Q2 2021 Metromile Inc Earnings Call
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Greetings and welcome to match on my on incorporated second quarter, 2020.1 earnings call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation and if anyone should require operator assistance during the call.
Please press Star zero on your telephone keypad. Please note. This conference is being recorded I will now turn the conference over to Garrett Edson and ICR. Thank you you may begin.
Thank you operator, good afternoon, and welcome to Metro miles second quarter 2021 and earnings call. This afternoon. The company released its financial results for the quarter ended June 30th 2020..1 shareholder letter is available on the Investor 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 <unk>.
<unk> information and May constitute forward looking statements and statements that refer to projections forecasts or other characterizations of future plans events or circumstances, including any underlying assumptions. Our forward looking statements. These statements are based on management's current expectations or beliefs and are subject to a number of trends and uncertainties that could cause actual results to differ materially from those described.
And 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 levels of activity performance or achievements to differ materially from those expressed or implied and any forward looking statements made today 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 and not intended to be considered and isolation or as a 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 and see.
<unk> Dot Gov, joining me on the call today are Dan Preston The Companys, Chief Executive Officer, Troy Die Senior Vice President of growth and Rajiv Zynga, Lille Metro miles Chief financial officer with that I'm now going to turn the call over to Dan.
Thank you good afternoon to everyone and welcome to our second quarter 2021earnings call.
We appreciate your interest and continued support of Metro miles.
During the second quarter, we encountered several unexpected challenges, including some shifts in consumer behavior that we're seeing as the country continues the journey to a post COVID-19 environment.
We're learning how to best navigate the shifting market and.
And with the new growth leader on Board. We are also using it from an opportunity to refresh and optimize our long term growth strategy.
During the quarter, we experienced several positive milestones.
Driving returns and near pre pandemic levels, which sparked a sizable increase and our direct earned premium and premium run rate as of June 32021, and.
And more Americans continue hitting the road, we expect to continue to generate solid and director and premium year over year growth on a more consistent basis.
We continue to experience high new customer 1 year retention, which measured on a robust 68% for the second quarter.
Drivers continue just switched and metro miles a day and we believe they stay with us because of the experience.
We rounded out our senior leadership team with key hires of Troy diet, and senior Vice president growth and and.
Rajeev, Bangalore, as our Chief Financial Officer.
Both are already and making significant and valuable contributions and metro mile and we're excited to have him on board.
Finally, I am thrilled to have a complete ease and management team and look forward to working with this group to drive the business forward.
That said the positives were offset by headwinds we experienced toward the latter part of the Florida.
Our accident quarter loss ratio trended higher and it did brothers throughout the industry.
We note that excluding bodily injury claim frequency per mile has largely been consistent with the onset of the pandemic. However claims severity has increased throughout the industry, mainly due to inflation and bodily injury and physical damage claims.
Further we have observed that relationship between miles driven and losses, even more elastic than previously modeled and.
And recent rate filings, we have leveraged and insight to address more of our premium can be priced and variably or per mile and reduced monthly fixed costs and expect to do so further and subsequent rate filings.
This is a powerful way to drive improved unit economics, and additional price competitiveness for the millions of low mileage drivers and the U S.
Second although we noted in our last call that cancellations related to government mandated COVID-19 payment extensions would be processed and the second quarter. Those cancellations turned out to be greater than we expected. We also experienced higher than expected and cancellations due to consumer behavioral changes.
Out of state means vehicle sales and high mileage driving.
Finally, we encountered unexpected industry wide regulatory delays, which deferred timely approvals of our pricing changes we have since received those approvals and they will go into effect at the end of August.
As a reminder, we expect these pricing changes will drive additional policy enforce and the future.
As a result of these headwinds policies and force were roughly flat for the second quarter and contribution margin debt. These results are not acceptable to us and we'll outline a few examples of the high priority areas, we're executing on and drive growth.
We believe we have a superior underwriting model and customer experience and deliver a strong value proposition for our customers.
And we've consistently noted drivers who switched and metro miles a day, 47% annually on average <unk>.
Additionally, when driving returned to near pre pandemic levels, and our second quarter nearly half of prospects explore and I'm not sure on my own self reported 20% or greater savings compared to their current rig and this.
And this clearly demonstrates the substantial savings we can provide for nearly 2 thirds of Americans before during and after depending on Mike.
And we continue laying the groundwork for a nationwide expansion and the recent challenges and significant strengthening of our leadership team has given us an opportunity to thoroughly assess our go to market growth strategy to introduce metro miles and these days.
We believe we now have a more robust and visible path to achieve our mid and long term growth plan. However to execute this strategy our near term policies and force script growth will be deferred by a few quarters as we focus on the implementation.
