Earnings call transcript Q2 2023

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Operator

Thank you for standing by. My name is Robert McArthur, and I will be your conference operator today. At this time, I'd like to welcome everybody to the Root Incorporate Q2 2023 Earnings Conference Call. [Operator Instructions]

Now I would like to turn the call over to Jodi Baker, Vice President and General Counsel. ahead. go Please

Jodi Baker

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

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

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

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

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

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

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

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

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

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

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

Alex Timm

you, was focus continuing which is pricing a uniquely capitalize the our QX reignite result This intense for ratio, on us company. the to loss struggle marketing while to welcome, underwrite environment, of and to to are is has Due of to and we Jodi, Thank great the work profitable allowed and everyone. industry quarter profitability. on today's positioned our much underwriting, growth.

company, the that this was last The we as our changes environment. afforded made to superior results, competitors this to growing the XX% react identify by quicker we've consistently months, XX stated the now than believe in are in quarter-over-quarter. posted over the pricing possible technology while margin As history our allows early us of highest evident writing we new the advantage actions by in and

the In a previously partnership launched our telematics platform. our launched on announced capabilities and also second embedded quarter, we

Carvana partnership, has early fueled our we tripled adoption of current to where Our is by strong moving This continues funnel been differentiation proprietary and customer by product. to grow. have the our proof our growth in partnership

We this on building that are continued excited we the by platform. momentum are

a and currently tailwinds environment are drive continue this We this targets. ensure opening growth. believe capabilities. are the exceeding customers. strong growth to This this and experiences With on improve growth marketing favorable as reactivating QX loss marketing driven up new expanding strong as in our product in ratios were our to monitoring we to driven additional drive writings experiencing profitable we've in was channel by highly profitability basis environment while we underwriting to loss additional ratio Our performance, direct deploying seen by product we costs states our daily includes and diligently able marketing competitive capabilities

the experience. strategy the customer on continues revolutionize loss with a XX% founding insurance From our second our quarter while to superior principle industry we in machine stated model our deploying delivering would progress We that predictive This this made technology newest by improvement belief and an guide cost learning power. beginning, estimated us today. in

continue the cornerstone capabilities of believe our our provide over outsized We returns time, and will to stages strategy this that shareholders. to and in is early these customers

profitability momentum, loss of we capital that and combination believe advancements, the embedded the path With technology are we growth have. improvements, to direct with on we ratio the

focused on proud of and forward made the date. we are driving are We to the progress business have

discuss operating more the Megan over turn to our call detail. results in now to I'll

Megan Binkley

Alex. Thanks,

the and GAAP within be to full evening. published in return yesterday growth can marked second financial Form found quarter. Our letter results the We XX-Q a shareholder

accident slight Our a years. growth during to evident period was an QX. count while quarter reducing in-force emphasis profitable increase overall and in gross our on executed growth XX%, nearly two ratio We improvement increase through representing our quarter, policies the first loss second deliberate in policies over this in in-force

to premium premium for million, quarter basis, X% XXXX. million, increase million the represents second a the the written year-over-year a $XXX earned of $XXX quarter over of for quarter-over-quarter. increase, a decline, represents earned premium was XX% an $XXX when quarter. quarter written Gross slight X% a while On was gross second gross compared of million, second increase premium $XXX Gross the first

in significant gross point expense XX strides gross is which XX in improvement make loss the and in in period overall accident We reflected the year-over-year. ratio operating our improvement results, point ratio to our continued

year we've over on continued of made $XX quarter, the strengthen to quarter improved second XX% progress continued of improvement the million, for cash business reflect our loss the a fundamentals prior operating $XX year-over-year. the was approximation Results the or second our loss efficiency. million. the During a EBITDA consumption Adjusted operating to and net XX% of focus

second We $XXX held end focus unencumbered at the of with help capital unencumbered cash insurance the our our of of strength a on reminder, ended to the balance first quarter cash we regulated current of million quarter. the million companies compared $XXX As or overall evaluate to cash, our outside position.

