Q2 2024 Root Inc Earnings Call

August 7, 2024

i no know you one right

Music

Operator: Greetings and welcome to Root Inc.'s Second Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief 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.

Unknown Executive: Greetings and welcome to Root Inc.

Unknown Executive: 2nd quarter, 2024 earnings conference call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. If anyone should require operative assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded.

Speaker Change: Greetings and welcome to Root, Inc. Second Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode.

A brief question and answer session will follow the formal presentation.

Speaker Change: 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.

Operator: As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Matt LaMalva, Head of Investor Relations. Thank you, Mr. LaMalva. You may begin.

Matthew LaMalva: As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Matt LaMalva, Head of Investor Relations. Thank you, Mr. LaMalva. You may begin.

Matthew LaMalva: It is now my pleasure to introduce your host, Mr. Matt LaMalva, Head of Industry Relations.

It is now my pleasure to introduce your host, Mr. Matt LaMalva, Head of Investor Relations. Thank you Mr. LaMalva. You may begin.

Matthew LaMalva: Thank you, Mr. LaMalva; you may begin. Thank you for joining us today. Root is hosting this call to discuss its 2nd quarter 2024 earnings result. Participating on today's call are Alex Timm, co-founder and Chief Executive Officer, and Megan Binkley, Chief Financial Officer. Root issued a shareholder letter announcing its financial results. While this call will reflect items discussed within that document, for more complete information about our financial performance, we also encourage you to read our 2nd quarter 2024 Form 10-Q, which was filed with the Securities and Exchange Commission earlier today.

Matthew LaMalva: Thank you for joining us today. Participating on today's call are Alex Timm, Co-Founder and Chief Executive Officer, and Megan Binkley, Chief Financial Officer. While this call will reflect items discussed within that document, for more complete information about our financial performance, we also encourage you to read our second quarter 2024 Form 10-Q, which was filed with the Securities and Exchange Commission earlier today. Forward-looking statements are subject to various risks, uncertainties, and other factors that could cause our actual results to differ materially from those expected and described today.

Matthew LaMalva: Thank you for joining us today. Root is hosting this call to discuss its second quarter 2024 earnings results. Participating on today's call are Alex Timm, Co-Founder and Chief Executive Officer, and Megan Binkley, Chief Financial Officer. Earlier today, Root issued a shareholder letter announcing its financial results. While this call will reflect items discussed within that document, for more complete information about our financial performance, we also encourage you to read our second quarter 2024 Form 10-Q, which was filed with the Securities and Exchange Commission earlier today.

Matt LaMalva: Thank you for joining us today. Root is hosting this call to discuss its second quarter 2024 earnings results.

Matthew LaMalva: In addition, we are subject to a number of risks that may significantly impact our business and financial results. For a more detailed description of our risk factors, please review our most recent 10-K, 10-Q, and shareholder letters. A replay of this conference call will be available on our website under investor relations. You can find reconciliations of those historical measures to the nearest comparable gap measures in our financial disclosures, all of which are posted on our website at ir.joinroot.com.

Speaker Change: Participating on today's call are Alex Timm, Co-Founder and Chief Executive Officer, and Megan Binkley, Chief Financial Officer.

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

Speaker Change: While this call will reflect items discussed within that document, for more complete information about our financial performance, we also encourage you to read our second quarter 2024 Form 10-Q , which was filed with the Securities and Exchange Commission earlier today.

Matthew LaMalva: Before we begin, I want to remind you that matters discussed on today's call will include forward-looking statements related to our operating performance, financial goals, and business outlook, which are based on management's current beliefs and assumptions. Please note that these forward-looking statements reflect our opinions as of the date of this call, and we undertake no obligation to revise this information as a result of new developments that may occur. Forward-looking statements are subject to various risks, uncertainties, and other factors that could cause our actual results to differ materially from those expected and described today. In addition, we are subject to a number of risks that significantly impact our business and financial results.

Matthew LaMalva: Before we begin, I want to remind you that the matters discussed on today's call will include forward-looking statements related to our operating performance, financial goals, and business outlook, which are based on management's current beliefs and assumptions. Please note that these forward-looking statements reflect our opinions as of the date of this call, and we undertake no obligation to revise this information as a result of new developments that may occur. Forward-looking statements are subject to various risks, uncertainties, and other factors that could cause our actual results to differ materially from those expected in the description. In addition, we are subject to a number of risks that may significantly impact our business and finances.

Speaker Change: Before we begin, I want to remind you that matters discussed on today's call will include forward-looking statements related to our operating performance, financial goals, and business outlook, which are based on management's current beliefs and assumptions.

Matthew LaMalva: For a more detailed description of our risk factors, please review our most recent 10-K, 10-Q, and shareholder letters. A replay of this conference call will be available on our website under investor relations. I would also like to remind you that during the call, we will discuss some non-GAAP measures while talking about Roots performance. You can find reconciliations of those historical measures to the nearest comparable gap measures in our financial disclosures, all of which are posted on our website at ir.joinroot.com. I will now turn the call over to Alex Timm, Roots co-founder and CEO.

Speaker Change: Please note that these forward-looking statements reflect our opinions as of the date of this call, and we undertake no obligation to revise this information as a result of new developments that may occur.

Speaker Change: Forward-looking statements are subject to various risks, uncertainties, and other factors that could cause our actual results to differ materially from those expected and described today. In addition, we are subject to a number of risks that may significantly impact our business and financial results.

Matthew LaMalva: For more detailed description of our risk factors, please review our most recent 10-K, 10-Q, and shareholder letter.

Speaker Change: For a more detailed description of our risk factors, please review our most recent 10K, 10Q, and Shareholder Letter.

Matthew LaMalva: A replay of this conference call will be available on our website under the Investor Relations section. I would also like to remind you that during the call, we will discuss some non-GAAP measures while talking about Root's performance. You can find reconciliations of those historical measures to the nearest comparable gap measures in our financial disclosures, all of which are posted on our website at ir.joinroot.com.

Speaker Change: a replay of this conference call will be available on our website under the investor relation section

Speaker Change: I would also like to remind you that during the call, we will discuss some non- GAAP measures while talking about Roots performance.

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

Alexander Timm: I will now turn the call over to Alex Tim, Root's co-founder and CEO.

Speaker Change: I will now turn the call over to Alex Timm, Roots co-founder and CEO .

Alexander Timm: Thanks, Matt. We continue to make strong progress in the quarter. For the second consecutive quarter, we generated operating income in positive adjusted EBITDA.

Alexander Timm: Thanks Matt. We continue to make strong progress this quarter. For the second consecutive quarter, we generated operating income and positive adjustments. This is a testament to our powerful data science and technology, our culture of discipline, and the talent and dedication of our team. We continue to advance our near-term target of achieving profitability. From day one, we've committed to providing drivers with car insurance that is transparent, easy to understand, and at a great price.

Alexander Timm: Thanks, Matt. We continue to make strong progress this quarter. For the second consecutive quarter, we generated operating income and positive adjustments. This is a testament to our powerful data science and technology, our culture of discipline, and the talent and dedication of our team. Our technology empowers a delightful customer experience, while a proprietary algorithm allows us to offer lower prices to the best drivers. Our laser-focused mindset on disciplined underwriting and stringent expense management has allowed us to build a strong foundation to significantly grow our business. New writings during the quarter primarily came through our direct channel, where we target consumers with a great insurance product at a great price.

Alex Timm: Thanks, Matt. We continue to make strong progress in the quarter. For the second consecutive quarter, we generated operating income and positive adjusted EBITDA.

Alexander Timm: A testament to our powerful data science and technology, our culture of discipline, and the talent and dedication of our team. We continue to advance our near-term target of achieving profitability. From day one, we've committed to providing drivers with car insurance that is transparent, easy to understand, and at a great price. Our technology empowers a delightful customer experience, although proprietary algorithm allows us to offer lower prices to the best drivers. Our laser-focused mindset on disciplined underwriting and stringent expense management has allowed us to build a strong foundation to significantly grow our business. Importantly, we are growing smartly and profitably.

Alex Timm: A testament to our powerful data science and technology, our culture of discipline, and the talent and dedication of our team, we continue to advance our near-term target of achieving profitability.

Alex Timm: From day one, we've committed to providing drivers with car insurance that is transparent, easy to understand, and at a great price.

Alexander Timm: Our technology empowers a delightful customer experience, while a proprietary algorithm allows us to offer lower prices to the best drivers. Our laser-focused mindset on disciplined underwriting and stringent expense management has allowed us to build a strong foundation to significantly grow our business. Importantly, we are growing smartly and profitably. We are not chasing growth for the sake of growth.

Alex Timm: Our technology empowers a delightful customer experience while a proprietary algorithm allows us to offer lower prices to the best drivers.

Alex Timm: Our laser-focused mindset on disciplined underwriting and stringent expense management has allowed us to build a strong foundation to significantly grow our business.

Alexander Timm: We are not chasing growth through the sake of growth. We're doing it while achieving some of the best loss ratios in the industry. New writings during the quarter primarily came through our direct channel, where we target consumers with a great insurance product at a great price.

Alex Timm: Importantly, we are growing smartly and profitably. We are not chasing growth for the sake of growth. We're doing it while achieving some of the best loss ratios in the industry.

Alexander Timm: We're doing it while achieving some of the best loss ratios in the industry. New writings during the quarter primarily came through our direct channel, where we target consumers with a great insurance product at a great price. Our data science machine constantly monitors the competitive environment, and, as we've noted before, during the quarter, we saw elevated competition. Leveraging our proprietary data science machine, we were able to quickly adapt and deliver new business at our estimated return target.

Alex Timm: New writings during the quarter primarily came through our direct channel, where we target consumers with a great insurance product at a great price. Our data science machine constantly monitors the competitive environment and, as we've noted before, during the quarter we saw elevated competition.

