Q1 2021 Lemonade Inc Earnings Call
Good day and welcome to the eliminated and first quarter 2021, the earnings conference call.
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I'd now like to turn the conference over the yellow isn't the Levy Vice President of the Communications. Please go ahead.
Good morning, and welcome to eliminate the first quarter 2021 earnings call. My name is the Oh, what's your levy and I am the VP of communications at Lemonade joining me today to discuss our results are of Daniel Shreiber, CEO and cofounder shy of winning Garg President C O O N cofounder and Tim Bixby Lemonade.
The Chief financial Officer of letter to shareholders covering the company's first quarter 'twenty 'twenty. One financial results is available on our Investor Relations website, investor Dot Lemonade Dot com before we begin the we'd like to remind you that management's remarks on this call may contain forward looking statements within the meaning of the private Securities Litigation Reform Act.
Of 1995.
Actual results may differ materially from those indicated by these forward looking statements as a result of various important factors, including those discussed in the risk factors section of our form 10-K filed with the SEC on March eight 2021, and our other filings with the SEC.
Any forward looking statements made on this call represent our views only as of today and we undertake no obligation to update them.
We will be referring to certain non-GAAP financial measures on today's call such as adjusted EBITDA and adjusted gross profit, which we believe may be important to investors to assess our operating performance reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures are included in our letter to shareholders.
The letter to shareholders also include information about our key operating metrics, including a definition of each metric why it is useful to investors and how we use each to monitor and manage our business.
With that I'll turn the call over to Daniel who will begin with a few opening remarks Daniel.
Good morning, I'm happy to be able to reported another quarter of the strong advances along our key performance indicators as compared to the first quarter of 2020 of top line, which is in force premium grew 18, 9% of to $252 million, representing an accelerated rate of growth compared to the prior quarter.
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Premium per customer also increased at an accelerated rate of 25% year on year as recent product launches continued to bolster our economics.
Jim will elaborate on all our numbers shortly.
During the last call I spoke of perhaps cryptically about of new product launch we are highly focused on internally and we've since unveiled start this mystery product is lemonade call.
Perhaps that wasn't a huge surprise, but I do still get asked why coinsurance well when asked why she robs banks the notorious bankrupt the Willie Sutton the answer it because that's where the money is and I can say much the same thing about car insurance the.
The car insurance market is about $300 billion in the U S alone and that's about 70 times larger than the Renter's insurance market in 80 times larger than the pet insurance market. It's also of three times larger than all of the homeowners market.
And given that Google trends shows that searches for lemonade, contrary to eliminate auto insurance out number such as for Lemonade home insurance. We believe we are of a fighting chance of taking a sizable bite out of this enormous pi.
Now setting aside the massive new market the eliminated call opens up.
He will also hopefully be a huge unlock of value for our existing businesses.
For one we believe that our homeowners insurance customers today already spend about a $1 billion unkind churns, but they've been unable to spend of that lemonade and forthcoming launch will solve for that.
For another we have been selling homeowners insurance effectively with one hand tied behind our back since we can't bundle homeowners in conference and the way our competitors do.
So.
Lemonade cannot only opens up a huge new market, but I do expect it to be of boost by existing homeowners business as well.
The next question I get asked goes something like this with such forbidding incumbents like Geico and progressive who of truly achieve mastery of the direct to consumer auto insurance space, how can eliminate conceivably compete well.
Well.
Those companies are indeed, formidable and they've been doing their thing since 1936 and 37, respectively.
Now the each have tens of billions of dollars of in force premium and they spend billions of dollars of year on advertising and the dumping from many many years.
That all adds up to real heft, and we have tremendous respect for these competitors as well we should.
But strengths and weaknesses are two sides of the same coin and all of that legacy and bulk comes at the expense of nimbleness.
That may be a problem for them since the car industry is going through a once in a century dislocation and that may favor the legacy free.
As a rule when innovations or continuous or incremental the benefits of these innovations of crew to incumbents, but when the discontinuous of disruptive they typically accrue to the benefit of Disruptors of new comments.
And I think of the transformations in the mobility space of very much of the latter kind.
Cause of moving from being mechanical platforms to being digital platforms, moving from being dumb appliances into smart robots.
And from being isolated devices to being nodes on the network.
Tesla is clearly showing the way, but while the majority of cars will take some years to be fully connected as of Tesla. The drivers already all the smartphone every driver brings to their excursion has exquisitely sensitive centers, allowing us to derive gravitational magnetic location and directional measurement.
The <unk> debt.
We can map onto driving metrics like how much of a person drives how aggressively and whether an accident prone roads on relatively safe ones.
Finally, and unlike the.
Data from connected cars smartphone based sensors also allow us to detect distracted driving of highly predictive risk factor.
And to track drivers across different caused the drive rather than homing in just from a single car regardless of the driver who is driving it.
The upshot is that the data streams from Cos and from their drivers allow us to graduate from pricing based on making modal as has been done for generations to of pricing based on usage and behaviors. This could be transformative for the car insurance industry.
I'd like to think of the kind of precision of underwriting that technology is enabling as being akin to the revolution unleashed by the invention of the microscope.
Before microscopes existed everybody thought that a drop of blood was just a monolithic blob.
Whereas after we had microscopes, we could see red blood cells and white blood cells in the Psi per day are very unevenly distributed in the different sizes and perform different behaviors.
And I think the same could.
It could be true with these connected screens instead of pricing of large group of people as though the amount of lytic connect.
Connected devices and connected drivers allow us to do precision underwriting the.
This could really be a game changer.
