Q3 2024 Lemonade Inc Earnings Call
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Maxine: Hello and welcome to the Lemonade Q3 2024 INEXCOME. My name is Maxine and I'll be coordinating today's call. If you would like to ask a question, you may be super pressing star for the by one, Mr. Thank you, dad. I'm an L.100 to you, Yael. Mr. L.B.B. P. is communications to begin.
Yael Wissner: He's Gavish, when you're ready. Good morning and welcome to Lemonade's 3rd quarter, 2024 earnings call. My name is Yael Wissner, I'm the VP Communications Out Lemonade.
Yael Wissner: Joining me today to discuss our results, our Daniel Schreiber CEO and co-founder, Shai Winninger, President and co-founder, and Tim Bixby, our Chief Financial Officer.
Yael Wissner: A letter to shareholders covered in the company's third quarter 2020 Fort Financial Results is available on our investor relations website investor.leminate.com. Before we begin, I would like to remind you that management's remarks on this call may contain forward-looking statements within the meaning of the private securities litigation reform act of 1995.
Yael Wissner: Actual results made differently from those indicated by these forward-looking statements. As a result of various important factors, including those discussed in the risk factor section, of our 2023 Form 10Q filed with the SEC at May 1st, 2024, and our other violence at the SEC.
Yael Wissner: and he forward looking statement made on this call or presenter views only as of today and we undertake no obligation to update them.
Yael Wissner: We will be referring to certain non-gap financial measures on today's call such as adjusted EBITDA and adjusted gross profit, which we believe may be important to investors to assess our operating performance.
Yael Wissner: Reconciliation of these non-gap financial measures, so the most directly comparable gap financial measures, are included in our letter to shareholders.
Yael Wissner: Our letter to shareholders also includes information about our key performance indicators, including customers, enforced premium.
Yael Wissner: Premium Per customer annual dollar attention, gross earned premium, gross loss ratio, gross loss ratio, X-CAP, and net loss ratio. In a definition of each metric, why each of these useful to investors and how we use each to monitor and manage our business.
Speaker Change: With that, I'll turn the call over to Daniel for some opening remarks. Daniel?
Daniel Schreiber: Good morning and thank you for joining us to discuss our third quarter results 2024. Before turning to those I want to remind you that we'll be holding an invested day on an November 19th.
Daniel Schreiber: Both in person at our New York headquarters and online.
Daniel Schreiber: We certainly hope you will be able to join us. We will be providing detailed updates of our vision, AI capabilities, our ambitious plans and how we hope to realize them. In the meantime, let me turn to our third quarter results, which I'm happy to report continued to demonstrate strong progression across the board.
Daniel Schreiber: We saw accelerating top line growth with enforced premium growing by 24% and we were constantly positive.
Daniel Schreiber: A net cash flow increased by $48 million, a strongest cash flow quarter in section to date.
Daniel Schreiber: Free Cashflow was $14 million positive, that we think that net cashflow better tracks are business than free cashflow does. It is incorporating the impact of our synthetic agents program, which is core to our operating model.
Daniel Schreiber: The bottom line is that we entered the quarter with $979 million in cash and investments, a growing balance.
Daniel Schreiber: and one we expect to grow continuously henceforth, accepting next quarter, as we've said before. The third quarter elevated cast or catastrophic related losses across the industry.
Daniel Schreiber: alongside tragic loss of life.
Daniel Schreiber: Our thoughts and our team's efforts were with those impacted by those events. As has been the case in recent quarters, our business, however, proved highly resilient. Notwithstanding the weather, we delivered a 73% gross loss ratio, a stronger result in four years. This wasn't a one-off.
Daniel Schreiber: For the fourth consecutive course, our whistle doubled digit improvements in the last ratio compared to the same quarter of one year prior. And our last ratio is now back where we like to see it, comfortably within our target range.
Daniel Schreiber: How have we done it? It's the very things we've talked about for several quarters now. They've ratified the patient with a portfolio and intense and sustained efforts in matching rate to risk across the portfolio and across the U.S.
Daniel Schreiber: All in the enabled arcs delivered notably expanded gross margins in Q3.
Daniel Schreiber: Taken together, accelerating top line growth and expanding growth margins.
Daniel Schreiber: Yael did $37 million in gross profit, which represents a 71%.