Alexander Timm: Our data science machine constantly monitors the competitive environment, and, as we've noted before, during the quarter, we saw elevated competition. Leveraging our proprietary data science machine, we were able to quickly adapt and deliver new business at our estimated return target. We believe there are material opportunities to expand our competitive advantage to additional data-rich channels. Our technology provides partners with a seamless integration into their existing platforms and creates a simple insurance purchasing experience in as little as three clicks.

Alexander Timm: Elyse. Our data science machine constantly monitors the competitive environment, and, as we've noted before, during the quarter we saw elevated competition. Leveraging our proprietary data science machine, we were able to quickly adapt and deliver new business at our estimated return targets.

Alex Timm: Leveraging our proprietary data science machine, we were able to quickly adapt and deliver new business at our estimated return targets.

Alexander Timm: We expect to remain opportunistic through the back half of 2024 and grow the direct channel. Should we see an opportunity to grow faster while maintaining our unit economics, we will invest more in marketing to drive profitable growth. We believe there are material opportunities to expand our competitive advantage to additional data-rich channels. As we do with everything, we will explore these channels in a disciplined, rigorous manner and quickly grow or jettison these experiments based on results.

Alex Timm: We expect to remain opportunistic through the back half of 2024 in growing the direct channel. Should we see an opportunity to grow faster while maintaining our unit economics, we will invest more in marketing to drive profitable growth.

Alexander Timm: We believe there are material opportunities to expand our competitive advantage to additional data rich channels. As we do with everything, we will explore these channels in a disciplined, rigorous manner and quickly grow or jettison these experiments based on results.

Alex Timm: We believe there are material opportunities to expand our competitive advantage to additional data-rich channels. As we do with everything, we will explore these channels in a disciplined, rigorous manner and quickly grow or jettison these experiments based on results.

Alexander Timm: Additionally, we continue to make excellent progress within our partnership channel, where we meet consumers at contextually relevant times, such as when they are purchasing a car. Our technology provides partners with a seamless integration into their existing platforms and creates a simple insurance purchasing experience in as little as three clicks. Compared to Q2 last year, we grew new writings in our partnership channel by 120%. With more than a dozen partners in the channel and a robust pipeline of additional opportunities, we believe we are well poised to continue to drive growth. We are always working to lower prices for the right things.

Alexander Timm: Additionally, we continue to make excellent progress within our partnership channel, where we meet consumers at contextually relevant times, such as the purchasing of a car. Our technology provides partners a seamless integration into their existing platforms and creates a simple insurance purchasing experience in as little as three clicks. Compared to Q2 last year, we grew new writings in our partnership channel by 120%. With more than a dozen partners in the channel and a robust pipeline of additional opportunities, we believe we are well poised to continue to drive growth in this channel.

Alex Timm: Additionally, we continue to make excellent progress within our partnership channel.

Alex Timm: where we meet consumers at contextually relevant times, such as the purchasing of a car.

Alex Timm: Our technology provides partners a seamless integration into their existing platforms and creates a simple insurance purchasing experience in as little as three clicks.

Alex Timm: Compared to Q2 last year, we grew new writings in our partnership channel by a hundred and twenty percent.

Alexander Timm: With more than a dozen partners in the channel and a robust pipeline of additional opportunities, we believe we are well poised to continue to drive growth. Our approach allows us to be flexible, fast, and sophisticated. We delivered another successful quarter, achieving a gross loss ratio of 61.6%.

Alex Timm: With more than a dozen partners in the channel and a robust pipeline of additional opportunities, we believe we are well poised to continue to drive growth in this channel.

Alexander Timm: We are always working to lower prices for the right customers. We believe that through our machine learning and engineering advantages, we can become the best in the world of pricing and automation. Our approach allows us to be flexible, fast, and sophisticated.

Alexander Timm: We believe that through our machine learning and engineering advantages, we can become the best in the world of pricing and automation. Our approach allows us to be flexible, fast, and sophisticated. We delivered another successful quarter, achieving a gross loss ratio of 61.6%. As our data sets grow and we continue to retrain our models, we believe we will continue to improve prices and fuel additional growth, building a sustainable competitive advantage. As we look forward, we are excited to add more partners, expand our footprint nationally, and continue to deliver better products at better prices to our customers.

Alex Timm: We are always working to lower prices

Alex Timm: We believe that through our machine learning and engineering advantages, we can become the best in the world of pricing and automation.

Alexander Timm: We deliver another successful quarter, achieving a gross loss ratio of 61.6%. As our data sets grow and we continue to retrain our models, we believe we will continue to improve prices and fuel additional growth, building sustainable competitive advantage.

Alex Timm: Our approach allows us to be flexible, fast, and sophisticated.

Speaker Change: We delivered another successful quarter, achieving a gross loss ratio of 61.6%.

Alex Timm: As our data sets grow and we continue to retrain our models, we believe we will continue to improve prices and fuel additional growth, building a sustainable competitive advantage.

Alexander Timm: As we look forward, we are excited to add more partners, expand our footprint nationally, and continue to deliver better products at better prices to our customers. Our team's determination to become the largest and most profitable personal lines carrier in the United States is stronger than ever, and we believe their hard work keeps us squarely on the path to profitability.

Alex Timm: As we look forward, we are excited to add more partners, expand our footprint nationally, and continue to deliver better products at better prices to our customers.

Alexander Timm: Our team's determination to become the largest and most profitable personal lines carrier in the United States is stronger than ever, and we believe their hard work keeps us squarely on the path to profitability. I'll now turn the call over to Megan to discuss our operating results in more detail.

Alex Timm: Our team's determination to become the largest and most profitable personal lines carrier in the United States is stronger than ever. And we believe their hard work keeps us squarely on the path to profitability. I'll now turn the call over to Megan to discuss our operating results in more detail.

Megan Binkley: I'll now turn the call over to Megan to discuss our operating results in more detail.

Megan Binkley: Thanks, Alex. We delivered another strong quarter, in large part to our data advantages and disciplines underwriting. We continue to drive loss ratios that are one of the best in the industry. For the second quarter, our net loss was $8 million, a 79% improvement year-over-year. For the second consecutive quarter, we generated operating income in positive adjusted EBITDA. Operating income was $4 million, and adjusted EBITDA was $12 million. Improvements on a year-over-year basis of $29 million and $24 million, respectively. Our progress continues to be driven primarily by growth in our net earned premium, consistently strong loss ratio performance.

Megan Binkley: Thanks, Alex. We delivered another strong quarter, thanks in large part to our data advantages and disciplined underwriting. We continue to drive loss ratios that are among the best in the industry. For the second quarter, our net loss was $8 million, a 79% improvement year over year. For the second consecutive quarter, we generated operating income and positive adjusted EBITDA. Operating income was $4 million, and adjusted EBITDA was $12 million.

Megan Binkley: Thanks Alex. We delivered another strong quarter in large part to our data advantages and disciplined underwriting. We continue to drive loss ratios that are among the best in the industry.

Megan Binkley: for the second quarter our net loss was eight million dollars a seventy-nine percent improvement year-over-year for the second consecutive quarter we generated operated income and positive adjusted ebitda

Alex Timm: Operating income was $4 million and adjusted EBITDA was $12 million, improvements on a year-over-year basis of $29 million and $24 million, respectively.

Megan Binkley: We achieved improvements on a year-over-year basis of $29 million and $24 million, respectively. Our progress continues to be driven primarily by growth in our net earned premium, consistently strong loss ratio performance, our closely managed fixed expense base, and responsible deployment of marketing investment. As we've consistently noted, we do not defer the majority of customer acquisition costs over the life of our customers, which leads to accelerated expense recognition relative to earned premiums.

Megan Binkley: Our progress continues to be driven primarily by growth in our net earned premium, consistently strong loss ratio performance, our closely managed fixed expense base, and responsible deployment of marketing investment. I'm pleased to report operating cash flow was positive for the fourth consecutive quarter, once again driven by our improvements in loss ratio and significantly reducing our net loss over time. As we proceed through the back half of 2024, we remain focused on growing in a disciplined manner and maintaining our underwriting and expense rigor.

Alex Timm: Our progress continues to be driven primarily by growth in our net-earned premiums, consistently strong loss ratio performance, our closely managed fixed expense base, and responsible deployment of marketing investment.

Megan Binkley: Our closely managed fixed expense base and responsible deployment of marketing investment.

Megan Binkley: As we've consistently noted, we do not defer the majority of customer acquisition costs over the life of our customers. Which leads to accelerated expense recognition relative to earned premium. We doubled new writing, policies and forth, growth written premium, and growth earned premium compared to the second quarter of 2020.

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

Megan Binkley: We doubled new writing, policies in force, gross written premium, and gross earned premium compared to the second quarter of 2023. We achieved this growth while delivering a growth combined ratio of less than 100%, an 18 point improvement year over year. The gross accident period loss ratio was 62%, a two-point improvement year-over-year driven by our continued investment in data science and technology. In the second quarter of 2024, we seeded approximately 15% of our gross earned premium and reduced the difference between our growth and net loss and LAE ratios to two points for the quarter, reflecting a reduction of 16 points year over year.

Alex Timm: We doubled new writing, policies in force, gross written premium, and gross earned premium compared to the second quarter of 2023.

Megan Binkley: and Marie. We achieved this growth while delivering a growth combined ratio of less than 100%, an 18-point improvement year over year. The growth accident period loss ratio was 62%, a two-point improvement year over year driven by our continued investment in data science and technology. In the second quarter of 2024, we seeded approximately 15% of our growth term premium and reduced the difference between our growth and net loss and LE ratios to two points for the quarter, reflecting a reduction of 16 points year over year. Our improvements in reinsurance costs were made possible through our continued improvement in underwriting results.