It's not that these technologies are unavailable to companies like Geico, it's that they might threaten the sizable book of business and undermined the competitive advantage the old way of doing things that they built up over these many years.
That may be why geico resisted telematics for a very long time and only reluctantly did the true in the water not that long ago.
Warren Buffett addressed this in the recent Berkshire Hathaway annual General meeting and he said the following Geico clearly missed the bus and we're late in terms of appreciating the value of telematics.
He added the following hopefully they will see the light of day before not too long.
So why do many incumbents adopt these technologies wholeheartedly.
And often when they do adopt them they will underweight the signals and the rates.
I think it's because these new technologies disabilities of breakup groups that they had been treating so far as monolithic and pricing them to the average.
These new technologies will reveal that about half of those groups or actually who've of pain. They are better risks than average.
And the adoption of these technologies will leads to lowering the rates, which will mean, losing premiums and they will also reveal that the other half of these groups are underpinning the all Wes risks than the average and that will require raising their rates, which in turn will mean, losing customers and again using premium.
So you can see why the.
Always connected car of the always connected driver amounts to a reset of how car insurance can be structured underwritten in price.
This is advantageous to players without of legacy business to protect and who design the business from the get go for these emerging realities.
And the minute I'll hand over to shy, but just before I do I'd like to switch gears and address the Texas freeze all soon as winter storm Yuri.
This was the first winter storm that hit Texas of neighboring states in February and impacted the millions, causing power outages icy roads frozen pipes and sadly a great deal of suffering.
We received about an entire years' worth of claims in the first few days, providing an extreme stress test for both of our operations and financials.
The results, we believe should be very reassuring to our team of customers and our investors.
I'll start with the operations stress test.
At the onset of urea claims experienced team activated our catastrophe of cat operational process.
The people and technology rose to the occasion and the majority of claims were fully resolved within one week of the storms onset.
As always we put our customers first and are proud to have delivered best in class delightful experience to them in the serious time of need.
Net promoter scores for our claims interactions associated with the crisis, we nearly 70.
In line with our typical non cat experience.
And at the level that I believe is without parallel in our industry.
Turning to the financial stress test all of those claims from Yuriy and cat in general in the quarter added about 50 percentage points to our gross loss ratio yeah.
Yet the EBITDA guidance for the year remains materially in line with analysts' consensus prior to the storm.
The explanation is pretty simple we have extensive reinsurance programs in place for just such eventualities and they worked very much as promised.
All told the types of freeze was by far the most severe catastrophe lemonade has had to deal with and it shows in the sudden spike of our gross loss ratio.
But that's pretty much the only major place in which it shows you might have expected that the year's worth of claims packed into a single week would also crush of systems, all overwhelm of teams or leads to a degradation in customer satisfaction or at least lead us to restate our EBITDA guidance. It is not.
That is a strong testament to the financial and operational underpinnings of eliminate and to the resilience of our tech people and partnerships.
And with that let me hand, a bit of shy for some more updates shy of it to us.
And it shows in the sudden spike in our gross loss ratio.
But that is pretty much the only place. It shows you might have expected that a year's worth of claims packed into a week.
Would also crash of systems or overwhelm our teams will lead the minimum to of degradation in customer satisfaction and.
And probably make us restate EBITDA guidance it did none of those things.
That is a strong testament to the financial and operational underpinnings of eliminate in to the resilience of of tech people and partnerships.
And with that let me hand over to Shai for some more updates shai over to you.
Thank you Daniel.
Let me start with eliminate life.
Last time, we spoke I mentioned that unlike previous product our term life insurance business, we'll be launching gradually.
We spent the first complete quarter post launch ironing out the kinks by testing and improving the product to ensure it the leaders on the eliminate the promise and provides a fantastic experience for our customers.
We feel that we've made significant progress on this front.
And have moved to focus on growing the term life business.
On other fronts, we're happy with the rate in which our non wrenches products are growing.
With homeowners pet and life, representing the roughly half of our new business in the last quarter up from roughly a third a year ago.
This diversification is strategically important to us our systems have become increasingly sophisticated optimizing budget the location for each product to ensure maximum ROI.
Seasonal and local fluctuations in demand are typical and so when we see a decline in profitability of volume for product eight we divert dollars to product b to sustain efficient growth.
We're separately seeing attractive cross selling trends across our business. This is one of the reasons, we're excited to share of new metric with you today.
Annual dollar retention or ADR.
Our ADR has improved considerably in recent quarters up to 81% in Q1, 'twenty, one from 70% of year ago.
Existing the many customers who are purchasing additional of products are a major driver of this improvement contributing seven percentage points in the current period and as we look ahead to our car launch we see potential for a meaningful acceleration in ADR as well.
Lastly, I definitely share of Daniel's excitement about lemonade car and wanted to share a sneak peek into how we're currently thinking about the product.
You can expect everything you already love about eliminate now folio of car a delightful conversation without chatbot Myra will help you get the customized hassle free policy of minutes. It will be a beautifully designed experience that is easy and fast claim.
Claims will be paid quickly and will continue to support charities on behalf of our customers.
We'll also have attractive pricing for environment friendly cars and Evs.
This is in line with our company core values as a B Corp, and public benefit Corporation, we have the commitment to the public good and so our products will of course encompass that as well.
And with that let me hand over to team for a bit more detail around our financial results and outlook.
Tim.
Great. Thanks, Scott I'll give a bit more color on our Q1 results as well as expectations for the second quarter and the full year of 2021, and then we'll take your questions.
