ROOT - Earnings call transcript Q2 2022

Due to licensing restrictions, you must log in to view earnings call transcripts.

Operator

Ladies and gentlemen, good morning. My name is Abby and I will be your conference operator today. At this time, I would like to welcome everyone to the Root Incorporated Second Quarter 2022 Earnings Conference Call. Today's conference is being recorded and all lines have been placed on mute to prevent ay background noise. After the speakers' remarks, there will be a question-and-answer session. you. Thank instructions] [Operator now begin. conference will Patrick, to you may turn I over the Christine And

Christine Patrick

and you second morning Alex Rob this results. Good Bateman, thank on Timm, call is today. Participating Officer. Executive to hosting Co-Founder Root Chief and discuss Officer; call Financial its today's quarter Chief earnings for XXXX are joining and us

Chief Officer; results. During Insurance announcing and Rosenthal, Chief Dan be joined the question-and-answer by Root Officer; evening, portion Last its Technology of and Officer. the Matt Operations issued call, Frank letter Chief Palmer, our presenters will shareholder Bonakdarpour, Revenue a financial

While discussed performance, last filed Securities and more we for will Form our this financial you with complete the encourage XXXX call was read to reflect within that evening. which Commission also our Exchange second items information about quarter document, XX-Q,

assumptions. based remind goals, begin, will call no Please of operating forward-looking we that on we want of occur. reflect developments and Before our business and I and this this call, that that the outlook, undertake statements as management's performance, new of opinions matters discussed to today's you are to as a statements date on revise our may information financial result current related beliefs these obligation note forward-looking include to which

risks, expected described and Forward-looking could statements various today. to those from are subject factors uncertainties, that other results and materially to cause our differ actual

impact may addition, business a In that of financial significantly our to results. we are subject and risks number

to cause results materially last discussion statements talking of well the measures second website like on and shareholder For will call a about where I ended XXXX you that as performance. be XXXX, call, we a these review could some the December you will Form factors, please our Form more description year this from non-GAAP that the in available XX-K discuss conference will would the under Investor to for risk our letter also released remind detailed section. as of during evening. A actual our see Relations of our XX-Q differ replay company's Root's factors XX, quarter

the XX-Q find GAAP nearest are on can Root's the Chief I Form shareholder measures evening our filing historical to ir.joinroot.com. to our the You website over measures which the letter Timm, with turn now of and Alex released in and posted would SEC, Officer. like Executive at comparable reconciliation last Co-Founder our call those to

Alex Timm

Thank you, Christine.

focused tightening challenging and to are rating filings difficulties have We on we execute to while filing in year-over-year of states a period XX increase have an expenses and insurance by deepening XX%. implement rates, Through improvements stack environment, underwriting XX% underwriting average contracts continue our this we burn been resulted basis, and financials. EBITDA as of year-to-date XX% cash continued rules rate engine premium prolonged improved points, to our competitive with in our inflation. accident tech proactive managing a non-loss Despite the revised our through XX steps on tighten to chain able and to and further and reduce We supply the adjusted gross respond playbook LAE investment five cash have ratio we loss reduced advantage raising in On and our leakage. significantly we with technology. taking

capabilities partnership discussions partners. technology our can prospective and something consumers have being instant an product its which believe product channel showing and with that is able our on with is We the driven is uniquely provide. embedded that for Root, offer to quote early have at point the embedded vehicle sale works technology Insurance focus of with We better integrated attach exclusive that shipped current our days. fully Though Built platform our creates in our improved of Carvana Carvana, a rates additional

stream still recently future. also early particular our while offering a we that our and insurance distribution excited in This light development have offering. It our are in for capabilities, revenue are this to to technology Root suited is allows agency. launched expand capital our service to not allows that digital best customers partners We access the

are We models process development. around our refining constantly and their the

earlier our This to enhancements the model would post-deployment review to from quarter we made enhancement pricing improvements pricing that more benefit even quickly. made identifies be of model. This countrywide segments necessary adjustments informing

leverages We also more accurate on this of days test the required will a reduce believe pricing lead speed the our working future are which generation model pricing, ability UBI-based dataset. We UBI our and next development simplify drive for and model, to growing to rate.

