UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2022

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________ to _______

Commission file number: 001-40244

HAGERTY, INC.

(Exact name of registrant as specified in its charter)

Delaware		86-1213144
(State of incorporation)		(I.R.S. Employer Identification No.)
121 Drivers Edge, Traverse City, Michigan		49684
(Address of principal executive offices)		(Zip code)
	(800) 922-4050
	Registrant's telephone number, including area code

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbols	Name of each exchange on which registered
Class A common stock, par value $0.0001 per share	HGTY	The New York Stock Exchange
Warrants, each whole warrant exercisable for one share of Class A common stock, each at an exercise price of $11.50 per share	HGTY.WS	The New York Stock Exchange

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes  ☒ No  ☐ 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes  ☒   No  ☐ 

1

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
		Emerging growth company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).     Yes ☐   No  ☒

The registrant had 82,452,214 shares of Class A Common Stock outstanding and 251,033,906 shares of Class V Common Stock outstanding as of July 22, 2022.

2

Table of Contents

Title	Page
Forward Looking Statements	4
Glossary of Terms	5
Part I – Financial Information	7
Item 1. Financial Statements (Unaudited)	7
Unaudited Condensed Consolidated Statements of Operations	7
Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss)	8
Unaudited Condensed Consolidated Balance Sheets	9
Unaudited Condensed Consolidated Statements of Equity	12
Unaudited Condensed Consolidated Statements of Cash Flows	13
Unaudited Notes Accompanying the Condensed Consolidated Financial Statements	15
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	38
Item 3. Quantitative and Qualitative Disclosures About Market Risk	57
Item 4. Controls and Procedures	58
Part II – Other Information	59
Item 1. Legal Proceedings	59
Item 1A. Risk Factors	59
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	59
Item 3. Defaults Upon Senior Securities	59
Item 4. Mine Safety Disclosures	59
Item 5. Other Information	59
Item 6. Exhibits	60
Signatures	61

3

Cautionary Statement Regarding Forward-Looking Statements

In this Quarterly Report on Form 10-Q "we," "our," "us," "Hagerty," "HGTY," and the "Company" refer to Hagerty, Inc., formerly known as Aldel Financial Inc. ("Aldel"), and our consolidated subsidiaries including The Hagerty Group, LLC ("The Hagerty Group"), unless the context requires otherwise.

This Quarterly Report on Form 10-Q, as well as information included in oral statements or other written statements made or to be made by us, contain statements that constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based on our current beliefs, expectations, and assumptions regarding the future of our business, future plans and strategies, and other future conditions. Forward-looking statements can be identified by words such as "anticipate," "believe," "envision," "estimate," "expect," "intend," "may," "plan," "predict," "project," "target," "potential," "will," "would," "could," "should," "continue," "ongoing," "contemplate," and other similar expressions, although not all forward-looking statements contain these identifying words. Examples of forward-looking statements include, among others, statements we make regarding our ability to:

•compete effectively within our industry and attract and retain members;

•maintain key strategic relationships with our insurance distribution and underwriting carrier partners;

•prevent, monitor and detect fraudulent activity;

•manage risks associated with disruptions, interruptions, outages or other issues with our technology platforms or our use of third-party services;

•accelerate the adoption of our membership products as well as any new insurance programs and products we offer;

•anticipate and address impacts from the coronavirus pandemic and current and future variants of the virus ("COVID-19");

•manage the cyclical nature of the insurance business, including through any periods of recession, economic downturn or inflation;

•address unexpected increases in the frequency or severity of claims;

•comply with the numerous laws and regulations applicable to our business, including state, federal and foreign laws relating to insurance and rate increases, privacy, the internet, and accounting matters;

•manage risks associated with being a controlled company; and

•successfully defend any litigation, government inquiries, and investigations.

We may not actually achieve the plans, intentions, or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions, and expectations disclosed in the forward-looking statements we make. Important factors that could cause or contribute to such differences include, but are not limited to, those discussed under "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations," and elsewhere in this Quarterly Report on Form 10-Q and in other documents we file with the Securities and Exchange Commission (the "SEC") from time to time. The forward-looking statements in this Quarterly Report on Form 10-Q represent our views as of the date of this Report. We undertake no obligation to publicly update any forward-looking statements whether as a result of new information, future developments or otherwise.

4

Glossary of Terms

The following is a glossary of selected terms used throughout this Quarterly Report on Form 10-Q that are technical in nature:

ASU Accounting Standards Update. The Financial Accounting Standards Board ("FASB") issues an ASU to communicate changes to the FASB Codification.

BMA Bermuda Monetary Authority, established under the Bermuda Monetary Authority Act of 1969. The BMA supervises, regulates and inspects financial institutions operating from within its jurisdiction.

Book of Business Insurance policies bound by us with our Carriers (as defined below) on behalf of our clients.

Business Combination The business combination that was completed on December 2, 2021, pursuant to the Business Combination Agreement (as defined below).

Business Combination Agreement The agreement dated as of August 17, 2021, by and among Aldel, Aldel Merger Sub and The Hagerty Group. The Business Combination Agreement is provided as Exhibit 2.1, incorporated by reference within Item 6. Exhibits, in this Quarterly Report on Form 10-Q.

BSCR Bermuda Solvency Capital Requirement, which is the Bermuda Monetary Authority's risk-based capital model that was developed to enhance the capital adequacy framework for the insurance sector.

Carrier An insurance company.

