ROOT - Earnings call 3 2023

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Operator

Good morning. My name is Chris, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Root, Inc. Q3 2023 Earnings Conference Call. [Operator Instructions] Matt [indiscernible], Head of Investor Relations.

You may begin.

Unknown Executive

you us thank and morning, for today. joining Good to Third Quarter is hosting Earnings its call this Root XXXX discuss results. evening, Binkley, Participating Timm, on results. Financial Megan its Co-Founder Alex a Officer. Last Chief and Chief letter today's Executive Officer; financial call announcing Root issued are shareholder and

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

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

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

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

for risk XX, detailed a of For Form ended please XXXX. year our description our review XX-K more the December factors,

our talking during you this non-GAAP about some Investor letter Relations remind I we As conference well section. while on to as Form website call, of quarter that the under Root's shareholder also will call in measures available XX-Q. A replay third our will be the would performance. discuss like

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

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

Alexander Timm

We records quarter. contribution broke Thank QX both Root. written premiums quarter direct marks an for this and gross company you, for Matt. excellent

a over writings grew consecutive material Root our third last For top growth quarter, We new XX%. Management's writings of channel. target new expenses of driving there: get third our XXXX, over two, rate; We healthy loss XXX% one, business loss reduce remains hitting the total a the quarter to while plan grow ratio direct X-part materially margins to XXX% quarter and in gross posting saw ratios; priority and us on we lower in by our all to fixed drive profitability. profitability. efficiently to our three, scale burn the developed

has quarters. We have successfully as executed previous X on been in X, and demonstrated

are advancements to our in a ability underwriting strategy, with ability our channel. inflation, in our we in conditions driven QX our back marketing in This growth. to our environment execute to growth are favorable we on growth was marketing on with continue reinsurance will leverage profitability. The clear strong rapid in detail, can to our in by has degradation segmentation the us path put systems advancements believe all strong Our which and and exceed automatically shows to see on this primarily as ratios, or this, quarter designed attributed profitability and automated performance to targets our changes business. If loss response Megan we a combined new our Today, our our approach. X. position be to We direct on pull

our it Our growth. part objective and strategy, remains to our continue of embedded part we optimize meaningful a foundation distribution is our of long-term a for profit. channel believe is Root's core to

XX is with product now writings embedded premiums new Our active quarter-over-quarter. states up and in

strong we believe this have we future launched Additionally, we quarter, and a for launches. partnerships funnel several

company quick we business responses Root environment to investment data and our the experiences. of This technology, to an With to more is allows made quote All possible science. priced seamless ever-changing continued Root's have. enduring accurately by profitability capital and strategic advantage technology bind this in and we driving and data an with are for building

grateful customers, and our We to investors. employees are

be the Palmer would Frank announce leaving Root that at Lastly, end to of like I will the year.

strong We fully thanks previous for pricing now underwriting assumed and established are in operating his his over results detail. to turn Megan its teams more grateful discuss leadership who have have duties. I'll contributions to the and call our to

Megan Binkley

Overall, pleased we quarter. Thanks, Alex. in to are report results progress the financial this very our

increase gross writings continued Our a million, increase Gross $XXX year-over-year XX% premium growth $XXX Which technology force increase and Gross this improvement a a growth trajectory a also flat written quarter-over-quarter This quarter-over-quarter basis. a power data XX%. loss new increase on higher year-over-year. and while in posting a premium quarter-over-quarter quarter-over-quarter year-over-year. our million, the earned of is XX-point science. with testament We total and is achieved was and a and of ratio to policies XX% was year-over-year. both X% and XX% a

onetime of XX% third a million, net During our $XX second executed adjusted $X quarter, and million to the acquisition was Compared to of million, quarter. quarter, year-over-year. year of during the This primarily $X prior was the our expenses net loss improvement respectively. costs higher $X increase loss reinsurance and result improved associated million $XX XX% and loss the million. loss increased a EBITDA EBITDA the with over commutations Adjusted

the for as end of our end life do over in acquisition of which customer $XXX towards with And the as of leads we the customer, with were compared of to management's cash our the QX. $XXX end, premiums. reflect our to priority are QX that expense higher note capital. defer profitability of Our marketing the expenses majority top million results to to third quarter of not reaching largely Overall, momentum accelerated we recognition earned of channel. was direct that important managing the relative costs acquisition concentrated sustained the It's position. Unencumbered vigilantly existing million capital