While this leads to slower and near term policy growth the long term trajectory remains unchanged.
We believe that most Americans with Dave substantially with Metro miles per mile insurance, and we have clear password scale driven by an incredible team. We recently brought on board to drive the go to market strategy Board.
With that I'll turn the call over to our new senior Vice President of growth Troy Die.
Troy joined Us and late Nathan and capital 1 and immediately went to work refining our growth plan and he'll walk you through them now.
Thank you very much debt I'm thrilled to be working for such a talented team and metro mile. We're executing quickly on our top priorities and I look forward to sharing more with you today and in the quarters ahead.
As Dan and I've mentioned previously we have an incredible opportunity to capture and material share of the more than $116 billion premium total addressable market that represents what we believe are overpriced policies for low mileage drivers.
And my first 3 months I have been focused on optimizing on growth effort and ensuring our strategies align with shifting consumer behavior and the pre to post COVID-19 journey.
And we have developed a more fulsome strategy that we believe will generate rapid and ultimately profitable growth as we expand nationwide.
As a result, our initial expectations for policy in force growth for full year 2021 had been deferred by a few quarters based on several key changes both internal and external to Metro model.
First we experienced reduced COVID-19, 19, pandemic, driven demand or pay per mile and the second quarter of 2021.
We expect this and the trend and elevated cancellation rates to persist, creating downward pressure on near term channel performance and.
Net policies and force growth.
Second we expect state expansion and to contribute material policies enforced and 2022 compared to our initial expectation from new states to contribute and the second half of 'twenty 'twenty 1.
Lastly, the regulatory delays and implementing pricing changes that Dan referenced earlier on the call will reduce previously expected growth and the third quarter of 2021.
We believe the enhancements, we are making to our growth plan will enable us to acquire new customers more rapidly and the future and meet our multiyear growth trajectory and I'll spend the next few minutes on 3 critical elements of this plan.
First we recently refreshed our brand and product positioning and to reflect the new normal that drivers are settling into.
Simply put we believe there are too many drivers that still do not recognize or understand the value proposition savings and experience that metro miles and seeks to offer move.
Moving forward you will see us more actively sharing the metro and our story to our target customers to drive greater familiarity and trust.
Next we want to be omni present to our consumers, while we continue to enhance and optimize our direct to consumer channels. We recently opened new distribution channels and partnerships to capture and even greater addressable market. The 2 I'll talk about today are simple and the independent agent channel.
Last week, we sold our first new bundled homeowner insurance policies from Hippo to metro mile customers. We are thrilled to formally launch our auto and homeowner solution well ahead of schedule. We believe a home and auto bundle were proved to be very attractive to many of our existing customers as well as prospects.
We also believe there is significant opportunity with independent agents, who account for over 30% of all auto insurance sales and as a channel double our distribution and access to our target market and.
And the second quarter, we successfully launched the initial phase of our independent agent program and have appointed more than 600 agents to day.
We are beginning to scale sales production by integrating with comparative raters and fine tuning our incentive structure with our agency partners and the coming quarters, we expect to add significantly more independent agents and build additional integrations and infrastructure to support their efforts. We're excited about adding this new channel and believe it will become a strong contributor to <unk>.
Growing our policies in force and time.
We also plan to continue to advance our distribution opportunities through additional scalable partnerships with like minded companies and wireline customer basis and the weeks ahead, we'll be launching a new partnership with a leading Fintech company that serves over 5 million customers and we look forward to sharing more details soon.
The third key area I'd like to discuss with our state expansion strategy.
We continue to plan to file rates on new states by the end of the year, which when combined with our current footprint will allow us to reach more than 50% of Americans.
To start with Indiana, Colorado, and Missouri, Iowa, and Texas.
We believe our new states will begin to contribute meaningfully to our policies and force beginning in 2020.2 we.
We were deliberate and choosing these states based on the ease of entry and similarity to existing metro mile markets in order to ensure we generate healthy and profitable growth and ultimately expand our contribution margin.
We will be disciplined and our expansion strategy to ensure we are managing growth without sacrificing our unit economics.
And the months ahead, we will provide updates on our progress on these fronts and other growth initiatives.
We believe and metro miles and a strong fit for 2 thirds of U S drivers and then as we move ahead, a rapidly growing number of Americans will realize it as well and become satisfied loyal and metro model customers with that I'll hand, the call back to Dan.
Thanks, right finally, along with our auto and shrimp offering.
Our Metro model Enterprise software and platform continues to generate interest and demand.
Enterprise is expanding its set of ecosystem partners to provide best of breed offerings and the insurance industry and.