We had another strong quarter of growth driven by additions of new customers as well as a continued increase in premium per customer.
In force premium grew 89% in Q1 as compared to Q1 in the prior year to $251 $7 million. We believe that this metric captures the full scope of our top line growth before the impact of reinsurance and regardless of the timing of customer acquisition during the quarter.
Premium per customer increased 25% versus the prior year to $229. This increase was driven by a combination of increased value of policies overtime as well as mix shift toward higher value homeowner and pet policies.
And again as in prior quarters, roughly two thirds of the growth in premium per customer in Q1 was driven by this product mix shift, including cross sales and the remaining one third from increased coverage levels and pricing.
Gross earned premium in Q1 increased 84% as compared to the prior year to $56 $2 million in line with the increase in in force premium.
Our gross loss ratio was 121% for Q1. This includes 50 percentage points associated with the Texas trees and other cats in Q1, 2020 or 72% gross loss ratio included two percentage points of this cat impact and if we exclude the cat impact from both of these periods are.
Q1, 2021 loss ratio was right in line with the prior year.
Operating expenses, excluding loss and loss adjustment expense increased to 25 per cent in Q1 as compared to the prior year with sales and marketing expense of 52% well less than the pace of our premium growth.
The prior year G&A expense line as a reminder, did have a onetime noncash expense of $12 $2 million related to the creation of eliminated foundation.
We also continued to add new lemonade team members in all areas of the company in support of customer and premium growth in both current and future product launches and the increases in each of the other expense lines.
Our global head count grew just over 100% versus the prior year to 661 with the greater growth rate in customer facing departments and product development teams.
Our net loss was $49 million from Q1 as compared to the $36 $5 million, we reported in the first quarter of 2020 with of notably larger customer and in force premium base, while adjusted EBITDA loss was $41 $3 million in Q1, as compared to $22 $4 million and the.
First quarter of 2020.
Our total cash cash equivalents and investments ended the quarter at roughly $1.2 billion, reflecting primarily the net proceeds from our January follow on offering of approximately $640 million, partially offset by the use of cash for operations of $40 3 million.
Since year end 2020.
And with these goals and metrics in mind, I will outline our specific financial expectations for the second quarter and updated full year of 2021.
For the second quarter, we expect in force premium at June 30 between 283 and $288 million.
Gross earned premium between 63 5 million and $65 million.
Revenue between 26 and $27 million adjusted.
The EBITDA loss of between $43 million and $40 million.
Stock based compensation expense of approximately $13 million and capital expenditures of approximately $3 million.
And for the full year of 2021, we expect in force premium at December 31 of the key 376 and $382 million gross earned premium between $279 and $283 million revenue between 117 and $120 million.
And adjusted EBITDA loss between 173 and $163 million.
Stock based compensation expense of approximately $50 million and capital expenditures of approximately $11 million.
And as a reminder, please note that GAAP accounting rules are such that the ceded premiums are excluded from GAAP revenue as a result of the change in our reinsurance structure effective last July 1st.
Two of significant proportional reinsurance structure, our year over year revenue and gross margin comparisons are not directly comparable in this period occur.
Accordingly, we publish in force premium and gross earned premium as metrics that we believe are useful to analysts and investors because both capture the overall growth trajectory of the business before the impact of reinsurance.
And with that I'd like to turn the call back over to Daniel who will address some questions from our shareholders Daniel.
Thanks, Tim.
As we did last quarter, we invited our shareholders regardless of the size of their holding to post questions or top vote questions. So we can be sort of address the issues that are deemed most pressing buyer community and.
Looking at the most up voted questions. This quarter, we see a few central themes. One was captured by June about cause and specifically tie ins with Oems and particularly manufacturers of autonomous cars.
Another from Neil is about growth and how we're planning to outpace our competitors.
Our third most of voted question was from Sanjay with an addendum from areas about how AI is advancing and where the we'd consider offering it as a service to others.
Finally, I'd like to address the question from Dean about blockchain, and decentralized insurance and whether that poses a longtime of threats to eliminate so let me address these in turn.
So regarding partnerships with Oems.
Can definitely say that we see the power of that and I expect it to the trend that we will see more of as Oems like Tesla and others tip, the toe into the world of insurance.
Cause as I said in my opening comments are morphing into connected platforms and that has tremendous implications of risk selection risk pricing and risk mitigation.
At the same time I think that much of the benefit of the connected car to insurers is already available to day through connectors drivers the.
The mobile phone not only does a great job of tracking risk factors. It itself is a risk factor and a risk factor that cannot be tracked in any other way.
Reportedly one out of every four car accidents in the United States has caused by texting and driving.
By some estimates driving while distracted by mobile phone is six times more likely to cause an accident and even driving while drunk. So.
Well, we're looking forward to leveraging all of the tech that's embedded into next generation cars and perhaps to partnering with Oems in the fullness of time, we don't think we need to wait for these connected cars, which remain a tiny fraction of the cause of the road to become prevalent in order to drag coinsurance into the digital age.
Already today every car.
Even that 1973 hand me down from Grandma is an effect of equipped with the slew of precision sensors capable of generating predictive insights and streaming them in real time to an appropriately trained AI all of that technology.
Knowledge is packed into the driver's pocket.
And we plan to leverage that power from day, one without waiting for connected cars to become mainstream.
To Neal's question about growth as Tim just recapped, we are actually seeing not only strong growth, but accelerated growth.
Given how young of company isn't how extraordinarily large of marketers.
And just made that much larger by entering into the car insurance space.
It's my expectation that we will see many more years of very rapid growth something which our competitors really don't these days.