to expect while over continue the turn call Looking ahead, improvements our customers. detail. half in drive underwrite results embedded financial to our on and with access to building experience, our discuss differentiated continue expanding results operating in now I'll we of more and further to continued on focus XXXX. Rob through to execute we're back Along our to pricing to improvements deepening going the product

Rob Bateman

embedded Alex. second Thanks, quarter our on reflected and continued strengthening XXXX industry for our developing focus offering. leading performance of underwriting the Results

results disclosed yesterday focus want I shareholder a Our to financial the but GAAP on in are key few evening, full published letter highlights. we

premium versus new geographies point XX% quarter period rates earned line, loss X% actions quarter $XXX as making up underperforming have million. a XX% along decline on decrease underwriting for with the the of was accident Gross profitability. lines ratio second renewals second segments premium and top XXXX. business caused substantially customer with this top reduced declined the to spend. On and gross focus five we improvement higher of writings quarter, stricter $XXX reflects in to XX% million, premium year-over-year These written our earned That marketing year-over-year decreased gross gross to

to implement Our rate weight have early higher improvement. severity changes the to renewal year-over-year higher ability along a consistent driven and with quickly response premium of

operating to raise underwriting line focused further expect across improve continue to and take We losses. We expenses remain on to to company results. bottom actions rates lowering the reduce

to second Operating loss performance a excluding last in operational a reduction million, give LAE compared $XX resulted changes of quarter quarter, quarter certain second business, non-cash with in XXXX. a improve a non-loss XX%. XX% year. improvement in the clear EBITDA, Adjusted of underlying view of XX% KPI the our was over items prior During the introduced expenses

We quarter capital of as the of toward quarter. with $XXX unit we are the $XXX profitable drive ended the capital, compared We million at end economics. second unencumbered conserving roughly million with first

dropped operating consumption over when first the half XXXX. has Our cash compared with XX% of

the we our environment. actions expect to to outlook, we are Turning our through we this continue navigate results as taking reflect to challenging

of gross improvement expect written second We half premium XXXX reflect in meaningful the significant year-over-year operating declines losses. and in to our

to capital magnitude we the when half first improving strong expect both focused as operating on rate compared through of as the and XXXX, well with accelerate underwriting management. prudent measures We as actions, remain of results

We making year we goals out progress are not are a and ago the set finished. against we

while advantage Our your continued conserved appreciate to embedded our build our forward With focus questions. is support. your technology foundation clear out product. that strengthening capital utilizing in to our underwriting We look we

Operator

from We [Operator Greenspan Instructions] question Fargo. Wells our take with Elyse will first

is open. line Your

Elyse Greenspan

QX, in the second be saw half are the the with the compared year, morning. thanks. know back pretty I but first the Great, half. guess expecting sharp what was, significant declines line, half to quarter? policy outlook, in in the you in that My back compare said Good question I right, to you the first it decline following-up if you just you premium about the to and decline on we

Rob Bateman

is that this Elyse would Hey, Yes, Rob. be right.

decline half in of earlier. this half and the at from year, look if last say going at more will look compared year-over-year operating half QX gross second look a We to that both of the do it's premium written it year, the that you than I'd we loss talked back If that above the you second XX% had of to year, be QX. like about expect

Elyse Greenspan

severity, And to what's about thinking remain to are of think over like you trends, year? you here, frequency especially your view then you the them expecting elevated? and Do severity continue the are balance how in

Rob Bateman

I'll give the Elyse that Yes, actual we had. you

year our loss over what you So Frank our looking I'll was to sense picks. X% half to of the frequency And the a and is severity give for it our ratio turn at of back we're and X%.