Daniel Schreiber: Yael Wissner, Yael Wissner, Yael Gros, accelerating top line growth, even more dramatic growth profit growth and are best ever cash flow quarter, or render this a fabulous quarter.
Daniel Schreiber: We look forward to continuing these trends into 2025 and beyond. With that, I'd like to hand over to Shai to tell you more about our recent efficiency improvement and locks via technology.
Shai Winninger: Thanks Daniel, as Wibs spoke in about mission quarters
Shai Winninger: The technology powers an entire business.
Shai Winninger: and this is continuing to play out in our financial performance. Let me briefly touch on recent gains on the automation front. Automation is proven to be an extremely powerful lever.
Shai Winninger: that has powered the strong cash flow performance Daniel mentioned. For example, for the 11th consecutive quarter, we've been able to deliver improvement in IFP per employee as we've delivered strong top-line growth while the team has been more less stable.
Shai Winninger: at Walden's $700,000 in IFP currently.
Shai Winninger: Growing at more than 30% multi-year cakeer were found to protein basking plus levels displayed by some of the non-insurance big tech companies who have realized scale. Zooming out to the operating expense space.
Shai Winninger: When excluding growth spend of which 80% is financed by our partner via the synthetic agents program, operating expenses were stable year-lear. I believe the impact we're seeing is only the beginning.
Shai Winninger: and has been continued to implement new AI capabilities on a daily basis. Many more efficient improvements or opportunities are still ahead of us.
Shai Winninger: Now let me hand over the call to Tim who cover our financial results.
Shai Winninger: Tim?
Tim Bixby: Great, thanks, Shai. I'll review highlights of our Q3 results and provide our expectations for Q4 and the full year. And then we'll take some questions. Overall, it was again a terrific quarter, with results very much in line with or better than expectations.
Tim Bixby: and continued notable loss ratio improvement across the board. In force, premium grew 24% to $889 million, while a customer count increased by 17% to $2.3 million.
Tim Bixby: Premium per customer increased to 6% versus the prior year to $384 driven primarily by rate increases.
Tim Bixby: and the annual dollar retention or ADR with 87% up to percentage points since this time last year, and down slight levers is 88% in the prior quarter. This slight sequential decline is as expected.
Tim Bixby: Given our efforts to reduce less profitable portions of our home book in the second half of this year. Rose earned a premium in Q3, increased to 23% as compared to the prior year.
Tim Bixby: to $213 million in line with AFP.
Tim Bixby: Revenue in Q3 increased 19% from the prior year to $137 million. This growth in revenue was driven primarily by the increase in growth earned premium.
Tim Bixby: A slightly higher effective seating commission rate under our Quotisher Reinsurance and a 27% increase in investment income. Our gross loss ratio was 73% for Q3, as compared to 83% in Q3, 2023 and 79% in Q2 this year.
Tim Bixby: Excluding the total impact of cats in Q3, which was roughly 5 percentage points, our gross loss ratio X-Cat was 68%.
Tim Bixby: Cat Impact in the Quarter was driven primarily by named Storms and Hurricanes.
Tim Bixby: and it was about five points better than the prior year and 12 points better sequentially.
Tim Bixby: Total prior period development had a roughly 3% favorable impact.
Tim Bixby: About 1% of that from Kat and about 2% non-Kat. Trailing 12 months, or TTM, loss ratio was about 77% for 11 points better year on year and 2 points better sequentially.
Tim Bixby: All of these insurance metrics and more are included in our new insurance supplement that you'll find at the end of our shareholder letter this quarter and going forward. Gross profit increased 71% as compared to the prior year. During primarily by premium growth and significant loss ratio improvement.
Tim Bixby: Well, adjusted growth profit increased 55% driven by premium growth and loss ratio improvement. Operating expenses excluding loss and loss adjustment expense increased 27% to $125 million in Q3 as compared to the prior year.
Tim Bixby: The increase of 26 million year on year was driven predominantly by an increase in growth acquisition spending within sales and marketing of approximately $27 million. Offset by fixed cost savings.
Tim Bixby: Absent the growth spend increase, operating expenses were roughly unchanged year on year. Other insurance expense grew 31% in Q3 versus the prior year, slightly ahead of the growth of earned premium.
Tim Bixby: Total sales and marketing expenses noted increased by $27 million.
