ROOT - Earnings call 4 2023

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Operator

Good afternoon, and welcome to the Root, Inc. Fourth Quarter 2023 Earnings Conference Call. Please note that this call is being recorded. [Operator Instructions] I will now turn the call over to Matt LaMalva, Head of Investor Relations.

You may begin your conference.

Matthew LaMalva

you us thank and afternoon, for today. joining Good to fourth results. quarter is hosting full its call this earnings Root and discuss year XXXX Participating Chief Alex Officer; on announcing its issued are and letter today's Executive results. Chief a Timm, shareholder and Officer. Earlier Financial Co-Founder Binkley, financial today, Root Megan call

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

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

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

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

website measures that our the Relations also while Investor on Root's available under Form the our of factors, For detailed call, discuss of call conference about as performance. the during you replay a this be as we more some description our year XX, well to please XX-K talking will remind section. I review XXXX, risk would December will our for ended like shareholder letter. A non-GAAP

call and SEC, Form in to CEO. to which Alex Root's website and the posted both our on ir.joinroot.com. I turn XX-K historical filed Timm, find can shareholder comparable nearest measures the the now You GAAP will of of at our over are Co-Founder with these measures our letter reconciliations

Alexander Timm

I excellent loss almost XXXX quarter has and We the in contribution, ratio Matt. continued best closed out business. produced written excited Root of the successfully very premiums past performance, walk of has of the transformation with couple us every direct the in to transformation this across in the along undergone future. increases quarter the gross couple you why resulting with you, over for want years a another has company take Thank significant ever and to metric minutes through

industry. healthy and our target positioned a believe our fixed years and to and car ourselves remarkable. business. the on years, that Just profitability. Fast that our three, do is expenses; efficiently this, decisions the observed company in clear the X while ratios; loss One, ultimately prices used underwent crafted the auto ensure margins recorded To able over near plan. fully hitting to disrupt as inflationary in transformation to order drive drive we and saw be to X making pivot to environment ago, decisions crisis This soar difficult of necessary needed number we we and we It forward worst term, our toward insurance scale in history. to materially evolved by were a business entailed two, X-step we a was we correct the our grow lower

years pricing generated For capabilities. XXx expansion insurance among importantly, increasing enhance ratio technology by in accident a ratio enhance a enforced the science just gross nearly our XXXX, our our ago. of and contribution of validating engines, XXX%, period premiums XX% full industry. That's data recorded growth data our a entire a we considerably in the combined ratios we efforts million. that significantly and XX%. Most written for our to loss improvements We $XXX while tech also the point, auto approximately to capabilities. To gross loss and and quarters, been by the and past major year policies of both X our have invested XX% We underwriting from gross restarted best X Direct

to result, success provides Root. we for we ability which a the decisions enter As XXXX believing make of in our have scale long-term the us achieved business,

or progresses. opportunities of Specifically, determine for not we to if to may see plan profitably as achieve target should new look here's for gain to our us market and what excited the shift quickly from be expect not could our long-term returns. We share growth the that you year focus we potential more Root,

continue First, expand growth to and market our we in XXXX see the share. opportunity

Direct in as continue automated well customer benefit to and our and marketing returns respond in significant and approach targeted We'll landscape. the to as to invest we expect channel target underwriting. the dollars see We our advancements pricing our to as to acquisition changes from competitive machine continue learning achieve

We our provides to we our believe be channel Partnership ultimately growth also strategy. focus Partnership channel which will we relevant to a continue partners customers expect foundational where potential in grow long-term will through additional contextually launching differentiated experience on at times, XXXX. The diversified to with

we profitability largely discretionary to scalable scale our now As our investments our and marketing. future ever Root's dependent achieved looks loss as ratio and profitably efficiently grow reach is we ability our the to and on have a believe in business. we base, continue established brighter target of than expense level

vision industry mission challenges ever. almost into The untouched XXX who approach we science are in is mission X our knew be data carving to company build to and more excellent galvanized progress years journey, it a has We Root, years to new our an technology. hard. continue unbreak been in than was team, and insurance started when the a We going for past through long have making enduring our of our that and an believe

turn We Megan results passionate constantly remain to our We delivering about above focused now grateful call are continued support. I'll for the our value over disciplined, in customers. discuss and more our and our to to to employees customers, operating their all, detail. shareholders