Alex Timm: We achieve this growth while delivering a growth combined ratio of less than 100%, an 18 point improvement year over year.

Alex Timm: The Gross Accident Period Loss Ratio was 62%, a two-point improvement year-over-year driven by our continued investment in data science and technology.

Alex Timm: In the second quarter of 2024, we seeded approximately 15% of our gross term premium and reduced the difference between our growth and net loss in LAE ratios to two points for the quarter, reflecting a reduction of 16 points year over year.

Megan Binkley: Our improvements and reinsurance costs were made possible through our continued improvement and underrating results. Unencumbered capital as of June 30 stood at $447 million compared to $483 million as of March 31. Our unencumbered capital consumption during the quarter included $16 million of capital contributions, which were used to fund growth in net written premium and increase book value in our domestic insurance subsidiaries. Additionally, as we noted on our prior call, we paid approximately $11 million in tax withholding obligations related to the vesting of equity awards in early April.

Alex Timm: our improvements in reinsurance costs were made possible through our continued improvement and underrating results

Megan Binkley: Unencumbered capital, as of June 30, stood at $447 million compared to $483 million as of March 31. Our unencumbered capital consumption during the quarter included $16 million of capital contribution, which were used to fund growth in net rent and premium and increase growth value in our domestic insurance city areas.

Speaker Change: unencumred capital as of june thirtieth stood at four hundred and forty seven million dollars

Speaker Change: compared to $483 million as of March 31. Our unencumbered capital consumption during the quarter included $16 million of capital contributions, which were used to fund growth and net written premium and increase book value in our domestic insurance subsidiaries.

Megan Binkley: Additionally, as we noted on our prior call, we paid approximately $11 million in tax withholding obligation related to the vesting of equity awards in early April. This is a high quality cost as it means that our market value has appreciated. Unpoliced to report operating cash flow was positive for the fourth consecutive quarter, once again driven by our improvements in loss ratio and significantly reducing our net loss over time. As we proceed through the back half of 2024, we remain focused on growing in a disciplined manner in maintaining our underwriting and expense rigor. We plan to continue to deploy direct marketing investment as long as targeted unit economics are achieved.

Speaker Change: Additionally, as we noted on our prior call, we paid approximately $11 million in tax withholding obligations related to the vesting of equity awards in early April . This is a high-quality cost, as it means that our market value has appreciated.

Megan Binkley: This is a high-quality cost as it means that our market value has appreciated. I'm pleased to report that operating cash flow was positive for the fourth consecutive quarter, once again driven by our improvements in loss ratio and significantly reducing our net loss over time. As we proceed through the back half of 2024, we remain focused on growing in a disciplined manner and maintaining our underwriting and expense rigor. We plan to continue to deploy direct marketing investment as long as targeted unit economics are achieved. Overall, we continue to make steady and strong progress towards our top priority of reaching gap profitability with our existing capital. We've remained excited about the future, appreciate your time, and look forward to your questions.

Speaker Change: I'm pleased to report operating cash flow was positive for the fourth consecutive quarter, once again driven by our improvements in loss ratio and significantly reducing our net loss over time.

Speaker Change: As we proceed through the back half of 2024, we remain focused on growing in a disciplined manner and maintaining our underwriting and expense rigor.

Speaker Change: We plan to continue to deploy direct marketing investment as long as targeted unit economics are achieved.

Megan Binkley: Overall, we continue to make studies and strong progress towards our top priority of reaching gap profitability with our existing capital.

Speaker Change: Overall, we continue to make steady and strong progress towards our top priority of reaching GAP profitability with our existing capital. We remain excited for the future, appreciate your time, and look forward to your questions.

Megan Binkley: We remain excited for the future, appreciate your time, and look forward to your question.

Unknown Executive: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your questions from the queue. For participants using speaker equipment, it may be necessary to pick up a handset before pressing the star keys. One moment please, while we pull for questions.

Operator: We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your questions from the Q&A. For participants using speaker equipment, it may be necessary to pick up a handset before pressing the start button. One moment, please, while we poll for questions. The first question comes from the line of Tommy Mcjoynt with KBW.

Speaker Change: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue.

Unknown Executive: If you would like to ask a question, please press star 1 on your telephone keypad.

Speaker Change: You may press star 2 if you would like to remove your questions from the queue.

Speaker Change: For participants using speaker equipment, it may be necessary to pick up a handset before pressing the star keys.

Speaker Change: One moment please while we poll for questions.

Thomas McJoynt: The first question comes from the line of Tommy McJoyne with KBW. Please go ahead.

Speaker Change: the first question comes on the line of tommy m joint with kb w please go ahead

Alexander Timm: Hey, good evening, guys. Thanks for taking my questions. You called out seeing competition increase in your various marketing channels. Do you think the competitive landscape is going to get sort of any easier over the coming years? It seems like competition is perhaps only going to intensify as more carriers reach rate adequacy on a market-by-market basis. How do you think about your go-to-market strategy, given that customer acquisition could remain pretty competitive for an extended period of time here?

Tommy McJoynt: Hey, good evening, guys. Thanks for taking my questions. You mentioned seeing competition increase in your various marketing channels. Do you think the competitive landscape is going to get any easier over the coming years? It seems like competition is perhaps only going to intensify as more carriers reach rate adequacy on a market-by-market basis. How do you think about your go-to-market strategy, you know, given that customer acquisition could remain pretty competitive for an extended period of time here?

Speaker Change: hey good evening guys thanks for taking my questions

Speaker Change: You called out seeing competition increase in your various marketing channels.

Speaker Change: Do you think the competitive landscape is going to get any easier over the coming years?

Speaker Change: competition is perhaps only going to intensify as more carriers reach rate adequacy on a market-by-market basis. So how do you think about your go-to-market strategy, you know, given that customer acquisition could remain pretty competitive for an extended period of time here?

Alexander Timm: Thanks, Tommy. I'm Alex. You know, as we said and as we sort of guided last quarter, we did see competition increase in the quarter. And as a result of that, our marketing machine reacted really exactly as designed. And we continue to actually hit our target unit economics in the quarter. And in quarter to date, we've been roughly holding this steady, and we're constantly monitoring the competitive environment.

Alexander Timm: Thanks, Tommy. This is Alex.

Tommy: Thanks, Tommy.

Speaker Change: This is Alex. You know, as we said, and as we sort of guided last quarter, we did see competition increase in the quarter. And as a result of that, our marketing machine reacted really exactly as designed. And we continue to actually hit our target, unit economics, in the quarter.

Alexander Timm: You know, as we said, and as we sort of guided last quarter, we did see competition increase in the quarter. And as a result of that, our marketing machine reacted really exactly as designed. And we continue to actually hit our target unit economics in the quarter. And for the quarter to date, we've been roughly holding this steady. And we're constantly monitoring the competitive environment. We will not, again, you know, be chasing growth for growth sake.

Speaker Change: In a quarter to date, we've been roughly holding PIFS steady, and we're constantly monitoring the competitive environment.

Alexander Timm: We again, you know, we will not be chasing growth or grow sake. And we are going to continue a rational and disciplined approach to deploying our capital. And you know, if we see pockets of growth or opportunity to continue to deploy marketing dollars, we're going to do that. And if we see competition increase, we'll pull back and continue to drive more towards profitability.

Alexander Timm: And we are going to continue a rational and disciplined approach to deploying our capital. And, you know, if we see pockets of growth or opportunities to continue to deploy marketing dollars, we'll do that. And if we see competition increase, we'll pull back and continue to drive more towards profitability. You know, over the long term, we believe that we actually have material opportunities for growth. First and foremost, we have a very robust partnership pipeline where we're continuing to build differentiated access to customers, scaling existing partners, as well as onboarding new partners.

Speaker Change: Again, we will not be chasing growth for growth's sake, and we are going to continue a rational and disciplined approach to deploying our capital, and if we see pockets of growth or opportunity to continue to deploy marketing dollars, we're going to do that.

Speaker Change: And if we see competition increase, we'll pull back and continue to drive more towards profitability.

Alexander Timm: You know, over the long term, we believe that we actually have material opportunities for growth. First and foremost, we have a very robust partnerships pipeline, where we're continuing to build differentiated access to customers, scaling existing partners as well as onboarding new partners. And that channel has continued to grow new writings and grew new writings 120% year over year. Second, we are continuing to invest in state expansion right now. We're in 34 states, but we plan to be national. There's no reason our model shouldn't work on a national scale. You know, the 34 states represent about 75% of the addressable population.

Speaker Change: You know, over the long term, we believe that we actually have material opportunities for growth. First and foremost, we have a very robust partnerships pipeline, where we're continuing to build differentiated access to customers.

Speaker Change: scaling existing partners as well as onboarding new partners and that channel has continued to grow new ridings and grew new ridings 120% year over year.

Alexander Timm: And that channel has continued to grow New Ridings and, you know, grew New Ridings 120% year over year. Second, you know, we are continuing to invest in state expansion. Right now, we're in 34 states, but we plan to be national. There's no reason our model shouldn't work on a national scale. You know, those 34 states represent about 75% of the addressable population.

Speaker Change: Second, we are continuing to invest in state expansion. Right now we're in 34 states, but we plan to be national. There's no reason our model shouldn't work on a national scale. You know, those 34 states represent about 75% of the addressable population, and as we add those states, we're going to naturally drive further growth.

Alexander Timm: And as we add those states, we're going to naturally drive further growth. And then third, you will see that we're investing in R&D into new marketing channels. And, you know, we're still in a very small corner of the marketing universe today when you look at all of the opportunities and all the different channels out there. And many of those channels we have actually virtually no presence in.

Alexander Timm: And as we add those states, we're going to naturally drive for their growth.