Speaker Change: I'm Marley Dud in Christ's Crossband.
Speaker Change: Partially offset by lower personnel related costs driven by efficiency gains.
Speaker Change: Total Grosspend in the quarter was $40 million, roughly triple the $13 million in the prior year. We continue to utilize our synthetic agents' growth funding program and have financed 80% of our growth spend since the start of the year. As a reminder, you'll see a hundred percent of our growth spend flow through the P&L as always.
Speaker Change: Well, the impact of the synthetic Asian mechanism is visible on the cash flow statement and the balance sheet.
Speaker Change: and the net financing today is about $67 million as of September 30. Technology development expense was flat, you're on year at $22 million. Do primarily to continuing cost efficiencies.
Speaker Change: G&A expense declined 15% as compared to the prior year to $31 million. Primarily due to lower personnel and insurance expenses.
Speaker Change: and one time impact in both quarters.
Speaker Change: Absent these non-recurring impacts.
Speaker Change: The GNA decline.
Speaker Change: was somewhat less but still meaningful at approximately 7% better. Personnel expense and headcount control continue to be a high priority. Total headcount is down about 7% as compared to the prior year at 1216.
Speaker Change: Well, the top line I have paid, again, grew fully 24%. Including outsourced personnel expense, which has been part of our strategy for several years, this expensive improvement rate is similar. Our net loss was a loss of $68 million in Q3 or 95 cents per share.
Speaker Change: The 10% decline is compared to the third quarter of 2023 and this change again driven primarily by our increased growth spend.
Speaker Change: Our adjusted EBITDA loss was $49 million in Q3 versus $40 million in a prior year. Our total cash cash equipment and investments ended the quarter up significantly at approximately $970 million.
Speaker Change: A 48 million dollars versus the prior quarter, showing a continuing positive.
Speaker Change: Netcastflow Trend. With these metrics in mind, I'll outline our specific financial expectations for the fourth quarter and the full year. We are increasing our full year expectations for both revenue and gross earned premium, while our other guidance metrics remain unchanged as compared to our prior guidance.
Speaker Change: As has been the case in some prior years, there is a notable, seasonal difference in our expected results in Q3 versus Q3 versus Q4.
Speaker Change: Specifically, Q3 is typically our highest growth spend quarter of the year, which drives up sales and marketing spend. And also typically a higher expected loss ratio is compared to Q4.
Speaker Change: Our law-stratory experience, especially for CAP in the third quarter of this year, was quite favorable as compared to our expectations. And this drove over performance in Q3, which doesn't necessarily recur in Q4.
Speaker Change: Our fourth quarter guidance therefore incorporates our typical view for expected results. From a growth spend perspective, we expect to invest roughly $35 million in Q4, which is nearly three times the growth spend.
Speaker Change: from Q4 in the prior year. To generate profitable customers with a healthy lifetime value.
Speaker Change: We noted last quarter that we also expected to remove approximately $25 million of homeowners.
Speaker Change: I have fear in force premium from our book, so be in the second half of 2024. Roughly two-thirds of that in Q3, and this effort serves to somewhat dampen growth in the immediate term, while concurrently boosting cash flow and profitability in the medium term.
Speaker Change: and further reducing cat volatility and we are on track with those prior estimates. Importantly, there were IFP guidance for the year reflects these plans, it also remains unchanged.
Speaker Change: We expect that additional growth and marketing efficiencies will continue to offset the impact of these non-renewals. For the fourth quarter of 2024, we expect in-force premium at December 31 of between 940 and 944 million dollars.
Speaker Change: Grocer in Premium of 222 to 225 million dollars. Revenue of 144 to 146 million dollars.
Speaker Change: and Adjusting EBITDA Laws between $29 and $25 million.
Speaker Change: Stock-based compensation expense of approximately $16 million, capital expenditures of approximately $3 million.
Speaker Change: and a weighted average share count for the quarter of approximately 72 million shares. And for the full year, 2024, we expect, again, in force, premium at the end of the year of 940 to 944.
Speaker Change: Gross earned premium of between 823 and 826 million dollars, revenue between 522 and 524 million dollars.
Speaker Change: A Justice Unit that lost between 155 and 151 million dollars.
