Q1 2021 Metromile Inc Earnings Call
[music].
Greetings and welcome to the Metro mile incorporated first quarter 2021 earnings call. At this time, all participants are in a listen only mode of <unk>.
A question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad. As a reminder, this conference is being recorded it is now my pleasure to introduce your host Garrett Edson of ICR. Thank you Gerry you may begin.
Thank you operator, good afternoon, and welcome to Metro miles first quarter 2021 earnings call. This afternoon. The company released its financial results for the quarter ended March 31, 2021. The shareholder letter is available on the that's the relations section of the company's website at Www Dot metro mile Dot Com I would like to remind everyone that certain statements made in the course of this call are not based on historical information and May.
Constitute forward looking statements. This call will include statements regarding our ability to grow our business as well as certain projections for the first quarter and full year 2021 and are based on management's current expectations and beliefs and are subject to a number of trends and uncertainties that could cause actual results to differ materially from those described in the forward looking statements I refer you to the company's filings made with the SEC for a more.
Detailed discussion of the risks and factors that could cause actual results to differ materially from those expressed or implied in any forward looking statements made today all such forward looking statements are made as of today May 17, 2021, and the company undertakes no duty to update any forward looking statements that may be made during the course of this call.
Additionally, certain non-GAAP financial measures will be discussed on this conference call. Our presentation of this information is not intended to be considered in isolation or as the substitute for the financial information presented in accordance with GAAP reconciliations of these non-GAAP financial measures to the most comparable measures prepared in accordance with GAAP can be accessed through our filings with the SEC at Www Dot SEC.
Gov joining me on the call today are Dan Preston of the company's Chief Executive Officer, and Lindsey electricity Metro miles Chief accounting officer with that I am now going to turn the call over to Dan.
Thank you.
Good afternoon, everyone and welcome to our first quarter of 2021 earnings call.
We appreciate your interest and continued the board of Metro model.
On today's call I'll provide a brief overview of our first quarter performance and provide update on our recent progress in the overall growth strategy for 2021 and beyond.
Linda will follow with additional detail right of first quarter of 2021 results and then we will open the line for Q&A.
We had a solid start 2021, and our first quarter of the public company, we delivered on our first quarter outlook, increasing policies in force and New York 96000 at the top end of our range, while we generated further year over year improvement in our accident quarter loss ratio in contribution margin and came in well within our expected range further validation of our per.
My own behavioral pricing model.
The primary focus on unit economics continues to bear out in our results, which we believe positions us very well for the back half of 2021, when we expect to accelerate our growth trajectory significantly.
Our last call we have been laying the groundwork to execute on our long term sustainable growth strategy successfully.
First one of our primary strength is the team we have built at metro mile over the last decade.
This combination of visionary technology and consumer product talent, along with the season, ensuring leaders allows us to reshape insurance products, while delivering consistent underwriting results.
Our digital innovation is working to make insurance bear and more individualized every day empowering the customer while building a high margin business.
We believe that <unk> technology advantage creates cost structure of advantages the return of meaningful profit for every policy sold.
We have the right team in place to succeed and even more so with our two most recent leadership hires who both start next week.
As we announced in April <unk> will be joining us as our new Chief Financial Officer.
Rajiv joined the Metro miles from the Egencia Expedia as corporate travel Division.
Been instrumental in heading their finance division and helping lead our corporate development efforts.
There'll be leading our finance team and ensuring we continue to press our unit economic advantage and keep a firm hand on our balance sheet and capital allocation priorities I look forward to having to spend time with you on our upcoming calls.
Along with Reggie as we continue to accelerate our growth strategy in the months ahead, we have hired a senior leader who has deep expertise in driving profitable growth.
<unk> low cost of acquisition channels with profitable segments of growth as.
As we announced last week, Troy dye, who will be our new senior Vice president of growth <unk>.
Joining us after having spent 20 years of capital one where he was most recently the head of U S credit card marketing engagement insights.
Troy has extensive experience as a disciplined mark here, well versed in driving profitable growth and make some of particularly ideal fit for us.
It's a testament to the to what we've built over the years and our mission of making insurance bear and more personalized that we can attract talent like regimen Troy. We're excited for the top of head and know they will play key roles in helping us achieve our goals.
Along with adding to our strong bench on our last call I mentioned that we expected to begin offering bundled products by the end of the year, which will allow us to better reach the many drivers who are looking to combine their home and auto insurance today I'm thrilled to announce that HIPAA will be our partner in driving this endeavor.
We believe that Hippo complement metro model perfectly we are both digital first insurers that are truly customer centric.
