ROOT - Earnings call transcript Q4 2024

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Operator

Greetings, and welcome to the Root Inc. fourth quarter 2024 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce Matt LaMalva, Head of Investor Relations and Corporate Development. Please go ahead.

Matthew LaMalva

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

a today, shareholder Earlier issued letter its financial announcing results. Root

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

are that a reflect developments you our remind Please discussed to opinions this goals the occur. as want not and I begin, forward-looking that based result that to we call today's revise may related of and are we include beliefs of obligated operating information matters this of will forward-looking assumptions. to management's note new as statements which Before on our date and financial these current on business call, statements outlook, performance,

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

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

on the website historical these of to of nearest GAAP posted reconciliations measures disclosures, find at our our can all measures comparable You which are ir.joinroot.com. in financial

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

Alexander Timm

$X.X improvements XXXX. of all full operations. delivered $XX of a a gross written, of million, net landmark profitability. year GAAP Culminating $XXX combined We XX% in XXXX generating premiums in put, from every for EBITDA year Simply on of incredible income first of was Root. ratio and Matt. gross net income million billion achieved of adjusted our We our facet Thanks,

Additional loss is delivering include policies best was the reducing significant and investments growing distribution. interest making force, accomplishments year beginning in technology; all, and expense; in we industry; ratios pricing what continued XXXX to of our for Best the just diversify underwriting our rate run believe of for the the Root. one strides in

excited are year accelerate returns. for our business to trajectory, reinvest we our partnerships the expand growth channel We our as ahead in long-term drive further and

previous years The in progress was drive years. believe achieved foundation possible foundation continue to momentum this to in come. we due for business XXXX our the will to built We in

force while We XX%. gross predictive to XX% our to drivers. by in our of offer allowing believe the a than deployed pricing gross continually performance, best enhancing ratio underwriting the latest best and our year-over-year models, policies XX% more we further loss and XXX,XXX combined and us ratio is a grew best-in-class Specifically, to achieving power a what underwriting of prices

into the to our costs, Given than a our date tailwind dramatically progress new were more we by year. reinsurance to and interest going expense rate reduce our our performance, and further run able XX% validating providing reduce

acquisition expand drive to continue investment. and We channels into direct within profitable new

We wins to leveraging while have lower funnel found success channels, success to continue expand funnel and into in to scale our upper we'll data-rich, strategies. these mid-

this time right additional grow take will the consistently this over to results, channel While to the is term. produce investment it long

fourth writings quarter, the our core growth channel. long-term new Building partnership through new access as new channel our represent the XXXX. writings to our doubled more than customers pillar roughly remains through in And in strategy differentiated overall partnership a X/X We our of business.

all into with partner times. at that can platforms, stack technology existing integrate proprietary a contextually by driven is customers progress meeting Our seamlessly relevant

is partner channel with to partnership of we agents. independent and across remains continue experiences strong to the customers A example automotive, growing great of pipeline Along that Insurance our Carvana financial and channels the embedded to have services experience experience. expect partners and graduate built a current platform XXXX, fully on partnerships in with friction to Root, X know Our purchase our X-click trust. which eliminate come from that bindable offers purchase a further

confident avenues remain in We national a growth both our channels maintaining long-term while across on expansion. focus

of We the to proud to population. the highlight now reach us are launch U.S. recent Minnesota, of XX% enabling

Above a pending price no states experience in and and additional delightful a remains the what all, have our continued ahead. top matter channel filings customers in expect progress come priority. We through year great providing they

to our in maintain returns. XX%, our our below by ratio and and mindset on loss states, Because savings invest gross data our of our platform will disciplined rates target we growth, accelerate XX% algorithms. our proprietary continues tech driven select able laser-focused achieving to we our As best underwriting are to in best our we reduce trend long-term drivers to affording while science

is goal data and rates and it not we set prices goal to lower telematics adoption share. to science although primary to our writings, prices segment price is enables and improved the renewals to lead As do high us can effectively accurately gain rate market new and Rather, important with note set accordingly. we've acumen to stated, our

in remain macroeconomic us particularly high allows also and platform of uncertainty. pricing to times nimble Our fast,

odds prices term. framework a be Root, intrinsic life creation capital pricing with real-time we into framework customer, algorithms invest At drive long calendar our company. the are changing the over the value continually of actuarial our economic an based not the public can results. on best being able all this period to our leverage at times, That it's reviews best means our offer to about drivers. trends to We to and incorporate At

tremendous for opportunity long-term investors. However, we creates believe this a

to to over hand in results will our fourth I detail. the Megan now operating call quarter discuss more

Megan Binkley

Thanks, Alex.