Speaker Change: Stock-based compensation expense of approximately $64 million. Capital expenditures of approximately $10 million and a weighted average share count of approximately 71 million shares for the full year. And with that, I would like to hand things back over to shot to answer some questions from our retail investors.
Shai Winninger: Thanks Tim. We'll now turn to our shareholder's questions submitted through the say platform. Timothy asks, What is the expansion plan for lemonade out of insurance? Thanks for the question, Timothy.
Shai Winninger: The organization is ready to run car in a remarkable way in order to position ourselves for a rapid growth. 2025 will see us rolled out car in several additional states.
Shai Winninger: will prioritize those with the most attractive LVD dynamics and regulatory environments that facilitate timely rate approvals. Importantly, we expect the unlock on-car growth to come from multiple directions.
Shai Winninger: Crossselling Tour existing customer base as well as acquiring new customers. In the next question, Ben asked, what is the timeline for access to lemonade insurance services in all 50 states? Thanks Ben.
Speaker Change: We already sell some of our products in all 50 states and are currently already available for the overwhelming majority of the US population when it comes to our more mature products. Therefore, car 2025 marks a year of notable geographic expansion.
Speaker Change: We expect to continue this in 2026 and launch more states where we can grow our car product profitably.
Speaker Change: Hey, Prabag, wanted to know about our view on insurers who outsource works such as data science and AI, and whether that is a risk-door business model. Thanks for the question, Prabag. Legacy insurers have been outsourcing data science and AI work for over a decade.
Speaker Change: Yet despite these cross-cafews consumers haven't really noticed major changes in experience or insurance pricing. I believe there are many reasons for this lack of progress.
Speaker Change: such as the challenge of changing century old processes in culture in organizations that are highly conservative by design. Anyone who works for a large corporation knows how resistant to change and risk versed these organizations can become.
Speaker Change: Implementing AI and automation is even harder because these are events that threaten job security and demand new skills from season employees. Insurance were founded as tech companies and so they rely on traditional vendors to provide essential systems.
Speaker Change: and since no single system runs an entire insurance company end to end,
Speaker Change: Therefore, to work with dozens, if not more, of third-party providers. Creating a seamless AI-powered experience that delivers personalized customer interactions improve the efficiency and drives better and driving and pricing require than a unified full-stack system.
Speaker Change: with AI at its core. Unlike traditional ensures the lemonade platform was designed, built and maintained in-house.
Speaker Change: and I believe this is our sacred weapon.
Speaker Change: Vendor, our insurance operating system, integrates everything.
Speaker Change: from Customer Interactions on our app.
Speaker Change: website or phone to advertising attribution customer segmentation, LTV modeling, pricing, and and writing claims and more. I believe this level of control.
Speaker Change: Coupled with a team passionate about progress and change, gives us an unfair advantage and a defensible mode that's hard to replicate. And with that, let me turn on the call back to the operator for more questions from our friends from the street.
Speaker Change: Thank you. If you would like to ask a question, you may do so by pressing staff load by one on your telephone keypad. If you do change your mind please press staff load by two. When the pound swashel question, please ensure that your line is unmuted locally.
Speaker Change: I will first question today comes from Jack Martin from BMA. Please go ahead Jack, your line is now open.
Jack Martin: Hey, it's been morning. Thanks for taking my questions.
Jack Martin: One of the cash flow outlooks, it was going to see the positive operating cash flow this quarter.
Jack Martin: I guess when you talk about how much you expect cashflow to ramp up an improved next year, if we exclude us in that occasion, the founding of the Bendis bid, is there a time when we may expect to consistently cashflow positive from just an operating cashflow basis?
Speaker Change: Sure, so we're at the point now where this quality regenerates to get a hit cash flow on all the different measures operating cash flow in the future.
Speaker Change: Cashbook, the cashbook.
Speaker Change: Heading into next year, we will expect to see Netcastflow consistently positive from here on out.
Speaker Change: and exiting next year, which makes operating cash flow to be holy positive from there on out. Ibiddabel follow likewise in 26 by your end.
Speaker Change: The End
Speaker Change: Got a thank you, then.
Speaker Change: Just in the guidance of this upcoming quarter for Jesse D. But you maintain this whole year guide, even though you'd be by a little bit in the third quarter.
Speaker Change: I guess anything notable driving, I guess I could slightly lower implied guy for the fourth quarter, I think it seems he might be guiding for higher growth than mushroom if that was in or for anything else, flowing into there.