CUC Contingent Underwriting Commission, a profit-share based on the calendar-year performance of the insurance book of business with a carrier.

Exchange Agreement An agreement between the Company, HHC and Markel. Under the Exchange Agreement, HHC and Markel (both as defined below) have the right to exchange their Hagerty Group Units and Class V Common Stock for, at the option of the Company, Class A Common Stock or cash. The Exchange Agreement was amended and restated on March 23, 2022. The amended Exchange Agreement is provided as Exhibit 10.1, incorporated by reference within Item 6. Exhibits, in this Quarterly Report on Form 10-Q.

GAAP Accounting principles generally accepted in the United States of America.

Hagerty Re Hagerty Reinsurance Limited, our wholly owned captive reinsurance subsidiary.

Hagerty Group Units A unit of economic interests of The Hagerty Group held by Hagerty Group Unit Holders (as defined below). As part of the Business Combination Agreement, all of the legacy equity interests of The Hagerty Group held by HHC and Markel were exchanged for Hagerty Group Units in The Hagerty Group.

Hagerty Group Unit Holders HHC, Markel and Hagerty, Inc. following the consummation of the Business Combination.

HDC Hagerty Drivers Club membership program.

HHC Hagerty Holding Corp., a close corporation under Delaware law.

IBNR Incurred but not reported, a reserve account used as a provision for claims and/or events that have transpired but have not yet been reported to the insurance carrier.

Legacy Unit Holders HHC and Markel, the economic owners of The Hagerty Group, prior to the consummation of the Business Combination

Loss Ratio Expressed as a percentage, the ratio of (1) losses and loss adjustment expenses incurred to (2) earned premium in Hagerty Re.

Markel Markel Corporation, a holding company for insurance, reinsurance and investments operations, headquartered in Richmond, Virginia.

MGA Managing General Agent, an insurance agent or broker that has been granted underwriting authority by an insurer.

MHH Member Hubs Holding, LLC is a joint venture formed to create Hagerty Garage + Social between Hagerty Ventures LLC, a wholly owned subsidiary of The Hagerty Group, and HGS Hub Holdings LLC.

5

Motorsport Reg A motorsport membership, licensing and event online management system that automates event listings, registration, and payment processing for all types of motorsport events ranging from small social gatherings to large participatory motorsport events.

NPS Net Promoter Score, which we use as our "north star metric," measuring the overall strength of our relationship with members. As a leading auto enthusiast brand, we use NPS as a barometer for Hagerty brand loyalty and engagement, and is a strong indicator of growth and retention.

Omnichannel A multichannel approach to sales that focuses on providing a seamless customer experience.

PIF Policies in Force, which is the number of current and active insurance policies as of the applicable period end date.

SaaS Software as a Service, a software licensing and delivery model in which software is licensed on a subscription basis and is centrally hosted.

Written Premium The amount of total insurance premium written on policies that were bound by our insurance carrier partners during the applicable period.

TRA Tax Receivable Agreement, a contract between Hagerty, Inc. and the Legacy Unit Holders for payment from Hagerty, Inc. of 85% of the cash tax savings that results from the step-up in basis from the exchange of Hagerty Group Units and Class V Common Stock for Class A Common Stock of Hagerty, Inc.

6

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Hagerty, Inc.

Condensed Consolidated Statements of Operations (Unaudited)

	Three months ended June 30,				Six months ended June 30,
	2022		2021		2022		2021
REVENUES:	in thousands (except per share amounts)
Commission and fee revenue	$	95,506	$	83,443	$	157,967	$	137,816
Earned premium	94,100		70,437		183,232		133,671
Membership and other revenue	16,411		13,529		32,629		25,122
Total revenues	206,017		167,409		373,828		296,609
OPERATING EXPENSES:
Salaries and benefits	53,271		41,698		99,747		79,847
Ceding commission	45,255		33,678		87,633		64,067
Losses and loss adjustment expenses	38,620		29,152		75,539		55,345
Sales expense	37,455		28,360		65,892		48,712
General and administrative services	20,729		15,222		40,187		30,064
Depreciation and amortization	8,300		5,025		15,447		9,396
Total operating expenses	203,630		153,135		384,445		287,431
OPERATING INCOME (LOSS)	2,387		14,274		(10,617)		9,178
Change in fair value of warrant liabilities	(5,400)		—		26,286		—
Interest and other income (expense)	(353)		(187)		(1,037)		(624)
INCOME (LOSS) BEFORE INCOME TAX EXPENSE	(3,366)		14,087		14,632		8,554
Income tax expense	(2,138)		(1,584)		(4,168)		(2,902)
Income (loss) on equity method investment, net of tax	(39)		—		(141)		—
NET INCOME (LOSS)	(5,543)		12,503		10,323		5,652
Net loss (income) attributable to non-controlling interest	7		91		11,648		136
NET INCOME (LOSS) ATTRIBUTABLE TO CONTROLLING INTEREST	$	(5,536)	$	12,594	$	21,971	$	5,788
Earnings (loss) per share of Class A Common Stock
Basic	$	(0.07)	N/A		$	0.27	N/A
Diluted	$	(0.07)	N/A		$	(0.02)	N/A
Weighted-average shares of Class A Common Stock outstanding:
Basic	82,452		N/A		82,443		N/A
Diluted	82,452		N/A		334,702		N/A
Earnings (loss) per Members' Unit
Basic and diluted	N/A		$	125.94	N/A		$	57.88
Weighted-average units outstanding:
Basic and diluted	N/A		100		N/A		100

The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.