And so long as our unit economics continue to be healthy and strong we'll continue to lean into growth investments. That's what happened in Q1 and the yielded as I say accelerating growth in in force premium and in net customer adds.
Also as we continue to launch new products, we've been reporting accelerated accelerated growth in our premium per customer too.
And here too I think that we have many years of significant growth ahead of us hope that addressed your question.
Sanjay asked about AI.
Given the nature of our closed loop feedback system.
I continually get stronger with each customer interaction.
And as we expand our product offering and broaden the scope of our relationships with our customers of data becomes richer and these train of AI engine to increasingly complex problem solving and improving capabilities now.
There are no concrete plans for an AI day to your question.
Let me share some of the specific examples of that May help illustrate the far reaching impacts of AI technology on our business.
One of something that we call watch talent of the eye in the Sky, we use machine learning to analyze signals coming from orbiting satellites in space to detect catastrophic events around the globe in real time.
This technology allows us to enter into a cat response protocols faster than probably any other insurance company and to deliver best in class customer experience, but it also allows us to reduce the prevalence of bad risk in our book by blocking campaigns, and sometimes customers and customer acquisition in impacted regions much much.
Quicker.
Another example that comes to mind is something that we call the sixth sense.
For each customer or prospect of customer, we're able to collect data that allows us to produce something like a digital footprint of fingerprint stuff like device I'd and IP address in the face detection and all different all the things that I won't elaborate on so when the customer who's claim has been denied or suspected is fraudulent.
We will create a new accounts and submit a new video task or otherwise make claims that are dishonest.
We are pretty good at instantaneously detecting those.
And shutting them down from that incumbents using E mail or call centers would really not be able to do at all we just can't connect the dots.
The more traditional ways of working.
And the upshot of that is that we can catch fraud networks.
That previously to the best of our knowledge simply went undetected and those claims would have been paid.
We also use.
Satellite imagery and computer vision to extract information about properties, we ensure whether its roof types of whether it is the swimming pool of other.
Important signals and we do that during the Onboarding of our customers and this allows us to deliver.
What I still believe to be the fastest and most delightful and most straightforward onboarding experience, while increasing the precision of our pricing and underwriting.
And we see this in other parts of of business as well, so our customer support and claims management engines.
A very substantially driven by machine learning, we are able to use technology to automate a significant portion of our customer interactions.
And more recently with certain sub groupings of interactions for example in pet insurance, which we launched just a few months ago. The pets preventative claims.
We developed technology that effectively removes the need for humans entirely.
And not only does that enable us to pay out a meaningful percentage of our claims instantly.
The lower cost at all to deliver the great customer experience.
Excuse me and.
And it does that while allowing us really across the board to achieve very high levels of operational efficiency and scalability.
And we have depending on the incumbent.
We've achieved a ratio of about five times, perhaps more than that and the.
Of customers served by every.
The eliminate the employee relative to what the industry knows so of.
Five sometimes 10 times greater levels of efficiency in terms of at least head count.
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And that is pretty pretty impactful. So for example, just last month.
We gave back to our customer support teams something like touch 200 hours.
Because of our AI technology solved and executed on a growing share of incoming customer requests than it had previously.
The different things, where the customer wants to change the address all of recent documents or asking about the payment history of adding a spouse of their policy all of different things like that so we really do see this.
Impacting our business across the board.
And with some of the top notch talent.
In the world in the field of machine learning and AI at Lemonade. The development of these tools is now part of our DNA really has been from the get go.
And tools like this.
Really don't just impact one area of our business rather the impact is very broad and touches every aspect of lemonade from customer on boarding the claims management.
Each of the fundamentals of our business model.
And.
Data and machine learning and automation, because it's built into the fabric of our company.
That's why to areas of his question, we don't see ourselves renting it out or licensing it to others a company is vertically integrated.
The AI is deeply integrated and this isn't some external bolt ons that we could license out of that we would want to license out. It's the very essence of our company and we expect it to remain that way.
Finally, I want to address Dean's question about blockchain and whether it poses a threat to eliminate.
Let me say that both Psi and I and others on our team of can take a keen interest in blockchain, we actually of both moderately invested in crypto with events towards the taps and particularly defy decentralized finance these of powerful technologies and paradigms and I do think there are some applications for these technologies in certain areas of insurance.
For example, Nexus mutual is doing some very interesting work on ensuring smart contracts.
And so I do think the decentralized finance and blockchain like of theorem present opportunities for companies like eliminates to build new products that ensure new realities of new classes of assets.
But I don't for the moment see how they can provide an alternative or become a threat to the kind of products lemonade offers today.
Homeowners life, Pat kind of fronts. These cannot be profoundly battered by crypto and here's why.
Decentralized finance defy as it's known if power comes from the Trustless nature of the blockchain.
And when determining where the major global event has occurred oracles of the unknown provides a decent way to pump of real world events into smart contracts in of Trustless way. So.
If I want to place a bet on of blockchain prediction market on the outcome of an election. For example, there of platforms and protocols that will allow a small contract to know if the advent of code and it does that in the Trustless way and then it can settle the better accordingly.
The same would apply to ensuring against certain highly visible outcome say, where there's some big concert took place on that given the day of whether a landmark building was standing on a given day.
But if the question the hand is whether my laptop was stolen at my local coffee shop. The really has no API for that information and asking the community to state coin and vote.
Be terribly inefficient and I think probably produce very unfair.
<unk> anyway.
Personal lines insurance is fundamentally about the trust.