And July enterprise announced and integration with lob.
Our leading direct mail platform and to streamline our no COVID-19 claims automation platform to automate claims payments and make direct mail work was 25% more efficient for insurers.
Enterprises, and also expanding and formalizing that customer relationship with Metro my own checks to include its new payments platform and digital tools. We expect this to bring metromail enterprise to over $5 million and annual Standalone recurring revenue and we are optimistic that amount will rise nicely and the quarters ahead, given our pipeline.
I'll now turn it over the call to our Chief Financial Officer, Rajiv and below budget.
Thank you Dan and good afternoon to everyone.
Let me take you through some of our second quarter 2021zone.
For the second quarter, we generated direct earned premiums of 27.8.
The 23% increase from the prior year period.
At the end of the quarter, we had 95314 policies and force.
A 2% increase from the prior year period and.
Largely flat when compared to the quarter ending March 31st.
Our premium run rate, which we define as ending policies in force multiplied by the average annual premium per policy.
It was $113 million at the end of Q2, and 22% increase compared to the prior year period.
Our 1 year retention or the percentage of new customers, who remain with us after their first 2 policy terms as of June 32021 with 68%.
I second quarter losses for the second quarter of 'twenty, 'twenty, 1 and were $20.6 million, leading to an accident quarter loss ratio on 74, 2%.
Impaired to 49, 8% and the prior year period.
The difference and loss ratio was primarily due to an increase in both claims severity and observe industry wide and bodily injury frequency.
Partially offset by the higher earned premium.
From a per mile pricing model.
Accident quarter loss adjustment expense or L. A E was $4.6 million, leading to an <unk> ratio of 16, 5% compared to 7.2% and the second quarter of 2020.
The difference in Ala and <unk> is due to the increase and reserve driven by increased claims inventory and.
And incremental staffing and the claims department given the higher claim counts.
Policy certainty expenses and the second quarter of 2021 with $3.5 million or 12, 6% on director and premium compared to $3.2 million or 14, 4% from director and premium and the prior year period.
The lower policy servicing expense as a percentage of director and premium was primarily due to reduced bad debt expenses.
Accident quarter contribution loss from the second quarter 2021 was <unk> 9 million compared to contribution profit of $6.5 million from the prior year period and.
Accident quarter contribution margin was -3.3% compared to positive 28, 8% and the prior year period, primarily due to the higher loss ratio and loss adjustment expense.
And the second quarter 2021 we had on additional zero point $3 million of unfavorable prior period loss development.
When including prior period development calendar quarter contribution loss was $1.2 million.
Compared to contribution profit of $4.8 million and the prior year period.
And on Metro miles Enterprise segment, we generated revenue of $1.1 million during Q2 and ended the quarter with $4.2 million of booked annual recurring revenue, which is our primary kpis for the segment given the durable nature of the revenue.
Cash and cash equivalents at the end of Q2 were $202.6 million.
Moving to $221.5 million at the end of the first quarter.
As a result, and the factors shared by Dan and Troy earlier, we are lowering our outlook for the full year 2021 as loans.
We now expect and end of your 2021 premium run rate of $115 million to $125 million.
We expect to achieve the previously forecast 2020 on premium run rate of 143 to 176 million on the third quarter for 2020.2.
With our lower premium run rate outlook, we now also project and the year with more than 100000 policies and force.
Given the revised growth strategy and timing of nationwide expansion.
Given the increase and claims severity and bodily injury frequency, we now expect to incur and accident year loss ratio for the full year, 2020, 1 between 70, and 75% and Peru.
Accident, and your contribution margin between zero and 5%.
I'll now turn it back to them.
Thanks Randy.
We believe our challenges are temporary and we are confident and the opportunity ahead.
Cash flow savings for consumers before during and after the pandemic unmistakable and we believe we have the right team executing on our plan and we expect will drive sustainable and profitable growth.
I want to thank our entire team who are working tirelessly to expand my from my own nationwide.
Growing community of loyal customers and enhance shareholder value.
Well now open up to questions on.
Operator.
Thank you and if he would like to ask a question. Please press star 1 on your telephone keypad and confirmation tone will indicate your line is and the question. Kim You May Press Star 2 if he would like to remove your question from the queue and.
And for participants using speaker equipment, and it may be necessary to pick up here and handset before pressing the star Ts.
Our first question is from Josh Seigler with Cantor Fitzgerald. Please proceed.
Hi, good afternoon, and thanks for taking my question.
Start in terms of state expansion plans are you still targeting and type of footprint from 49 states by the end of 2020, 2 or do you think the extent, Jamaica or low more slowly moving forward.