Frank Palmer

morning. slower second will the we year. last I'd and expecting and that remain the severity for year will are half good probably to of this Sure, trends expenses elevated, frequency think, I compared say be through that costs but

used So example, don't prices, that see of amount year. same saw going the expect see to while to for acceleration last car expect down, we we we don't

Elyse Greenspan

more has the muted be, as Okay. at then and your obviously remain through And one guess, perhaps last with spend continued marketing XXXX that Would least to down. this would that into well? that year of rest I one come expectations

Frank Palmer

is on on staying Thanks still Right protecting we profitability. for now, question the that us the entirely what are laser-focused really means focused business. And for Elyse.

at we where expect point back ratio stay and And through least to so growth that in the our getting is loss that of half position prudent this year. we to the feel

of spend, channel. we're further continued and expect terms we product, in we believe, in to through though integrated growth where also also in to the we growth do see new with continue flow. see even our Carvana And purchase growth We that and

Elyse Greenspan

Thank you.

Alex Timm

Thanks.

Operator

our Phillips with question next Stanley. take Morgan will We from Michael

Your line is open.

Michael Phillips

Thanks. Good morning.

down have there it than that only ago. severity something lot accident First a taken from ratio surprised I seem little X%, of that a Why bit question I your more five X% expecting me. by you higher gross was is frequency only comments this points to not to given a improvement And quarter because is low the the a ratio? be period loss year that. in XX%, on guess loss X%. little But on of REIT. was

Rob Bateman

taken first, in has of think have rate, I a not but I'd is of what lot that we yet. lot on say a earned that

a acted the about that actions earn of we we over I I'll lot the those seeing I it so talk bit that us, can lot in to have that rate early Frank, and stages and but rate believe behind a think through we the have we're quickly taken turn still who a little numbers. very of are – of book. And

Frank Palmer

Yes, three you both you quarter when at I'd saw say and about and quarter quarter in trends year, versus we exceeding two quarter four. last look think two, additionally, in

ratio year two last to three got actually worse, three quarter lost four. to quarter and quarter quarter the So

around, when in actually year. than the at the versus that we XX% you the look So XX% the up were XX% later XX%, higher

the of think back last of we've the in down a able some being year. come I to half So trends lot mitigate those actually

Rob Bateman

And the just all six some Mike, that's coverages. BIN numbers just in sense, in it, severity that to keep just give you that's severity, on to damage in so to mind material put points that a

we to the are that second rate, points higher going year-to-date, we've about quarter. XX just you on sense give of taken had you in damage material but earning So a But coverages. to six the see only on it the points

of the look they So, quarter. were at if concentrated you the they're half second filings, – really our back really in rate

a of we quite the the So, earning year. course over rate still have to bit of

Michael Phillips

I given than slowing that should That that, you're Thank bit Okay. have a premium was focus little you. makes that know that so third. new quoted Carvana was I proportion excuse expecting a thought be low surprised the sense. a been came surprised. surprised reason from was I but a things, me, Any more would on that a that I'm about higher volume by was guess it new why be little channel. third, your of still that business. down I or

Dan Rosenthal

Thanks Hey that know good and the for don't – morning. Mike, I it's good morning. Dan, question.

overall as us, a of what necessarily business new have a business. target percentage for, in I be our going terms we is Carvana's think of don't to new for

teams, out For the And down moment to to we're from is monumental. last we take product, really product is the a soft weekends, fully to XX like Root about in tremendous Carvana screens July, a market nights, it October us and just three to embedded to that from bringing what of in fully screens effort monumental. the by I product fact move that putting want and is that a the call launch launched embedded excited really,

Alex and we earlier. it now, word from ability used we here, prudent right the Carvana up ramp way. And do so the to think have the

Carvana for is We a see about I rate us, channel and good really see customers with. continuing higher the customer It's coming in auto that's signs newer in positive. cases. a the levels, financing the good quality partner it's This us really a place and we of embedded because car, many And XX% to think around of attach our insurance. the launch to early the through are improve prior have excitement retention coverage channel. for this.

focus growing it right for So channel the that us, really way. is, on let's

for going Let's to discussions on the the to that focus on back product that's year. we're scaling we're which other be then active focus embedded half partners, embedded and our in on, – active of