And that's why eliminate move out so hard to build of trusting and trustworthy company. It's really built into the fabric of our company into the business model into the game theory in behavioral economics of upon which lemonade is predicated.
So trust less pass pass of personal excuse me Trustless personal lines insurance.
At least using the current state of the art of blockchain would not be an improvement on what we've already built so.
So all of the world of defy opens up new opportunities new products new markets.
Don't see yet how it can be leveraged to do a better job at what lemonade does today.
I will say, though that if future developments change the risk assessment you can be sure that we will be at the cutting edge of developing and deploying them.
With that let me turn the call back over to the operator. So we can now take some questions from our friends on the streets.
Thank you we will now begin the question and answer session.
So we're asking the question you May Press Star then one on your Touchtone phone.
And sort of using a speakerphone, we ask that you. Please pick up your handset before pressing the keys, so which all of your question. Please press Star then two.
Today's first question comes from Mark why don't you of JMP. Please go ahead.
Hey, Thanks, good morning.
Daniel I wanted to ask the first question on auto.
You've talked quite a bit in the past about the flywheel of lemonade and kind of how your computers get smarter with time and of the more iterations they get to go through.
And elsewhere in auto, particularly telematics we've seen.
The company is kind of go through that process and it take the of three four years kind of hit their stride and get their things of zeroed in.
Help us square those two and how for lemonade kind of you'll hit the ground running with your auto product will you will you do the telematics in house or might we expect to see you take advantage of that.
Outsource company like CMT or true motion that that is far down that path already.
Hey, Matt good morning, Thanks for that.
So the number of factors that I think will into play.
Giving too much information about exactly what we're doing in current so we're ready to launch, but I'll try and give you enough to give you a sense of how we're thinking about these things.
So the first is that.
Has insurance companies of discovered long ago signals from driving and drivers of.
Aspects of the car insurance product.
All of a very powerful but it is also great to get signals from outside and otherwise.
Good customers and homeowners products tend to be good customers and current trends as well responsible human beings.
<unk>.
Express that correspond the responsible nature across different things you know when at home and went out of him as well.
With our millions of customers that will be targeting who are on our books from half current trucks will at least have a.
A fair bit of data before we even promote and decided to him to promote on new products. So that's one thing of that.
I'm sorry.
The second is that some aspects of the <unk>.
Rating of telematics is a matter of public record. So we don't have to start telling you from the stand so the way.
The insurance space walks in the United States is that.
The we can take a look at how different behaviors different telematic signals have been raised by competitors and much as we do with all of our products. When we start with them. We don't have our own data. We do tend to use the best available data out there was the starting point of them, we refined it over time, so rather than just guessing we actually know.
The strong position to get the best practices that I hope that today is the starting point to them built on them frankly, whether the signals of collected through one technology or another and you mentioned a couple of vendors.
A secondary question in other words, the two things, which technology is collecting the sensory data and kind.
Kind of sending at home and then secondly, how would those rates. It has an insurance rating factor and as I say, regardless of how the technology is developed the rating factors that all being applied part companions today as a matter of of public record and both of those.
The starting point.
Okay. That's very helpful. Thank you and then one other if I could.
On Yuri and the <unk>.
Texas the the NPS score of 70 on the claims which is pretty impressive you know really a question of what do you plan to do with that like that that's the real asset.
Should we expect to see some sort of marketing campaign in Texas or elsewhere based upon that have you seen any just kind of word of mouth.
The new customer trends following the storm.
We have had the we continuously have satisfied customers spreading the word of mouth tend to treat about better experiences. If you look at the.
Eliminate Twitter handle youll see quite a lot of people talking about the good experience and we do see referrals from customers on a pretty regular basis. So it's not just about you already it is about the continuous day in and day out.
Obsession with high levels of customer satisfaction throughout the lifecycle. So I don't know that there'll be of your specific event amongst all of the tasteful that would be.
But I did that.
Treating customers, well and delighting them and getting to high NPS.
The yields long term value to the company.
A formula that we're very committed to.
Okay fair enough. Thank you very much the the answers.
Thank you.
And of our next question today comes from Michael So sort of more.
Stanley. Please go ahead.
Thanks, Doug when everybody in the congrats on the news with the auto book affords us the and how it develops.
So one question there two from me on the auto side I guess can you talk about.
I guess, maybe yeah.
You mentioned, how the no impact in guidance from the year on the premiums in force since Youre, not even rolling it out yet, but I guess youre doing stuff there so.
Maybe talk on impact on both sides of the underwriting margin both of the expense side I assume you're hiring people and maybe doing some filings and things like that so I'd imagine it's gonna be from maybe a little bit of pressure on the expense side and then.
Maybe a little bit longer term once you are live.
What's on the.
The loss ratio side, even if you are good and been around for a while new business does have a bit of a higher loss ratio. So any pressure you might expect there on the loss ratio side on that.
So the most of the thoughts please.
Yeah, Hey, Mike It's Jim So a couple of thoughts there.
As we have with <unk>.
Prior launches.
We have taken into account.
Probably the vast majority are.
Of the.
The expected expenses.
And are quite conservative on the top line impact and we've taken that approach also with car cars, a little more amplified it's the bigger product there's a larger team focused on it in fact, the largest team in the car.
From a development perspective is focused on cars we noted.
And it's the longer lead time, so we expect to launch it but it's not in the next couple of months. So for the this full year I would expect you've got the vast majority of of our expenses.
We.
Dissipate some of these unknowns and we have that have done that in the past.
And as we get closer to a more concrete launch dates then obviously, we'll update how we see the top line developing from the car launch but.