Speaker Change: There's a couple notable things in the second half generally for us and for the sector. And then a couple of specific things. So generally we have a seasonally strongest growth quarter into three versus two four.
Speaker Change: We're accelerating our growth stand and our likewise our growth.
Speaker Change: Significantly, this year versus the prior years, and then you roughly three times more in Q3. Q4 tends to be a slightly lighter growth spend and growth quarter than...
Speaker Change: Q3, but because we're continuing to ramp spend, that decline will be very modest, we'll spend slightly less than Q4 than Q3, something on the order of $35 million versus...
Speaker Change: 40 million dollars. So that drives the sort of top line dynamic, which says Flow through the PNL. Also notable is the law-racial expectation, and the cat impact. So Q3 is notably, or typically, the highest.
Speaker Change: Cat Impact Quarter, this Q3.3.2.2, not the case, and that was really a source.
Speaker Change: Much of our over-performance Q3 versus the RX-8G.
Speaker Change: King IV, again because of the forecast and not actuals.
Speaker Change: We do have our typical conservative assumptions on lawstery issue there. So the mettle that led us to the point to say, we are confident the second half looks fundamentally unchanged with some modest timing differences chipping from Q423.
Speaker Change: That's all we'll thank you. And then last just quickly on the delta between the net and gross loss ratio, a little bit higher, I think around eight points this quarter. I know last quarter is kind of gone the other way. If I'm getting notable driving the delta this quarter, and is there kind of like a normal run right between those two metrics to do it? Let's go and forward.
Speaker Change: [inaudible] I think we've had a few quarters with Nathan identical or with an appointed two normal is somewhere in between a fifth quarter, there were a couple of notable items, so our quota share.
Speaker Change: applies to some of our business, but not all of our business. So there were most of the cat in this quarter was related to name storms, hurricanes, and so that is excluded from our course shared agreements.
Speaker Change: The experience was good, the numbers were low, it's excluded from quotashare, so we bore more of that impact, and that drives a difference between gross and net on the order of about 4 points.
Speaker Change: Another notable item that you'll see detailed in the footnotes of a letter and our 10-key to come out shortly.
Speaker Change: We did have a large loss.
Speaker Change: in our auto business from pre-acquisition metramile.
Speaker Change: that impacted our gross law ratio by about 2 points on a gross basis. So we had a really nice result, 73% without that one-time adjustment for a pre-act position plan that would have been 2 points better.
Speaker Change: and again that flows through also about 2.7-thinette, gloss ratio.
Speaker Change: The rest is Uly. So 73 points grows 81 net and the difference is those three items. I'd expect the difference to be in the low single digits more consistently, three or maybe four points typically, but it does vary from that.
Speaker Change: Thank you very much.
Speaker Change: Thank you, the next question comes from...
Speaker Change: Jason House Dean from OpenHarmor, please go ahead Jason Ulan is now open
Speaker Change: I have already done two questions. Are we seeing any advancements on the technical AI side? Whether it's, you know.
Speaker Change: Chips or plow capability you're able to buy that could have any further impact on the business.
Speaker Change: and I'd say I'm the next 12th of the month and then secondly appreciate the expenses closure to the end of the release.
Speaker Change: If we think about the IFP breakdown and we kind of look at like the percentages and the trends, if we're thinking out of the next 12 months, I don't want to get ahead of your analyst day. But how do you think about the mixed changing over the next 12 months? Thank you.
Speaker Change: Okay Jason Goodman, let me take the first one and hand over to him to the second of those.
Speaker Change: and the answer to your questions, yes.
Speaker Change: and I will kind of tease her to a promo because a lot of the investment they will show a lot of our AI capabilities behind the scenes.
Speaker Change: and you'll see a completely important lab, but you'll see.
Speaker Change: A lot of machinery behind the scenes, how we are harnessing.
Speaker Change: and all of the advancements I know it's a very topical thing to be saying as you know it would be
Speaker Change: Talking like this since 2015 when we found the company, so we've really built ourselves at top of...
Speaker Change: and AI infrastructure and what we're feeling at the moment is that we're running, we're sprinting, we always have, but we're sprinting on our conveyor belt where the ground beneath us is moving pretty fast as well and the two combined in powerful ways.