See Note 16 for Related-Party Transactions disclosure.

7

Hagerty, Inc.

Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)

	Three months ended June 30,				Six months ended June 30,
	2022		2021		2022		2021
	in thousands
Net income (loss)	$	(5,543)	$	12,503	10,323		$	5,652
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments	(1,022)		(39)		(748)		186
Derivative instruments	388		(173)		1,933		608
Other comprehensive income (loss)	(634)		(212)		1,185		794
Comprehensive income (loss)	(6,177)		12,291		11,508		6,446
Comprehensive loss (income) attributable to non-controlling interest	7		91		11,648		136
Comprehensive income (loss) attributable to controlling interest	$	(6,170)	$	12,382	$	23,156	$	6,582

The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.

See Note 16 for Related-Party Transactions disclosure.

8

Hagerty, Inc.

Condensed Consolidated Balance Sheets (Unaudited)

	June 30, 2022		December 31, 2021
ASSETS	in thousands (except share amounts)
Current Assets:
Cash and cash equivalents	$	180,165	$	275,332
Restricted cash and cash equivalents	381,284		328,640
Accounts receivable	57,999		46,729
Premiums receivable	141,931		75,297
Commission receivable	33,791		57,596
Prepaid expenses and other current assets	40,606		30,155
Deferred acquisition costs, net	104,841		81,535
Total current assets	940,617		895,284
Property and equipment, net	28,160		28,363
Long-Term Assets:
Prepaid expenses and other non-current assets	38,816		30,565
Intangible assets, net	95,754		76,171
Goodwill	16,525		11,488
Equity method investments	15,109		—
Total long-term assets	166,204		118,224
TOTAL ASSETS	$	1,134,981	$	1,041,871
LIABILITIES AND EQUITY
Current Liabilities:
Accounts payable	$	11,227	$	9,084
Losses payable and provision for unpaid losses and loss adjustment expenses	123,921		109,351
Unearned premiums	224,595		175,199
Commissions payable	75,398		60,603
Due to insurers	110,226		58,031
Advanced premiums	28,853		13,867
Accrued expenses	45,455		46,074
Contract liabilities	24,984		21,723
Other current liabilities	2,783		1,886
Total current liabilities	647,442		495,818
Long-Term Liabilities:
Accrued expenses	10,676		13,166
Contract liabilities	18,833		19,667
Long-term debt	87,000		135,500
Deferred tax liability	12,967		10,510
Warrant liabilities	61,174		89,366
Other long-term liabilities	7,368		7,043
Total long-term liabilities	198,018		275,252
TOTAL LIABILITIES	$	845,460	$	771,070
			(continued)

The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.

See Note 16 for Related-Party Transactions disclosure.

9

Hagerty, Inc.

Condensed Consolidated Balance Sheets (Unaudited)

	June 30, 2022		December 31, 2021
	in thousands (except share amounts)
Commitments and Contingencies (Note 17)
Redeemable non-controlling interest (Note 11)	$	—	$	593,277
STOCKHOLDERS' / MEMBERS' EQUITY
Preferred stock, $0.0001 par value (20,000,000 shares authorized, no shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively)	—		—
Class A common stock, $0.0001 par value (500,000,000 shares authorized, 82,452,214 and 82,327,466 issued and outstanding as of June 30, 2022 and December 31, 2021, respectively)	8		8
Class V common stock, $0.0001 par value (300,000,000 authorized, 251,033,906 shares issued and outstanding as of June 30, 2022 and December 31, 2021)	25		25
Additional paid-in capital	532,922		160,189
Accumulated earnings (deficit)	(460,304)		(482,276)
Accumulated other comprehensive income (loss)	(542)		(1,727)
Total stockholders' / members' equity	72,109		(323,781)
Non-controlling interest	217,412		1,305
Total equity (Note 11)	289,521		(322,476)
TOTAL LIABILITIES AND EQUITY	$	1,134,981	$	1,041,871
			(concluded)

The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.

See Note 16 for Related-Party Transactions disclosure.

10

Hagerty, Inc.

Condensed Consolidated Statements of Changes in Members' and Stockholders' Equity (Unaudited)