a minimal largely in various reduction quarter to cash due during to The capital insurance well net of settlements. consumption contributions our and as required improvement timing the in subsidiaries as operating was the an our results

turn for outlook elevated our and investment in of growth. cash burn as continue spend, of increased financial unencumbered year, continued the supported level to we first expect deliberate the half a of second profitable With to be compared underwriting year. will an And ratings the acquisition we compared to will growth As we HX. anticipate expect see to by HX the new and half discipline, in strict result,

as trends. rate emerging improvements loss loss to we monitor will prioritize to We continue needed, ratio take and plan as

with operating company are and with progress to on made the have. pleased believe are we've we profitability We we achieve results capital positioning the the

attention, your to forward We and appreciate look your your and questions. time

Operator

for ahead. looks like Instructions] you question that. Cantor Thank our comes Josh, first go Siegler [Operator from It Josh Fitzgerald. at

Josh Siegler

everyone. question my Hi for taking today. Yeah. Thanks

letter functions in mentioned with launch how your perspective? the you new embedded Thanks. a from And Can with shareholder your walk live us So product? are that, that with through went capabilities the similar partner there capabilities. to consumer Carvana-embedded actually product you telematic plans

Alex Timm

able is a of the material. in just their think that meet made do believe technology, in that long-term growth proud We embedded telematics, the through not we've year customer we're really that need. that our in embedded time to throughout platform. opportunity the more And We're traction but our broadly, we

So our that the platform, to what do for in platform, the be that in allows better quarter, of manners a to we telematics collect launched us consumer. when within the is, embedded second data could variety really maybe

consumer would an may this in for or example of be insurance. financial to sort an And market of be so in not will start for sense. necessarily applications service with where either data ambient applications the telematics a for partnering collect But different

then app insurance to turn might be later. on they an purpose, permissions for so things telematics different look driving to of at presented download with an their related a a quote And to variety begin and

think that, also an through and vehicles. that there's getting We opportunity embed directly closer to actually vehicles with telematics to selling

We -- already Carvana, the platform. we a particularly connected been to to -- vehicles opportunity XXXX, attractive when those telematics further there's expand with to been directly expand reconditioning that they're centers that pulling since get and from data And closer have that think to our We're program. cars. very plan in

them. is consumer. use cases novel the something think going it collecting that's to by think, long that's our actually term continue platform, data to capabilities telematics we expand. for going proprietary start telematics that, telematics And as the reduce We it we own sense to think in flexible to put more for barrier having customers we to make allows from So us to significantly

excited we're so expand that. to continue And to

Josh Siegler

very helpful. That's Understood.

writings and mix between how curious, For question, you the forward, platform? embedded my for I are was split second channels direct new thinking about the moving

Alex Timm

where environment new profitability we're exceed still we're seeing a future, and think, to we we are I'd the really able getting writings we're business favorable while -- I just new direct, seeing our very of say started. channel, think near in in growing that direct significantly one, on targets, all

X We've really of the the X reignite growth last really to only engines over to months begun company. our

very that, think of growth able there go product stages reason we on and made And really, And will that to the of our pricing. our technology is so possible loss we're we the which been growth the drive our we're early will has that and by think in underwriting that where superior science discipline all data because of inside industry, go. ratio and where

I it small so a of near very have the place, share big very think, is term, still. in we Internet And the a and

to you anticipate, our bread direct for term, nicely. should continue And and been that's butter to scale near so as in the

that that we from we our in secular be really distribution. seen will shift be more That and early are that in customers more than of term, XXXX stages of said, the XXXX. longer believe in we believe still but And embedded, we anticipate in coming that, to more growth a

Josh Siegler

helpful. you. Understood. That's very Thank

Operator

from Our next is Yaron Kinar Jefferies. tones color

Unidentified Analyst

is for morning. Hi, guys. This Good Yaron. Charlie on

recent around credit The just guys you in of is letters any program? your reinsurance I Are and to have first structures. changes considering light of reinsurance headlines question

Megan Binkley

for the Hi, Charlie, thanks question.

