Thank you, operator. Good morning everyone and thank you all for joining us to discuss Hagerty's Results for the Fourth Quarter and Full-Year of 2022, as well as our outlook for 2023. I’m joined this morning by McKeel Hagerty, Chief Executive Officer; and Patrick McClymont, Chief Financial Officer. During this morning's conference call, we will refer to an accompanying presentation that is available on Hagerty’s Investor Relations section of the company's corporate website at investor.hagerty.com. Our earnings release, accompanying slides and letter to stockholders covering this period are also posted on the IR website. Our 8-K filing is also available there along with our earnings press release and other materials. Today's discussion contains forward-looking statements and non-GAAP financial metrics. As described further on Slide 2 of the earnings presentation, forward-looking statements include statements about our expected future business and financial performance and are not promises or guarantees of future performance. They are subject to a variety of risks and uncertainties that could cause the actual results to differ materially from our expectations. For a discussion of material risks and important factors that could affect our actual results, please refer to those contained in our filings with the SEC, which are also available on our Investor Relations website and sec.gov. The appendix of the presentation also contains reconciliations of our non-GAAP metrics to the most directly comparable GAAP measures that are further supplemented by this morning's 8-K filing. And with that, I'll turn the call over to McKeel Hagerty, our Founder and CEO.

Thanks, Jay, and good morning, everyone. We appreciate you taking the time to learn more about Hagerty's first year results as a public company. We have spent the last several decades building Hagerty into one of the most beloved consumer brands in the auto enthusiasts space. And we believe our affinity model uniquely positions us to provide our members with the products and services to help them enjoy their passion for fun cars and for driving. For 2022, our results are proof that the love of the automobile persists regardless of the economic backdrop. Slide 3 of our investor deck shares some of the key insights. They include total revenue gains of 27% for the full-year towards the high-end of the outlook we shared with you a year ago. This growth was powered by compounding mid-teens written premium growth, strong contributions from Hagerty Re's higher quota share reinsurance arrangements, and 5 months of revenue contribution from our marketplace platform. Written Premium growth of 15% was in-line with our expectations and well-balanced between policy in force growth and increasing rates. Hagerty’s brand strength and value proposition is evident in the 235,000 new insurance policies issued during the year. Membership and marketplace revenue jumped 50%, due primarily to $14 million in incremental marketplace revenue, including $86 million in transacted vehicle value from three live auctions as seen on Slide 4. And our team continued to make steady progress with the State Farm integration shown on Slide 5 on both the technology and people side. We anticipate all quoting work to be complete this spring and to begin writing new policies later in 2023. This 10-year initial arrangement will drive meaningful scale and growth for Hagerty as we move into 2024. Our highly differentiated business strategy results in a powerful recurring revenue model, and we believe our top line growth reflects the solid execution by the Hagerty team during uncertain times. Net promoter score improved slightly in the year to 83, nearly double the industry average, and retention of 88% remained solid, despite the elevated transactional market for vehicles. The Hagerty brand is revered by those that know it and we believe we can create meaningful value for shareholders through steadily chipping away at the 96% of the total addressable market that we don't yet serve through our omnichannel distribution strategy. This brings me to our key 2023 initiatives as we pivot to significantly improve our profitability shown on Slide 6. First, we look to continue our track record of strong total revenue growth powered by sustained double-digit written premium gains. Our teams are also highly focused on delivering an unmatched online and live marketplace experience, as well as driving loyalty referrals and incremental revenue from Hagerty Driver's Club, our membership business. Second, we will continue Hagerty's evolution into an integrated insurance business, including an increase in Hagerty Re’s quota share reinsurance agreements in the U.S. and UK to 80%. And third, we will do the above with significantly improved profitability through cost containment and operational efficiencies. Let me expand on that final point because it reflects the single largest change we are making from 2022 to 2023 as we transition toward profitability. As you know, we have been investing heavily in our technology and people over the last 3 years to best position the company to capitalize on the opportunity within the auto enthusiast space. This includes making meaningful investments as we prepare for the State Farm launch later this year and build out Hagerty marketplace, both of which have the potential to drive strong incremental profits for the company. But in 2023, we are adding heightened discipline around our costs and capital. So, we began to implement some major actions during the fourth quarter that we believe will allow us to return to profitability in short order. This includes a reduction in force and voluntary retirement program, along with an overhaul of our IT teams, not to mention increased prioritization of resources against our 2023 initiatives, which leads me to Slide 7, a summary of the 2023 outlook. We expect 2023 to be another year of strong top line momentum up to 22% to 26% and fueled by 11% to 13% growth in written premiums. With our productivity initiatives well underway, we anticipate delivering $40 million to $60 million in adjusted EBITDA in 2023, equivalent to a $50 million year-over-year improvement at the midpoint.