Speaker Change: If you look back at the last couple of years and adjust the financial metrics and you see a more less 50% top line growth of the last couple of years and if you actually look at our metrics over the same time, it's a shrunk, not growing, single head count.
Speaker Change: So it's highly extraordinary to grow a company 50% and spend less rub than more in so during it's not that we're using less.
Speaker Change: and we're not sacrificing quality or anything else because of the satisfaction is great. It's not that we're using less intelligence to get the job done. It's just more and more of it as not human intelligence.
Speaker Change: and looking forward as the capabilities of the underlying AI's continued advance. Yes, we are well set to harness those and let me kind of leave the rest for invested day because we'll say a lot of metrics and the technologies that underpin that.
Speaker Change: Tim.
Tim Bixby: and maybe a comment or a two on Nixon mix shift.
Tim Bixby: and some of the higher levels. So from a market standpoint, our coverage now is quite broad across the US and Europe.
Tim Bixby: from a population standpoint, we're covering anywhere between 60 and 90 percent of the US population in all of our products at the exception of car and car is growing.
Tim Bixby: Fairly significantly, we're covering 50% of the population of Europe, we're starting to see really good growth there. So the mix will continue to move in the direction it has.
Tim Bixby: Today's mix is a lagging indicator, so I'm actually increased for pet from this year to three of us to prior year.
Tim Bixby: But again, at the lagging indicator of where growth was coming from.
Tim Bixby: We expect that to shift.
Tim Bixby: has begun to shift based on the new sales that are coming in and are growth efforts that are shifting towards cars.
Tim Bixby: So I think over time, if you look at the next year or the next three years, you'll see that trend continue and likely accelerate their car today, represent something like 15% of our business that will start to move upwards.
Tim Bixby: Over time, and represent a larger larger part of the business.
Tim Bixby: Part of what gives us real confidence there is progress in the law for example in the Gage.
Tim Bixby: and the supplement that we encourage you all to take a look at. Our Carlaus ratio has come down quite dramatically as rate of poofles have come online.
Tim Bixby: and even the Lawson should report now this quarter. But it would have been something like 10 points better if you would just for this one time adjustment that we made. So all systems are go for car. We will do a much deeper dive in best today and we need to explore the doing now.
Tim Bixby: Thank you.
Speaker Change: Thank you. The next question comes from Katie Sacky from Old Thomas, please go ahead. Katie, your line is now open.
Speaker Change: Thank you. I want to start first with some of the re-underheading actions you guys have been taking in the homeowners line. To extent did.
Speaker Change: B Catload this quarter benefit from those fairly re- underwriting actions. And maybe if it's too early to start seeing impact there, to what extent would you guys expect to your full year Catload next year to reshlapt.
Speaker Change: The Shafin Exposure there.
Speaker Change: So, you know, I don't have any exact number for you. It was probably fairly nominal in the, in just quarter exactly, but over time, we'll start to see that play out more significantly. We expected, or do continue to expect about 25 million dollars or so of my feet to come off.
Speaker Change: the books by year end, most of it, about two-thirds of it or so, already in two-three, and then the balance in King 4 or so.
Speaker Change: That impact I expect to grow over the coming orders. One note I think that we did.
Speaker Change: Shared and leder that's worth noting is...
Speaker Change: What our business would have looked like, what our loss was, it would have looked like this quarter, something like 40% or so worse had we not been pursuing these efforts over time. It's not just the home immediate term home non-reduals, it's a much broader effort to both underwrite and re-underwrite in areas where we are confident.
Speaker Change: and that we're seeing across the whole book including home.
Speaker Change: Thank you, and then really just to call it a little bit, thanks again for all the additional detail on the supplement this quarter
Speaker Change: But I'm going to see if you can offer us any additional color on the nature of the improvement to the car, close to Austria. You know, how much of that is coming from, you know, shifts in frequency versus exposure and then what does the cat exposure profile for the car products look like relative to the home owners' product?
Speaker Change: The cat exposure, I'll think the first is minimal, it's not zero, but it's far less of a concern or risk than it is.
Speaker Change: for the home business. And that really is a difference in the...
Speaker Change: Storms, really in the nature of Storms and how they affect me.
Speaker Change: the Car Business.