Alexander Timm: And then third, you will see that we're investing in R&D and in new marketing channels. And, you know, we're still in a very small corner of the marketing universe today when you look at all of the opportunities and all the different channels out there. And many of those channels we have actually virtually no presence in. And we're going to continue to leverage the technology that we've built in our current performance marketing channels and our rich, data-driven approach to really bring that learning machine into these new channels. And so we think long term there's ample opportunity for growth, but certainly in the near term, we're going to monitor the competitive environment and react appropriately.

Speaker Change: And then third, you will see that we're investing in R&D and the new marketing channels. And we're still in a very small corner of the marketing universe today when you look at all of the opportunities and all of the different channels out there. And many of those channels we have actually virtually no presence in.

Alexander Timm: And we're going to continue to leverage the technology that we've built in our current performance marketing channels and our rich data-driven approach to really bring that learning machine into these new channels. And so we think, long term, there's ample opportunity for growth. But certainly in the near term, we're going to monitor the competitive environment and react appropriately. And I think that's exactly the kind of discipline you saw from us this quarter. And it's what's pushing us towards profitability in the near term.

Speaker Change: And we're going to continue to leverage the technology that we've built in our current performance marketing channels and our rich data-driven approach to really bring that learning machine into these new channels.

Speaker Change: And so we think long-term there's ample opportunity for growth, but certainly in the near-term we're going to monitor the competitive environment and react appropriately. And I think that's exactly, that discipline is exactly what you saw from us this quarter and it's what's pushing us towards profitability in the near-term.

Alexander Timm: And I think that's exactly that discipline is exactly what you saw from us this quarter, and it's what's pushing us towards profitability in the near term.

Thomas McJoynt: Got it. Appreciate that.

Alexander Timm: Got it. Appreciate that. And just to make sure I heard you correctly, you said that quarter date in the third quarter, PIF remained steady. And if you could also share, okay?

Thomas McJoynt: And just to make sure I heard you correctly, you said that quarter date and that it would be third quarter of fifth remained studies. And if you could also share, okay.

Speaker Change: Got it. Appreciate that. And just to make sure I heard you correctly, you said that quarter date in the third quarter of PIFT remained steady. And if you could also share...

Alexander Timm: And then if you could share some comments, maybe anything on what you've seen in terms of like a turnover or sort of inverse, I guess the retention rates of your both of business perhaps over in the second quarter. And even quarter date would be helpful, too. Yeah, we've continued to grow, Piff. You know, we continue to grow Piff in the quarter. And that's despite the new writings moderated from the competitive environment. And we continue to see a favorable retention profile in our partnerships channel. And as that grows, you know, that is building a more higher retaining customer base.

Speaker Change: And then if you could share some comments, maybe anything on what you've seen in terms of like a turnover or sort of inverse, I guess, the retention rates of your book of business, perhaps over in the second quarter and then even quarter date would be helpful too.

Alexander Timm: And then, if you could share some comments, maybe anything on what you've seen in terms of like the turnover or, sort of inverse, I guess, the retention rates of your book of business, perhaps in the second quarter, and then even quarter date would be helpful too. Yeah, we've continued to grow PIF. You know, we

Alexander Timm: Yeah, we've continued to grow PIF, you know; we continue to grow PIF in the quarter, and that's despite the new writings moderating from the competitive environment. And we continue to see a favorable retention profile in our partnerships channel. And as that grows, you know, that is building a higher retention customer base. And again, though, we've built a model and an underwriting model that can really price business profitably and hit our target returns across all sorts of different retention profiles. And so we feel good. We feel very good about where we are.

Unknown Executive: Yeah, we've continued to grow PIF, you know; we continue to grow PIF in the quarter, and that's despite the new writings moderating from the competitive environment. And we continue to see a favorable retention profile in our partnerships channel. And as that grows, you know, that is building a higher retention customer base. And again, though, we've built a model and an underwriting model that can really price business profitably and hit our target returns across all sorts of different retention profiles. And so we feel good. We feel very good about where we are.

Unknown Executive: Yeah, we've continued to grow PIF, you know, we continue to grow PIF in the quarter and that's despite the new writings moderating from the competitive environment.

Unknown Executive: And we continue to see a favorable retention profile in our partnerships channel. And as that grows, you know, that is building a more higher retaining customer base. And again, though, we've built a model and an underwriting model that can really price business profitably and hit our target returns across all sorts of different retention profiles. And so we feel good. We feel very good about where we are.

Alexander Timm: And again, though, we've built a model and under any model that can really price business profitably and hit our target returns across all sorts of different retention profiles. And so we feel good. We feel very good about where we are. Yeah, thank you.

Unknown Executive: yeah

Unknown Executive: Thank you.

Speaker Change: Yeah, thank you.

Operator: Thank you. The next question comes from the line of Yaron Kinar with Jefferies. Please go ahead.

Yaron Kinar: Next question comes from the line of Yaron Kinar with Jeff Lee. Please go ahead.

Speaker Change: Thank you. Next question comes from the line of Yaron Kinar with Jefferies. Please go ahead.

Yaron Kinar: Thank you. Good afternoon.

Yaron Kinar: It's my first question. Just looking at the GNA and the tech development spend. I guess I thought it may see a little more operating leverage there. So I think the ratio of those line items versus direct premiums earned may be coming down a bit more significantly. Can you maybe talk about that?

Yaron Kinar: Thank you all. Good afternoon. My first question, just looking at the

Yaron Kinar: I guess my first question, just looking at the G&A and the tech development spend, I guess I may see a little more operating leverage there. So, I think the ratio of those line items versus direct premiums earned may be coming down a bit more significantly. Can you maybe talk about that? And Alex, I think you may have mentioned something about some additional tech spend that you're undergoing right now as you're developing new products, but we'd love to understand that a little bit better.

Yaron Kinar: I guess my first question, just looking at the G&A and the tech development spend, I guess I may see a little more operating leverage there. So, I think the ratio of those line items versus direct premiums earned may be coming down a bit more significantly. Can you maybe talk about that? And Alex, I think you may have mentioned something about some additional tech spend that you are undergoing right now as you are developing new products, but we would love to understand that a little bit better.

Alex: The GNA and the tech development

Speaker Change: Spend. Spend. Spend.

Yaron Kinar: I guess I thought I may see a little more operating leverage there. So seeing the ratio of those line items versus direct premiums earned may be coming down a bit more significantly. Can you maybe talk about that? And Alex, I think you may have mentioned something about some additional tech spend.

Yaron Kinar: And Alex, I think you may have mentioned something about some additional tech spend that you're undergoing right now as you're developing new products, but we'd love to understand that a little bit better.

Alex: that you're undergoing right now as you're developing new products. But we'd love to understand that a little bit better.

Megan Binkley: Hey, Yaron. It's Megan. Excellent question. You know, as we entered into the second quarter, or as we finished the second quarter, it really has been another quarter of strong results, and we're pleased with the progress that we've continued to make over the past few years to really right-size our fixed expense base. And as we mentioned on our prior call, we're also strategically expanding headcount in pivotal areas. So what you're seeing in terms of tech and dev and G&A increases in the quarter, that's primarily due to the modest investment that we've made in our product and in our people.

Megan Binkley: Hey, Yaron, it's Megan. Excellent question. You know, as we entered into the second quarter, I mean, or as we've finished the second quarter, you know, it really has been another quarter of a strong result. And we're pleased with the progress that we've continued to make over the past few years to really right-size our fixed expense base. And, as we mentioned on our prior call, we're also strategically expanding headcount in pivotal areas. So what you're seeing in terms of tech and dev and GNA increases in the quarter, that's primarily increased due to the modest investment that we've laid in our product and in our people.

Yaron Kinar: Hey Yaron, it's Megan. Excellent question.

Speaker Change: You know, as we entered into the second quarter, I mean, or as we finished second quarter, you know, it really has been another quarter of strong results and we're pleased with the progress that we've continued to make over the past few years to really right size our fixed expense base.

Speaker Change: As we mentioned on our prior call, we're also strategically expanding headcount in pivotal areas. So what you're seeing in terms of

Speaker Change: Tech & Dev and G&A increases in the quarter, that's primarily increased due to the modest investment that we've made in our product and in our people.

Megan Binkley: And this includes headcount investment in our product delivery teams to make sure that we're continuing to advance our product and to support the tremendous growth that we've seen in the business. Particularly on the tech and dev line item, we also saw about a million and a half of accelerated amortization of certain internally developed software cost assets. That was all recognized in the second quarter. However, we don't expect that that acceleration is going to continue into the future.

Megan Binkley: And this includes headcount investment, really in our product delivery teams, to make sure that we're continuing to advance our product and to support the tremendous growth that we've seen in the business. Particularly on the tech and dev line item, we also saw about a million and a half of accelerated amortization of certain internally developed software costs assets. That was all recognized in the second quarter. We don't expect that that acceleration is going to continue into the future. These were assets that were really unrelated to the core auto product and our technology there. That said, you know, I do believe that our expense base is scalable even as we continue to invest in our people and our tech stack.

Alex: And this includes headcount investment really in our product delivery teams to make sure that we're continuing to advance our product and to support the tremendous growth that we've seen in the business.

Speaker Change: particularly on the tech and dev line item. We also saw about a million and a half of accelerated amortization of certain internally developed software cost assets.

Alex: That was all recognized in the second quarter. We don't expect that that acceleration is going to continue into the future. These were assets that were really unrelated to the core auto product and our technology there.

Megan Binkley: These were assets that were really unrelated to the core auto product and our technology there. That said, you know, I do believe that our expense base is scalable, even as we continue to invest in our people and our tech stack, and you should expect to see continued improvement in our operating expense ratios going forward.

Megan Binkley: That said, you know, I do believe that our expense base is scalable, even as we continue to invest in our people and our technology stack. And you should expect to see continued improvement in our operating expense ratios going forward.