Michael Phillips

thinking the One comments tone, channels. I pursuing for from of go I letters your Okay. Thanks, a or more got kind guess, Dan. of if I from me, revenue opening here, other about

partners, you So, even prospective other Dan besides Carvana. mentioned, just maybe mentioned,

and that and a that two you different things there, excluding you besides would be guys you're So that agency things. excluding Are those the and excluding there mentioned this revenue with besides that the partnerships thinking traditional for insurance agency? source other had other digital digital Carvana about

Alex Timm

on capability. to we to expand that to, it's do scale pair a to I'll bring on revenue. We're some just a be offering, the Thanks continue continue we really partnerships as platform. digital about now, to that turn of continue is which what our do that of insurance we're that And the with Dan portion agency, expect who to Mike. our three can at, lots long-term basically And leverage to and unique we we and and offerings. considering. We more talk offering allows We we it of over technology, bit live because we to different partners a more that that expect are good meaningful additional in us think launched to it states

Dan Rosenthal

with first at auto. we've business that up we people Yes, for think transformational to built focused would data up personal we And be, experience the certainly we go taking way have our in and we've opportunity, are good we're that are been of notice. on terms has we what have Mike, what we think long in a the built Carvana accomplished the

embedded areas can forward. that still point a approach the meaningful in enhance about front to product is, And and so is us, the enhance the Carvana the with it's to opportunity buy experience, marketing. then product us other one, them vertical for roadmap opposed the partners, scale tremendous customer do Number many of it other see drive and good attach build and we aspects out stay customers focused to the of at things. we for to take news Carvana. we in the rate, And believe into two opportunity as insurance There more traditional on

have of offers customer industry us, it's that think better From so Rob the better has that the that. how taken that decisive that have The put something is to actions in interested acquisition for we and reach and rate carriers place. I filings had And that that, we fair think continue. there, we earlier, the customer success talked we're profile profile, we want different out quick and about of say in a notice accomplishing to some

that'll future. So, we recognition but good what solidify gaining attention. our grow for technology is that in the faster, just we're to we us don't on frankly, have personal any seeing doing and working are auto front, foundation and report opportunities news in think offer that the business the People to

Michael Phillips

Okay. guys. Thank you Appreciated.

Operator

We will next Securities. with Carletti from our Matt take JMP question

is line Your open.

Matt Carletti

morning. guys, good Hi

Dan Rosenthal

morning. Good

Matt Carletti

on have maybe of on we you a how partner ahead and whether concentration had too think first guess coming there ramping, you might getting ups for one If want third I channel you talked you much. just potentially business But of much any Carvana. how that? with do mindset in. a the or myself is, about guys potential couple a We it's Carvana any down about, road, the partnership as forward partner, you some to ramping, here. about, about, think do that fast had individual manage around, that and follow think how apologize new is I it's you of Dan, other just comments

Dan Rosenthal

through Yes, it with for starts exclusively it be and diversification but go forward. and And attractive a think customers the not clearly Good embedded this embedded us far. important. Carvana the will and I is the Matt, Carvana, Carvana thanks opportunity, are we really channel morning, as we for of question. diverse is and seeing come group group really That said, channel, it's customers of a thus the

the consumer ahead provide lot to Root are is, differentiated we a the that going on with go delivery – opportunity that Carvana Carvana future the capabilities in throughout more roadmap, mile last and the embedded in highly excited Insurance to experience with on is is think we're One I two leveraging a reconditioning product roadmap. on has and continue. our United talk centers, So excited Built the quarters Carvana the the from back come there front directions. to And with just in Carvana about of some the States to opportunity

So real-real opportunities has then Carvana. in partnership customer and this a been open so benefits learned I much. we've enough the future that second emphasize And Carvana. how can't with coming with

together companies and and a experience experience with consumer the forth on consumer changing sharing putting be back other can the the focused lot and partners. You're really of learning, that of digitally a two native leveraged and lot insurance,