Speaker Change: So, the real driver of the Law Stray's Movement is right across the board and certainly right in California, which was amplified by the size of the California business and the scope of that rate increase of 50 percent or so rate increase. So that is, you know,
Speaker Change: More or less as expected as that rolls through the renewals of the California book in the Carbohin General.
Speaker Change: Karate, thank you.
Speaker Change: The Kill.
Speaker Change: Thank you, the next question comes from Tomay Mepchoy from Tabi WP. Go ahead, Tomay Yael Wissner, what is this?
Tomay Mepchoy: Hey, good morning guys, thanks for taking my questions.
Tomay Mepchoy: Um...
Speaker Change: When you bridge the gap from...
Speaker Change: This year having negative 150 million of you but roughly in the guidance too.
Speaker Change: Positive Ebit in 2026.
Speaker Change: Can you either quantify or even just rank order, the main line drivers of what's driving that improvement over that to your span looking at things like improving loss ratios or using less quota share re-insurance or disproving premiums? Can I rank order to quantify those drivers please?
Speaker Change: Tommy, good morning. Let me give you some broad strokes and then Tim, do a backfill with any details that you think I have missed.
Speaker Change: In broad strokes we're seeing incredibly deaddy driver over the last few years and we think it's the same drivers that we'll continue over the next couple of years.
Speaker Change: If you look at that EBITDA as a fraction of gross and premium.
Speaker Change: Some of you know what somebody bought with corn, a bit of margin if you like. And you look back four or five years and you say, what was that EBITDA losses per dollar of gross and premium? Still at 50 something cents.
Speaker Change: and then it's been improving at a rate of 10% per year. So it was almost 40% this year. It's 20% will be in the teens next year and the single days it's beer after another set.
Speaker Change: Before the end of that year we expected crossover from zero and going to positive territory. So the first thing to point out is that...
Speaker Change: This has been a very steady, predictable line that you can draw a path to profitability, can literally be thrown on a graph and has been pretty consistent for some time. In fact,
Speaker Change: I'm saying that we expect to be able to have positive towards the end of 26.
Speaker Change: dates back three or four years. I think it was 2021 when we first said that. So this has been a very consistent
Speaker Change: and almost bankable march towards profitability with cash flow positively already on the way as we had said and an EBITDA profitability to follow. But the underlying was natural obvious or simple kind of way to answer your question is that we're seeing tremendous operational.
Speaker Change: This was our hypothesis for years that when you build a company on technology, you can scale with that in expenses and it has shifted from being a credible hypothesis to a really proven result. You look back as I said earlier over the last couple of years and you see that expenses have not budget. I had the account has not budged.
Speaker Change: and Grace Profit has travelled.
Speaker Change: and our top line has grown by 50%.
Speaker Change: We expect that dynamic to continue. We think we're going to be able to continue to grow our business, without growing, I'm going to explain, at least growing it at a far more far more moderate pace. And that that dynamic should lead us not merely have led us to cast for the positivity, will lead us.
Speaker Change: Ebidup profitability will only need us to net profitability and I do believe before not too long to massive profitability. I think it's that same basic.
Speaker Change: and physics, if you like, of growing a top line, have a profitable growth profit, profitable growth margin, or holding expense line pretty stable. Do you have anything to add to that?
Speaker Change: Just to note and let's follow the exact same.
Speaker Change: Track 1 is...
Speaker Change: You know, a couple of years ago when we were looking out and thinking about resources and people and people in fixed costs tend to move together.
Speaker Change: We're looking at an expecting, you know, the growth rates, so much what we had started to see, which is in the 10-15-20% range. Now we look out and we've seen actually decline over how the expenses.
Speaker Change: for quite some time almost two years at this point. Now, six costs will not decline forever. They will grow, but they will grow. We expect it a much, much more modest pace. And that, we draw that line out a couple of years.
Speaker Change: and grow those expenses at a two or four or six percent rate versus a 15 percent rate, it's just an extraordinary difference and that's what we're seeing right now. And that's the key driver. From the top line perspective, I would look at Bruce Profitt.
Speaker Change: What has grown profit done over the past three years?
Speaker Change: This year alone growing 70%.
Speaker Change: So it doesn't, you roll that out two or three years.
Speaker Change: You can continue to see that significant leverage because law-free shoe.
Speaker Change: has improved so much and there's still room for that to improve. Those two dynamics come together.