Megan Binkley: That said, you know, I do believe that our expense base is scalable even as we continue to invest in our people and our tech stack and you should expect to see continued improvement in our operating expense ratios going forward.

Megan Binkley: And you should expect to see continued improvement in our operating expense ratios going forward.

Yaron Kinar: Okay, that's helpful.

Yaron Kinar: Okay, that's helpful. And then my second question, can you maybe talk about kind of the cadence of the PIF growth over the course of the quarter, namely, did you see the PIF start slowing more meaningfully as the quarter developed, or was it more of a straight line? And maybe, following up on Tommy's question, how are you seeing that develop in the third quarter as well?

Yaron Kinar: And then my second question, can you maybe talk about the cadence of the PIS growth over the course of the quarter?

Speaker Change: Okay, that's helpful. And then my second question, can you maybe talk about the cadence of

Megan Binkley: Namely, did you see the PIS start slowing more meaningfully as the quarter developed, or was it more of a street line? And maybe following up on Tommy's question, how are you seeing that developing to the third quarter as well? Yeah, you know, we saw the typical seasonality, particularly that we see every year, which means you usually get more new writings, obviously in Q1 and really towards the front part of Q2. But really, you know, we have been holding our PIS study, and we're very happy with the strong growth here to date. We know that Q2 has seasonality lower new writing versus Q1, and so that was anticipated.

Speaker Change: the PIF growth over the course of the quarter. Namely, did you see the PIF start slowing more meaningfully as the quarter developed, or was it more kind of a straight line? And maybe following up on Tommy's question, how are you seeing that develop into the third quarter as well?

Alexander Timm: Yeah, you know, we saw the typical seasonality, particularly that we see every year, which means you usually get more new writing, obviously, in Q1, and really towards the front part of Q2. But really, you know, we have been holding our PIF steady, and we're very happy with the strong growth year to date. We know that Q2 had seasonality, you know, lower new writing versus Q1, and so that was anticipated. And, you know, we're still monitoring the competitive environment, making sure we're making the right decisions for the company and making sure that we're driving the company towards near-term profit. And again, like, you know, quarter to date, I wouldn't say there's been any material changes to that. We've really been holding our PIF steady.

Alexander Timm: Yeah, you know, we saw the typical seasonality, particularly that we see every year, which means you usually get more new writings, obviously, in Q1, and really towards the front part of Q2. But really, you know, we have been holding our PIFS steady, and we're very happy with the strong growth year to date. We know that Q2 had seasonality, you know, lower new writings versus Q1, and so that was anticipated. And, you know, we're still monitoring the competitive environment, making sure we're making the right decisions for the company and making sure that we're driving the company towards near-term profit. And again, like, quarter to date, I wouldn't say there's been any material changes to that. We've really been holding our PIFS steady.

Alexander Timm: Yeah, you know, we saw the typical seasonality, particularly that we see every year, which means you usually get more new writings, obviously, in Q1 and really towards the front part of Q2. But really, you know, we have been holding our PIF steady, and we're very happy with the strong growth year to date. We know that Q2 had seasonality, you know, lower new writing versus Q1, and so that was anticipated. And, you know, we're still monitoring the competitive environment, making sure we're making the right decisions.

Megan Binkley: And, you know, we're still monitoring the competitive environment, making sure we're making the right decisions for the company and making sure that we're driving the company towards near-term profit. And again, like in quarter to date, I wouldn't say there's been any material changes to that. We've really been holding our PIS study.

Alexander Timm: for the company and making sure that we're driving the company towards near-term profit. And again, like, you know, quarter to date, I wouldn't say there's been any material changes to that. We've really been holding our PIF study.

Yaron Kinar: I got it.

Yaron Kinar: Got it. If I could sneak one last one in on marketing costs. So I know you guys have talked about this repeatedly, your expectation that marketing costs would go up as the year progresses, and it sounds like they have indeed. That said, you know, one of your large competitors hosted their call yesterday and was talking about marketing costs or unit costs still being very, very attractive as far as they can see.

Yaron Kinar: Got it. If I could sneak one last one in on marketing costs. So, I know you guys have talked about this repeatedly, your expectation that marketing costs would go up as the year progresses, and it sounds like they have indeed. That said, you know, one of your large competitors hosted their call yesterday and was talking about marketing costs or unit costs still being very, very attractive as far as they can see.

Yaron Kinar: If I could sneak one last one in on the marketing costs, so I know you guys have talked about this repeatedly, your expectation that marketing costs would go up as your progressives and sounds like they did indeed.

Yaron Kinar: Got it. If I could sneak one last one in.

Yaron Kinar: on the marketing costs. So I know you guys have talked about this repeatedly, your expectation that marketing costs would go up as the year progresses, and sounds like they did indeed. That said, you know, one of your large competitors hosted their call yesterday and was talking about marketing costs or unit costs will being very, very attractive, as far as they can see. So we'd be curious to hear your thoughts on kind of where we are in the overall cycle here for marketing unit costs, and is it still relatively attractive, or do you see yourself needing to maybe pull back more as it becomes even more competitive?

Alexander Timm: That said, one of your large competitors hosted their call yesterday and was talking about marketing costs or unit costs will be very, very attractive as far as they can see. So, I would be curious to hear your thoughts on where we are in the overall cycle here for a marketing unit cost, and is it still relatively attractive, or do you see yourself needing to maybe pull back more as it becomes even more competitive? Yeah, I'd say certainly we've seen, as you've seen, a lot of increase in marketing spend. You've certainly seen the competitive environment increase, which has made the environment more expensive to get a customer today than it was a year ago today when everybody was out of the market, and so we have seen that.

Yaron Kinar: So, we would be curious to hear your thoughts on kind of where we are in the overall cycle here for marketing unit costs and whether it is still relatively attractive, or do you see yourself needing to maybe pull back more as it becomes even more competitive?

Yaron Kinar: So we'd be curious to hear your thoughts on kind of where we are in the overall cycle here for marketing unit costs and whether it is still relatively attractive, or do you see yourself needing to maybe pull back more as it becomes even more competitive?

Alexander Timm: I'd say certainly we've seen, as you've seen, a lot of increase in marketing spend. You've certainly seen the competitive environment increase, which has made the environment more expensive to get a customer today than it was a year ago today when everybody was out of the market. And so we have seen that.

Alexander Timm: I'd say certainly we've seen, as you've seen, a lot of increase in marketing spend.

Alexander Timm: You've certainly seen the competitive environment increase, which has made...

Alexander Timm: the environment more spentive to to get a customer today than it was a year ago today when everybody was out of the market and so we have seen that that said we continue to acquire customers

Alexander Timm: That said, we continue to acquire customers profitably, and we continue to hit our expected return targets, and so we do think there's ample opportunity out there to continue to grow the business. We also believe that there are many other marketing channels, again, that we aren't even in. We are in a vast minority of marketing channels today, and there's no reason to believe that the competitive advantage we've built in those channels through our technology does not apply to additional channels.

Alexander Timm: That said, we continue to acquire customers profitably, and we continue to hit our expected return targets, and so we do think there's ample opportunity out there to continue to grow the business. And we also believe that there are many other marketing channels, again, that we aren't even in. We are in a vast minority of marketing channels today, and there's no reason to believe that the competitive advantage we've built in those channels through our technology does not apply to additional channels.

Alexander Timm: Profitably. And we continue to hit our expected return targets.

Alexander Timm: We also believe that there's many other marketing channels, again, that we aren't even in. We are in a vast minority of the marketing channels today, and there's no reason to believe that our competitive advantage we've built in those channels through our technology does not apply to additional channels, and so you should see us continue to expand that. If we see, as now you've mentioned it, if we see the industry or competitors sort of get too aggressive here and start to put too much money into some of these channels where they aren't sort of generating returns, you will see us pull back.

Alexander Timm: And so we do think there's ample opportunity out there to continue to grow the business. And we also believe that there's many other marketing channels, again, that we aren't even in. You know, we are in a vast minority of the marketing channels today.

Alexander Timm: And there's no reason to believe that our competitive advantage we've built in those channels through our technology does not apply to additional channels. And so you should see us continue to expand that.

Alexander Timm: And so you should see us continue to expand that. But if we see, as you've mentioned, the industry or competitors get too aggressive here and start to put too much money into some of these channels where they aren't generating returns, you will see us pull back. We will be disciplined, and we believe that the ability to be nimble and measure that in real time is actually one of our key competitive advantages and is a way to actually drive longer-term superior enterprise value, and you're going to see us stay true to that.

Alexander Timm: If we see, as now you've mentioned it, if we see the industry or competitors sort of get too aggressive here and start to put too much money into some of these channels where they aren't sort of generating returns, you will see us pull back. We will be disciplined and we believe that the ability to be nimble and measure that in real time is actually one of our key competitive advantages and is a way to actually drive longer term superior enterprise value and that's why you're going to see us stay true to that.

Alexander Timm: We will be disciplined, and we believe that the ability to be nimble in measure that in real time is actually one of our key competitive advantages and is a way to actually drive longer term superior enterprise value, and that's why you're going to see us stay true to that.

Yaron Kinar: Thank you.

Operator: Thank you. The next question comes from the line of Elyse Greenspan with Wells Fargo. Please go ahead.

Speaker Change: Thank you.

Elyse Greenspan: Next question comes on the line of Elise Greenspan with Wells Fargo. Please go ahead.

Alexander Timm: Thank you. Next question comes from the line of Elyse Greenspan with Wells Fargo. Please go ahead.

Elyse Greenspan: Hi, thanks.

Elyse Greenspan: Hi, thanks. Good evening. My first question is, you know, on the, you know, looking at the accident period loss ratio right in the low 60s in the quarter. How do you guys, you know, see that trending from here?