a Our rate year-over-year unencumbered to on basis. cash improve consumption continues

profitable Following a and an acquisition business offset continue our of the base in expense growth. customer we reset costs partially position by increase was fixed as to for

allows to optimize reinsurance loss have fixed share now the quota the improved we us outlined, business. This are opportunity ratio and strategy. expenses Alex the reduced our As execution scaling

the We have session net overall on resulting reducing the We sessions new in costs third-party and a retention term, actions basis. and company the a believe been result forward pivotal in expect profitability. commuting underwriting loss and to reinsurance These percentage reinsurers on narrow our ratios and net of reduce existing we gross treaties single results to further the And is in in gap reduction the going to component to near driving the LAE digits. between treaties.

continue management managing look ahead. We bright and in questions. time to a future careful When loss your capital to ratio appreciate loss expense strong forward in excess underwriting is there through programs. our expect and results, We our believe position, improved reinsurance catastrophe of volatility your considering we

Operator

[Operator Instructions] Our with Cantor first Fitzgerald. question is from Josh Siegler

Joshua Siegler

Yes.

was I these if As us you into lower brought expanding in, pivot back ratios. give payback turning new for some period could towards loss you any especially marketing back on channels insight and policies of at direct wondering growth, the

Alexander Timm

seeing, period. we're very driven lower What Josh. really is Thanks, particularly loss a in our ratios these by payback large improvement

very we periods. so are And payback seeing tight

and We driven well as our really improvement are that, costs. by customer in large the very loss acquisition that's monitoring favorable ratios as

really for So us. encouraging been the improvement has

Joshua Siegler

Are notable that. confidence accident loss any was the beginning gives you then hear through that in to XQ, you I have trends ratios? Glad of or that in frequency there curious, persisted what these severity? Great. And maintaining seen lower

Alexander Timm

off. high and normal the a some still I to we're trend We're still believe back to don't others think a of pricing and environment, we're we're to Manheim we're level are begin still single-digit indicators so that fairly macro into that. net there, and trend. in really We environment, seeing low the double-digit seeing -- significant assuming pricing to trend

really abating time. And in so inflation we're at on this banking certainly not moment

have And accelerate been what continue see we and these one ratio and you seeing perform the our retention our expectations us had X growth that the unit anticipated. And favorably that's and more over than economics, We of very see as last we reasons initial the were. all that why cohorts through what continue is in really to we're come so consistent come seen to than more our continue. months, continue that's to see and loss favorably

Operator

KBW. from The next question McJoynt is Tommy with

Thomas Mcjoynt-Griffith

the through just think and of it helpful. more basis the or the off insurance by bridge you quarter-over-quarter a start other be is basis, either a you would Can to change year-over-year components perhaps helpful whichever just walking expense on

Megan Binkley

Yes. appreciate question. Thanks, the Tommy. I

seeing the change of what at changes on of think getting you're lot the by in is driven is you're terms other in really insurance what I quarter-over-quarter A expense quarter. reinsurance. during

So constantly over been evaluating the XX we've our past months, structures. reinsurance

those new. time. has through improved. Historically, Just to right the we've quota external been we've we've that our is business, percentage been for of share lot the not We've been certainly our decreasing quota the reducing over seeing as business sure a business and underlying sessions make share this reinsurance, term got

with sitting are believe we discipline, So several strict a we book. quarter, and are After which actions today underwriting fundamentally we pricing the during improved positive. took very here

further to us improvements So have those to our for really reinsurance the opened Root's strategy benefit. door

seeing what sessions through we well, So us several a a back during quota is is that we underwriting that time. quarter. in process you're return this onto really future and share result did over -- the quarter amount involves our a as is settling basis, of net commuted business And reducing books. we come what an today On what take really getting for our we're agreements

one to quarter So you seeding and forward this through commission you're onetime going related a to to our what commutation. really hit less primarily see P&L, come going see really is

improvements this improve seeing and acquisition we of So strategy what given is next the business, is of seeing you're our quarter that going we're an a to do is net OIE income believe increase the necessary underlying in Also year. in costs. terms part in this significantly

deploying item. So costs, marketing that embedded an we're line as and partnerships resulting as in does spend our the which is that commissions also deploying in item which paying we're as run spend, sales we're flow the increase line OIE marketing underwriting through through and on marketing