consecutive XXXX and to focus to our capping profitability, great remains Root. technology we We a a on and are advantage, capital our underwriting management. disciplined thrilled that expense our This net quarter, a unwavering delivered share second off for for income testament data and

million, we quarter, year-over-year. $XX delivered of a For income improvement million $XX the net fourth

operating and respectively. million metrics $XX generated $XX of fourth million of year-over-year, and also adjusted the quarter. We improved $XX million in $XX EBITDA income million These

outstanding results primarily performance, managed deployment driven closely net in investment. expense premium, earned ratio and our of consistently fixed continue marketing our be responsible Our by strong base to loss growth

do recognition consistently of not the noted, costs which our we've life leads premiums. As to majority of customer, we our expense earned the defer customer to acquisition accelerated over relative

year-over-year, premium in force, data compared policies continued XX%, while and We our written achieved was driven by loss ratio saw We in material QX period science the improvement a investment accident quarter growth premium to of of gross gross fourth a and increases in earned this XXXX. gross technology. delivering which X-point

We we improvement ratios ratio posted our of XX%, approximately fourth X the a just and of quarter. premium XXXX, net fourth point a earned XX-point loss gross and quarter of and difference LAE X% for quarter ceded In the between was the gross gross combined our year-over-year.

in possible Our costs results. through in made improvements reinsurance improvement were our continued underwriting

maintain to risk reinsurance and for covers. catastrophes continue including protection loss excess tail events, of We strong

years, partner in BlackRock in are improvement expect our pleased to we our relationship results reduce of BlackRock few has to a the The great continue with October, interest with operating been rate XX%. our run to our enabled by and us over in approximately past XXXX expense refinancing them. debt we which the facility

profitable in XXXX. in in unit for just of the focused it's distribution still framework disciplined manner thoughtful strong for growing profitability we as our But people for we expanding our eventually support. journey. our We the impact economic including right infrastructure footprint and the remain excited value. saw to in and believe we appreciate lifetime and the noted, in as customer return and XXXX We in measured your as GAAP opportunities is and fantastic decision your translate a to to shareholder was well any high a the forward long-term take marketing Root. With investing questions. in present continued channels continued growth place believe quarter, it business results remain acquisition future success targeted degree We drive on investments it will that, given early to funnel. and a our calendar that enable potential, may experiments through look investment Overall, Alex across as but Running year business

Operator

comes Instructions] of from KBW. the first question line Tommy and McJoynt with our [Operator

Thomas Mcjoynt-Griffith

allowing increases, what rate see per With policy ahead? the and rate some you as needing against be direction premium you to geographies segments selective decreases for expect and customer what do still mapping in year others the of the that

Alexander Timm

Yes.

rate modest going to I some file and think decreases. see you see are to us continue

some And so apply premiums. you will pressure to see that average

usually before, vehicles at partnership we've agency channel. same as they and retain associated talked They we as And longer. policies, those are growing Now time, more about our well independent them. the with have our channel this still

policies. And so fatter they're

may you basis, modestly policy per be a flat it on to increasing. relatively so And see to

Thomas Mcjoynt-Griffith

a session we that it. think on can run going is rate your fourth doesn't than the Got premium when quarter It that. lower rate forward, get mid-single-digit good you number? look like And much of modeling about the

Megan Binkley

results Yes. share you've last Thanks, XX quite the certainly over reduce reinsurance sessions underwriting to Yes, Tommy. improve able has our We've the a evolved seen the structure months. as been bit. quota

purchasing business from forward, per reinsurance going protect risk So continue continue our the to catastrophe and be and tail events going covers to the focus to yes, is to volatility. risk

were will that yes, levels be premium do going consistent were levels around in where of the they X%. session earned in QX. you expect saw QX, our forward We with materially So session

Thomas Mcjoynt-Griffith

And last one. then just

You metrics or willing versus on what gave churn data to some guys commentary like? that retention those would levels any points you recent cohorts disclose around be there Are the about look improving. actually retention share

Alexander Timm

lot data abate of penalty right sort But there's really we to not will any share couple what PIF One, on things. XXXX a out Well, have I been -- normalize. hyper we the no, points say growth saw seen going churn, we're additional coming XXXX necessarily and into that of is data now. of of a

And said tailwind so to be that, growth. as a PIF before, will we've

that's so certainly beneficial. And

consistent. of I think fairly those our terms new retention is cohorts, In

Operator

Wells [Operator the line with question Instructions] from Fargo. Elyse And the of Greenspan will next come

Elyse Greenspan

the prepared guys guys kind trending below, rates of the you first to right, in My going been about ratio remarks, XX% XX% were has talking are question, right, reduce to target. you the as loss

perspective see some on when given loss see about right, which the for sense trend rate ratio And the you out what to based you rate XXXX? expect expectations, a settle would from reductions, think makes where we loss As profitability, declines? do some you

Alexander Timm

all We're There's Elyse. a what loss our monitoring And always change and with that stack some really that. our right we we we're now if quickly, around And and a rate Thanks, We're in technology think of our see we reacted really company that. where landscape. uncertainty rates our would environment last position. seeing to very trend certainly to particularly quickly ever the low again position you ability is we think, projecting we mid-single-digit almost change, those into XXXX. faster as to macroeconomic that very grow if do inflationary the in We see the could competitors. detect in any than we saw got changes

I see low now, decreases. rate So you're think going and trends -- I we're expecting, said, slight right like to low mid-single-digit single-digit some trends, to but

net so that's increases nothing And material. ratio, to loss the in maybe but going some out to slight

Elyse Greenspan

Okay. guys inflection? trend in you seen of right, That's And to and I in right, us a earnings where couple helpful. you some an Obviously, are XXXX? sense row, quarters any a of expect we you give And -- we've have you there. think there then are How seen about do would growing trade-offs can positive guess, earnings.

