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Hagerty Inc. CEO McKeel Hagerty rings the opening bell on the New York Stock Exchange last year. Hagerty Inc. CEO McKeel Hagerty rings the opening bell on the New York Stock Exchange last year. COURTESY PHOTO

Specialty vehicle insurer Hagerty to trim workforce by 6% to cut costs

BY Thursday, December 01, 2022 10:15am

TRAVERSE CITY — Specialty and classic vehicle insurer Hagerty Inc. plans to reduce its workforce by 6 percent to cut costs and improve earnings.

The layoffs involving 103 employees comes as the Traverse City-based Hagerty “continues its focus on managing expenses in order to achieve growth and profitability goals,” the company said today in a filing with federal securities regulators.

The workforce reduction, combined with a voluntary retirement program, will result in a non-recurring charge of about $11 million, most in the fourth quarter, and annualized cost savings of about $19 million, according to the filing with the U.S. Securities and Exchange Commission.

“All impacted team members will have the opportunity to receive severance based on years of service at the Company, as well as additional benefits for impacted employees, including a payment for health care coverage, partial payment of the company’s annual bonus plan, a transition payment, and outplacement services,” according to the filing.

The workforce reduction comes a year after Hagerty transitioned to a publicly traded company through an acquisition by Aldel Financial Inc., an Itasca, Ill.-based special purpose acquisition company formed in late 2020 that was actively seeking an acquisition.

Hagerty (NYSE: HGTY) three weeks ago reported third quarter revenues of $216.7 million, a 29-percent increase from the same period in 2021. Revenues for the first nine months of 2022 grew 27.1 percent to $590.5 million.

The company recorded $14.7 million in quarterly net income, or 7 cents per diluted share. Net income through three quarters of 2022 totaled $34.6 million.

The company said in the Nov. 10 earnings report that it expects $767 million to $792 million in full-year revenues for 2022, an increase of 24 percent to 28 percent from 2021, with $5 million to $15 million in net income and an adjusted net loss.

The third quarter result “keeps us on track to deliver full year 2022 revenue toward the high end of our previous outlook despite a challenging economic environment and heightened volatility across the broader property and casualty space,” CEO McKeel Hagerty told analysts in a Nov. 10 conference call.

Hagerty CFO Patrick McClymont said in the conference call that Hagerty was “deep in budgeting season for 2023 and currently taking the necessary steps to slow the growth in our expenses to a rate meaningfully below the growth in our revenues” and was “taking a fresh look at all expenses.”

The company expected an adjusted net loss for the year of $5 million to $10 million, McClymont said. The expected adjusted net loss was largely driven by losses and costs associated with Hurricane Ian that hit Florida in September, and increasing liability reserves by $6.5 million.

Hagerty was able to limit its net exposure to Hurricane Ian to $10 million “due to our successful approach to risk and reinsurance management,” according to McKeel Hagerty.

“During the past few years, we have relied heavily on high-price contractors to do digital product development, software engineering and other projects. We are winding down many of these contracts and in-sourcing the remaining work at a lower total cost. We are carefully looking at all of our third-party expenses and working to reduce scope, price or both,” McClymont said. “Additionally, we are viewing our various initiatives and prioritizing the ones that add the most value to our core insurance, membership and marketplace businesses and deemphasizing the ones that have dragged on profitability during the last few years.”

As a result, Hagerty was “taking the necessary steps to improve profitability and cash flow in 2023, including cost containment initiatives, and prioritization of resources,” McClymont said.

Hagerty at the end of the quarter had 1.3 million insurance policies in force for classic and specialty cars. The company also offers a driver’s club that has nearly 750,000 members, hosts more than 2,500 automotive lifestyle events annually, and operates an automotive media content platform and valuation tools and marketplace to buy and sell vehicles.

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