Alexander Timm: Good evening. My first question on the, looking at the accident period loss ratio in the low 60s and the quarter, how do you guys see that trending from here? I'd say in the second quarter we did see some storms, particularly I think Colorado is where we probably had the most weather in there, and so I think you had probably a couple of points or so of weather in that accident period loss ratio. There's also some storms in Texas, and that's pretty typical for Q2, Q3. We are watching some of the weather events that's typically more where you would see hurricane exposure, and so we're watching that, and there might be some typical quarter of a quarter seasonality there.

Speaker Change: Hi, thanks. Good evening. My first question, you know, on the, you know, looking at the accident period loss ratio right in the low 60s in the quarter, how do you guys, you know, see that trending from here?

Unknown Executive: I'd say in the second quarter we did see some storms, particularly in Colorado where we probably had the most weather in there, and so I think you had probably a couple of points or so of weather in that accident period loss ratio. There were also some storms in Texas. And that's pretty typical for Q2. For Q3, you know, we are watching some of the weather events that's typically more.

Alexander Timm: I'd say in the second quarter we did see some storms, particularly in Colorado where we probably had the most weather there, and so I think you had probably a couple of points or so of weather in that accident period loss ratio. There were also some storms in Texas.

Unknown Executive: You know, I'd say in the second quarter, we did see some storms, particularly I think Colorado is where we probably had the most weather in there. And so I think you had probably a couple of points or so of weather in that accident period loss ratio. There's also some storms in Texas.

Alexander Timm: And that's pretty typical for Q2. For Q3, you know, we are watching some of the weather events that are typically more, where you would see hurricane exposure. And so we're watching that, and there might be some, you know, typical quarter over quarter seasonality there. But, in general, we're very happy with where our loss ratio is. We're very comfortable with our rate adequacy, and so we're not anticipating any, you know, major rate changes at this point.

Unknown Executive: And that's pretty typical for Q2. Q3, you know, we are watching some of the weather events that's typically more

Unknown Executive: where you would see hurricaneexposure and so 're watch that and there might be some typical quarter of a quarter seasonality there but in general we're very happy where our lossratio is

Alexander Timm: But in general, we're very happy with where our loss ratio is. We're very comfortable with our rate adequacy, and so we're not anticipating any major rate changes at this point. Are you expecting, I guess, staying there for a second? You're not expecting any rate changes. Are you guys, you know, expecting decline, or what do you foresee from the rate perspective from here? Yeah, I think you know, you may see in a handful of states some moderate declines and decreases, or some small changes. And so we're going to continue to look at that on a market-by-market level.

Unknown Executive: We're very comfortable with our rate adequacy, and so we're not anticipating any major rate changes at this point.

Alexander Timm: Are you expecting, I guess, staying there for a second, are you not expecting any rate changes? Are you guys, you know, expecting declines, or what do you foresee from the rate perspective from here? Yeah.

Speaker Change: Are you expecting, I guess staying there for a second, are you, you're not expecting any rate changes, are you guys, you know, expecting declines or what do you foresee from the rate perspective from here?

Alexander Timm: Yeah, I think you know, you may see moderate declines and decreases or some small changes in a handful of states. And so we're going to continue to look at that on a market by market level. We are very happy with where our rates are, and you may see some declines in some states.

Speaker Change: Yeah, I think you know, you may see in a handful of states, some moderate declines and decreases, or some small changes. And so we're going to continue to look at that on a market by market level. We are very happy with where our rates are, and you may see some declines in some states.

Alexander Timm: We are very happy with where our rates are, and you may see some declines in some states.

Elyse Greenspan: Thanks. And then in the queue, right, you guys, there's a sentence where you talk about, as our results improve, we continue to evaluate our cost of capital and how to optimize our capital structure while maintaining appropriate regulatory capital levels. So what are you, I guess, you guys considering from a capital perspective when you say that you're continuing to look to optimize the structure? Hey Elyse, it's Megan.

Yaron Kinar: Thanks. And then in the queue, right, you guys, there's a sentence where you talk about, as our results improve, we continue to evaluate our cost of capital and how to optimize our capital structure while maintaining appropriate regulatory capital levels. So what are you, I guess, you guys considering from a capital perspective when you say that you're continuing to look to optimize the structure?

Elyse Greenspan: Thanks.

Elyse Greenspan: And then in the queue, right, you guys, you know, there's a sentence where you talk about, as a result, improve. We continue to evaluate our cost of capital and how to optimize our capital structure on maintaining appropriate regulatory capital levels. So what do you, I guess you guys considering from my capital perspective when when you say that you're continuing to look to optimize the structure?

Yaron Kinar: thanks and then in the queue right you guys you know there's a sentence where you talk about as a result improve

Yaron Kinar: We continue to evaluate our cost of capital and how to optimize our capital structure while maintaining appropriate regulatory capital levels. So what are you, I guess, you guys considering from a capital perspective when you say that you're continuing to look to optimize the structure?

Megan Binkley: Hey, Elise, it's Megan. I'm really glad you asked that question. I mean, capital efficiency and just looking at our cost of capital overall has been just a critical aspect of our strategy and will be moving forward. So, as we look at our underlying business results, you've seen just material improvement over the past few years. You know, in the second quarter, we posted our second consecutive quarter of operating income. And ultimately, we believe that our financing costs are a derivative of our underlying business results. So we do expect that the improvement in our business results will translate to a lower cost of capital and, more specifically, we expect to get better terms on our debt capital and in the near future.

Megan Binkley: Hey, Elyse, it's Megan. I'm really glad you asked that question. I mean, capital efficiency and just looking at our cost of capital overall have been just a critical aspect of our strategy and will be moving forward. So as we look at our underlying business results, you've seen just material improvement over the past few years. You know, in the second quarter, we posted our second consecutive quarter of operating income.

Yaron Kinar: Hey Elyse, it's Megan. I'm really glad you asked that question. I mean, capital efficiency and just looking at our cost of capital overall has been just a critical aspect of our strategy and will be moving forward.

Speaker Change: So as we look at our underlying business results, you've seen just material improvement over the past few years.

Megan Binkley: And ultimately, we believe that our financing costs are a derivative of our underlying business results, so we do expect that an improvement in our business results will translate to a lower cost of capital. And more specifically, we expect to get better terms on our debt capital in the near future. The prepayment penalty on our current debt facility expired in July. And as we sit here today, our goal is to materially reduce our financing costs, and we are actively looking at options to reduce our interest expense. We will provide the market with additional details on what that means for the business as appropriate.

Speaker Change: You know, in second quarter, we posted our second consecutive quarter of operating income. And ultimately, we believe that our financing costs are a derivative of our underlying business results.

Speaker Change: So we do expect that the improvement in our business results will translate to a lower cost of capital, and more specifically, we expect to get better terms on our debt capital in the near future.

Megan Binkley: The pre-payment penalty on our current debt facility expired in July. And as we say here today, our goal is to materially reduce our financing costs, and we are actively looking at options to reduce our interest expense.

Speaker Change: The prepayment penalty on our current debt facility expired in July and as we sit here today our goal is to materially reduce our financing costs and we are actively looking at options to reduce our interest expense.

Megan Binkley: We will provide the market with additional details on what that means for the business as appropriate.

Speaker Change: We will provide the market with additional details on what that means for the business as appropriate.

Speaker Change: Thank you.

Operator: Thank you. A reminder to all the participants that you may press star and 1 to ask a question. The next question comes from the line of Michael Ward with City. Please go ahead.

Unknown Executive: Reminder to all the participants that you may press star in one to ask a question.

Speaker Change: Thank you. A reminder to all the participants that you may press star and 1 to ask a question.

Michael Ward: Next question comes on the line of Michael Ward with City. Please go ahead.

Michael Ward: next question comes on the line of michael ward the city please go ahead

Alexander Timm: Hi, guys. Thank you. I was wondering if you could give us a sense of how your mix of coverage compares to maybe the industry in terms of providing comprehensive coverage. You know, we saw some cats in the quarter, especially in Colorado, where you have some concentration. So we're trying to see if you're wondering if you saw hail losses or if your customers are not buying comprehensive. We certainly saw hail losses in the quarter and in Colorado. And so we did get a couple of points, probably whether the Colorado hail storms were actually, I think, the biggest weather event for us.

Michael Ward: Hi guys. Thank you. I was wondering if you could give us a sense of how your mix of coverage compares to maybe the industry in terms of providing comprehensive coverage. You know, we saw some caps in the quarter, especially in Colorado where you have some concentration, so we're trying to see if you're wondering if you saw hail losses or if your customers are not buying comprehensive.

Speaker Change: i guys thank you i was wondering if you could give us a sense of how

Speaker Change: Your mix of coverage compares to maybe the industry in terms of providing comprehensive coverage.

Speaker Change: We saw some caps in the quarter, especially in Colorado, where you have some concentration. So we're trying to see if you're wondering if you saw hail losses or if your customers are not buying comprehensive.

Alexander Timm: We certainly saw hail losses in the quarter and in Colorado, and so we did get a couple of points of weather. The Colorado hailstorms were actually, I think, the biggest weather event for us, so we certainly saw that.

Speaker Change: we certainly saw hail losses in the quarter and in in colorado until we did get a couple of poin

Speaker Change: probably of whether the colorado heill terms are actually i think the biggest weather event for us and so we certainly saw that

Alexander Timm: So we certainly saw that. You know, I think in terms of the industry, you know, when you've got a basically compare, I would say our customer base to other direct carriers. So we are online. We are monoline auto. And so you know, that's really the customer that we target. They tend to be, you know, between the age of 25 and 35. So they're a bit younger, more tech savvy. And we look to grow with that customer. So you know, we think we saw, you know, a good mix of coverages, and we did see some weather exposure.