	Members' Equity		Class A Common Stock			Class V Common Stock			Additional Paid in Capital		Accumulated Earnings (Deficit)		Accumulated Other Comprehensive Income/(Loss)		Total Stockholders' / Members' Equity		Non-controlling Interest		Total Equity		Redeemable Non-controlling Interest
in thousands			Shares	Amount		Shares	Amount
Balance at December 31, 2021	$	—	82,327	$	8	251,034	$	25	$	160,189	$	(482,276)	$	(1,727)	$	(323,781)	$	1,305	$	(322,476)	$	593,277
Net income (loss) before exchange agreement amendment	—		—	—		—	—		—		(3,679)		—		(3,679)		(172)		(3,851)		(11,205)
Other comprehensive income (loss) before exchange agreement amendment			—	—		—	—		—		—		1,657		1,657		—		1,657		—
Exercise of warrants	—		125	—		—	—		1,906		—		—		1,906		—		1,906		—
Redemption value adjustment for redeemable non-controlling interest	—		—	—		—	—		(162,095)		(1,398,325)		—		(1,560,420)		—		(1,560,420)		1,560,418
Removal of the redeemable feature of the non-controlling interest	—		—	—		—	—		528,615		1,398,325		—		1,926,940		215,550		2,142,490		(2,142,490)
Net income (loss) subsequent to exchange agreement amendment	—		—	—		—	—		—		31,187		—		31,187		(264)		30,923		—
Other comprehensive income (loss) subsequent to exchange agreement amendment	—		—	—		—	—		—		—		162		162		—		162		—
Balance at March 31, 2022	$	—	82,452	$	8	251,034	$	25	$	528,615	$	(454,768)	$	92	$	73,972	$	216,419	$	290,391	$	—
Net income (loss)	—		—	—		—	—		—		(5,536)		—		(5,536)		(7)		(5,543)		—
Other comprehensive income (loss)	—		—	—		—	—		—		—		(634)		(634)		—		(634)		—
Exercise of warrants	—		—	—		—	—		—		—		—		—		—		—		—
Stock-based compensation	—		—	—		—	—		4,307		—		—		4,307		—		4,307		—
Non-controlling interest issued capital	—		—	—		—	—		—		—		—		—		1,000		1,000		—
Balance at June 30, 2022	$	—	82,452	$	8	251,034	$	25	$	532,922	$	(460,304)	$	(542)	$	72,109	$	217,412	$	289,521	$	—

11

Hagerty, Inc.

Condensed Consolidated Statements of Changes in Members' and Stockholders' Equity (Unaudited)

	Members' Equity		Class A Common Stock			Class V Common Stock			Additional Paid in Capital		Accumulated Earnings (Deficit)		Accumulated Other Comprehensive Income/(Loss)		Total Stockholders' / Members' Equity		Non-controlling Interest		Total Equity		Redeemable Non-controlling Interest
in thousands			Shares	Amount		Shares	Amount
Balance at December 31, 2020	$	62,320	—	$	—	—	$	—	$	—	$	56,832	$	(1,954)	$	117,198	$	123	$	117,321	$	—
Net income (loss)	—		—	—		—	—		—		(6,806)		—		(6,806)		(45)		(6,851)		—
Other comprehensive income (loss)	—		—	—		—	—		—		—		1,006		1,006		—		1,006		—
Balance at March 31, 2021	$	62,320	—	$	—	—	$	—	$	—	$	50,026	$	(948)	$	111,398	$	78	$	111,476	$	—
Net income (loss)	—		—	—		—	—		—		12,594		—		12,594		(91)		12,503		—
Other comprehensive income (loss)	—		—	—		—	—		—		—		(212)		(212)		—		(212)		—
Distributions	(4,056)		—	—		—	—		—				—		(4,056)				(4,056)		—
Non-controlling interest issued capital	—		—	—		—	—		—		—		—		—		400		400		—
Balance at June 30, 2021	$	58,264	—	$	—	—	$	—	$	—	$	62,620	$	(1,160)	$	119,724	$	387	$	120,111	$	—

The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.

See Note 16 for Related-Party Transactions disclosure.

12

Hagerty, Inc.

Condensed Consolidated Statements of Cash Flows (Unaudited)

	Six months ended June 30,
	2022		2021
OPERATING ACTIVITIES:	in thousands
Net income (loss)	$	10,323	$	5,652
Adjustments to reconcile net income (loss) to net cash from operating activities:
Change in fair value of warrant liabilities	(26,286)		—
Depreciation and amortization expense	15,447		9,396
Provision for deferred taxes	2,553		2,699
Loss on disposals of equipment, software and other assets	361		2,158
Stock-based compensation expense	4,307		—
Other	229		193
Changes in operating assets and liabilities:
Accounts receivable	(11,447)		(11,076)
Premiums receivable	(66,634)		(58,636)
Commission receivable	23,787		24,390
Prepaid expenses and other assets	(14,395)		(14,611)
Deferred acquisition costs	(23,307)		(20,776)
Accounts payable	1,899		(3,994)
Losses payable and provision for unpaid losses and loss adjustment expenses	14,570		14,176
Unearned premiums	49,395		44,300
Commissions payable	14,795		15,322
Due to insurers	52,486		47,831
Advanced premiums	15,032		12,365
Accrued expenses	(5,185)		(6,318)
Contract liabilities	2,337		2,288
Other current liabilities	(342)		2,715
Net Cash Provided by Operating Activities	59,925		68,074
INVESTING ACTIVITIES:
Purchases of property, equipment and software	(21,520)		(19,035)
Acquisitions, net of cash acquired	(13,520)		(8,709)
Purchase of equity method investment	(15,250)		—
Purchase of fixed income securities	(2,448)		(7,446)
Maturities of fixed income securities	1,216		—
Other investing activities	(1,639)		21
Net Cash Used in Investing Activities	$	(53,161)	$	(35,169)
			(continued)

The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.

See Note 16 for Related-Party Transactions disclosure.

13

Hagerty, Inc.