But this is consistent with how we've done the prior launches with life with Pat.
And our shift of homeowners from a loss ratio perspective.
We kind of faces already today, so we've talked about what we think of as the new business penalty, which is when you launch the products you enter new markets you bring in a new type of customer.
Things are a little bit tougher, but that's in the model today. So.
And you'll notice that.
Something like half of our business at this point coming in as something other than renters. So new things are of significant part of the book the homeowners pad life now starting up. So this is something we've we've dealt with previously.
We do realize the cars of the different animal.
The bigger market, there's more challenges, but again I think I'd point you back to our initial comments.
That.
Some of these uncertainties. Some of these disruptions we think can favor the more agile company and this is something we've I think performed quite well with in.
Three consecutive product launches just over the past year or so so we're gearing up and we're excited for the launch when it comes.
Okay.
Okay, Tim does that mean I mean, obviously you don't have any policies that have been rolled it out so our launched it so.
And so no impact on the guidance you enforce premium does that mean the guidance for the year on EBITDA contemplates.
Contemplates any of incremental expenses from from the rollout.
It contemplates all of the expenses, we expect to hit this year.
And so.
Yes, yes.
Yes, Okay. The Copaxone and then the separate question you mentioned a couple of times in the letter on sort of maybe a little more details on of.
The new entry points for customers and kind of new channels that you're seeing are using all of them can you talk.
Talk a little bit more about that.
Yeah, I think it's a it's the theme right. So it's not a sudden new change that we're seeing but part of the reason, we're able to increase our marketing efficiency. In fact this quarter I think we brought in something like 40% more dollars for every dollar invested and that's after you know quite significant improvement last year. So we're continuing to see it.
<unk> marketing efficiency, which at the scale. We're at now is is it is of great. The great thing to see continuing.
In terms of the channels, we're always looking and testing new channels.
The real indicator I think is is the.
Yeah.
The proportion of the customers that come through the largest channel and that has declined which is which is good news we're less dependent on the largest channel is consistently over time, a couple of years ago something like that.
90% of our business was coming through the largest channel that has improved net 80 last year, it's something like 70% now so large channels by definition, there's a bit of an 80 20 rule, but we're continuing to see the.
Suffocation, we're testing new channels.
Again, youre not I wouldn't hold your breath of Super Bowl ads, but we are active in all of the places where we think our customers are spending time and whether that's online whether that's social media, whether that Google Facebook Youtube and sort of the usual suspects, but also complemented by new newer channels that we're testing.
And I would expect that concentration to continue.
To diversify over the coming couple of years.
Okay.
Okay. Thank you Tim I appreciate it.
And our next question today comes from Jason helps the N with Oppenheimer. Please go ahead.
First just want to say our thoughts are with the team in Israel with everything that's going on.
Two questions one Tim.
Tim you just acknowledging the last question you know you are leaning more into marketing.
Is there a way to kind of quantify like you're leaning more into marketing, but you're also seeing higher lifetime value and how you would compare that.
A year ago or at the IPO or do you want us to kind of use that retention metric that you are now.
So just some more color on.
Again, how those marketing investments are actually you know how that connects the higher LTV and then secondly is there a way to think about what the adjusted gross profit would have been without the 50 points of cat impact.
Just the actual dollar adjustment.
Did you have to take any of that on your gross profit line. Thanks.
Sure so ill start off with the marketing comment.
So leaning in is it's really two things it's spending more dollars.
In absolute terms, but also seeking continued efficiency gains.
The counter force to that is we're doing new things. So we're launching new products continues to grow over the nicely license is very new and nascent and so while we're always focused on acquiring profitable customers will be a little bit more aggressive on developing our newer products and our more mature.
The products ventures for example, I would think of as the most mature.
The returns continue to be very strong and so while we will not.
Proactively go after unprofitable business those are the two those of the two balances.
Maybe think of.
You know historically theres been a ratio of our advertising spend which are which is our direct growth spend as a percentage of total sales and marketing and that's the number we disclosed.
And it's in the Q that ratio has been kind.
Kind of 70% to 75% that's continued.
In that range and that LNG as the absolute dollars of increase were able to maintain that ratio.
And so by leading and that's really what we're looking at.
From a gross profit standpoint.
Rough order of magnitude and this is part of the reason we were able to I think.
Have a good result, with the Texas freeze part of it is the benefit of the timing right. So we had a little bit of a preview on our last quarterly call. Because we didn't have all the information, but we had a good amount of information to help guide us the.
The overall losses were in the roughly mid $20 million range.
The impact on us because of our proportional reinsurance.
The 25 per cent of that so I would think of that.
And it is a bit embedded in the gross profit number, but I would think of 25% of that total number is the the.
The rough impact absent that you would have seen them now.
The nice.
The year on year of growth in gross profit as we've seen in prior quarters.
Thank you.
And our next question today comes from Ross Sandler of Barclays. Please go ahead.
Hey, Daniel one technical question and then one for Tim.
Daniel So how might argue the iOS 14.5 update with DFA impact the company's ability to collect data from the phone I know that's been part of the strategy in the past and how important is phone data versus the information that customers provide you in the onboarding flow.
And then Tim Thanks for the new metrics around retention I think Sean said the seven points of the recent 11 point increase was from bundling products or was that mostly the story or is there something else that's driving up that our retention rate and I think the definitions of little different than what was in.
The S. One could you just bridge the difference between the.
The recent disclosed the retention in the S. One retention that's a lot.
So payroll it's good to talk to you thanks for the questions.
The Apple changes don't materially affect us as best we can tell for one we tend to be mobile heavy.