Thank you McKeel, and good morning, everyone. Let's dig into some of the numbers from the fourth quarter and full-year 2022 shown on Slide 8. We delivered solid growth across all revenue streams. On a year-over-year basis for the fourth quarter, total revenue grew 28% to $197 million, powered by total written premium growth of 15% to $162 million. Commission and fee revenue grew 11% to $64 million. Membership marketplace and other revenue increased 56% to $21 million, benefiting from an increase in total paid members and an additional $6 million in marketplace revenue. Earned premium grew 35% to $112 million, driven by new written premium growth, policy retention of 88%, and a 10 point increase in our contractual reinsurance quota share to 70%, and our loss ratio returned to 41% in the quarter. Turning to profitability on Slide 9, we reported a fourth quarter operating loss of $36 million, compared to a loss of $21 million in the prior year period. This operating loss includes an $18 million restructuring charge related to the actions we implemented in the fourth quarter to drive enhanced profitability. It's worth noting that the operating loss before restructuring charges was $4 million better than the prior year's fourth quarter. Net loss for the quarter was $33 million, compared to a net loss of $66 million a year earlier. Net loss includes a fair value adjustment of $4 million related to our private and public warrants. GAAP loss per share was $0.06 based on our weighted average shares of Class A Common Stock outstanding. Our adjusted EBITDA in the fourth quarter was a loss of $2 million, slightly better than the $3 million loss in the prior year period. Slide 10 summarizes the full-year highlights McKeel shared at the beginning of the call. Despite the uncertain economic environment, our top line results were resilient. With total revenue growth of 27% to $788 million, driven by written premium growth of 15% to $777 million. Commission and fee revenue in 2022 grew 13%, slightly below written premium growth as our loss ratio of 45% was elevated due to Hurricane Ian and our decision to increase U.S. reserves, which reduced our contingent underwriting commission. To put this in context, our loss ratio increased by 4 percentage points in 2022, compared to 2021, while industry wide loss ratios increased by over 12 percentage points. This delta reinforces that we operate in a business with a fundamentally different risk profile than daily drivers. Earned premium jumped 36%, thanks to the increased quota share. Membership, marketplace, and other revenue grew 50% in the full-year. Attach rates for HDC membership exceeded 75% and we are in the early days of building out our online auction business. Full year adjusted EBITDA came in at a loss of $2 million. This EBITDA includes the $16 million impact from Hurricane Ian and the increased reserves in the third quarter. Keep in mind, we also made pre-revenue investments of $30 million and supported State Farm, marketplace, and other initiatives. Let me now move on to the 2023 outlook and share some additional color. As McKeel mentioned, we expect total revenue growth of 22% to 26%. Written Premium growth of 11% to 13% will be powered by an already approved rate increase and continued market share gains. We are encouraged by the strong start to the year with January and February written premium growth in the high teens and in line with our expectations for a strong first quarter. We expect the State Farm Written Premium and revenue contribution in 2023 to be immaterial to our full-year outlook. We also focused on the marketplace platform as we ramp up our online and live auctions such as our very successful Amelia event with $31 million in vehicles sold, as well as build financing streams from asset-based lending. Hagerty is well-positioned to serve consumers as the trusted brand for both buyers and sellers of enthusiast vehicles, offering certification services, title and escrow, and financing options, and other high-value services that differentiate our product from competitors. In membership, we are driving higher average pricing to move to a single tier membership at $70 per year and we'll look to better leverage the brand equity earned through decades of excellence in enthusiast insurance to drive more referrals and efficient growth. Hagerty Re’s earned premium loss of benefit from an increased quota share of 80% in 2023 as we evolve into a full staffing share. And Hagerty Re is just beginning to develop meaningful scale with $400 million in capital at year-end, with our loss ratios resulting in a combined ratio of roughly 90%, we have the potential to generate 10% margins and then leverage our per capita 3x to 4x for underwriting future business resulting in very compelling returns on equity. Moving down the P&L, we expect full-year adjusted EBITDA to be $40 million to $60 million. As McKeel mentioned, this represents a more than $50 million year-over-year improvement at the midpoint as our productivity efforts take hold. Recently implemented pricing actions should drive our loss ratio back towards the 41% level and enhanced profitability. I would note that we expect similar seasonality in 2023 to our historical levels, meaning that the majority of the expected EBITDA will be generated during the second and third quarters. In summary, Hagerty is a growth company consistently delivering top-tier revenue growth and we are pivoting the business in our second year as a public company towards the margin and profit structure you would expect from such a beloved brand in a large and fragmented market. Meanwhile, we invest in the long-term strength of the Hagerty brand to sustain these high growth rates in the years ahead. 2023 marks the beginning of this transition to a right size infrastructure that should allow us to return to historic double-digit EBITDA margins and in the process reward our shareholders and allow us to save driving in part culture for future generations. With that, let me open the call up to your questions.