So we expect to continue to final pretty rapidly and the second half of this year with the anticipated additional growth primarily coming in 2022.
And so we're not giving specific guidance on the number of states that are moving in line next year, but we do expect to be rolling on nationwide over the next few years.
Great. Thank you and has there been any significant change and I'm on competitive landscape. You know are you seeing more competition on the per mile space from their traditional insurers for example.
We haven't seen anything in particular to show that there is a changing competitive dynamic.
If anything the pandemic elevated the level of awareness around per mile, which was a tailwind for us and 1 other thing that's happening and as people start to drive more and that awareness is shifting which is part of this strategy on that Troy and team are deploying now.
Great. Thank you very much.
Yeah.
Our next question is from Gary Ransom with Dowling and partners. Please proceed.
Yes. Good afternoon, I had a couple of question 1 on the new agent relationships are those agent relationships just.
Normal they get a commission they own the customer is there anything special about the relationship.
It's a traditional independent agent relationships so yes.
And we pay.
Standard Commission model on that and that book of business is still part of that Asia overall book.
Well 1 thing I will add is that the experience for the customers or their ability to final claim and digitally interact with the assets value from their experience and thats unchanged, regardless of how you buy the product.
And everything else it's ratios right.
Right Okay.
And then the other thing I wanted to follow up on what.
What you were just starting to address how the the message was different or.
Drivers work connecting quite as much because could.
Could you give us a little more color about what what it was that the.
And if people drive more somehow they're missing the message is that by the mile is a good idea.
It's a great question and I think the way I would characterize it is it's less about and.
And tumors driving more and more about a reduction and a tailwind from the pandemic. So during the pin the pandemic.
And you really had people incredibly focused on how much less day drove and how much their car was sitting in front of our house when they are and as shelter in place order and then I think drove consumers broadly to a pay per mile product, we're seeing that that kind of organic demand trail off as no shelter and order places sheltering and places where us and expire and folks get back on the road and so what we're we're.
And on is it more evergreen positioning and that's what we've been testing over the course really over the last 3 months to be able to understand what's the what's the ongoing positioning for pay per mile that isn't quite so pandemics centric, which is really where we've been living for the past year or so so it's largely about retooling and how we present ourselves and the marketplace. So that we can drive longer term growth on a sustained basis.
Yeah, and 1 of the things I'll add is part of that data I think we shared and.
And on the call was and we were asking folks in that period, where people are starting to drive more again.
How much they currently pay for auto insurance and what they drive on average and Thats, where we have to figure of about half on people would say, a 20% or more with us so the market size and larger than ever wise, but the way that he talked about the product.
And needs to and has been evolving.
Hmm.
Does that change also how you target.
Are the kinds of customers your targets and as a means of approach weather.
And I'm not as well versed here, whether it's streaming or searches.
Just I mean does that have to change here in terms of bringing those customers in.
I don't think that its let me let me answer your question on a couple of points first of all I don't think it's a different sort of customer that we're targeting.
We still on.
Have a ton of interest and folks who are retirees, who are stay at home parents, who live in urban environments and increasingly folks who work all were partially at home and that was true prior to the pandemic. Some of those populations have gotten bigger as you can imagine and particularly the work from home population as a result of the pandemic and as kind of work force methods of change and on that.
Channel front, we're not changing the way we use existing channels, our real focus is on diversify and channels and so again and I want to come back to you. We've got a solid D to C engine and I think still has upside and it but it has a good foundation, adding independent agents really doubles, our access to our market and then some over the top investment and the top of our funnel and real.
And starting to mature how we tell our story, how we educate customers overtime is going to be a force multiplier on those on the both the DTC and the independent agent side. So it's more about channel diversification and changing the way that we use the channels we have today.
Great. Thank you very much.
Our next question is from Christopher Martin with <unk>. Please proceed.
Hey, guys. Thanks for taking my question here and are glad to join the call from the first time and a quick question on the enterprise side.
At your disclosures here.
$9 million merger occurred and revenue with $1.1 million and.
In total revenue.
Go on to a little bit more detail about is that 1 customer or is that selling on a moving from a POC to a pilot to a fee.
Full engagement with that client.
And if there's anything you can talk about how enterprise looks like and why.
What kind of do you expect from that part of the business moving forward.
Yes, thanks for the question.
And represents multiple customer as part of the.
The larger dollar amount and the prior period and some implementation fees that we charge.
So basically part of the initial setup, but the anr today and I present multiple customers.
Okay got it and.
And what type of focuses going on I guess this might be.