The heavy in terms of.
In terms of Onboarding, so a lot of all the transactions happen on the websites.
But we don't.
We don't do anything other than when customers are locked in and indeed the.
Time to reiterate we don't some of the data we don't use the data we don't advertise we don't do anything with the data other than use the day to adjust for the purposes of the App itself. So we're in a pretty safe waters, and we don't see anything meaningfully changing in how we operate all of our ability to collect or use of data.
Changing really at all as a result of $14 five.
And Ross in terms of the.
The retention metrics, so just as a refresh the since a year ago since the the S. One we've talked about.
Customer retention unit retention of the number of customers that we keep overtime and that has continued to be stable.
The much larger absolute numbers much larger market much greater penetration of the U S and net retention has continued to be stable, we do and remember these growth rates, 80% plus annual growth rates the.
Bulk of our business.
First of all customers, and so sustaining and maintaining and seeing some of them those retention rates as it is a real positive that we see the new metric.
Annual dollar retention is okay in those cohorts that you're retaining.
What are they spending and they are consistently spending more over time a couple of things are happening. One is we now have multiple products to sell them. So yes cross selling is the.
Key components of today, we've got customers who can have.
The two policies and factory policies with the addition of of life and hopefully will add to that with car before too long.
We're also seeing increased coverage of Mount Snow, So people get a little more knowledgeable we have outreach programs to become a little wealthier and all of that can drive.
Greater level of coverage and greater average premium so it's really a combination of of those so that's the one metric is the.
Very specific to the.
12 months period.
The dollar retention now really captures all of the different ways of being generate more value from customers as we retain them.
Thank you and our next question today comes from Ralph Shakur, where William Blair. Please go ahead.
Hi, good morning, Thanks for taking the question two if I could first of kind of go back to the first question just curious how much of the auto policy pricing.
We will be initially based on third party data sources.
And maybe more importantly, maybe speak to your ability and opportunity to elaborate leverage your own connected auto and drive the data over time, how do you think that's going to be sort of on the.
The vantage or significant advantage potentially compared to incumbents.
And then second.
The claims process historically, it's been known to be very sort of hassle free of frictionless I'm, just curious with auto will it be of similar experience of process that would require simple picture of video to be submitted to the Bart just curious how that sort of submission process looks.
Versus your current products. Thank you.
True Harold I'm, so sorry into that some of this in his earlier comments I'll take your second question first which is that.
A lot of the experiences of our customers have come to associate with lemonade will absolutely be carrying over into the core product.
And again without being too specific about how that will work.
The idea of getting a hassle free experience instant claims.
A great deal of automation and Seamlessness.
We're very committed to and.
I think everybody has been waiting for this product will have felt that the wait was worth it because there's going to be a really exciting.
And I think compelling product, which will be differentiated in terms of the experience quite significantly from them what's out there today. So.
I think that'll be pretty exciting and yes, the kinds of things that you asked me about the kinds of things that you can expect to find the seamlessly integrated into the product.
In terms of the dataset.
It's worth distinguishing between data sets and.
The rating.
Rules so.
You Ralph today don't have the data that are geico Progressive state farm has but nevertheless, you can go in and see how the price based on the rates of forms that they have filed with regulators on the state by state basis or the lookup table that says.
Making model of these weight to this margin driving expenses relate to this much from credit score of it's used as rates of this much et cetera. All of these factors all available even if you don't have that data at the hands you can know how of the data is deployed.
My earlier comment was really saying that the cold start problem of why we've got a great stream of data coming in because from day. One we will have very rich data coming from our customers, but you haven't had the cycles yet to know how to map those data onto the risk factors and therefore onto the rates that problem gets solved.
By using the existing rates that have been.
And approved by regulators for all of those and you can see how different the risk factors have been weighted.
Provides a very strong starting point, what we've done with all the products and I expect we will do with corn as well.
Stopped the and then have a feedback loop make us smarter around hopefully we achieve parity pretty quickly in the end up with an advantage play but that is how we staff and how do we solve the problem. So.
It's not so much of a lack of data of all using anybody else's data, it's about using rating factors and weights the regulators have approved and mapping them onto the data that we ourselves will generate I think I'm simplifying but I think in broad strokes that gives you a sense of how we approach this.
Great that's helpful. Thanks, Dan.
And my next question. Please Hudson's first of the bank, we agree with Barclays. Please go ahead.
Thank you and good morning, you mentioned that as you grow in auto that are also have a growth of impact and homeowner.
And I'm just wondering if you could provide some context to us of how we should think about a normal cat load.
In the future and homeowners will become a more meaningful part of your business.
Okay.
So I would I would think of a couple of things. So I think there's maybe two questions there.
I think there's just a.
Perhaps.
The optimistically pent up demand, perhaps in our customer base for those customers, who may prefer to have multiple policies.
Bundling benefits, whether it's for a discounter coarse ore or ease of use of or whatever.
We've found that more of policy types brings us better results higher value per customer greater retention of greater customer satisfaction. We don't you don't see cars in the different car can be more of a driver for many many customers.
From a cash perspective.
Our transition.
Two of.
A less concentrated book of business and the renters.
Product and more in homeowners.
Can have an increased impact on the cat load, but greater.
Suffocation of across the country, which is which has been significant we started out in three or four states.
Now in close to 50 states, depending on the product.
So we're starting to see the opposite effect, where we're more diversified across the country. So our largest states used to be a larger proportion of the business now that is declining so there's kind of of opposing forces I think that will move.
The the loss ratio impact around it is traditional that car.