Megan Binkley

our on lines. was Overall, improvements top it to XXXX bottom Alex. both and Thanks, further strong end a very with

this million, quarter-over-quarter writings a both was premium written and million, Our a increase higher We the Once underwriting $XXX Gross Gross increase basis improvement quarter-over-quarter basis. $XXX growth and XX% quarter. accident growth year-over-year. total new XX-point steady with This XX% loss period XXX% a predominantly for and driven advancements. a gross continued and ratio again, while an increase and quarter-over-quarter year-over-year was earned fourth a also our XX% quarter-over-quarter and year-over-year. was on year-over-year. a of on posting XX% policies-in-force pricing a premium by increase achieved

results net evolved reduced QX with between gap XX%, XXXX, single was continues digits. rate retention to ratio cession net through lower and and earned guidance and gross the LAE Consistent reinsurance to was in reinsurance prior premium Our increased costs. strategy benefit loss gross and our

near the mostly of earned loss the degree partially the this leads in not costs XXXX going our defer XXXX with driven improvements loss was over towards profitability our growth quarter, year-over-year. top was accelerated our investment third existing for end by fourth result XXXX, for of These EBITDA loss which the sustained was Adjusted of better-than-expected the the net recorded XX%. priority with emergence customer our Compared our development of of compared accident primarily to were cash to coverages And as improved year and XXXX expect prior quarter premium the of the the higher relative do the expense injury reaching end by as year as million. quarter. The million impacts on loss annual momentum well acquisition offset a we usage $XX $XXX,XXX. acquisition breakeven During full results quarter. adjusted of majority XX% life improved million, the as the we our favorable customer, $XX of management's as net and improved net and recognition reflecting favorable earned development during noted, favorable for continue forward. an also $XXX of loss the don't XX% period prior development were EBITDA premiums. Overall, $XXX to million to in quarter, to These of a we've XX% the fourth improvement over loss year, reflect the capital. Unencumbered the of

segmentation an costs our we to rate growth. reset and expense and for in continuous consumption pricing offset acquisition cash and position increase fixed unencumbered year-over-year a as profitable our basis base, improved continue partially was the business on the by following customer improvements Our of

growth, structure and expense As was year Root, we to reinsurance for return fixed in as our transformative improvements sustained our our going Alex recorded a stated, pivoted forward. XXXX aligned appropriately strategy ratio, loss

to and remain to As strength, on a result, underwriting order path position we expense to are entering our XXXX we and will the in mindful in management of profitability. be a of continue

We appreciate to your forward your are for We time the and questions. look excited future.

Operator

Instructions] Fitzgerald. from first Siegler Josh [Operator question Your Cantor with comes

Joshua Siegler

Nice results here.

in trend And give insight into the around you you trends XXXX? expecting really specifically of any frequency? ratios year-to-date, can you're loss to First, seeing how are beginning severity, what

Alexander Timm

we frequency trends see are a in seeing Josh. progress labor, well. Thanks, still loss medical, continually ratio started to prices, improvements down bit, to really And seeing Yes. we're up car severity quarter they've this really our Frequency, book. seeing We're but continuing platform. we're on seen get to you really to come historically, our parts, and nicely. pricing, continue segmentation severity, nice continue used used some seen, car On see as our data inflation And our iterate can there at and as in do frequency healthy side. to we've the we we and at segmenting and science better severity we've continue better on we trends this some

with where our loss the is. one best industry It happy And of at ratio so very in point. this we're is the

continue these sustained so we XXXX in can we believe at And levels.

Joshua Siegler

you're have mode even and you start for right helpful. that, shift Got accelerating that would amongst profitability ratios, to about healthy mind that in towards to And loss year now. follow-up a new it. what like we growth as it growth with in happen as to Are And instead? your angle you new really XXXX? the cohorts, That's change thinking sounds these

Alexander Timm

What gaining constantly market say, profitable share. are on focused I'd we

levels. for think we on driving So our new are or us, focused don't at business return profit, really it's target growth we

it's to going so what is, And we're is see looking that. constantly competitive machine environment continue evolving. And our the how does to to do

have we're competition market We into year-to-date, some growing. the seen and come back still

continue -- lots about we're and business. very growth now business. invest to partners multiple quarter too in the the We're Partnership our channels other product. additional excited we added our of already in embedded levers in We've and So this

a continue continue as pricing us market channel our We're in have allow believe going expansion grow. footprint. advantage marketing the pricing to looking expanding now and at will and we And as to to to state we're which underwriting, ultimately well improve

it's So certainly would are pull cause but we growth, business profitable back, us book our gives the the us profitability. of business, any will to of near-term that on focused towards profitability definitely to see adding what growth. more driving we shift we that's If are we on definitely that and pause anything towards