And so towards the growth side, but focus on building out enterprise versus building out the traditional product and that you guys have started off with where it really I see sort of the your energy going and those either direction.
Yeah. It's a great question. So we look at the 2 businesses as being independent operations.
And with technology guys leverage overall.
And in the enterprise side, they have their own sort of distribution opportunity and they have their own P&L.
And with that we're not necessarily making distinct decisions about how.
The investment is being deployed across those 2.
And so the team there is focused on how to achieve.
Cash flow positive over time and their own independent way.
And so that team has been developing a strong pipeline of insurers.
And with several late stage deal and that they expect to close this year that.
And we expect to accelerate that business and just a longer sales cycle business overall, because infrastructure for insurance companies.
The robust pipeline, along with a larger ecosystem of partners and allowing that and that seem to ultimately expand rapidly over the quarters and years to come.
Okay.
That's very helpful. I appreciate that and 1 more quick 1 and just kind of following up on what Gary was asking about.
And sort of the messaging around.
Oh, yes.
And that type of marketing and your customers has there been any focus around understanding.
The shift and.
And it sounds like work from home.
Vs have to be in the office take and workplaces and the companies that do that.
Gates that you mentioned.
Moving into definitely seem to be more so drive to work type of companies.
Have there been any and.
And the focus on having that messaging out there.
And as traditionally what youre, saying and dynamics day, you're not driving that much but there could be a shift in the way work actually is being done and the Colorado and Indiana moving forward.
Okay, Great. Chris We think this is a huge opportunity.
And watching had a occupation level the rates of.
Workers, who bought and work from home today, and and plan to continue to work from home over time and when we think about this is not just those who work from home 100% is anyone who is moving to a work from home or hybrid environment is now going to be driving their car on their current it can be significantly less and I think the position that metro mile has.
And as an incredibly powerful 1 because our product is actually built to respond to that dynamic immediately.
And other insurers I think we'll have to try and play a little bit of catch up on that path, but because we're a per mile product. The minute you drive less you pay less and so I think this is a huge opportunity for us when youre going to see a lot of activity over the next 6 months and.
And further because we think this is just a marketplace that will be stable. We now have a great deal more certainty around this marketplace than we did in the middle of the pandemic. When it was just unclear what the kind of quote unquote, new normal would be and again, we feel like our product is incredibly powerful and superior to alternatives and the marketplace. So I think if we can drive good education in the.
And this particular segment, we can really develop a strong position.
Awesome.
Thank you very much.
And that for now.
Got it.
And we do have a follow up from Josh Ziegler with Cantor Fitzgerald. Please proceed.
Hi, Thanks for taking my follow up.
So are you seeing that too few trends and loss severity continue into the beginning weeks of 3.2 I think the point I'm trying to get out and this really a shock impact as the vaccine is rolled out and lockdowns are lifted from the first time or are you kind of seeing the trends persist.
Yes, it's a good question.
What we saw when the pandemic first happened and of course, the reduction and the frequency happened right away and obviously premium followed that for us.
But severity went up with the.
Bleeding kind of features behind that being.
There are fewer people on the road and people are going faster and so the accident that do happen.
And it could be more severe and you see this also and pedestrian and hips and other things that can lead to higher severity. The thing that was surprising as we started to enter into more of a post pandemic period and thats. The very never went back down.
And we would expect it to so that frequency on a per mile basis, they've largely consistent over time, but severity has stayed elevated which is leading to the higher loss ratio.
And what we've seen from other reports out there I think he can and some of the earnings weather and insurers as debt.
And as an industry wide trend. So we expect we'll need to make rate adjustments and others are low as well.
Great and Thats Super helpful and speaking of rate adjustments and the new pricing change.
And do you plan to roll that out at scale and August or just on specific states or specific areas and building and building scale over time.
Yes, it will happen and a very targeted way.
Because we have a number of tools available on our disposal across different way to segment the portfolio across behavioral pricing per mile and other ways.
And we focus on just the areas, where we need to do that right and just do those rate adjustments and which will mean, a more targeted impact rather than on Broadway.
Thanks, very much and Mexico Michael.
Sure.
As there are no more questions and the queue I would like to turn the conference.
Back over.
To Dan Preston for closing remarks, thank you.
Great. Thank you all very much for joining us from our second quarter earnings call.
Fundamentally the market potential for metro miles gigantic and the product markets and it is clear.
And finding that have consumers would save 20% or more and that's from my house.
And it's well known and if you can drive savings substantial is this the opportunity to drive accelerated growth is really substantial and so we look forward to continuing the conversation.
Thank you. This does conclude today's conference you may disconnect. Your lines at this time and thank you for your participation.
Goodbye.
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