Earnings call transcript Q4 2022

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Operator

Ladies and gentlemen, thank you for standing by and welcome to the Root Inc. 4Q 2022 Earnings Conference Call. I would now like to turn the call over to Jodi Baker, Corporate Secretary. Please go ahead.

Jodi Baker

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

will Revenue and Officer; portion call, of Frank During Officer Chief Operating by Officer. Palmer, the Chief our Chief Matt question-and-answer Insurance presenters Rosenthal, Dan be Technology the and Bonakdarpour, joined

Last results. evening, Root issued a shareholder letter announcing its financial

items call within that will reflect discussed this While document.

financial which For our performance, filed information more our we read and XX-K, about you Securities evening. XXXX encourage the Form last was also with to Commission complete Exchange

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

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

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

well letter Investor as actual the on results last shareholder website available as call that risk cause For XX, A the materially section. our factors this our statements our differ Relations year conference a the more XXXX, see factors, ended replay be company’s where description a will could of to these from evening. Form detailed of our discussion December review please XX-K released of for you will under

performance. that some about measures non-GAAP while call, will would we Root’s like the I during to you talking also remind discuss

are measures You evening which released can in with find on shareholder ir.joinroot.com. our our of GAAP our letter measures the at and Form last SEC historical posted filed website to the XX-K comparable those nearest reconciliations

CEO. Co-Founder to the will Alex call turn Timm, over now and Root’s I

Alex Timm

In our by ability did loss our XXXX, the in all Jodi. QX insurance levels differentiation through underwriting changes loss in and a and We quickly see worst to foundation deteriorating in through the decades, the to positioned in in the we capital company of majority we you, of drove this our much and while We and ratio improvement we environment. the capital has continued ratio inflationary This consumption XX%, and markets competition of our achieve pricing earnings. and year-over-year pricing profitable loss the ratios Thank to see January. technology rising our achieving the XX reducing strengthened respond company with environment showing point of period continue accident to significantly in to the have. gross decline by profitability detect our auto

since large our release science to showing data from the is plan worse loss competitive we XX resulted industry segmentation XXXX, to to average of than In the beating model, XX ratio months. technology major now and a has the over third over last our This We to newest our improvements in pricing us taking points contributor accuracy. is which industry our the believe advantage quarter XXXX. progression

to this profitably. us All our business positions of scale

financial are embedded with expand continuing we business a digital announced, we to As our national company. services

will and secular leading us to large this channel. insurance ahead. loss dramatically experience. new valued embedded the the a profitability This innovation insurance embedded speed, success, be continue who scale growing next ratings more the trend partnerships, XXXX. We year We our in and platform distribution command customers writings give flexible tech with for partners that momentum commitment fixed to differentiated product to access us and combined to new we and advantage in build embedded setting believe see our With new reduced future our in stack both in underwriting through expenses, growth up of grew we are In customer is well Xx. drive and results positioned our funnel and to our XXXX, than to ratio

excited to year the and We are for our are customers. investors team, grateful deeply and

will the discuss call Rob I now in results over our to more to detail. turn operating

Rob Bateman

Thanks, Alex. performance expenses focus fourth reflected quarter our strengthening the Results the continued for underwriting on across reducing XXXX company. of and

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

Gross the million, million, was XX% a fourth $XXX earned XX% was year-over-year. decline. XXXX for written $XXX quarter a premium premium decline of Gross

lower in quarter along segments, quarter premium as level and renewals decrease underperforming focus XX% premium fourth compared this the of of XXXX. we business with lower gross profitability. taken earned geographies expected cause actions we from spend stricter to with ratings with this significantly customer underwriting new These have of up making rate We and on marketing

XX a fourth accident versus loss gross the was The for XXXX. of point the XX% period quarter fourth improvement quarter, ratio

have improvements trends we responded and fee of higher our increases needed We in loss which plan with to target XXXX, in meaningful rates We decreases strengthened our continue average to combination rate markets to long-term refine XX underwriting The of of revised XX to to filings year-over-year increase increase XX%. us underwriting closer loss in In across XX% book. this segmentation schedules. contracts historical and policyholder severity. recognized quarter-over-quarter, our and trends persistently again total improvement. tighten drive loss than has filed an early, our offset where ratios driven rate XXXX to from implemented We moving

lowering performance expenses the company. demonstrate of The the foundation our and fiscal our in to operational ratio loss financial took we to improve XXXX actions in commitment

improvement our quarter with XXXX. million of significantly XXXX of and not was a with from at the operating unencumbered our EBITDA, $XXX million basis. lower XXXX, approximation in operating We compared the to million third cash expenses quarter. the ended by We end year. headcount of fixed prior year. cash run-rate a $XXX $XXX Adjusted $XXX our $XXX loss consumption in our operating the over XX% to million of fourth headcount During on XX% consumption, the XX% cash XXXX took actions reduced improved compared We million, prior by