Joshua Siegler

here. again quarter Congrats results, the on really strong

Operator

Jefferies. with Kinar Yaron from comes question next Your

Yaron Kinar

able Are hear Sorry. to me? you

Alexander Timm

Yes, we you. can hear

Yaron Kinar

on Congrats Great. quarter Okay. here. a good

my little feel where maybe adequacy you question, for looking strong first still the ratio the just would can maybe clearly, loss are? like more year? the increases need Are you a at rate So for coming about pockets you What rate be rate? your expectation talk there

Alexander Timm

We're and trend and single-digit to prepared is loss monitoring as we in pricing could sort business certainly tailwind ratios. think and the environment. high deliver We're a the currently respond react abatement Clearly, respond. know inflationary we If I environment, has there be a well. the always in on as of we're a that certainly shown to inflationary inflationary how Yes. XXXX to high to environment, think

footprint. we're though, vast adequate our of broadly, rate now, we Right across believe the majority

positioned we feel so very where we're And about good today.

Yaron Kinar

maybe about improvement, it. it? ratio of business a the the more industry. then increase. improvement trying overall to achieved. penalty comment seeing I we significant is obviously, earned the is Can And at get often that premium question, I guess and Got that Can second guess in a we're try that? of new same I a loss that new at as time the percentage the what you think even guess, very see business saw And we I new often impressive business you considering here on I'm you quantify my of amount level

Alexander Timm

models the new It's penalty. mix as really, right more some, renewal on not our the to definitely has continued It's I started particularly business to you digits our that machine we've to and now. And down new improve also Yes, referred even Yaron. that to business loss might generally and see younger than our we've we materially. what it, ratios would segmentation, -- industry, we progress, underwriting as actually learning really single less as and our see fairly do say first huge. really relatively our of renewal able headwind term been a ratio you loss business being is bring to because in definitely Thanks, the

It more certainly we so efficiently. feel much us to scale that. about has allowed good And

Yaron Kinar

one Got over into the 'XX, here? that channel. could. I final I it. about assessment? like are growth is two, over the of you of prioritizing Direct one, then why can it And talk The if you one, prioritization guess, And a prioritization embedded fair Direct strategic sounds And the embedded strategy of maybe

Alexander Timm

Yes, that's question. a good

in valuable website very valuable for out up experience the quote when ease for Partnerships we right? as grow seamless Really, our say hitting both app. both generate to the you a in Also up or our different very want X channel. under we Direct fast bit as up that, shows And when First, provided embedded Our when channel, they customers your offer we that's doing can, a ability minute, want show we embedded love to again, our we insurance love to and I product show on clicks. business, or channels customers would targets. to and in channels, our turns are we a X partners as in as they that our that's profitability bind of a know and in little

So we prioritizing for are us, distribution. diversified

we started said, by build to we as and from are Partnership the and do larger embedded much channel We to don't is going platform, we attach rates Carvana a big And in We seen go the scale large, a away continuing Direct That overnight. potential have material continue the long-term is think our is has about that believe going have very Internet we're are evidenced platform. base. been there differentiation on improvement product place. And excited the the to that. Direct to and of

really I by say embedded diligent for both that growth or wouldn't that pursuing so would prioritizing Partnerships say are we're channels simultaneously. means. Direct And I us, any in over we

Yaron Kinar

Congrats again on the quarter.

Operator

McJoynt Your next KBW. question with Tommy comes from

Thomas Mcjoynt-Griffith

the XXXX pretty some the one is some a January auto of a there insurers second first with Root's of to their have solution their like of you've sort competition of customer of that seen and acquisition commentary goals. there? here, year February, January heard in acquisition. of just calendar been sort The it customer in noticed for very efficiency obviously number in out the And But acquisition in we of several have step half any acquisition a track sounds matter customer spend other you reengaging of insurers efficient successful just resulted have reset from more auto way from cost providers. the change in that And the your per policy in acquired?