Condensed Consolidated Statements of Cash Flows (Unaudited)

	Six months ended June 30,
	2022		2021
FINANCING ACTIVITIES:	in thousands
Payments on long-term debt	$	(90,500)	$	(22,500)
Proceeds from long-term debt	42,000		40,500
Contribution from minority interest	1,000		400
Payments on notes payable	(1,000)		(1,000)
Distributions	—		(4,056)
Net Cash Used in Financing Activities	(48,500)		13,344
Effect of exchange rate changes on cash and cash equivalents and restricted cash and cash equivalents	(787)		174
Change in cash and cash equivalents and restricted cash and cash equivalents	(42,523)		46,423
Beginning cash and cash equivalents and restricted cash and cash equivalents	603,972		299,078
Ending cash and cash equivalents and restricted cash and cash equivalents	$	561,449	$	345,501
NON-CASH INVESTING ACTIVITIES:
Purchase of property and equipment and software	$	4,389	$	4,426
Acquisitions	$	7,500	$	—
CASH PAID FOR:
Interest	$	2,037	$	1,026
Income taxes	$	5,250	$	2,200
			(concluded)

The following table provides a reconciliation of cash and cash equivalents and restricted cash and cash equivalents as presented for the six months ended June 30, 2022 and 2021:

	2022		2021
	in thousands
Cash and cash equivalents	$	180,165	$	49,135
Restricted cash and cash equivalents	381,284		296,366
Total cash and cash equivalents and restricted cash and cash equivalents on the Condensed Consolidated Statements of Cash Flows	$	561,449	$	345,501

The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.

See Note 16 for Related-Party Transactions disclosure.

14

Hagerty, Inc.

Notes To Consolidated Financial Statements (Unaudited)

1 — Summary of Significant Accounting Policies and New Accounting Standards

Description of Business — Hagerty, Inc. ("Hagerty" or the "Company") and its consolidated subsidiaries, including The Hagerty Group, LLC ("The Hagerty Group"), is a global market leader in providing insurance for classic and enthusiast vehicles. In addition, Hagerty provides an automotive enthusiast platform that engages, entertains and connects with car enthusiasts and its members.

The Company operates several entities which collectively support Hagerty's revenue streams. Hagerty earns commission and fee revenues for the distribution and servicing of classic automobile and boat insurance policies written through personal and commercial lines agency agreements with multiple insurance carriers in the United States ("U.S."), Canada and the United Kingdom ("U.K.").

Reinsurance premiums are earned in Hagerty Reinsurance Limited ("Hagerty Re") which is registered as a Class 3A reinsurer under the Bermuda Insurance Act 1978. Hagerty Re solely reinsures the classic auto and marine risks written through Hagerty's Managing General Agency ("MGA") entities in the U.S., Canada and the U.K.

•The business produced by the U.S. MGAs is written by Essentia Insurance Company ("Essentia") and reinsured with its affiliate, Evanston Insurance Company ("Evanston"). In turn, Hagerty Re assumes premiums through a quota share agreement with Evanston. Essentia and Evanston are wholly owned subsidiaries of Markel Corporation ("Markel"), which is a related party. Refer to Note 16 — Related-Party Transactions for additional information.

•The business produced by the Canadian MGA is written by Aviva Canada Inc. ("Aviva"), through Aviva's Canadian subsidiary, Elite Insurance Company ("Elite"). In turn, Hagerty Re assumes premiums through a quota share agreement with Elite.

•In 2021, Hagerty Re entered into a reinsurance agreement with Markel International Insurance Company Limited to reinsure classic auto risks produced by Hagerty's U.K. MGA. In connection with this new agreement, Hagerty Re purchased reinsurance to limit its liability to £1,000,000 per claim, as U.K. law requires unlimited liability coverage. Markel International Insurance Company Limited is a subsidiary of Markel, which is a related party. Refer to Note 16 — Related-Party Transactions for additional information.

The Company earns subscription revenue through membership offerings and other automotive services sold to policyholders and classic vehicle enthusiasts. Membership offerings include, but are not limited to, private label roadside assistance, digital and linear video content, an award-winning magazine, valuation services, exclusive events and automotive third-party discounts. The Company owns and operates collector vehicle events, earning revenue through ticket sales, sponsorships, and event registration service fees through Motorsport Reg. The Company also owns and operates a peer-to-peer classic vehicle rental business for auto enthusiasts, and operates Member Hubs Holding, LLC ("MHH"), which are majority-owned world-class vehicle storage and exclusive social club facilities branded as Hagerty Garage + Social for classic, collector and exotic cars owners.

In January 2022, the Company entered into a joint venture with Broad Arrow Group, Inc., a Delaware corporation ("Broad Arrow") that enhances the Company's portfolio of automotive-focused offerings for car enthusiasts under Hagerty Marketplace by offering new services for the buying, selling and financing of collector cars to compliment the Company's automotive-focused offerings. Refer to Note 18 — Subsequent Events for additional information.

The Company’s headquarters are located in Traverse City, Michigan.

Basis of Presentation — The Company's Condensed Consolidated Financial Statements were prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") and with the instructions for Quarterly Reports on Form 10-Q and Regulation S-X and include the accounts of Hagerty, Inc. and The Hagerty Group with its consolidated subsidiaries.

The financial statements reflect all normal recurring adjustments and accruals that are, in the opinion of management, necessary for a fair statement of financial position and results of operations for the interim periods presented. Interim financial statements do not include all of the information and notes required by GAAP for annual consolidated financial statements. These financial statements should be read in conjunction with the Consolidated Financial Statements and Notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2021. The results of operations for the three and six months ended June 30, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022.