Hey, Bose homeowners insurance offering also utilizes real time data and technology to make insurance fair more accurately priced individualized and our company culture and value of that clearly aligned.
Our auto and homeowners bundle of who will be available the hippo and metro miles of customers by the end of 2021.
It will enable them to save up to an additional 15% on each of their metro mile Auto and hit the homeowners policies when bundled and received the same standard experience at each of our customers have come to expect.
We anticipate this will have several positive effects, such as reducing cost of acquisition, increasing retention and growing overall lifetime value. We look forward to providing you more details about our rollout of the months ahead.
Lastly, we announced a couple of weeks ago that we plan to become the first insurance company to adopt bitcoin for insurance premiums and of claims payments. It's the logical step in supporting our commitment to giving our customers more control over how they pay and get paid.
By giving customers more flexibility, we can advance echoed ability fair insurance and financial resilience.
Crypto currency becomes more mainstream in a larger part of consumers' assets, we look forward to adopting decentralized finance as part of our digital insurance platform.
Beyond the progress made with our team and our insurance offering.
We continue to see strong interest in Metro model of Enterprise software platform, which provides us with recurring high margin revenue.
Last quarter, we announced puzzle of member of the farmers insurance family had onboard with Metro model Enterprise and this month they are expanding their deployments the additional lines of business.
What's key about target was that this is the first time of insurers using our technology in the P&C line outside of motto is very important to highlight the demonstrates our technology works across P&C line and not strictly limited to auto.
Enterprises, continuing to resonate with prospects in our pipeline and we believe we have the potential to deploy enterprise and additional lines of business.
Expect to provide further news on this front in the quarters ahead.
Moving ahead, we're making great strides in anticipation of our accelerated growth initiatives.
Unit costs in some cases dramatically our new Pos devices.
Beginning with the second quarter, New Pos devices delivered and installed will cost 26% less than prior models.
Further data cost of these new devices have been reduced by 65 per cent.
While we are beginning to recognize these cost savings in the second quarter, we expect it will become more evident in the overall results as growth accelerates in the latter portion of 2021 as we enter new states.
As more of the country begins to reopen employers will come back workers and new hybrid work models and some summer travel plans get underway. Our data shows that more drivers are eagerly hitting the roads.
In March of 2021 alone are drivers nationwide put on 19% more miles in the vehicles year over year and 20% more miles in the prior months.
The trend has continued in April the number of miles driven increased 109% year over year is driving surpassed pre pandemic levels. However, the quality of nature of these miles has shifted in many cases away from commute hours towards other types of driving creating a wider diversity of driving patterns. We expect this new dynamic will continue to reemphasize.
Size of the importance of flexible insurance options, creating more low mileage drivers and making a per mile offering more relevant.
The right along the try before you buy of featured on our App continues to see of solid hit rate as converting prospects into the customers at a low cost and we continue to develop partnerships with additional automotive Oems to fully integrate our operating what their vehicles.
We're continuing to scale within our existing footprint and are progressing well to achieve.
<unk> from new states to begin operating insurance and those states in the latter half of 2021.
Longer term, we have of more than $160 billion opportunity to reach $143 million drivers in the U S.
As drivers can save 47% of the year on average by paying for the miles the actually drives rather than being unfairly group. The the class of drivers. We believe our operating will continue to resonate with Americans of all ages and from all walks of life and community of large and small from urban core is the fast growing mid sized cities and suburban and rural areas of late.
With 3 billion all of the data to better model of the driver behavior and price. Accordingly, we have an enormous headstart in the underwriting and are well positioned to sustainably and profitably grow our business and create additional long term value for our shareholders.
I'm proud of our entire team and all of their efforts with that I'll now turn it over to our Chief Accounting Officer, Lindsay <unk> exhibition Lindsay.
Thank you Dan and good afternoon, everyone. Let me take you through some of our first quarter of 2021 restaurants.
In the first quarter, we generate of direct earned premiums of $25 $8 million four per cent increase from the prior year period.
At the end of the quarter, we had 95950 policies in force a 40% increase from the end of 2020.
We want to reiterate the fluctuations in driving patterns can cause the total premium to vary in any given period.
Our premium run rate, which we define of any policies enforced multiplied by average annual premium per policy as of March 31, 2021 was $106 million.
Average annual premium per policy with $1100 at the end of the first quarter of 2021.
Our one year retention or the percentage of customers, who remained with us. After two policy terms as of March 31, 2021 was 69, 9%.