Alexander Timm

this growth return to XXXX, still say I our seen quarter. year-to-date we competitors, the and have to are we in improvements that you're Direct actually and the into we in have through Yes. up seen starting marketing made a seeing particularly material competition would right, ramp few in said, machine from space, That first we PIF.

competitive beating we're are still on efficiency grow. we actually exceeding measure what our still able increased that the on return really the we spend, with our for and targets And focus actually even we and even to are is us, competition target with back. still coming So when hitting marketing we environment,

Thomas Mcjoynt-Griffith

obviously rating that's question, XXXX. for just Okay. Got my guidelines? to insurance insurance either triple earned can if your the you of trended from million pretty there regulated agency that net a statutory time when level support first most or to or of second your your premium subsidiaries? a earned capital And almost $XXX been Have quarter. not, And inject it. then at based any saw has about just the subsidiaries you invest unencumbered flat quarter on fourth And those premium capital had net at is into

Megan Binkley

Yes. question. appreciate Tommy, the I

you're So right.

investing cash that cash couple I And $XXX unencumbered the fees as quarters. you that the QX increase think a at has cash. to back collected consolidated been unencumbered right? been last and Our up in look that growth and over total that step and as $XX take we've around QX. seen, investments, The we're million for that's million we've well And our of was attributed primarily premium if you really

and to advantage able So taking we've been returns. environment generate of we've some been the investment rate

from results. mean, So perspective, just results XXXX look underlying our have in And where when that material I at in position believe we're made puts not a contributing you of our in XXXX. our us we in improvements really we a as We capital capital would a that much end good insurance down XXXX. to of been subsidiaries have the as as we're situation

see our capitalized, more we're have companies the to book appropriately required and capital. in subsidiaries. than value insurance regulated continuing Our growth insurance They're

Thomas Mcjoynt-Griffith

if have in for there rate commutation will was sneak fourth was one the last what just And I quarter XXXX? XX%, third know you'll be the impact what but be you could it Okay. Do in I XX%. one think some then and it there quarter in. writing session the I was

when what's is Just to XXXX? that change? subject come I for you're forget contracts renewal. And then for up reinsurance expectation the

Megan Binkley

Great Yes. commute goal with QX multiyear a between retaining take we question, if of I more of did I our step of in-force profits. Tommy. and back, several reinsurance the the mean, QX span treaties

really a of I as to I back, were take QX. seeing a a So approach key focus. shift we in step you a continues our mean, But to where to compared reinsurance be are bit

risk continue going For buy reduction the to cover. us, true to we're

XXXX events. And share continue and covers do to share XXXX. into losses quota our going the sessions where So to to tail we that's those large and year for from plan XOL. from they purchasing our on quota the risk side, reducing We're protect CAT business continue full were the

you're reduction reinsurance QX see to going written less going As therefore, call, a to our seed do of our forward. premium XX% costs. than of during gross expect we the guided we And to, actually

to This we've result convergence our quarter, LAE you terms as better of actually gross our of deal, ratios. and seeing cohort you're reduced gotten loss started on see, sessions greater a XX-X and net that our the and

So change, make going as we do the we than GWP do continue in program want maintain to forward. to to And needed. the reinsurance see of conditions XX% less changes our event that to to expect flexibility

changes we sessions. reinsurance that made your decide underwriting decision really we our decrease multiple to points in long do but year throughout You can alluded the where profitability question, strategy believe the we've we or to overall, term. increase support further this for But that our have the

Operator

Your Elyse from Wells comes [Operator next question with Greenspan Instructions] Fargo.

Elyse Greenspan

My just frequency first question side. is on the

So alluded guys in right, the your in the fourth shareholder trending improvement, you letter, quarter, QX. which things is X% from right, were frequency to by in where declining an

I sense to benefited especially favorable did might of results a trends other think favorable frequency year. some end guys have quarter? your you the the frequency, that in have carriers point Do to the fourth

Alexander Timm

driving generally Yes. Thanks, fourth frequency quarter trend the is in the lower also was Elyse. But I say quarter, down of saw months winter us year-over-year. up summer in we frequency would and a sort -- months. the that that

we our drive And models our of continue lot a we to our it and models on mix continue on both underwriting, effectively a loss to is better train of our mix cost improve as that on business. and can we telematics so think and business models of rapidly deploy

to seen we a come down on even year-over-year basis. frequencies continue so And have

So there think is seasonality. what I just don't you're seeing

Elyse Greenspan

out and path about right, loss And in of the glide about results to profitability guys want you you in of of on growth see us position. with rate we that number years in time the 'XX capital do just in you type Can to from there? terms some getting think expect of of of kind profitability, might path what current about talking a And then to think you today? then your in 'XX outlook terms or terms to based your put to frame what help

Megan Binkley

Thanks, Elyse.

and So and really in over that noted XXXX we've in base the years. that underwriting our remarks, we the our made done work improvements are opening to the X results past as we've expense testament to optimize pricing our in a

us puts spend stop be tomorrow, very on if we basis. investing You're year-over-year in And a results marketing were that to significant really situation seeing discretionary we in profitable would from where the us a in we short believe term.