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Principles of Consolidation — The Company's Condensed Consolidated Financial Statements contain the accounts of Hagerty and its majority-owned or controlled subsidiaries. As of June 30, 2022, the Company had economic ownership of 24.7% of The Hagerty Group. In addition, MHH is an 80% owned subsidiary of The Hagerty Group. The Company consolidates these entities under the voting interest method guidance in accordance with Accounting Standards Codification ("ASC") Topic 810, Consolidations ("ASC 810"). Non-controlling interest is presented separately on the Condensed Consolidated Statements of Operations, Condensed Consolidated Statements of Comprehensive Income (Loss), Condensed Consolidated Balance Sheets, and Condensed Consolidated Statements of Changes in Members' and Stockholders' Equity.

All significant intercompany accounts and transactions have been eliminated in consolidation.

Business Combination — On December 2, 2021, (the "Closing"), The Hagerty Group completed a business combination with Aldel Financial Inc. ("Aldel"), and Aldel Merger Sub LLC ("Merger Sub"), a Delaware limited liability company and wholly owned subsidiary of Aldel (the "Business Combination"). In connection with the Closing, Aldel changed its name from Aldel Financial Inc. to Hagerty, Inc.

The Business Combination was accounted for as a common control reverse acquisition for which The Hagerty Group was determined to be the accounting acquirer and Aldel was treated as the "acquired" company. The Hagerty Group issued equity for the net assets of Aldel, accompanied by a recapitalization. Business combinations in which the legal acquirer is not the accounting acquirer are commonly referred to as "reverse acquisitions". A reverse acquisition occurs when the entity that issues securities (legal acquirer) is identified as the acquiree for accounting purposes and the entity whose equity interests are acquired (the legal acquiree) is identified as the acquirer for accounting purposes. Reverse acquisitions are accounted for in accordance with Subtopic 805-40 of ASC Topic 805, Business Combinations ("ASC 805"). While other factors were evaluated but not considered to have a material impact on the determination, The Hagerty Group was determined to be the accounting acquirer based on the following factors:

•Hagerty Holding Corp. ("HHC") controlled the operating company prior to the Business Combination and controls the Company subsequent to the Business Combination through control of the board of directors (the "Board") as well as having majority voting ownership.

•The Hagerty Group’s management is also the management of the Company.

•The Hagerty Group is larger as compared to Aldel based on assets, revenues and earnings.

Unless otherwise indicated or the context otherwise requires, "Hagerty" and "the Company" refer to the business and operations of The Hagerty Group and its consolidated subsidiaries prior to the Business Combination and to Hagerty, Inc. and its consolidated subsidiaries, including The Hagerty Group, following the consummation of the Business Combination.

Refer to Note 4 — Business Combination for additional information.

Emerging Growth Company — The Company currently qualifies as an "emerging growth company" under the Jumpstart Our Business Startups Act of 2012 and can delay the adoption of new or revised accounting standards until those standards would apply to private companies.

The Company intends to avail itself of such extended transition period and, therefore, the Company may not be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies or have opted out of using such extended transition period.

Use of Estimates — The preparation of Company's Condensed Consolidated Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the Condensed Consolidated Financial Statements and the reported amounts of revenues and expenses during the reporting period. Although the estimates are considered reasonable, actual results could materially differ from those estimates.

The most significant estimates that are susceptible to notable change in the near-term relates to the provision for unpaid losses and loss adjustment expenses, including incurred but not reported, ("IBNR"), the change in fair value of warrant liabilities and payments due under the Tax Receivable Agreement ("TRA"). Although some variability is inherent in these estimates, the Company believes that the current estimates are reasonable in all material respects. These estimates are reviewed regularly and adjusted, as necessary. Adjustments related to changes in estimates are reflected in the Company’s results of operations in the period for which those estimates changed.

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Segment Information — The Company has one operating segment and one reportable segment. The Company’s Chief Operating Decision Maker ("CODM") is the Chief Executive Officer ("CEO"), who makes resource allocation decisions and assesses performance based on financial information presented on a consolidated basis. The Company’s management approach is to utilize an internally developed strategic decision making framework with the membership patrons at the center of all decisions, which requires the CODM to have a consolidated view of the operations so that decisions can be made in the best interest of Hagerty and its membership patrons.

Foreign Currency Translation — The Company translates its foreign operations’ assets and liabilities denominated in foreign currencies into U.S. dollars at current rates of exchange as of the balance sheet date, and income and expense items at the average exchange rate for the reporting period. Translation adjustments resulting from exchange rate fluctuations are recorded in "Foreign currency translation adjustments", a component of Accumulated other comprehensive income (loss). Transaction gains and losses are recognized in "Interest and other income (expense)" within the Condensed Consolidated Statements of Operations.

Equity Method Investments — The Company applies the equity method of accounting to 20% to 50% owned investments where Hagerty exercises significant influence, in accordance with ASC Topic 323 Investments—Equity Method and Joint Ventures. Refer to Note 5 — Acquisitions and Investments for additional information regarding the Company's equity method investments.

Warrant Liabilities — The Company accounts for its outstanding warrants in accordance with ASC Topic 815 Derivatives and Hedging ("ASC 815"). The warrants do not meet the criteria for equity treatment and as such, are recorded at fair value as a non-cash liability. This liability is subject to remeasurement each reporting period and utilizes a Monte Carlo simulation model to value the warrants. The change in the fair value of the warrants is recognized in the Condensed Consolidated Statements of Operations each reporting period. Refer to Note 13 — Warrant Liabilities for additional information.