Vesttoo became allegations the weeks firstly, I it's connection ago. want to it that make of clear issue, As fraudulent And credit couple aware direct to Root sure with letters of of has of relates just Vesttoo. in collateral that relationship the we no with a

over right is our been ensure the months, business And evaluating have look, structures one that for has decreasing And do the we're past the impacted. we've constantly session as that potentially our reinsurance XX been the percentage reinsurer We business. we've got terms external improving. to

this this, deals. look our for we loss at could for the exercise our ratio worst right the that given with be for us would minimal impact we to commute we scenario the And performance. as case believe that -- particular a reinsurer, do overall to would statements So to financial us

if necessary, strong support to We've would take balance got term. this a long actually onto ready books, further which the we're able over and sheet, our profitability back business underwriting and

So and I to our longer-term forward. more business retain going reduce would our say costs is strategy continue to reinsurance

our this plan. is existing So consistent with actually

Unidentified Analyst

in growth Okay. to positive. the growth written that have for of you color. And full now, then expect do year just terms growth, already you direct given Thanks inflected to back guys be premiums

Megan Binkley

Yes. Thanks, that question Charlie. well. I as appreciate

we're continue PIF beat growth and half, -- to we about half, in the work mean, that's in did the by driven on I in and we to As first XXXX XXXX the GWP we the that of are and have expectations, thinking of our business. second expectations our fundamentals really as do been the reflect strengthen terms

continue expected. And economics in loss position new that we initially put increase as than for do we're and in that strong the to really to performance. as profitable our ratio got a us unit that's PIF So to long business confident we going we've remain earlier

are continue increase that that expecting we HX. for to expecting well gross second of as premium half will as to are the continue to we term PIF the So will increase relative year,

Unidentified Analyst

And Thanks. last I then if may. one Okay. one,

You favorable quarter. in guys development had the

was curious to just number you're of out. source two, able intra-year, So the XXXX. the from including development it number call I'm And if development one, then was if any, quarter what first

Matt Bonakdarpour

some and we've trends really could ensemble reserving so to Matt. of type a tell our question. I efficiencies we X.X and think And modeling -- little the short-term reserving both allows that taken maintain bit we Yes. of is capabilities you about one models, us of and kind that different we're This Thanks thought years I maybe a of the long-term about not spanning last diversifying how over continuum of an the internally, actions internally risking of ensure trends. types any strategy. looks at for

account basis. we a short-term the business. the take weekly coming the technology are remarkably invested in actual these And in, heavily enables power models on in On the us It data refit required experience these side, but only and not into to to trends the models. that's

developments repair through payments ensure XXXX that's -- that those was go-forward seeing. trends us to so on took And reflect our coming reflecting adverse reserves and trends in that in those in do were costs we to were identify we that a XXXX, to allowed And we what supplemental some identified. had trends basis, were

at what's superior position. -- a same this perspective, put able we those react that's trends the so And outside actually favorable to costs basis, ratio were from the you essentially QX took the we was repair and development. about QX loss of it we're the results. pricing From on perspective, into versus to good a It's us and year-to-date zero development feeling that time, the very look favorable when a at

Unidentified Analyst

Great. Thank you, guys.

Operator

Thanks.

ahead. Wells Fargo. from questioner next Our [ph] Hristian is Go Getsov

Q –Unidentified Analyst

for pricing model. it's like guess, but can kind loss like the there maybe higher the that like you moving ratios accurate, like of was fast XX% use in how costs could you what versus mean forward? model just could ratios? model, more in know Hi, see had I loss old is new associated And that a data XXXX I that given model. good morning, does don't the get the about benefit? with new that that quantify like there question there's I if old you that double it, if at benefit how I the