Alexander Timm: I think in terms of the industry, you've got to basically compare, I would say, our customer base to other direct carriers. We are online, we are monoline auto, and so that's really the customer that we target. They tend to be between the age of 25 and 35, so they're a bit younger, more tech-savvy, and we look to grow with that customer. We think we saw a good mix of coverage, and we did see some weather exposure, but at the same time, we think that it's appropriate for our customer base.

Speaker Change: i think in terms of the industry when you've got to basically compare i would say our customer base

Speaker Change: to other direct carriers so we are online we are motoline auto and so you know that's really the customer that that we target they tend to be between the age of twenty five and thirty five so there're bit younyear more tex sav and we look to grow with that customer

Speaker Change: So, you know, we think we saw, you know, a good mix of coverages and we did see some weather exposure, but at the same time, we think that it's appropriate for our customer base.

Alexander Timm: But at the same time, we think that it's appropriate for our customer base.

Michael Ward: Great. Thank you.

Michael Ward: Great, thank you. And then wondering if you had a sense of, I guess, the percentage speak, you know, talking about some of the younger customers; how many of your customers download the Root app? And I guess, you know, for some in the industry, it's all telematics, right? And others, it's just using the ID card. But curious if you have that data at all.

Michael Ward: And then, I'm wondering if you had any sense of, I guess, the percentage, you know, talking about some of the younger customers. How many of your customers download the root app and, I guess, you know, for some in the industry, it's all telematics, right? And others, it's just using the ID card.

Speaker Change: thank you and then wondering if you had a sense of

Speaker Change: I guess the percentage speak, you know, talking about some of the younger customers, how many of your customers download the root app and

Speaker Change: I guess you know that for some in the industry it's all telematics right and others it's just using the ID card but curious if you if you have that.

unknown: But I am curious if you have that data at all.

Alexander Timm: But curious if you, if you have that data at all. Yeah, you know, on our direct business, we have the vast majority of our customers do download the root app and receive some form or share some form of telematics data. You know, some customers share a couple of weeks of data; some customers might share two months of data. And one of the things that's special about our technology and technology platform is the ability to leverage whether it's two weeks of data, one week of data, or two months of data. The ability to actually ingest that and then predict and use it to create a very high fidelity prediction of what we believe future loss costs are going to be for that customer.

Speaker Change: t dinal

Speaker Change: Yeah, you know, on our direct business, we have the vast majority of our customers do download the Root app and receive some form or share some form of telematics data. You know, some customers share a couple weeks of data, some customers might share two months of data. And one of the things that's special about our technology and our technology platform is the ability to leverage, whether it's two weeks of data, one week of data, two months of data, the ability to actually ingest that and then predict.

Speaker Change: and use it to create a very high fidelity prediction of what we believe future loss costs are going to be for that customer. And so we believe we have a very high, particularly in the industry, maybe one of the highest, if not maybe the highest,

Alexander Timm: And so we believe we have a very high, particularly in the industry, maybe one of the highest, if not the maybe the highest telematics adoption rate, particularly in our direct channel. And so, you know, I would say it's the vast majority.

Speaker Change: Telematics Adoption Rate, particularly in our direct channel, and so you know I would say it's the vast majority.

unknown: gift

Unknown Executive: There are no further questions at this time.

Unknown Executive: This concludes our today's teleconference. You may disconnect your lines at this time. Thank you for your participation. Thank you.

Speaker Change: Thank you. There are no further questions at this time. This concludes our today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

A.D.R.: A.D.R. A.D.R. A.D.R. A.D.R. A.D.R. A.D.R.

Unknown Executive: Greetings and welcome to Root Inc. 2nd quarter, 2024 earnings conference call. At this time, all participants are in a listened only mode. A brief question and answer session will follow the formal presentation. If anyone should require operative assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded.

Matthew LaMalva: It is now my pleasure to introduce your host, Mr. Matt LaMalva, head of industry relations. Thank you, Mr. LaMalva, you may begin. Thank you for joining us today. Root is hosting this call to discuss its 2nd quarter, 2024 earnings result. Participating on today's call are Alex Timm, co-founder and chief executive officer, and Megan Binkley, chief financial officer. Root issued a shareholder letter announcing its financial result. While this call will reflect items discussed within that document, for more complete information about our financial performance, we also encourage you to read our 2nd quarter, 2024 form 10Q, which was filed with the Securities and Exchange Commission earlier today.

Unknown Executive: A replay of this conference call will be available on our website under the Investor Relations section. I would also like to remind you that during the call, we will discuss some non-gap measures while talking about Root's performance. You can find reconciliations of those historical measures to the nearest comparable gap measures in our financial disclosures, all of which are posted on our website at ir.joinroot.com.

Alexander Timm: I will now turn the call over to Alex Tim, Root's co-founder, and CEO. Thanks, Matt. We continue to make strong progress in the quarter. For the second consecutive quarter, we generated operating income in positive adjusted EBITDA. A testament to our powerful data science and technology, our culture of discipline, and the talent and dedication of our team. We continue to advance our near-term target of achieving profitability. From day one, we've committed to providing drivers with car insurance that is transparent, easy to understand, and at a great price.

Alexander Timm: Our technology empowers a delightful customer experience, although proprietary algorithm allows us to offer lower prices to the best drivers. Our laser-focused mindset on disciplined underwriting and stringent expense management has allowed us to build a strong foundation to significantly grow our business. Importantly, we are growing smartly and profitably. We are not chasing growth through the sake of growth. We're doing it while achieving some of the best loss ratios in the industry. New writings during the quarter primarily came through our direct channel, where we target consumers with a great insurance product at a great price.

Alexander Timm: We expect to remain opportunistic through the back half of 2024 and growing the direct channel. Should we see an opportunity to grow faster while maintaining our unit economics, we will invest more in marketing to drive profitable growth. We believe there are material opportunities to expand our competitive advantage to additional data rich channels. As we do with everything, we will explore these channels in a disciplined, rigorous manner and quickly grow or jettison these experiments based on results.

Megan Binkley: I'll now turn the call over to Megan discuss our operating results in more detail. Thanks Alex. We delivered another strong quarter in large part to our data advantages and disciplines underwriting. We continue to drive loss ratios that are one the best in the industry. For the second quarter, our net loss was $8 million, a 79% improvement year-over-year. For the second consecutive quarter, we generated operating income in positive adjusted EBITDA. Operating income was $4 million, and adjusted EBITDA was $12 million.

Megan Binkley: Improvements on a year-over-year basis of $29 million and $24 million respectively. Our progress continues to be driven primarily by growth in our net earned premium consistently strong loss ratio performance. Our closely managed fixed expense base and responsible deployment of marketing investment. As we've consistently noted, we do not defer the majority of customer acquisition costs over the life of our customers. Which leads to accelerated expense recognition relative to earned premium. We doubled new writing, policies and forth, growth written premium, and growth earned premium compared to the second quarter of 2020.

Megan Binkley: Our improvements in reinsurance costs were made possible through our continued improvement in underrating results. Unencumbered capital, as of June 30, stood at $447 million compared to $483 million as of March 31st. Our unencumbered capital consumption during the quarter included $16 million of capital contribution, which were used to fund growth in net rent and premium and increase growth value in our domestic insurance city areas. Additionally, as we noted on our prior call, we paid approximately $11 million in tax withholding obligation related to the vesting of equity awards in early April.

Megan Binkley: This is a high quality cost as it means that our market value has appreciated. Unpoliced to report operating cash flow was positive for the fourth consecutive quarter, once again driven by our improvements in loss ratio and significantly reducing our net loss over time. As we proceed through the back half of 2024, we remain focused on growing in a discipline manner in maintaining our underwriting and expense rigor. We plan to continue to deploy direct marketing investment as long as targeted unit economics are achieved. Overall, we continue to make studies and strong progress towards our top priority of reaching gap profitability with our existing capital.

Megan Binkley: We remain excited for the future, appreciate your time and look forward to your question. Thank you.

Unknown Executive: We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your questions from the queue. For participants using speaker equipment, it may be necessary to pick up a handset before pressing the star keys. One moment please, while we pull for questions.

Thomas McJoynt: The first question comes from the line of Tommy McJoyne with KBW, please go ahead. Hey, good evening, guys. Thanks for taking my questions. You called out seeing competition increase in your various marketing channels. Do you think the competitive landscape is going to get sort of any easier over the coming years? It seems like competition is perhaps only going to intensify as more carriers reach rate adequacy on a market-by-market basis. How do you think about your go-to-market strategy, given that customer acquisition, could remain pretty competitive for an extended period of time here?

Thomas McJoynt: Thanks, Tommy. I'm Alex. You know, as we said and as we sort of guided last quarter, we did see competition increase in the quarter. And as a result of that, our marketing machine reacted really exactly as design. And we continue to actually hit our target unit economics in the quarter. And in quarter to date, we've been roughly holding this steady and we're constantly monitoring the competitive environment. We again, you know, we will not be chasing growth or grow sake.

Thomas McJoynt: And we are going to continue a rational and disciplined approach to deploying our capital. And you know, if we see pockets of growth or opportunity to continue to deploy marketing dollars, we're going to do that. And if we see competition increase, we'll pull back and continue to drive more towards profitability.

Alexander Timm: You know, over the long term, we believe that we actually have material opportunities for growth first and foremost, we have a very robust partnerships pipeline, where we're continuing to build differentiated access to customers, scaling existing partners as well as onboarding new partners. And that channel has continued to grow new writings and grew new writings 120% year over year. Second, we are continuing to invest in state expansion right now. We're in 34 states, but we plan to be national.

Alexander Timm: There's no reason our model shouldn't work on a national scale. You know, the 34 states represent about 75% of the addressable population. And as we add those states, we're going to naturally drive for their growth. And then third, you will see that we're investing in R&D and in new marketing channels. And, you know, we're still in a very small corner of the marketing universe today when you look at all of the opportunities and all the different channels out there.