And so to what in elsewhere. see the ability personal insurance the buying can leverage the to information that understand auto understand we is the experience consumer, consumer wants

is extend front. opportunity market come So and make we to the the that future there excited think to us going tuned be platform have to on announcements as for to back to I stay We're

Matt Carletti

correct. a severities you I Great. that. Carvana there more profiles can kind that kind – is if anything that of Dan, channels kind employing that and that Are curious a give mentioned of largely telematics, follow-up, can channel whether little channel. not loss on of because I in sort have just days, of cohorts ratios just if you other the through it's similar know of kind or And frequencies color just of correctly, to see? accidents attractive it's recall come just I'm that just kind partnership of you early through see I customer and coming Carvana but in really anything or

feel that telematic that for book versus the get at of rest that largely which point the Carvana, And so of has it a believe just I'm this technology in kind trying to doesn't? your I

Matt Bonakdarpour

in we is That's Bonakdarpour Carvana haven't right. telematics space. leveraged This Matt way. date the To the yet by

some it so mentioned to the And demographics. saw as early of indicators pertains customer Dan we that

the history seeing those than even controlling still see customer of more But a early on and insurance both indicators better compared the preferred in loss like we also versus loss early demographics, the we are when when on retention to It's prime we're for encouraging We but book. Carvana direct demographics ratio. age expected based root channel, than compare a indicator, the very ratio. is This expected days, across and better we to channel customer leading eye retention control the we're for in direct seeing route and close keeping Carvana, it. but vehicle

Matt Carletti

Great. Very helpful. you. Thank

Operator

[Operator Instructions] We will Siegler Josh Cantor. question next from take our with

is open. line Your

Josh Siegler

you Thank Notably improved for gap and this morning. for business quarter. my a good models pricing season the Hi, states this taking loss Is question. in season renewal in of and ratios states? between reflection telematics your new narrowed

Alex Timm

versus new in is one I earlier, we lot see this is Hi, the like the actually rate pricing should the look we there – for will new where Alex. things loss ratios for hit things place, new renew the a capping When you are think renewals. at to business of of expect example,

And to little a to more to be will a it so Frank a bit the leading But tend bit business that ratio to new more indicator. I'm talk turn of going about you particulars. loss see over

Frank Palmer

we of renewals. hit Yes. first a and new the underwriting both to won't the that That's earning the but underwriting, also business take much pertain actions lot on the on as in, right,

Josh Siegler

your a inflationary in Can of much then driven And pickup help you the was by and quantify bucket? that pressure. you. how loss ratio each XQ sequential you of letter seasonality in that mentioned Thank mix Great. was

Alex Timm

QX the about from talking You're QX? seasonality to

Josh Siegler

Yes, correct.

Alex Timm

Yes.

both in saw industry that our and we results in So results.

it's that's think apart kind hard the to apart amount – rate with seasonality And that so earning of in. of tease the I

Josh Siegler

you. Okay. Thank

Operator

next take will from We [indiscernible] question Evercore. with our

open. is line Your

Unidentified Analyst

has Good about the rate a morning. activities Is think This forward? million used cash million run to for going flow quarter. trended per good year to $XX operating in in us $XX this

Rob Bateman

Rob. Hi, this is

expect look talking business, focused to We're that to If expect that, I do you're I strengthening improve the we I second protecting of on would company. the the cash. the so the at of we the everything – year, preserve about of the first completely do as Just doing are part part need year. foundation would to

last better down part this of year. of rate to reduction part if the spend than half last shut look were second We for lower substantially had our first last second they We in the we of year. back the year. year, action at be over We've year in losses this the So year, of expect taking part substantially expense quarter. operating the of you our been in and last, marketing our the do than – a all

year, that expect maybe accelerated this So two would the the of but for basis. year we half quarters burn as on to be the cash above that of in back the same a first little this

Unidentified Analyst

And the Got you million then adverse on PYD the you. it. just quarter? a during elaborate Thank you could half took

Alex Timm

was a and Yes. that think the an was PD some our driven by I There what small largely in development unfavorability, reserves. the on in severity unfavorable uptick collision. bit was And of

so not our deterioration, And something It’s confident it is of our still see booking. believe some very did that feel signs was but in We not in weaknesses we reserves. we material. reserve

Unidentified Analyst

Great. Thank you.