Matt Bonakdarpour

question. Thanks Matt hi. again. Yeah, the for is This

technology deploying proud that invested the done pipeline years we've in we're from all through three really way the development two models the pricing production. space. of the over in these So to and work powers in We've the heavily research last the

to allows that take us these sources, methodologies that new and exposure improve predictive power So advantage models. data statistical volume of of test increased the segmentation new

the we'll these continue these mitigating The a selection. to of power models, our to changes And rate predictive see increases improvements development power favorable base of comes with and on we through ratio loss segmentation believe taking, underwriting the really that basis. adverse in in -- coupled go-forward we're

Unidentified Analyst

I writings talk just traction and because think little demand And down we quarters was Got about so embedded up percentage was guess, new question, can And what as a new you. Thank bit. of car it. then partnership Carvana of kind the because maybe up second prior just prices come to lower and more there? new a my for little Because bit you versus direct But you're a recent talk like seeing in about drying car started months. I much. there, see is

that could you in you've recent what about So maybe talk seen in months channel.

Alex Timm

absolutely. is Yeah, This Alex.

platform are and where will QX. but Carvana future, basis today, of new year growth to continue, new We a of our to that we that the that write-ins, that generally, push we and more continue into consistent believe to XXXX. we we're this see through generally saw from want that, remainder through going that and the growth in not we continue more are just For terms writings also to year-over-year believe on certainly specifically embedded more in seeing growth think and we

We from in and strong which strong has think come been our the general growth Carvana more really a and some then to and very we also that we will Carvana partnership, from see and continue more partners. more results platform as onboard of

by driven in are really favorable traction get partners, we seeing more and two now, been that's Right our funnel very to things.

to product. adoption that's an drive we been Carvana standard our at rates originally customer on Carvana, from we've The which they platform a tripled actually first what able this using, proven insurance is, we product adoption was have been from really that clear on the of point, have were in industry the differentiation in the moving to

That we've traction has noticed partners, by of continued lots potential been to and going forward. see several clearly

it going continue And engine. think healthy so long-term, to to fit to we're of individual that take excited take But market will partners. very that each a get to time and with growth we those expand platform. It time be find live, it's partnerships product to those will

Unidentified Analyst

it. you. Thank Got

Operator

Evercore. is Peter. caller ahead, Phipson next Peter from Our Go

Peter Phipson

cash good the result there's exactly levels is it in half or and you ramped expect these year, growth morning. marketing about that you improvement, acquisition what extrapolating little particularly Thanks. much just as underwriting burn a if elevated of Do of not caution is guys, second bit you moving driving on really a Hey Could said talk forward? the more the spend?

Alex Timm

Yeah.

you really the contrary, I industry-leading our think that, before to first, while that levers. sacrifice drive And vital that underwriting this time growth this of company that on turn I near-term may are and to to what we is given many to it's think I strict see profitability. actually on an think we ratio, on that growing into profit. the ideal our is will go believe back at think discipline the growth capital details not burn now we increase, an it's understand we of loss And begin

And that, so some as that, the do that's burn. we what cash you might in accelerate near-term, think see I

Megan Binkley

repetitive, Yes. of our profitability. business understand main critical I the focus both the Thanks, At writing that sounding think our it's do and a Alex. on disciplined and with risk is capital in cautious protecting growth new priority to

much determine look we little as half, the bit spend to happy costs. And environment we're a the clarity I'm we'll optimal more monitoring second competitive levels to So spend provide what related to be. will the continue expecting acquisition on to to how

sacrifice incurred profitability in But of on acquisition again, environment, marketing. around to we going in HX be million spend and to the acquisition for not XX% $XX performance will Around So for expecting it costs. dependent roughly in million we're And in costs. we are heavily $XX context, be HX, growth. will that

XXXX. in favorable also of terms results capital still XXXX expect to consumption in compared We

Peter Newton

it was question Helpful. X% than Okay. severity was XQ. second in the My less -- Great.

what little about seeing assuming talk guess and you're bit I severity dropped has a for Root? could So why you're you

Frank Palmer

you. Thank Frank. Sure. This is

both in and that of have business and Those and driven seen quarter-to-quarter decrease frequency is by severity. some We our the increase to vary renewal. mix of new in an our

As be we be which would historical overall and high was of anticipate up the loss going the frequency kind to think think trend, the we kind pace. kind severity, we to we single trend, and keep about digits. severities of impact that the net of rate that think of taking overall in with and

Peter Newton

Thank you. Great.