Thomas Mcjoynt-Griffith

this did that was million, costs just you what that's line. on the reinsurance mention clarify, And $X through the commutation to and flow onetime earlier

Megan Binkley

Yes, that's line. flowing through this

So essentially, it's to the primarily commutation. related

revenue to don't earn deferred So fee that's the expect unwind representative in. of that we and commission of

Thomas Mcjoynt-Griffith

up allows effectively as you my and both capital well And how cash write? much a on on you're Okay. your net that since and then store Got premium a net have it. to basis increasing talk just how much you question premium growth, then Can second about basis you written as you gross is, retention. ramp

Megan Binkley

I $XXX and premium got those plus be question. covers That to months I -- going that we've clear losses is protect the which continue by XX capital purchase premium. want we'll million for our it's supported continues from insurance we $X.X sit subsidiaries supporting events. today, of large sure Tommy, tail here surplus to covers, about make us and unencumbered to forward. across as mean, gross our billion volatility written Thanks, in trailing Yes. roughly

We believe good we're a in position. capital

than more are capitalized. companies insurance regulated adequately Our

subs to capital Our monitoring required we these levels, are the levels minimum continue and exceed constantly. capital

Of capital does course, And capital. maintaining growth adequacy. require first is priority our

growth. our these to Second X driving to profitability on our is We priorities. priority order. the on is of in and third the are priorities those And believe path that business we are all priority execute

over XX We months business past work to execute pricing rightsize have initiatives. and the really underwriting disciplined the and management put XX expense on in execute significant to improvements

So you're seeing improvement. really that operating reflected year-over-year in our

also renewal loss underwritten it's majority really more with business think quarter segmentation. the the that that favorable business we seasoned from of these net to improved us recently that pricing I returning And business has executed and that we've is important this also commutations that to ratios. note is

our take this our books. further to and business over term. profitable So onto the We believe long profitability able strategy supports that back we're underwriting the ready

mentioned You in growth your question. also

want for are now right that capital sure we is growth I it's that that the make So to deploying also clear purposeful.

believe the and our ratio favorability accretive we Again, and profitability seen long-term our the ratio. capital, in are we've We capital growth that requirements also is business that contemplating scale. expense incremental but goals are to require for attracting does the loss

modeling capital we're constantly do we these to growth. profitability needs, for So adequacy not sacrifice and capital and intend

Operator

The next is question from Jefferies. Yaron with Kinar

Charlie Rodgers

bit little recognize the bit DXC is generalization, guys This partnerships? like just customers of detail could in risk to relative be that this going a through a on but embedded coming is I for more discuss Charlie the with profiles to of your look Yaron. a you

Alexander Timm

That's Yes. question. good Thanks, a Charlie.

at So we our very when I'd tend say business, you to obviously drivers. look that in good direct attract general,

drivers drivers. And target good safe is so our #X and

vast the direct our the telematics business underwriting. telematics has incorporated in majority have and We pricing -- is -- of

be of are to channels, we to serves segments so quote we mid-XXs. beauty our for that, via technology that And younger. for target the tends really whatever it great the be. that I male, embedded may Flexibility instant pricing the and of customer, really customer average the is that is our really know partners think vines, customer age well. That in be tend that They segment The the the automation. pricing, seamless look lot those benefits provides a customer more at customer. When and transparency

really lots those of of nicely segments. extend customer All things quite to

And set fit really be. so across lots what of partners regardless we of most our demographic with customers really all may of a demographics diverse and have customer different their of

Operator

The next Wells Fargo. question is from with Elyse Greenspan

Elyse Greenspan

low digits. question, your likely to looking hoping earlier question, I response book I you double a of you get forward growth, on the thinking how about in to first and price are to was remain your surrounding, said know across take high loss to to sense your expected business? of much views My trend an in you that single going

here? needs that So what pricing from your mean does for

Alexander Timm

we majority is Yes. Thanks, vast The right our adequate. rate footprint Elyse. now, believe, of

are and However, signals high double-digit means comment lower, inflation to single-digit a off, a that planning anticipate still the But see single-digit, come normal in we macro and go-forward and low selections -- we're right means back right. on rate conservative we're as we that not did some we are which abate But earlier, basis. in our we that trends we'll certainly take are continue we that's for assuming seeing you a environment, now, assuming low somewhat. of should that trend, trends still still trend, are healthy we that trend. If will trend