Operator

with will [Operator McJoynt from our question Instructions] And next we KBW. take Tommy

Your line is open.

Tommy McJoynt

for Thanks my guys. questions. morning taking good Hey,

relative thought the been of process there Matt’s telematics difference to you to to that back performance underwriting inviting impact. a part the played customers, I loss as you coding would’ve the Carvana actually the telematics would’ve on better? applied that question prior where your a surprise [ph], to there does answer been Going larger where maybe has there would’ve of performance

Alex Timm

our direct risk has and to ability mobile data So, in that we telematics believe do that we seen rating predictive technology that time the and system, And large world sensor know that the very business. is time have we of and certainly impact, is using a variables I again, most segment one our our class. in it’s think differentiated

buying phenomenon. consumers is ease, necessarily price. are not there a We insurance for it, bit of believe it’s the However that a point on different Carvana, actually for interesting where little

favorability getting know where the shopping of not vehicle, like dynamics. I a if a vehicle. that And on things to damage in too, you terms no the get so ratio that I there’s fraud, lot Obviously of loss purchased you’re preexisting same just

I’ll we we’re driving sort hazards that think where So, other sort of channel. too, lot that of what say this direct seeing that’s the are the to a selection to thing continuing materially is, see loss we maybe and, materially improve benefit there. loss of both I you through ratios moral And quarter-to-date, seeing through reduced expect to in favorable ratio our improve And across even quarter, see quarter, continue we’re the our business. Carvana and

Tommy McJoynt

are on Thanks the that able take process process little points. workflow how that thinking as a switching the other industry Yes, of pointing which percentage is And more detail being automated. talked a that good for of those out. the carriers a And you’re you’ve couple what the high of changes to you kind of monetizing for in about to Could inquiring us past, parts somewhat that you’re give have? over rating all automated? are rate are the throughout to you perhaps then

Matt Bonakdarpour

Matt. This Thanks. is Yes.

with allows our have in from considerable do We variables fashion very automated to way amount filing little end regulators software of required. effort new in exhibits engineering the rating to input all for through process identifying platform end the an creating rate a invested pricing research that the us

rate the of get exactly incumbent being or they menus data to pricing basically want how down send managers the configurations drop to exhibits them actuaries, state over generate test way our exhibits, from compare platform, is scientists, regulators. the filing the automatically select that customers elements, and it models the we’ve to create to different the from to platform developed So the users the perspective allow a

Really, those new a of completely components used So we that data support time. new we engineer need source time if the automated a only to is, an before. have have over never we filing each become have rate

We of that create from to vendor, data. everywhere has quickly and ingest before, platform more to third use connection but allowed then And in have party it’s this Dan the alluded the else. we a caught the that platform to us industry. attention there, like act the those to

But we quickly our them. about but platform act that, technology so that that this active allowed in have on believe And has only do trends, identify investment we had and not us conversations more to the others. it’s

Alex Timm

have just this thirds them the base plan might I been over complete just as rate think add year Yes, two XX that upgrades, rate taken increases that not increases. there we over rate about we’ve of

So can there’s just, It raise takes but harder that X%, your longer fairly companies industry. be of X%, a all factors. throughout the rates to it’s of X% lot to quickly, update much able much

is automation And board. to Matt that across so that been we’ve able the was describing

So, we’ve been of completely our year. states plans able to upgrade rate the in this most

Tommy McJoynt

good guys. Thanks a That’s explanation.

Alex Timm

Thanks.

Operator

ladies conference your And thank and gentlemen, for participation. and today’s concludes we this call you

disconnect. now may You

Root (ROOT) 9 Aug 222022 Q2 Earnings call transcript