth opportunities.

Outlook

Hagerty's strong first quarter performance has positioned the company well to deliver on its full-year 2024 guidance. The company is reaffirming its outlook for 15% to 17% revenue growth, powered by 13% to 14% growth in written premium. Hagerty expects this top-line growth to translate into robust profitability, with net income expected to increase 116% to 148% and adjusted EBITDA expected to grow 41% to 53%.

Looking ahead, Hagerty is well-positioned to continue its profitable growth trajectory. The company is focused on several key initiatives, including improving loyalty to drive renewals and referrals, enhancing the member experience in a cost-effective and efficient way, building Hagerty Marketplace into the most trusted and preferred platform for buying, selling, and financing collector vehicles, and increasing its flexibility and control over underwriting profits.

Geographic Diversification

Hagerty's geographic diversification also supports its growth ambitions. In the first quarter of 2024, the company generated 42.0% of its revenue from the United States, 15.4% from Canada, and 7.1% from Europe. The company's international expansion, particularly in Canada and Europe, provides additional avenues for growth.

Revenue Diversification

Furthermore, Hagerty's revenue diversification across its various business lines is a key strength. In the first quarter of 2024, commission and fee revenue accounted for 32.7% of total revenue, earned premium represented 55.8%, and membership, marketplace, and other revenue made up the remaining 11.5%. This balanced revenue mix enhances the company's resilience and reduces its reliance on any single revenue stream.

Liquidity

Hagerty's strong financial position and liquidity also support its growth plans. As of March 31, 2024, the company had $131,207,000 in cash and cash equivalents and $595,601,000 in restricted cash and cash equivalents. This robust cash position, combined with the company's $230.0 million revolving credit facility and $75.0 million BAC Credit Facility, provides Hagerty with ample resources to fund its strategic initiatives and capitalize on growth opportunities.

Risks and Challenges

While Hagerty faces risks common to the insurance industry, such as underwriting and reserving risks, the company's consistent track record of stable underwriting results and its focus on risk management through reinsurance arrangements help mitigate these concerns. Additionally, the company's diversified business model and strong brand recognition in the enthusiast vehicle market provide a competitive advantage that supports its long-term growth prospects.

Conclusion

In conclusion, Hagerty's differentiated approach to the classic car and enthusiast vehicle market, combined with its strong financial performance, operational efficiency, and strategic initiatives, position the company for continued profitable growth. As Hagerty continues to leverage its unique value proposition, expand its Marketplace business, and enhance its underwriting flexibility, the company is well-poised to deliver substantial value for shareholders in the years to come.