However, for really success for the don't business long-term of that's shareholders. right answer think our the the that, we or

year. grow on, and And so continue on to see heavily to profitably, landscape to for one, the growth. execute is competitive timing dependent this as to our And we're profitability opportunities to two, continue share our we that appetite next going

translated results our into and So the of improved reinsurance a basis on also costs that underwriting we've into have also reduction XXXX. current a seen

ratio program ratios and loss changes flow first that that say on time seeing saw we expect our through profitability. And have compared within do be results in we full timeline continue LAE combined XXXX. material basis we quota full as net improve and going we to to to digits. for mean You we GAAP And gross profitability, is on begin our share our made that reaching to And do to as and to really expect year for year well, to you're clear reinsurance impact look loss that LAE the this just net And those to is we our QX. going income. a when converge single XXXX, net really a

our accelerate to a timeline, existing the on very our that priority profitability, believe levers pinpointed it's specific for long-term multiple our for that that the We've quarter positive years in meaningful to So and with expect summary, and pulled to a but path path our very profit business business say, build really which we outlook value on we've profit don't got in I our is now. shareholders. we capital. We would haven't from top

Elyse Greenspan

the thinking How and in the to in the some And growth quarter first to thinking then How up saw about you ad maybe trending shopping one year? are right? just of policy pickup in picking XXXX? right, all policy questions, guys growth about of of then the just in really spend start kind throughout more, you earlier quarter. are good a sequentially You

Alexander Timm

date, to quarter, continued to -- actually continued we've PIF. first first increase Yes. quarter we've through Really

ability and added continue our many just we still our we've not it's And partnership partners then Direct very Like the said, it's multiple pricing We feel already And one iterate ability actually I growing. long-term to partners. again, believe competitive being we although it's And continue those about not lastly, expansion. continuing continuing deploy so we A new this embedded good do just to get good a And not state have grow. there. to to our And levers. to -- feel big marketing and strategy there's looking our marketing, are we we're quarter. channel underwriting also on and for and more prices. and to expansion and continued channel,

continue So think our think disposal we at the of at very drive insurance and market. a growth, company we you lot relatively a of when the look we we're small And beginning to growth. still have levers in Root's just to

So to to there. think path see going we I continue we're growth, feel about our and good

XXXX. in growth think us from will see you that diligent be I it

Operator

with Your Mike next Ward Citi. comes from question

Michael Ward

up turning on seems gradually just spend last It like back maybe So retention. kind been quarters. you've ad of of couple

and business of what specifically -- come wondering terms last renewal, business seeing just So that's maybe too? new of the a in stats on up retention for some early year written the you're Direct

Alexander Timm

ability to function also that's continuing retaining our up We're a question. a It's customers. target see good our of both retention year-over-year. a higher function actually rates That's of And to prices.

nice So retention. in we're trends seeing

Michael Ward

Okay.

of sort maybe from profile differs the been how customer so kind historically? it's breakup, where And on of today curious demographic your just like

Alexander Timm

ages XX still we We younger and XX auto. the between as target really, audience. that our of still folks target usually do really say skew monoline primary I'd

our And so we are seeing really that butter. and bread be still

We our pretty But consistent. general, some variables. stay higher and demographic are shifting towards really preferred so bit are demographics we seeing credit mix, a in more other customer customer a

Michael Ward

Got kind it. this then see year? for you maybe any just what open as XXXX, just -- margins risks ended, you to but And somewhat wondering of see

Alexander Timm

we're the inflationary monitoring particularly the environment. environment. say I'd constantly

about that, we out We in see actually expect decline through, constantly prices we through. areas. and have if that but we appropriately But -- that do feel inflation seen you We're we as us many are see pull other seen growth. good steady prepared great come positioned we're to on come we today. may monitoring to healthy see used back to somewhat. really, we've And car still And take where

Operator

conclude questions There us This at this joining call. you are no today's today. will time. for conference further Thank

You disconnect. may now

Root (ROOT) 21 Feb 242023 Q4 Earnings call transcript