This figure remains slightly elevated from what we would expect going forward as some cancellations, resulting from non payment were not process due to government mandated COVID-19 payment extension, we expect the one year retention figures of revert to normalized levels in the second quarter as these cancellations are processed.
Please note that while these cancellations will have an impact on our policies in force at the end of the second quarter. We have anticipated this impact in our outlook for end of year 2021 policies in force.
The average policy life expectancy for a new customer as of March 31, 2021 remained steady at three four years.
Accident quarter losses in the first quarter of 2021 were $16 8 million.
Leading to an accident quarter loss ratio of 65, 1% 500 basis point improvement compared to the prior year period, primarily due to better pricing enhanced fraud detection and a reduction in miles driven year over year during 2021.
As of June quarter loss adjustment expense or LAE was $3 million moving to an accident quarter loss ratio of 11, 5% compared to 10, 3% in the first quarter of 2020.
Servicing expenses in the first quarter of 2021 were $4 1 million or 15, 8% of direct earned premium compared to $3 $6 million of 14, 7% of direct earned premiums from the prior year period.
Moving forward, we expect to see servicing expenses returned to more normalized levels beginning in the second quarter as we begin to see the benefits of lower data costs from new Pos devices and also expect to see a reduction in bad debt expenses.
Actually the corner of contribution profit in the first quarter of 2021 with $2 $4 million, an increase from $1 6 million from the prior year period and asking the quota of contribution margin was nine 1% of 270 basis point improvement from the first quarter of 2020 the.
The improvement in margin was driven by the reduced losses compared to the prior year period.
We believe the accident period contribution margin is the best representation of the profitability of our in force portfolio and not just the measure we use to estimate lifetime value of our customer.
In the first quarter of 2021, we had an additional $4 $3 million of unfavorable prior period loss development.
This was due to an increase in attorney represented claims on soft tissue injuries.
We continue to focus on the early closure of injury cases to mitigate these exposures.
As a reminder, our actuaries estimate the total number of homes in an accident period, along with the ultimate value of the claims.
The reserve of the estimated value of the claims net of payments we've already made.
Each quarter, our reserves are reassessed for all periods back to when we first purchase of the carrier in 2016, we.
We continue the aim to be adequately reserved to prevent prior period development. However, given the limited history of the carrier the multiyear nature of Samsung types and the nature of reserving instead of there will be adjustments from time to time as the mature and gather more data.
When including prior period development calendar quarter contribution loss of $1 $9 million compared the contribution profit of $1 7 million in the prior year period.
I don't know if youre mile Enterprise segment, we generated revenue of $1 million, an increase from zero point $6 million in the prior year period.
<unk> ended the first quarter of 2021 with $4 $2 million of booked annual recurring revenue, which is our primary kpis of the segment given the durable nature of the revenue.
Cash and cash equivalents at the end of the first quarter of 2021 for $221 5 million compared to $19 2 million at year end 2020, as we received net proceeds from the closing of the business combination in February 2021, and repaid all outstanding debt by the end of the corner.
I'll now turn the call back to Dan.
Thanks Lindsay.
Based on our first quarter performance, we are reaffirming our outlook for the full year 2021.
We continue to project ending the year between 125000, and 133000 policies in force, which entails year over year of policy in force growth of 35%.
On the low end at 44% on the high end.
As a reminder, we accelerated our marketing spend of November 2020 in anticipation of our of ramping up our growth in 2021 and beyond as a result, we would expect our policies in force sequentially the growth trajectory to steadily increase throughout the year at marketing channels mature and as we enter new markets with the majority of our growth to be weighted in the latter part of 2021.
In an effort to provide more transparency, we are initiating our outlook for the end of 2021 premium run rate to be between $143 million and $176 million.
Our end of year assumptions are based on the following.
At the bottom end of the range. We are assuming driving continue the Q1 2021 levels for the remainder of the year at the top end of the range, we're assuming that driving returns to pre pandemic levels that we observed in 202019.
As a reminder, while driving patterns and total miles driven are unpredictable because our model is pricing of per mile basis. We would expect to continue to generate profitable unit economics, as the fairly and accurately bill our customers customers for the commensurate question.
We also continue to expect the accident year loss ratio for the full year 2021 to be between $65 70 per cent and to record of accident. Your contribution margin between eight five to 13, 5%.
We thank you for your time and interest today and now we'll open it up to your questions operator.
Thank you we will now be conducting a question and answer session. If you would like to ask the question. Please press star one on your telephone keypad the car.
Information tone will indicate that your line is in the question queue. You May Press Star two if you would like to remove your question from the queue for participants using speaker equipment and may be necessary to pick up of your handset before pressing the star Q1 moment. Please while we poll for questions.