Providers tend to of a somewhat higher loss ratio that the fact is not lost on us and it's something we'll think about it as we can.
He's closer to it seems like the discounts and pricing, but at the it's a little premature for us to say much about much about that.
Okay looking forward to hearing more about that in the future I don't have any further questions.
Thank you.
And our next question comes from Arvin run the Army with Piper Sandler. Please go ahead.
Uh huh.
Congrats on a good quarter.
I also wanted to ask about about auto insurance.
Given the this auto market is very large.
How are you thinking about the cadence of marketing and plenty of customers.
You know you're initially going off of this.
Yesterday, the existing customers and then we'll open it up to two new customers just trying to get the understanding of our.
Go to the market approach.
Yeah.
The little early.
Yeah.
We're not quite to the point, where we're ready to go.
The specifics about the launch we'll do that as we get closer, but I would look to our recent launches of of other products as the guide.
We've found there.
The significant pent up demand.
For all of our all of our products in fact youll see it.
Many searches for Lemonade car insurance as you might for products that we actually currently sell so that's a good indication we've opened up the funnel to collect the email addresses and interest from potential customers.
A few weeks ago with the announcements so that's another way that we kind of.
Get a good feel for the market acceptance of our existing customer base is absolutely.
The most interesting place to start of 1 million plus customers of $1 1 million customers and what we found with the pet launch.
And we're beginning to see sort of the green shoots in the life launches there are folks for whom of eliminate product is the decision point when we launched pet there were dozens of different ways.
And vendors, where you could get pet insurance, yet we had scores and scores of company of the customers in the first day buying pet insurance from us and so that tells you that there's something about the eliminate brand eliminate experienced that.
That's the stake.
And so I would hope that we will see that same dynamic for car something like half of our new life customers on our new pet customers or existing customers, but the other half were people who are new to eliminate some of those I think are good guideposts in.
We'll share more we will share more before too long as we get smarter about our specific lunch.
Great.
I may have missed this but the two.
The two really quick ones.
Just some of the regulatory perspective.
How many states value will you start with.
We have not announced that specifically, but again I would point of our other launches.
We'd like to have a broad launch, but we're also speed the market is important sort of be of balance of those two.
But we'll be launching in.
A good proportion of our customer base.
And again as we get closer to some of the regulatory hurdles can be a little unpredictable in terms of timing, we do know the outcome, but we don't always know the exact timing.
And so again, that's part of what the real focus is this year is both internally on the product and the customer experience, but also the external regulatory environment. We can parallel passing on of all of those efforts.
Great and.
I know you clarified.
You know kind of kind of margin impact from investments.
Yeah, you have to make.
And the order product, but the.
But have you the guidance revenue guidance.
Hum.
Two of auto or was it just gets all of us.
For the auto just on the on the margin impact.
So the.
We've not given a specific dollar figures, but I can guide you in a couple of ways. So.
If you look at our our employee base of 661 employees about half of those are customer facing and about 25% our product and engineering and so where you see today.
Most of the focus and the effort for our new product launches and the product and technology area.
So while we're continuing to hire in those numbers will grow over the course of the year of significant proportion.
<unk> is.
Already reflected in that number and it's definitely reflected in the guidance for the rest of the year the.
The customer facing investments comes closer to lunch and so again, we've layered into the guidance all of the expenses. We expect income this year.
Based on our current launch plans.
And essentially no top line impact so it's a pretty conservative approach.
It is the largest team.
In the.
The the Tech group focused on car.
Everything's layered into the guidance.
Okay. Thank you.
And our next question today comes from Josh Shanker with Bank of America.
Yeah. Thank you for taking my question is there any detail you can give us on gross premiums in force or.
Policy of mixed by type and if theres any changes in.
Your.
Average premium by type from <unk>.
Information given the prior F one not.
Yes.
Okay.
I can't give you a little bit of color on that so one of the things. We noted is.
Is that.
Our new business coming in is heading towards roughly each.
50% renters previously that was significantly higher and that's been declining or not declining but the.
The home and life has been growing at a pretty healthy clip and so now that mix is closer to.
The 50 50.
The overall book of business does not 50 50, that's the new business coming in and so the overall book of business.
Adding that direction.
Pat in aggregate is still running around.
10% of of the book.
Homeowners still in 30% range, so think of it as probably roughly 40% of the overall is as new products like just getting started.
And then the menthol on a premium basis and not of our.
The amount of policy debate.
Remember, it's not the policy debate.
Yes that is correct.
Policy basis.
Still roughly the.
The shift has continued roughly 90% of our customers.
On a customer count basis, our renters and the balance.
The homeowner and pet policies.
And no material changes in the average price per policy over the past few months or six months.
Yes.
No dramatic changes continued you know continue the past trends and really the mix shift driving the bulk of the increase in premium per customer, but theres always you know roughly a third of that premium per customer changes has continued to be driven by a.
The greater coverage.
So then price increases.
Okay, and then on <unk>.
To what extent are you expanding the Tam.
What extent are you, having the insurance customers.
The Switzerland from a number of carriers policy.
Yeah.
I don't have the switch percentage at hand, then I'm not sure we disclosed that yet, but we will we can maybe follow up on that if there's something we shared it's definitely a combination.
Of of folks who are first time buyers of pet insurance as well as some switchers, it's a much less penetrated market from the U S. It tends to be a greater probability that somebody who has not had an insurance before but that's that's all I have at hand right now.
Great answers. Thank you.
Thank you.
And ladies and gentlemen. This concludes today's question and answer session and today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.