Elyse Greenspan

the talk the when shareholder severity accident about you in called period Okay. trends, severity you right, guys letter, XX% that within out QX. then was And

X% think that whereas about and the flat, QX, think I in I in been had frequency around QX. also went said X% was you down it

it from up sequentially is went a QX perspective, you QX? what So versus and if loss trend frequency severity noticed both

Alexander Timm

very still severity QX. one, I in it's accident I'd say on trend period think, early for

lot that a is so -- still of are We forecasted.

paid saw we roughly flat. think I quarter-over-quarter, severities

severity that going trends be injury to what we're collision healthy seeing However, bodily we are PD. projecting still and is in

we trend the -- say would normal so that trended pretty again, severity quarter-over-quarter well have still the bounds healthy. I And variation. still within of we're that forecasting, be to differences in severity that

don't QX. in the in current about tenure That on believing trend severity And basis. for significant And particularly versus given we really think that there's a so say the the saw Frequency saw out adjusted. of realm of QX flat was was Again, at I that levels. anything terms frequency. normal something I thing we statistically roughly year-over-year of would same that's

on. So we variation. look again, within probably say at of the age normal band of the business I that the we're And bringing that's would

Operator

The next is Jacobowitz Alison question from UBS. with

Alison Jacobowitz

how are rate said how how then are big that? here about about to they marketing to adequate. Eylse's you for footprint if And wondering And the what and is see the questions. hotspots your follow I quarters And are how tackling thinking over into that up of next What you on could you're majority A couple question, couple you are was vast your Brian. and I'm not we -- spend talk XXXX, might areas there? of that accelerating? of you?

Alexander Timm

Yes.

windows that have that of be get rate filings First rate And not rate, huge. expect a I in say there's then on majority we and couple states would the we're there's are approved those just writing small probably to we certainly our some that looking approved, rate delays. that we're where will They're not business. adequate. They're of changes

and certain let's we and marketing, it go important marketing our spend I budget functions change. the up to as number. If ratios, not set favorable a review or anything we levels, budgets direct note, and is do it's But competitive loss are spend. of and the a of as marketing and we'll for really up anything profitability terms very environment is profit we are spend then environment. unit a is that what say, to machine, way those And In that to goal we seeing we think degradation long we in that landscape the change attaining see increased marketing, to continue works

the that are don't to go then are environment of as the level saw to of over with quarter, strong although of we're back monitoring to through We we're more pass you to maybe it anticipating always for the business needed. Megan, on and And comments react the we this so currently pull that continue. growth has, it ready on necessarily year. expect very we I'll end the really fully some profitable to allow and what company and -- growth prepared book the the growth

Megan Binkley

Yes. Thanks, Alex.

I it's us, for to key growth. key us profitability think for sacrificing not the Alison, for be So right? But continues also

we said, deploy at Alex our do continue environment returns. to favorable capital a us higher As see for to

We to overall favorable $XX development would too, million point be costs. From expected $XX that to in the QX. million That market commissions opportunities increased is million, unit a continued experiencing. marketing economics around spend in in marketing expense, the we that's identified to acquisition be across in that of is our our and acquisition report unit favorable One perspective, performance we're in the of in and have million again, half light on purposes dependent then $XX that's, embedded the that And to clarify, QX. million, $XX and economics remaining invest again, $XX up environment. to comparison

As Alex said, we optimizing are profit. for

we that internal QX our deploy going importantly, metrics. by investment the competitive continue to most and of dictated to amount the So in profitability is landscape be

our dependent XXXX what point, to landscape. giving competitive I we But are highly As say going we XXXX can not be look is the in growth this on is to XXXX, guidance. at appetite

invest in to Alex economics, see a will growth disciplined opportunities we as for mentioned, strong manner. continue we As with

Operator

conference this for you, that [Operator further no we participating. everyone, questions, Instructions] And call. will Thank appears today's and have conclude it

You may now disconnect.

Root (ROOT) 2 Nov 232023 Q3 Earnings call transcript