Turning our the XXXX, results we to reflect actions are taking. will

contraction expect smaller profitable as embedded in-force direct our new premium We from to in adjusted continued We outpaced a of decreases and lower our operating expense loss markets. XXXX improvement a ahead look from ratio platform loss EBITDA policy writings in and XXXX again year-over-year base. in significantly in

and significantly are again efforts believe XXXX. we targets hit and capital XXXX consumption against and believe continue in to capital we priorities we drive our we the to the in focusing our deployment profitability operating are in profitability them positioning our will our making By have. areas, we We will forward progress strategic reduce achieve expect company to capital with

your forward questions. look we that, With to

Operator

floor Please now first questions. your Instructions] Cantor proceed. for the line The from Our comes question is Siegler [Operator of Fitzgerald. open from Josh

Josh Siegler

taking Yes. could was the today. morning. Good future if Hi, I embedded an my for provide partnerships? on update thanks wondering question you pipeline for

Alex Timm

Josh. morning, Good Absolutely.

announced as integrate product I quarter, differentiation think of really last seamlessly because seeing our are technology to these as said we we really we and ability and with our and partners. today our our in

we turn momentum room over I talk – pipeline. commercial to more can our our embedded a third are second We by Dan that’s in partner in evidenced agreement a our the as And we seeing follow signed we soon. will funnel to are embedded with But have and as pipeline. who and we bit announced expecting our about

Dan Rosenthal

in but the it’s offers, given think in to moment to need. able we the our is the customers I produce than we delighted just And Yes, about see in better are experience the were of are new also product we real we findable much just anyone that meeting seeing quote overnight, it that announce a consumer Alex right, else. differentiation that marketplace. faster with talked a pipeline we We partner are

build the are that It’s to that forward. are design scale to the we business it’s advantage insurance seamlessly thing But track. unit integrate scale. not think we and and an we seeing across a us to with third, product on our opportunity and right know and allows overnight. to channel. And excited provides is Secondly, this to then going the partners I provides are the I’d results differentiated move technology and highlight really economics that’s going most help better product happen what leading And we us is

Josh Siegler

for And Understood. I signs That’s improvement into contraction grow, channels forward? then to in calls do helpful. embedded But half Thanks. when the start guess, revenue these ‘XX looking of force policy showing a or in revenue. of out as ultimately guidance you in improving your expect know the back XXXX, moving start to you expect soft I do

Rob Bateman

is Hi, Rob. Josh, this

continue expect next embedded on, to our at what we’re If the at rates – as quarter-over-quarter renewal is book But our the new to throughout you we looking partners year will ratings, expect year. we correct for are increase shrink. come our new growth looking

Josh Siegler

Okay, thank you.

Operator

the of comes line Charlie question Please from Our next Lederer proceed. from Citi.

Charlie Lederer

Hi, taking the in relative to thanks you quarter? higher guess is the mentioned seeing Good you attractive direct morning. translate markets. my for into kind and whether shareholder writings letter, segments spend certain I question. into about you this talk are fourth leaning what marketing to In Can of as going

Alex Timm

is Alex. Charlie. thanks, This Yes,

and reset us XXXX is our has think underwriting profitable deliver what really of those ratio now I results, the lower of fixed seeing we the we And the are invested expenses. really allowed is levels. in reduced loss company substantially what right foundation do and to loss because really that ratio to

think work the ratios marketing that Now, profitably of on now, loss loss can at trend to to to environment. there few we because have going look very when those competitors you we are and continue ratio market, still do dollars down. right the some But are elevated actually deploy

strategically return XXXX And CTO, seeing a in our that hit it can near-term I about has we direct do a so term the the to those of bit to opportunity are. dollars thresholds. leading return direct that to unique to now allowed where get right because are opportunity Matt, medium in areas now to industry to hard unique seeing that we our in that is us marketing an We to who what will ratio the are what pass close deploy talk we a to really ourselves did channel. loss is believe work in short very

Matt Bonakdarpour

And a on have to where we our focus channels is right Yes. win.