Income Taxes — The Hagerty Group is taxed as a pass-through ownership structure under provisions of the Internal Revenue Code ("IRC") and a similar section of state income tax law, except Hagerty Re and various foreign subsidiaries. Any taxable income or loss generated by The Hagerty Group is passed through to and included in the taxable income or loss of HHC, Markel and Hagerty, Inc. (together, the "Hagerty Group Unit Holders"). Hagerty, Inc. is taxed as a corporation and pays corporate federal, state and local taxes with respect to income allocated from The Hagerty Group. Hagerty, Inc., Hagerty Re and various foreign subsidiaries are treated as taxable entities and income taxes are provided where applicable. Refer to Note 15 — Taxation for additional information.

Where applicable, income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis and operating loss and tax-credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

Deferred tax assets are recognized to the extent that there is sufficient positive evidence as allowed under the ASC Topic 740, Income Taxes ("ASC 740"), to support the recoverability of those deferred tax assets. The Company establishes a valuation allowance to the extent that there is insufficient evidence to support the recoverability of the deferred tax asset under ASC 740. In making such a determination, management considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. If it is determined that the deferred tax assets would be realizable in the future in excess of their net recorded amount, an adjustment would be made to the deferred tax asset valuation allowance, which would reduce the provision for income taxes.

Tax Receivable Agreement Liability — In connection with the Business Combination, Hagerty, Inc. entered into the TRA with HHC and Markel (together the "Legacy Unit Holders"). The TRA provides for payment to the Legacy Unit Holders of 85% of the U.S. federal, state and local income tax savings realized by Hagerty, Inc. as a result of the increases in tax basis and certain other tax benefits as outlined in the Business Combination Agreement upon the exchange of limited liability units in The Hagerty Group ("Hagerty Group Units") and Class V Common Stock of the Company for Class A Common Stock of the Company or cash. The Hagerty Group will have in effect an election under Section 754 of the IRC effective for each taxable year in which an exchange of Hagerty Group Units occurs. The remaining 15% cash tax savings resulting from the basis adjustments will be retained by Hagerty, Inc.

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In general, cash tax savings result in a year when the tax liability of Hagerty, Inc. for the year, computed without regard to the deductions attributable to the amortization of the basis increase and other deductions that arise in connection with the payment of the cash consideration under the TRA or the exchange of Hagerty Group Units and Class V Common Stock for Class A Common Stock, would be more than the tax liability for the year taking into account such deductions. Payments under the TRA will not be due until the Company is able to reduce a cash tax liability by the amortization of the basis increase on a filed tax return. The payments under the TRA are expected to be substantial. The estimated value of the TRA is recorded in "Other long-term liabilities" on the Condensed Consolidated Balance Sheets.

Hagerty, Inc. accounts for the effects of the basis increases as follows:

•Hagerty, Inc. records an increase in deferred tax assets for the income tax effects of the increases in tax basis based on enacted federal and state income tax rates at the date of the exchange.

•Hagerty, Inc. evaluates the ability to realize the full benefit represented by the deferred tax asset based on an analysis that will consider expectations of future earnings, among other things. If Hagerty, Inc. determines that the full benefit is not likely to be realized, a valuation allowance is established to reduce the amount of the deferred tax assets to an amount that is more likely than not to be realized.

•At the Closing, Hagerty, Inc. recorded 85% of the estimated realizable tax benefit as an increase to the liability due under the TRA, which is recorded within "Other long-term liabilities", and a decrease to "Additional paid-in capital" on the Condensed Consolidated Balance Sheets. The remaining 15% of the estimated realizable tax benefit will be retained by Hagerty, Inc.

All of the effects of changes in any of the estimates after the date of the redemption or exchange will be recorded in "Interest and other income (expense)" on the Condensed Consolidated Statements of Operations.

Redeemable Non-controlling Interest — In connection with the Business Combination, Hagerty, Inc. entered into an Exchange Agreement with the Legacy Unit Holders ("Exchange Agreement"). The Exchange Agreement permitted the Legacy Unit Holders to exchange Class V Common Stock and associated Hagerty Group Units for an equivalent amount of Class A Common Stock or, at the option of the Company, for cash. Because the Company had the option to redeem the non-controlling interest for cash and the Company is controlled by the Legacy Unit Holders through their voting control, the non-controlling interest was considered redeemable as the redemption was considered outside the Company's control. Redeemable non-controlling interest represented the economic interests of the Legacy Unit Holders. Income or loss was attributed to the redeemable non-controlling interest based on the weighted average ownership of the Hagerty Group Units outstanding during the period held by the Legacy Unit Holders. The redeemable non-controlling interest was measured at the greater of the initial fair value or the redemption value and was required to be presented as temporary equity on the Condensed Consolidated Balance Sheets as of December 31, 2021.

On March 23, 2022, the Exchange Agreement was amended to revise the option for the Company to settle the exchange of Class V Common Stock and associated Hagerty Group Units in cash. Under the terms of the amendment, a cash exchange is only allowable in the event that net cash proceeds are received from a new permanent equity offering. As a result of the amendment, the redeemable non-controlling interest was accreted to its redemption value as of March 23, 2022 and subsequently removed from temporary equity and recorded to equity as non-controlling interest.

Non-controlling Interest — Effective March 23, 2022, non-controlling interest represents the economic interests of the Legacy Unit Holders in The Hagerty Group. Additionally, non-controlling interest represents the portion of economic ownership of MHH that is not owned or controlled by The Hagerty Group. Hagerty, Inc. consolidates its ownership of The Hagerty Group and MHH under the voting interest method.