Hey, good morning. This is Sid on for Greg. Just wanted to touch on the new business count first. It looks like it ticked down a bit year-over-year. So, maybe you can discuss what's driving that if it's just a function of higher pricing or if you're seeing any behavior changes in the market?

Hi, it's Patrick. Sid, thanks for joining. Thanks for the question. You're right. It did tick down a little bit. What we're seeing in the marketplace is continued very strong penetration performance with the traditional Hagerty vehicles. So, think of things that are pre-1981, and then we're ramping up in newer vehicles. And so, our share is really quite low in that category, but we're seeing more activity on that front. And last year, I'd say that there was probably a little bit more price competition than we've seen in previous years. And so, that was a little bit of an impact. We’re really pleased. We think that the 230,000 that we delivered in 2022 is a strong number. We'll be in that same neighborhood this year. And so between rate growth, which is kind of locked and loaded and new customer growth, we'll be able to achieve the 11% to 13% written premium growth that we've talked about as guidance for this year.

Okay. Yes, great. That makes sense. And then, maybe just a pivot to the loss ratio. So, you've been able to pretty consistently deliver a loss ratio around the 41% range. So, hoping you can maybe remind us just how you run the underwriting side of the business and what might separate you from other more traditional auto insurers that have seen more volatile underwriting results recently?

Well, thank you. This is McKeel. The core of why the business performs differently is the nature of the customer. Our members are car enthusiasts first and foremost, and they take really good care of their cars, and because of that, and disciplined underwriting, especially with the higher value concentrations, higher total insured value concentrations with large collections, we just have a very different risk profile than a traditional daily driving car. So, it starts with the members selecting the right kind of niche to be in and then discipline, especially around the higher values in concentrated areas, single car garages, storage buildings, that sort of thing. So, we've seen it through the years certainly not immune from catastrophes like Hurricane Ian, but even then we performed significantly better than the industry.

Okay, yes. Thanks.

Thanks for – hopefully you're hearing me. I apologize for that. I was hoping you could talk a little bit more about the underlying claim frequency and severity trends that you're seeing in your business, particularly the severity part that's been a big topic for really anything that has metal and plastic in it?

Yes. Of course, Paul, nice to hear from you. Severity still overall frequency remains in our traditional sort of bands, but the severity areas kind of have come in two areas. One is certainly there is a higher increase of repair costs that kind of arises when you have to send a car into a restoration shop; hourly rates are a little bit higher on the physical damage side. But we also saw in 2022, and I think the industry as a whole has been talking about it, is this sort of compounding of higher liability losses in some cases due to the fact that during the COVID lockdowns, many of the courts were shut down for very large periods of time. So, we, like a lot of the big insurers, saw in some cases claims coming in from two years into one year. So, it kind of made that number jump out at us, but again, manageable for us because the majority of our premiums are constructed, as well as how we see losses through the years as we look at the physical damage more than the liability.

Yes. When you think about our loss ratio, typically being 41% and being in the mid-45% area, the two big reconciling items are what McKeel just talked about in terms of liability. We did strengthen the reserves for U.S. liability, and then Ian. And so, Ian was a $10 million impact for us, and the strengthening reserves was about $6.5 million. If not for those two, we'd be right back to 41%. So it tells the underlying trends in terms of frequency and severity are very, very consistent, but we just have those headwinds in 2022.