Today, data those an marketing are our advantage. us So the are performance where and channels. gives believe focused outsized we technology we on channels

what efficiency. it’s engine degradation just us our are search aggregators, a able way capital that channels Alex these no quote able manner with allow those to show ensure become And better scale to said. as we as optimization time is to disciplined to models in to that direct in mail, over been we have models and leverage So granular part, are we the deploying they

to expand years. So taking in a the disciplined approach we we invest it we our through way scale the and are capital

Charlie Lederer

Got it. Thanks.

So would relative loss coming it I last or ‘XX about sounds down guess further ticks on that more little then consumption ratio capital we this in guess it to is a is marketing, year to improvement or year think going up it like like other as just like bit maybe I be because it of areas? be

Rob Bateman

Rob. cost burned cash loss about $XXX to of one, ratio you – it’s the expect as Number XXXX $XXX structure. in roughly that continue if in come Charlie, things. work another we ratio, to think Roughly, we XXXX. couple about million to burn, the in again the drivers it’s XXXX, our well we have It’s loss we substantially Hi, we the again, cash in what million a in expect XXXX. on did, down as do primary And around for

Charlie Lederer

it. Got everyone. Thanks,

Alex Timm

Charlie. Thanks,

Operator

question of McJoynt Tommy next from proceed. Please from line Our the comes KBW.

Tommy McJoynt

capital outlook. topic current with capital, question that morning. on Good self-sufficient continuing talked Yes, my guys. being you about of your Hey, first just

So have do your of trough that cushion do how in envision and forecast, at year internal level you or occurring? at you the what a much cash quarter

Rob Bateman

am you exactly that’s Could I trying are to what’s understand the Tommy. question, what bottom you are asking, the ask, the for you cash trying Thanks – to the burn? yes, – of just

Tommy McJoynt

your be cash you of think will level? you do the at bottom when Just

Rob Bateman

X we years. to that disclosed next haven’t in it publicly yet. expect be Well, We do the

Tommy McJoynt

And Okay, any in now XX%, do about the actions? expense and now personnel so is then going envision have that’s of sort down your headcount forward, Yes, other okay. do answered. feel space that you the thing, you of further fixed the kind right or year-over-year, you workforce

Alex Timm

question. that Thanks for

think doing I base is at expense constantly. we looking our are what

still. a taken actions, we around but We have expenses our do do have to work of non-headcount number headcount

to for about in think were – you we bigger commitments If have what was take down some a company company ‘XX for we the have and we ‘XX. that to commitments scaling

some that more we from have ‘XX, of done do to some got work ‘XX already but We have to there.

Tommy McJoynt

Thank you.

Operator

from question comes from ISI. proceed. final Evercore David Our Motemaden Please

David Motemaden

lot question on in selectively ratio in think you terms I marketing of a of balancing your opposed over have of to you the are turning that, and about looked and morning. last with come just how the I Obviously, couple just the as quarters taking profitability through of higher spend at loss and improvement portion rate a it’s guys Good booking Hey. business. had that. the new a as just renewal sort

talk business outlook in balancing for improvement penalty sort you new you loss just can in new are some XXXX, could how about think these ramp up your So, within ratio? as the continued showing the of you of writings you

Alex Timm

will start it is that. And over for Yes. That’s pass and and question. I a will Matt. good then thanks to this I Alex,

is a it we think is mostly the points way year, the a better on how reducing very almost have and and understand we technology, loss the were to get in is fast because granular think tremendous. react today, to trends, underwriting of and And that loss what I and leveraging at we to where position, segment. to XX customer that the progression much one ratio, made do to environment really in our really inflationary to we able that allowed level, our are and flexible us and and our ratios that’s stack. our by And really pricing

down. term of also seeing so actually we a our has have what our We first new improved underwriting a really business actually come and term, lot of really penalty lot first is are that

about technology. more our on are making then right think ability while making the just And sure think deploying are we two, customers really marketing that we we so and ratio deploying And January are very that to we we disciplined whoever right we dollars, continuing just good one February, target, strength doing is are and have marketing in now that’s our dollars, for we the our one, are customer of really progression. sure been And evidenced the door through front results. that I of see we seeing And bring to through really when loss the and us.