Thank you. Our first question comes from Arvind <unk> with Piper Sandler. Please proceed with your question.
Hi.
Good afternoon, I just have a couple of questions regarding your partnership with the table.
If you can kind of just expand a little bit more on the rationale for partnering with hip the instead of continuing to expand geographically and and also for any details you can share of in terms of.
How are you going to split revenues and cost.
And what are some of the minus the milestones you have in place to COVID-19.
The German success.
Partnership.
Sure Hey, Erinn. Thanks.
No.
The starting point here.
On your question on debt extension relative to homeowners.
There's two tracks of work did not necessarily conflate the two different teams internally and that of working on that so unfortunately, we don't necessarily sacrifice any of the state.
The state expansion and to be able to offer off of the homeowners product here.
The way that we've structured it.
Is that both both partners here at both of Us and Hippo.
We will be cross selling each of those products as part of the experience.
And so I view coming from Metro model of calm or in the App that you guys quote with us.
We will be able to offer you a bundle with both our product and tip of us and so what that will mean to the consumer as they can save up to an additional 15 per second with both products.
And then basically of commission structure between both companies.
Where each of us earn of percentage of that premium.
Based on selling those policies.
Alongside of their own product.
All of that kind of a range of that ultimately allows us to build the business momentum.
Great great.
And I guess what are the things.
You and I have always talked about.
The mistaken of lot of pride in the customer experience from <unk>.
From my customers and.
And given the Hippo.
As of kind of insured debt.
How are you going to kind of make sure the debt going forward.
Two of your three sort of the kind of the customer experience that the deal.
Customers you can expect to get from it from idle is also something that they get from from April.
Okay, Yes that was actually at the center of our decision to work with type of.
Fortunately the pipe both our platform of inverse.
Highly digitized and we have the ability to integrate with pretty simple API.
All of it can be pretty flexible with the experience.
And so what we're going to be doing is actually building. This.
Into the flow of experience and a very seamless way and then ultimately as part of your ongoing customer experience as well ideally within the measure of mine life of an otherwise being able to manage our policy and take the actions that you would.
What were one experience with with Metro mile.
So to your point that segment of the core of what we've been looking for.
Homeowners.
Partner, and we actually found that in Hippo and thinking of a lot of alignment and.
Technical capabilities to be able to make that assemble the James.
Great great.
Last question from me is.
Is this kind of like exclusive agreement.
Yes.
Is it feels the same if you decided to kind of part ways with.
What's the what's the outflows.
Yes, I don't want too much but all of the details of the contract.
What I'll say is that each of us.
Look at the market and.
And the bit of a diverse way and not all products fit all customers.
For instance, we're not going to be attracted to high mileage drivers.
And that's on purpose.
Similarly, the table doesn't offer of products for certain segments.
We want to ultimately sell of other product there in the long term and.
And so I think there is a clear alignment of the two products in the market and we're focused on that one as the starting point.
And both companies grow I expected that our customers will have a diversity of needs and I am sure that will expand for both of us overtime, but I think that's the case of your question.
Alright, great. Thank you very much.
Absolutely.
Thank you. Our next question comes from Josh <unk> with Cantor Fitzgerald. Please proceed with your question.
Hi, guys. Thanks for taking my question congratulations on the deal with Hippo can you elaborate a little more on how you plan to proactively market bundle the insurance to existing and new customers.
Hey, guys yeah, absolutely.
So the starting point will be with our current direct online channels.
People come through the funnel of the thing that we ultimately have found is that there is a large group of customers, who look to bundle of both homeowners and auto and I think of something like 50% of consumers nationally.
And so what that means is that there are a bunch of segments within different marketing channels that today.
Are probably higher cost of acquisition then they will be when we start being able to offer the bundles. I think this just opens up opportunities to better segment and do better work within existing channels.
Certainly.
We both benefit from each of those marketing in the process right.
We are selling more per.
While ensuring somebody will be helped the helping shape of growth similarly, as they're growing their business will be of good options from any of our customers as well.
The new growth opportunities in both indirect and direct way.
Yes that makes sense shifting gears, a little bit of auto sales have rebounded have you seen the larger inflow of customers from your OEM channels.
It's a good question.
<unk>.
We've certainly seen that.
The used cars have accelerated in the US I think you've seen the generally with some of the inflation numbers out of the bank.
Sure.
There isn't the distinct difference from what we can tell of new cars in those channels right now we're certainly seeing.