Alexander Timm: And many of those channels we have actually virtually no presence in. And we're going to continue to leverage the technology that we've built in our current performance marketing channels and our rich data driven approach to really bring that learning machine into these new channels. And so we think long term there's ample opportunity for growth, but certainly in the near term, we're going to monitor the competitive environment and react appropriately. And I think that's exactly that discipline is exactly what you saw from us this quarter and it's what's pushing us towards profitability in the near term.

Alexander Timm: Got it. Appreciate that. And just to make sure I heard you correctly, you said that quarter date and that it would be third quarter of fifth remained studies. And if you could also share, okay. And then if you could share some comments, maybe anything on what you've seen in terms of like a turnover or sort of inverse, I guess the retention rates of your both of business perhaps over in the second quarter.

Alexander Timm: And even quarter date would be helpful, too. Yeah, we've continued to grow, Piff, you know, we continue to grow Piff in the quarter. And that's despite the new writings moderated from the competitive environment. And we continue to see a favorable retention profile in our partnerships channel. And as that grows, you know, that is building a more higher retaining customer base. And again, though, we've built a model and an under any model that can really price business profitably and hit our target returns across all sorts of different retention profiles. And so we feel good. We feel very good about where we are. Yeah, thank you. Thank you.

Yaron Kinar: Next question comes from the line of Yaron Kinar with Jeff Lee, please go ahead. Thank you. Good afternoon. It's my first question. Just looking at the GNA and the tech development spend. I guess I thought it may see a little more operating leverage there. So I think the ratio of those line items versus direct premiums earned may be coming down a bit more significantly. Can you maybe talk about that? And Alex, I think you may have mentioned something about some additional tech spend that you're undergoing right now as you're developing new products, but we'd love to understand that a little bit better.

Yaron Kinar: Hey, Yaron, it's Megan. Excellent question. You know, as we entered into the second quarter, I mean, or as we've finished second quarter, you know, it really has been another quarter of a strong result. And we're pleased with the progress that we've continued to make over the past few years to really right size our fixed expense base. And as we mentioned on our prior call, we're also strategically expanding headcount and pivotal areas.

Yaron Kinar: So what you're seeing in terms of tech and dev and GNA increases in the quarter, that's primarily increased due to the modest investment that we've laid in our product and in our people. And this includes headcount investment, really in our product delivery teams, to make sure that we're continuing to advance our product and to support the tremendous growth that we've seen in the business. Particularly on the tech and dev line item, we also saw about a million and a half of accelerated amortization of certain internally developed software costs assets.

Yaron Kinar: That was all recognized in the second quarter. We don't expect that that acceleration is going to continue into the future. These were assets that were really unrelated to the core auto product and our technology there. That said, you know, I do believe that our expense base is scalable even as we continue to invest in our people and our tech stack.

Megan Binkley: And you should expect to see continued improvement in our operating expense ratios going forward. Okay, that's helpful. And then my second question, can you maybe talk about the cadence of the PIS growth over the course of the quarter? Namely, did you see the PIS start slowing more meaningfully as the quarter developed or was it more of a street line? And maybe following up on Tommy's question, how are you seeing that developing to the third quarter as well?

Megan Binkley: Yeah, you know, we saw the typical seasonality, particularly that we see every year, which means you usually get more new writings, obviously in Q1 and really towards the front part of Q2. But really, you know, we have been holding our PIS study and we're very happy with the strong growth here to date. We know that Q2 has seasonality lower new writing versus Q1, and so that was anticipated. And, you know, we're still monitoring the competitive environment, making sure we're making the right decisions for the company and making sure that we're driving the company towards near-term profit.

Megan Binkley: And again, like in quarter to date, I wouldn't say there's been any material changes to that. We've really been holding our PIS study. I got it. If I could sneak one last one in on the marketing costs, so I know you guys have talked about this repeatedly, your expectation that marketing costs would go up as your progressives and sounds like they did indeed. That said, one of your large competitors hosted their call yesterday and was talking about marketing costs or unit costs will be very, very attractive as far as they can see.

Megan Binkley: So would be curious to hear your thoughts on where we are in the overall cycle here for a marketing unit cost, and is it still relatively attractive, or do you see yourself needing to maybe pull back more as it becomes even more competitive? Yeah, I'd say certainly we've seen as you've seen a lot of increase in marketing spend, you've certainly seen the competitive environment increase, which has made the environment more expensive to get a customer today than it was a year ago today when everybody was out of the market, and so we have seen that.

Megan Binkley: That said, we continue to acquire customers profitably, and we continue to hit our expected return targets, and so we do think there's ample opportunity out there to continue to grow the business. We also believe that there's many other marketing channels again that we aren't even in. We are in a vast minority of the marketing channels today, and there's no reason to believe that our competitive advantage we've built in those channels through our technology does not apply to additional channels, and so you should see us continue to expand that.

Megan Binkley: If we see, as now you've mentioned it, if we see the industry or competitors sort of get too aggressive here and start to put too much money into some of these channels where they aren't sort of generating returns, you will see us pull back. We will be disciplined, and we believe that the ability to be nimble in measure that in real time is actually one of our key competitive advantages and is a way to actually drive longer term superior enterprise value, and that's why you're going to see us stay true to that.

Unknown Executive: Thank you.

Elyse Greenspan: Next question comes on the line of Elise Greenspan with Wells Fargo, please go ahead. Hi, thanks. Good evening. My first question on the, looking at the accident period loss ratio in the low 60s and the quarter, how do you guys see that trending from here? I'd say in the second quarter we did see some storms, particularly I think Colorado is where we probably had the most weather in there, and so I think you had probably a couple of points or so of weather in that accident period loss ratio.

Elyse Greenspan: There's also some storms in Texas, and that's pretty typical for Q2, Q3. We are watching some of the weather events that's typically more where you would see hurricane exposure, and so we're watching that and there might be some typical quarter of a quarter seasonality there. But in general, we're very happy with where our loss ratio is, we're very comfortable with our rate adequacy, and so we're not anticipating any major rate changes at this point.

Elyse Greenspan: Are you expecting, I guess, staying there for a second? You're not expecting any rate changes. Are you guys, you know, expecting decline, or what do you foresee from the rate perspective from here? Yeah, I think you know, you may see in a handful of states, some moderate declines and decreases, or some small changes. And so we're going to continue to look at that on a market by market level. We are very happy with where our rates are and you may see some declines in some states.

Megan Binkley: Thanks. And then in the queue, right, you guys, you know, there's a sentence where you talk about as a result, improve. We continue to evaluate our cost of capital and how to optimize our capital structure on maintaining appropriate regulatory capital levels. So what do you, I guess you guys considering from from my capital perspective when when you say that you're continuing to look to optimize the structure? Hey, Elise, it's Megan. I'm really glad you asked that question.

Megan Binkley: I mean, capital efficiency and just looking at our cost of capital overall has been just a critical aspect of of our strategy and will be moving forward. So as we look at our underlying business results, you've seen just material improvement over the past few years. You know, in second quarter, we posted our second consecutive quarter of operating income. And ultimately, we believe that our financing costs are our derivative of our underlying business results.

Megan Binkley: So we do expect that the improvement in our business results will translate to a lower cost of capital and and more specifically, we expect to get better terms on our debt capital and in the near future. The pre-payment penalty on our current debt facility expired in July. And as we say here today, our goal is to materially reduce our financing costs and we are actively looking at options to reduce our interest expense. We will provide the market with additional details on on what that means for the business as appropriate.

Unknown Executive: Thank you.

Unknown Executive: Reminder to all the participants that you may press star in one to ask a question.

Michael Ward: Next question comes on the line of Michael Ward with city. Please go ahead. Hi, guys. Thank you. I was wondering if you could give us a sense of how your mix of coverage compares to maybe the industry in terms of providing comprehensive coverage. You know, we saw some cats in the quarter, especially in Colorado, where you where you have some concentration. So we're trying to see if you're wondering if you saw hail losses or if your customers are not buying comprehensive.

Michael Ward: We certainly saw hail losses in the quarter and in Colorado. And so we did get a couple of points probably whether the Colorado hail storms were actually I think the biggest weather event for us. So we certainly saw that. You know, I think in terms of the industry, you know, when you've got a basically compare, I would say our customer base to other direct carriers. So we are online. We are monoline auto.

Michael Ward: And so you know, that's really the customer that that we target. They tend to be, you know, between the age of 25 and 35. So they're a bit younger, more tech savvy. And we look to grow with that customer. So you know, we think we saw, you know, a good mix of coverages and we did see some weather exposure. But at the same time, we think that it's appropriate for our customer base.

Michael Ward: Great. Thank you. And then, I'm wondering if you had any sense of, I guess, the percentage, you know, talking about some of the younger customers. How many of your customers download the root app and, I guess, you know, for some in the industry, it's all telematics, right? And others, it's just using the ID card. But curious if you, if you have that data at all. Yeah, you know, on our direct business, we have the vast majority of our customers do download the root app and receive some form or share some form of telematics data.

Michael Ward: You know, some customers share a couple weeks of data, some customers might share two months of data. And one of the things that's special about our technology and technology platform is the ability to leverage whether it's two weeks of data, one week of data, two months of data. The ability to actually ingest that and then predict and use it to create a very high fidelity prediction of what we believe future loss costs are going to be for that customer.

Michael Ward: And so we believe we have a very high, particularly in the industry, maybe one of the highest, if not the maybe the highest telematics adoption rate, particularly in our direct channel. And so, you know, I would say it's the vast majority. Thank you.

Unknown Executive: There are no further questions at this time. This concludes our today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

Unknown Executive: Thank you.

Q2 2024 Root Inc Earnings Call

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