Operator

you. Thank

go ahead. from caller is Charlie Citi. next Our Charlie Lederer

Charlie Lederer

Thank you. Good morning.

Peter's question. up maybe on So following

I think the there in you're see way. that that level need to in you getting clearly, Alex profitability. growing Root years said measured to guys profitability. or that And this to to whenever to think get next few is a premium growth you of a get Is you the

Frank Palmer

Yeah. primary it's we laser to now. what to is there's think levers focus and profitability. company We executing that the right on really three began drive our

So focused drive the priority three to profitability with we to number capital we're have. on levers do there's one our company primary is to that that. And the

first on I ratio is The improvements are well in the an ratio loss which really to number double-digit have our both we now also of one. loss most, loss pulling the lever we top think year-over-year a and that way superior tremendous has ratio. And XX all, been industry-leading where And the now lever. was loss ratio just if of it not with

expenses. Lever reducing number two fixed was

improvement XX expense ratio, we're and pulled continuing of to year-over-year basis ratio execute we expense on savings. So on a points gross expense

our improvement XXXX, into total do we to additional expenses from will going we see so believe XXXX. fixed And

making the So, way sure and we're profitable. getting to strategy well pillar also of we're that on our

have then now the what third drive profitable you touching on, And growth. which is you're is to

our we're our believe an new a quarter-over-quarter growth stages. the but So, also on ratio, still early there, XX% very in in well in clearly, and loss way with improvement we're writings we

over from to company the what what is that believe expect -- next profitability. certainly years, we and and of couple do to to so us continue scale should you want the And will we to drive

will drive that see. And that we we what the ratio we're growth to want to stops to to favorable stop are If we that performance continuing really do continue the is driving seeing loss being case, growth. provided

two, can And driving we getting profitability targets. with capital is, growth -- have, while number as priority our as number with much incremental we hitting possibly so one, the profitable the

able also as just And that in continue gets and be think topline so there we grow And growth. persists, favorable any that drive we -- us beyond you to we'll long as to what believe growth event, environment. a to breakeven. should us that But will well be expect to

Charlie Lederer

helpful. That's Great. very Thanks.

Just follow-up you historical do you my marketing can wondering, larger the competitors? of And that on your I -- guess, much routes the loss benefiting how environment talk efficiency as is challenging spend the about from at that versus see spend, how tracking averages?

Matt Banatao

the This is Yes. question. Matt. Thanks for

marketing right So, a in we're focused the of data in to really technology. terms and because where investment, of investment have our channels our on win we

And channels, which are engine channels, search so performance and direct today, those search marketing our our mail. channels marketing include vertical

channels us current marketing we've advantage the allow to highly a and to like internal machine profitability granular metrics us models the ahead use take leverages machine These of in competitive to us. the spend to our learning allow that metrics to of landscape and opportunity built use input deploy way targeted

we as change, remain, long to machine same metrics opportunities the on machine those as the as will capitalize the opportunities the them. way. adapt When away, go we'll And in the adapt expect

spend the We our have maximize and an targets. a objective focus certain Megan and Alex marketing don't earlier, profit budget to machine of is the Like return trying to amount said profit. hit is

the and continue that. a optimize landscape, ratio that by doing in sense superior the were that identify a due makes of is that and but We able this So, competitive way in bigger the is believe react to than do driven fact industry. we'll our driver to growth adapting faster it to we part, that, loss

Charlie Lederer

Thank you.

Alex Timm

Thank you.