Earnings Per Share — Hagerty calculates basic and dilutive earnings per share ("EPS") in accordance with ASC Topic 260 Earnings Per Share ("ASC 260"). Basic earnings per share is computed by dividing Net income (loss) attributable to Hagerty, Inc. by the weighted-average number of shares of Class A Common Stock outstanding during the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised, resulting in the issuance of shares of Class A Common Stock that would then share in the earnings of Hagerty, Inc. In periods in which the Company reports a net loss available to stockholders, diluted net loss per share available to stockholders would be equal to basic net loss per share available to stockholders, since dilutive common shares are not assumed to have been issued if their effect is anti-dilutive.

Stock-Based Compensation — Hagerty issues restricted stock units and performance restricted stock units under the 2021 Equity Incentive Plan. The grant date fair value for restricted stock units is determined based on the closing price of the Company's common stock on the business day prior to grant. Hagerty uses a Monte Carlo simulation model to estimate the fair value of performance restricted stock units. Stock-based compensation costs are recognized over the applicable requisite service period of the award, generally using the straight-line method. Forfeitures are recorded as incurred. Refer to Note 14 — Stock-Based Compensation for additional information.

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Recently Adopted Accounting Guidance

Media Content — In March 2019, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2019-02, Improvements to Accounting for Costs of Films and License Agreements for Program Materials, to align the accounting for production costs of an episodic television series with the accounting for production costs of films by removing the content distinction for capitalization.

As a result of adopting this ASU on January 1, 2021, the Company applied the guidance of ASC Topic 926, Entertainment - Films for the original content the Company self-produces and where the intellectual property is owned by the Company. For content the Company produces, the costs associated with production, including development costs, direct costs and production overhead will be capitalized and amortized over the estimated useful life of the asset. The adoption of the ASU had a $3.3 million impact on the Company’s Condensed Consolidated Financial Statements through December 31, 2021.

Reference Rate Reform — In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (ASC Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional relief to all entities, subject to meeting certain criteria, that have contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. Additionally, in January 2021, the FASB issued ASU No. 2021-01, Reference Rate Reform (ASC Topic 848), which clarifies that certain optional expedients and exceptions in ASC 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. Both ASUs were effective immediately upon issuance and adoption of these ASUs did not have a material impact on the Company's Condensed Consolidated Financial Statements and related disclosures.

Convertible Instruments and Contracts — In August 2020, the FASB issued ASU 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which simplifies the accounting for convertible instruments by eliminating certain separation models and will generally be reported as a single liability at its amortized cost. In addition, ASU 2020-06 eliminates the treasury stock method to calculate diluted EPS for convertible instruments and requires the use of the if-converted method. The amendments in ASU 2020-06 are effective for the Company as of January 1, 2022 with the option to early adopt as of January 1, 2021. The Company early adopted ASU 2020-06 effective January 1, 2021 and the adoption of the ASU did not have an impact on the Company's Condensed Consolidated Financial Statements.

Recent Accounting Guidance Not Yet Adopted

Leases — In February 2016, the FASB issued ASU 2016-02, Leases ("ASC 842"), which supersedes the lease requirements in ASC Topic 840, Leases ("ASC 840"). This guidance increases transparency and comparability among organizations by recognizing lease assets and lease liabilities in the Condensed Consolidated Balance Sheets. The guidance requires disclosure to enable users of the Condensed Consolidated Financial Statements to assess the amount, timing, and uncertainty of cash flows arising from leases. The transition to ASU No. 2016-02 requires the recognition and measurement of leases at the beginning of the earliest period presented using a modified retrospective approach. In June 2020, the FASB issued ASU No. 2020-05, Effective Dates for Certain Entities, which deferred the effective date for nonpublic entities and emerging growth companies that had not yet adopted the original ASU. Under the amended guidance, the leasing standard will be effective for the Company’s fiscal year beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022, with early adoption permitted. The Company is an emerging growth company and has elected to adopt ASC 842 with its 2022 Annual Financial Statements. The Company is currently evaluating the effect of adoption of these standards on the Company's Condensed Consolidated Financial Statements and related disclosures and expects to record a material right-of-use asset and liability on the Condensed Consolidated Balance Sheets related to the Company's operating leases. Upon adoption, the Company expects to elect the package of practical expedients, which, among other things, does not require the Company to reassess prior conclusions related to contracts containing leases, lease classification and initial direct costs. The Company will continue to finalize the implementation of new processes and the assessment of the impact of this adoption on the Company's Condensed Consolidated Financial Statements and related disclosures.

Credit Losses — In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (ASC Topic 326): Measurement of Credit Losses on Financial Instruments, which requires a company to consider forward looking information to determine current estimated credit losses, for all financial instruments that are not accounted for at fair value through net income (loss). ASU No. 2019-10 defers the effective date of ASU No. 2016-13 to January 1, 2023. The Company does not expect the adoption of ASU No. 2016-13 to have a material impact on the Company's Condensed Consolidated Financial Statements and related disclosures.

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2 — Revenue

Disaggregation of Revenue — The following table presents Hagerty's revenue by distribution channel offering, as well as a reconciliation to total revenue for the three and six months ended June 30, 2022 and 2021:

	Agent		Direct		Total
	in thousands
	Three months ended June 30, 2022
Commission and fee revenue	$	40,193	$	35,479	$	75,672
Contingent commission	10,857		8,977		19,834
Membership revenue	—		11,131