Alexander Timm

P&L quarterly We don't a manage to or basis. quarterly the earnings company

the manage to looking loss We're And seen a growth have our value we environment always year-to-date. ratio to are favorable to year-to-date well. see as continuing basis. company a lifetime We perform

actually think doing -- to opportunities that and getting our states so of the additional there's partnerships And doing we're scale and we national. And partnerships. through our company We're channel grow. and through that adding adding lots

going And see us. so expansion continue to you're from state to

push And and to new channels new marketing seeing we're that's those result in going then to lastly, we're that going marketing to all scaling of channels. And continue growth. additional

make to may term. are see see the know you given actually that's term, investing the And right But pressure reduce because quarter. mean will P&L we may into in business. a you that quarter, a over the certain short long in earnings the in that Now investment we

Elyse Greenspan

opposed in kind is if And something right impact, then 'XX. right, we there? trend color in the you were mid-single-digit I 'XX? some of would Any you half, be tariffs? to you And I How impact thinking about guess saying, the as the low are would of front back there perhaps loss that expect of part could give guess, to

Alexander Timm

of PIF watching those will Thanks, through technology that our system real be again, changes Elyse. detect the what now happen, us We our very predicting in impacts we time. trend. can real that's, changes We're good in And that again, not reserving any our such we because from position tariffs. those quickly. platform, XXXX right those And respond If happen, when can a time, rate XXXX. to materially automated, with is put grow and

happens a And so you otherwise, competitors. on or lot disruption of like we chassis in through actually a do the a tariffs macroeconomic that better than believe if tech positions that landscape incumbent our being

constantly quickly are and to we're and if in we environment. very monitoring that, so that anything And swiftly prepared if changes act -- the

Operator

And line of question the Andersen the Jefferies. next comes from with Andrew

Charlie Rodgers

this guess, you're on the Charlie 'XX. I pieces moving My shifting of into any around ad guys Can versus would not between be in you how spend spend color going quarter. and is there about bits directionally first Or marketing? type the the be brand Andrew. on just spend is year around or helpful. for should Congrats the awareness performance This whether talk question ad

Alexander Timm

our spend, channels more not into awareness On our funnel. we YouTube spend, well mail. and in are brand as like more funnel increased video direct investment more in acquisition up the up it going as is It's but

assign though, And is you to is take what an taking What data funnel up and channels brand exactly technology we important, investing channels so to more would is as us built that try what several drive appropriate really marketing or are mid-funnel our working. for we are the doing the that all what customer are funnel allows worth. customer understand of classify dollars doing bid rich seeing not channels in a the to same are same just we and that awareness. a is competency to we and lower are we It's

we same more using so that channels funnel We're returns. drive that can mid- in to that still technology these upper are channels data-rich

those of opportunities that and invest. in see are meaningful IRR as we we will back. making ever direct all rigor invest taking seeing not to And if on channel But case, it new in the well. continue that and pull real dollars we same channels level business So with around sure of we our the discipline to we our we are in hitting the are that

So it to upper but just mid- to will going be funnel, awareness. that not mean does it's that more brand be

every we measuring spend. We are still dollar rigorously

Charlie Rodgers

seeing Between follow-up. are where Okay. or and into And then better XXXX? direct channel, going returns the a embedded just the partnership you guys

Alexander Timm

rate, And customer We We those in channels. partnerships commission longer channel, incur momentum. you see channels in real Certainly, longer I'd time. continuing puts costs, a period are the it's In see takes to the see upfront. those average really a higher over say of those costs, embedded at of and of we're in but those those channels. operating retention customer dollars There higher expense the low target have but our returns. in mean channel, both are a and some for channel acquisition you which channel. premiums you might all acquisition each lot direct

channels. in actively we're so investing both And

side, more development continuing in our we're that embedded then the scale and and of investing funnel so that embedded really direct, we're inside data to investing expand the on continue we technology And can in channels. to upper to platform. mid- again platform On

Charlie Rodgers

just of And on kind that Okay. following specifically. then up

competitors half? different positions Or expect through competition to ramping them expect you shift couple see of I as in the channels back those be would past dynamics quarters, we how books. Do might as X right you the the to going about that's and their with now better in you think talked 'XX? consistent between over be the dynamics

Alexander Timm

environment. really, to we're We're always bit to fairly in We consistent. say see here. a from the did it monitoring I competitive increase anticipating stay pretty But QX. expecting we're competition think it really I'd stable be

Operator

no turn to this are like call for Alex remarks. further questions to There closing at time. I'd back the Timm

Alexander Timm

another everybody. was joining, delivering to Thanks, the Thanks, what and for team quarter. everybody, yet for thank want again Root I at especially tremendous

Operator

concludes This today's conference.

your day. Enjoy time. the disconnect this rest at may of You your lines

Root (ROOT) 26 Feb 252024 Q4 Earnings call transcript