I writings believe and you ratio will new able continue – see that grow to to be continue so loss progression. us that and And show grow

Matt Bonakdarpour

a delicate disciplined said, lifetime between calendar results. capital Yes. manner, will continue Alex what year I echo but we with a to and our deploy balance in results

been Over coming gain are that as able the leading we the scaling even come last confidence in, few have quarters, as we the in abbreviated have channels. of to kind indicators direct And quarters. we explains further why

with financial as So, is do all leading guidance, will that confidence of planning or And increases to into analysis as we or continue account. we cash burn scale. this our taken the indicators, our provide forecasting, and

David Motemaden

that clearly just it’s continue. take when color. you need to that’s about, Got that And you of and it. think for about, thinking market No, I decent a guys rate much then guess conducive maybe it’s still auto, you rate, just helpful. obviously have to for taken so just keep frequency personal how XXXX? still a appreciate help in well amount you hard Could pace right the keep with and excuse severity – how a rate thinking us as you me, are still continue about, loss trajectory the to how to on on trend in about, from ratio. think the expectation and embed, much what as you you need take, loss I

Frank Palmer

Frank. the Thanks for Sure. Hi, this is question.

want but the state-by-state it, think think As just we not basis. your rate on about a think question, on basis, and a about countrywide about need I to

think have about lower can certainly starting to about as to more think marketing, other loss segments than those find markets within well around that growth, earlier states, as that back those we and states So, we states ratios your as and go we question profitable. are

segments do that certainly some turn where that loss able still will loss marketing more can on our ratio, some when that the that rate we some the so to at the lag we be where to states have are in higher behind, lower have wide ratio, so loss on the we marketing, look insights the And being us But there states. ratio that loss find of have you if states and/or that’s countrywide more taking that need rate country states profitable ratios ahead are allow states selectively. that the we that are and aggressively less

a As I would trend, of average baseline kind overall we X% it’s countrywide, say are thinking our the X%. to around

rate twice what at any been. stay level, same would So, which in we state, no about trends needed is to in we need that have to historical around to rate raise if X% rate rates X%, order

years think loss about thinking over about X%. XX has we X%, you the it’s are trend all-in last If been

that less. that the and needed plus and more needed will more a states then maybe little be So, that in about than X% the less bit states

David Motemaden

reinsurance am renewals any about the the more we Got trends, if cat terms helpful. I then that that difficult guess. property hard in you reinsuring just in not market, you it. book I a I could on you really, Yes, sure side, across of how amount auto That’s makes but line what guys the that impacts perspectives of have just just decent a least if with sounds I reinsurance on were lastly, you wondering sort you generally Could thinking navigate are guys sense. you as it’s guess know, of And comment, at share side, that marketplace? the much loss

Rob Bateman

We problems And of XOL not we capacity last it our needed. quota any saw cat. have year, and – it’s had all shares, the renewed David, we getting our Rob. we Hi our

taking have more really book cat. we than cat, auto slowly pretty have we able down, quota a fill XOL property taken more we we and to back stabilities participation I those been our we on bit our out go not and have more two, able our aggressive ratios attractive we shares terms, are have ourselves. things. that as and on firm pulling so Number coinsurance to been has in terms just order it’s combination attractive more set order And an a of out come loss think little firm one, –

David Motemaden

helpful. Okay. That’s you. Thank

Alex Timm

Thanks.

Operator

Please from we from Bloomer line of we proceed. Weston another question And UBS. have do the

Weston Bloomer

that could impact Hi. contracts I was revised have maybe question. up was my now from quantify I last taking had hoping or rate the additional policyholder XXXX. Thanks that most states quarter. book? should the XXXX, additional curious, just do And XX your in come on in your from – from ratios of states, loss you then XX expect you revisions for you in improvements actions that here was through

Frank Palmer

Yes.

for this question. So, Thanks the is again Frank.

As it’s revision. those think mostly we one-time about contracts,

Now, we a there states benefits. one-time revision are still that and where the state-by-state seeing those kind is some think implementing contract we still of overhaul. that are But

So, we improvements those. will expect wouldn’t – see earnings to continued you from

we November, changed expect we year contracts customers in So, still on those. to see renew to this our as throughout renewal

Some forward, expect changes. improvements and more contract rate of see more with we then like, changes hey, benefit of same kind take took wouldn’t and way type kind contract we benefit the going do of much this got to but changes the we you and get

throughout would next one-time So, it and into that would our into book a be change see this more earning year. of year we

Weston Bloomer

Great.

ratio contemplates that So, kind on-level the XX% from earning continue those revisions. of loss

Alex Timm

actually ratio loss Now, have contracts. changing taken is reflective of the on-level not loss rate do we on-level, XX% the we for ratio, and the that really that of

benefit. incremental so should that And be

Weston Bloomer

you. Thank Great.

Alex Timm

Thanks.

Operator

Thank participation. ladies no and does this you, your more you There for Thank conclude today’s questions. call. gentlemen, are

You may now disconnect.

Root (ROOT) 23 Feb 232022 Q4 Earnings call transcript