Operator

ahead. Our from McJoynt KBW. Tommy at next comes question go Tommy

Tommy McJoynt

merely taking gross questions. is -- function for loss the you're that where net threshold a a the loss reaching the Thanks longer convergence about and just Can of ratio guys. the you of no gross my talk of corridors? morning trajectory loss good hitting Hey ratio

Alex Timm

ratio to drive gross continued becomes us direct of that, that reinsurance really in out vital the come our as only of continue I manage it's function. important part that have big to it corridors, and remarkable see down. to to loss cost really those us ratio a and that's we note but also loss And will Yes, improvements think for

so are less we operating seeing to do buoy consistently forward going we our plan And to that and income. business

Tommy McJoyn

details And those you for to just then what it. Got prevented few called capital the want that could more? Okay. quarter on items a mentioned that around more so add entailed? a you bit a exactly from little I those little get items, out understanding more declining unencumbered You just

Megan Binkley

Yes. Thanks, Tommy. This is Megan.

So, minimal at a million a the we end quarter-over-quarter came compares in of got loss we've driven the by that down in of in million, second $XXX change quarter, really our driving inflows the million contributions represents recurring. items run that reduction and a companies. terms couple the which then we to through that improvement available and minimal of end insurance And onetime $XXX million, at in unencumbered the first $XXX is Lawson quarter-over-quarter, But around of immaterial an Really and due business. capital our of the that quarter. expect net to $X was primarily cash change terms to LAE, to that had funds don't be the to

Tommy McJoyn

it. Thanks, Megan. Got

Operator

Weston to final our And question UBS. Bloomer like go ahead. from Weston, this me is looks

Weston Bloomer

states Hey percentage guess, out for follow-ups break couple could rate you. your adequate. of good of morning. now what A you are I

there. update I in in was the the low an it so single-digit have you think curious, past, range, if

Frank Palmer

rate We single-digit you. indications. is at of or This XX% adequate our that Frank. is footprint Sure. think Thank now

Weston Bloomer

little around I been materially over couple you on guess the know lower that's then out little would than the And guess, assumptions the in have have frequency, I highlighted but thought. parse I a Great. of what more frequency? baked why a pricing Okay. drop-off, Can for bigger future seeing do I bit you material declines? last XX-year, we're more, is quarters. you

could if that expand on great. So, be that, would you

Frank Palmer

premium -- Frank overall start trends at and our look first are are. again. our what off we with, Sure. trends loss I'd is This say what I'd

of to So, think pace. a keep we amount hefty earlier, as still I we that just need rate mentioned

targeting we're overall single our far So as like digits trends high as lexes.

think Now to pricing course, going severity. of really really of together, interested up, the is put and in future we we're and to we that in be kind that, costs we are we frequency single is a the high mix all which it overall, amount think that we're going what what think of is digits. that But

actual shift. -- between a of Now lot quarters, there's the mix

tenuring our more new renewal just seeing seven-year-old of seven-year-old we ago. book have years it's have like so renewal customers we not a and But mix. We two -- didn't are many

Now seven-year-old customers. we've got more

as of some So it has tenuring. been our just renewal is book itself

is Some been business it changing. has the mix of of

and severity. segmentation pricing have towards customers, been preferred preferred our models frequency is higher more we're shift really segmentation pricing a our driving and mix which some to Our have towards more and lower business, seeing tend

think of rate kind trends really And still they're happy, of of you we still we overall normal as like kind at double or it so thinking as of historic the far think that that range. look we're and think together, what we're if as X% are probably of We all those in trend. mix is seeing shifts net loss

Weston Bloomer

nonstandard versus I average is disclose between preferred it the what numbers the or how do Great. And you can mix and then just historically or guys on -- on expand tenure where that's your changed? was guess, you

Alex Timm

seen disclose don't competitive becoming consistently lifetime and publicly. based and more that, those pricing later a We that continue preferred say, is we're segmentation sets look customer at pricing. updating I'd now customers more continue we as our more and we're of in to part observe with we We our models. tenures, have what data to And do as and build segment.

Weston Bloomer

Great. Thank you.

Alex Timm

Thanks

Operator

joining. Ladies and you Thank gentlemen, concludes call. that conference for today's

disconnect. now may You

Root (ROOT) 3 Aug 232023 Q2 Earnings call transcript