Generally strong demand for that product overall and it hasnt shifted much even as people have started to.
Sort of turning back the Rosewood, we're still seeing solid response rates in general.
Got it got it and.
And what impact if any of the government of stimulus have on your business do you think there was nothing of significant pull forward.
Interesting.
And for Us to say that there is a direct correlation there most of the the response that you've seen throughout the year were directly related to different campaigns of Youre doing so I don't think we saw a particular.
Noticeable impact from the stimulus on.
On either growth or retention directly.
Got it great and if I could just sneak one more in can you help us quantify what the impact of 60 of retention will be from the payment of expansions.
Yes.
So.
And the good message being mostly impactful for like half of the quarter. So if you think of most of them nearly all of those cancels HOKA and the type of way from the beginning of Q2 two today so.
During that period, you have a pretty muted growth rate and then it accelerates from here to the end of the quarter.
Perfect. Thank you saw lots of guys.
Yeah.
Thanks, Josh.
Thank you. Our next question comes from Jed Kelly with Oppenheimer. Please proceed with your question.
Hey, great. Thanks for taking my questions just just on the the back that are the the run rate at the end of the year can you kind of disclose how much is going to come from current states versus new states.
In terms of your state rollout plan, where are you with the regulators versus say six months ago.
Yeah.
So in terms of following themselves and we've been doing the fair amount of work in and sharing.
In the first 13 states, which are anticipated this year all of our kind of baseline CAGR of 30 in other areas. Our setup of indicated we're in good position there.
We're also in the process of finalizing all of the filings to which will go out of shortly.
And those will start to represent the first states.
That will go live this year.
So we made good progress there and sorry remind me the first part of your question.
Just where the first part was how much is coming from the current the growth of at the end of the year and fourth quarter. How much is going to come from like current state you're operating in versus the new states.
Yeah.
How do we provide a specific number right now, but it should contribute pretty meaningfully to overall overall growth. There can you just kind of think of like the.
The increase in Tam overall, it's going to increase <unk> by the end of the year by about 60% I believe.
And so that will represent a pretty meaningful increase in total policy of solar to answer those in the markets. We also have for instance, long waiting list of people, who have come to get quotes of what their email address and in those cases, we expect to see a fair amount of demand just day, one when we first of all of those markets.
And then.
I might've missed this but what is the agreement with Hippo is that exclusive and if not would you use.
Other insurer other tech enabled insurance companies like yourself like Hippo to drive more customer acquisition and just how do you see your cost of our acquisition strategy evolving.
You look at some of the sell side notes or sell side estimates of your competitors. It looks like they're going to be spending a lot of the next to the three years. So can you just remind us how your how you're approaching the customer acquisition over the next 18 months.
Yes, absolutely so.
To your question on exclusivity, so we don't have exclusivity.
As we go into new markets, we're going to make sure that we have the right product set up of all of our customers. We think the better part of a great partner and will be a core part of that.
Customer acquisition generally we market through a lot of the online direct channels as the primary source of traffic for the business.
And in addition to that we've been seeing some strong.
Growth with our right along the product which is.
In many ways, an augmentation to the existing online channels and then in many ways a way for customers to share with others.
You see growth from that channel as well.
I do think of what this all I can just speaking to kind of the earlier comments I think that.
As we're able to offer homeowners alongside of it allows us to better convert traffic.
We're going to be able to the acquired all of our cost now that we have both products together.
And it also had the type of opportunities of course for us to be able to sell our product alongside of that hit those as well.
And then just on the prior period adjustment.
Is that from like a couple of years ago. When you guys were first starting or you know how.
How much of that is that a result from <unk>.
Years ago, or how should we view of prior period adjustments going forward as your algorithm gets better.
Yes, so prior period development largely reflects all of the history from.
2016 through to today, so there's a fair amount of impact there and so these are about 85% of that increase is related to large loss bodily injury claims.
And primarily what we're seeing there are there some aspect of of I think what's called the social inflation.
This is primarily a higher level of attorney represented claims with more soft tissue issues, but these are out of a handful of claims in Q1. So there are 30 of large losses in Q1.
A portion of those are largely what drove.
The reserve changes. So this is largely going to be a function of scale as we as we grow the business over time.
The few large losses will have more minimal kind of impact of overtime and just make it more predictable over time.
Thank you.
Thank you there are no further questions at this time I would like to turn the floor back over to Dan Preston for any closing comments.
Great. Thank you very much we appreciate all of your questions and kind of on the earnings call today and look forward to staying in touch and talking again soon.
Okay.
This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation of a wonderful evening.
Okay.