Thanks. Another big topic is the industry's reinsurance pricing, obviously went up a lot in general January 1. Can you talk about how that feeds into your business and any overall renewals that we should be watching over the course of the year?

Sure. It's Patrick. Thanks for that question. So, certainly a headwind for the industry and we're not immune from that. As we talked about on the call, it's a little bit different for us just because of our risk profile. So, in an industry where the automotive industry was up 12 points of loss ratio in 2022, we were only up 4 points. And so, our underlying risks are different and our team worked really hard to reinforce those points as we're putting the new reinsurance in place for 2023. And I think we're somewhat successful at those arguments, but yes, there were definitely headwinds. The way that we thought about it was our costs were going to go up and it's depending on who you're talking to. For us, it was sort of a 30% to 40% number from a rate standpoint. And so, the way that we decided to put the package together is we're retaining a bit more risk than we did historically. So, previously we're at $10 million of retention and that's going up to $25 million. And so, we use that as a tool to get to the right overall cost. And then we've also come up with a different approach for our high net worth collections, essentially put together a group to reinsure those differently—folks who were interested in that risk and could price it in a way that was favorable for us. So, in the aggregate, our costs are going up by low single digit millions of dollars year-over-year. We are taking on a bit more risk to get there. So, it was manageable for us. But yes, a headwind.

So, if we have a repeat of a hurricane in the – which would be limited to 25% with the limited co-participation, I assume?

Yes. Our attention is that 25 versus 10 and that one in particular, we would have in 2023 under the new program. Yes, we would have borne that risk, and our net risk ended up being less than $25 million because, as McKeel talked about, we just have a very different risk profile, so much lower than what others thought.

Hi, thank you. Should we expect any change in the loss ratio given the rate filings you referenced for 2023 or are those funds meant to keep you steady at about the 41% level?

Yes. So, we started influencing rate increases in 35 states late last year. That's all flowing through now. We've got a second round of rate increases that happened this year, and that's all baked into how we think about the loss ratio. And so, we think that with those rate increases, we're going to get back to that 41% area that we've had historically.

Thank you. And then the second question I had, so just excluding the impairment charge, operating expenses excluding depreciation and amortization grew about 14% this quarter versus 28% growth in revenues. Is that a sort of gap you should assume in 2023 for you to get, by my math, about the five points of margin expansion you need to get your targets?

Yes. So, I think the way we're looking at it is in 2022, at the end of the year, we ended up with a slight EBITDA loss of $2 million. So, what are the kind of the big reconciling items to get from that up to the guidance that we've talked about? One would be the annualized savings that we realized from our cost reduction initiatives, and so that's close to $20 million. And those actions we implemented right at the beginning of the year. And so, we're going to get essentially a full year's worth of benefit from them. In addition to that, we've talked about Ian, we've talked about the reserve increase, and so that's about $16.5 million. So, those are the two biggest reconciling items. And then our marketplace business, a couple of things going on there. One is we now own it for the full year, and it did $14 million of revenue last year. So, roughly if you double that because we own it now for the full year, plus hopefully there's some growth. And that business is profitable, right? Those live auctions are designed to be profitable. And so that will actually help from a cash flow standpoint to EBITDA. So, that's sort of mid-single-digits. And then the other one is the increase in written premium. So, what we talked about, the 11% to 13% and having that flow through. And so when we add it all together, that gets you sort of the midpoint of that reconciliation that we talked about. So, hopefully that gives you the reconciliation. On the expense side of things, we're going to actually take G&A down in 2023 relative to where we were in 2022 on an absolute basis. Other expenses are increasing, but they're increasing at a lower rate than what we've shown over the last couple of years. So, we've reduced some expenses on an absolute basis, and we've bent the curve on others—all in the effort to get to the profitability that we're talking about.

Thanks. That's helpful.

All right. Thank you, operator, and thank you everybody for your questions. To one team, Hagerty, thank you for your excellent work in 2022 and commitment to delivering great results for our stakeholders in 2023. We appreciate your dedication and think it is an exciting time to be part of Hagerty. I remain as optimistic as ever about the opportunity for Hagerty to grow over the coming years as we are in the early days of leveraging our branded ecosystem. And I'm encouraged by the direction we are headed in 2023. While the strategy for expanding our reach is largely unchanged, we will execute against it with a heightened focus on efficiency. We all learn and grow year-after-year and become stronger in the process. Thank you for joining our call today and never stop driving.

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