Speaker Change: i
Speaker Change: Thank you for those comments. To give us an update on the success of cross-selling, do you have any update on the number of policies per customer and how that has trended over the past couple years?
Speaker Change: Yeah, so a couple of metrics there. It's actually a fairly consistent metric. There's a couple of areas where when we look out our longer term modeling.
Speaker Change: and think about what can go even more right. We have a lot of things that are going right today.
Speaker Change: We expect that retention can and will improve over time, but we don't assume or model that it will improve. We have a lot of opportunity for retention that comes in the form of multi-policy and upsells. All of those come together, something like four.
Speaker Change: 4.6% or so, but our customers today are multi-policy customers. That's a relatively low number, but it's stable. So when we're growing the business at 25 or 30%, that number is stable, that's in absolute terms that's significant increase.
Speaker Change: and in those states where we have all the policies available for those customers who have multiple policies, all the dynamics are much stronger.
Speaker Change: Attention is better. The willingness to buy that third policy is higher, loss, expectation, the risk profile tends to be better. All the metrics are better for the purpose of the customer.
Speaker Change: Thanks.
Speaker Change: Thank you, as a reminder if you would like to ask a question you may decirber person to darphler by one under telephynkey pad. Our next question comes from Angie Stein from F.T. Partners. Please go ahead and Andrew your line is now open.
Speaker Change: Good morning and nice quarter. You mentioned in the letter that the diversification across geographies, products, partner placements and then the targeted non-renuals are...
Angie Stein: behind the grocery show improvements. So just wondering if you could mention the impact of each of those areas and then where does the most opportunity lie looking forward?
Speaker Change: So I don't have a good act number for each of those that we've disclosed. I think there's no silver bullet there. I think home is certainly the most significant impact, which is why we've mentioned it just in absolute terms. $25 million out of the book in six months is a very focused and notable impact.
Speaker Change: But that's something we have done on a consistent basis.
Speaker Change: at a lower rate over time will continue to do that where we keep business with better information and a more accurate understanding of the risk of the customer starts to go to high-line profitable will continue to make those efforts.
Speaker Change: Part of the impact in the quarter I think is...
Speaker Change: Bixby.
Speaker Change: The Nog.
Speaker Change: Our exposure in the home business is pretty...
Speaker Change: Fairly low risk, so when you're not in Florida, in the home business.
Speaker Change: Most of the large cats affected pretty specific areas.
Speaker Change: These are the kinds of things that are a little cautious about. And we do that elsewhere. So we've had a fairly light California cat impact this year, but we've already thought full about those risks as well.
Speaker Change: I think it contributed to some extent to the improved last ratio.
Speaker Change: I'll just add Andrew Hybert. Got it, no, no, no, no, go on.
Speaker Change: Yeah, just to say left in terms that I too don't have a top of mind the exact a vision between the different factors but I will point out that a lot of research improved everywhere.
Speaker Change: So this wasn't one magic bullet we saw and we've disclosed this every single product and all of our geographies and so improvements.
Speaker Change: So this has been a lot of effort across the board, across the geography, across the product, based across the company.
Speaker Change: and we're really seeing no holdouts, nothing is bad, everything's getting better. I don't know, both Europe and the US and home and renters and parents aren't really across the board.
Speaker Change: I'll just underline as well, can mention this in part in his comments, but...
Speaker Change: and the last ratio overall improved really quite dramatically. We're talking about it.
Speaker Change: 10 points, year or year, 11 points, and another 10 points from the year before 20 points of the course of the last couple of years, which is rather stunning, I think by most standards.
Speaker Change: But if you take a look at our car, last radio, it has dropped very beautifully, very dramatically, and yet it's understated about 10 points of the last radio has reported.
Speaker Change: from a single claim that was resolved years later in a elongated lawsuit that predates acquisition of natural mile.
Speaker Change: You take that out as I think it's not an unreasonable thing to do, although it's not to do what accounting practices have us do. And you see Sunny Arcol, Oshrasio in the 80-Smart.
Speaker Change: and you can pay that to where it was of course or to go and utilise the trajectory that we're on.
Speaker Change: and I think that ties back also to Tommy's question earlier about.
Speaker Change: Crossselling, while these have been relatively stable, as Karl Osterato gets to where we want it to be, we'll start unleashing the power of crossselling carti�s, just in customers much more in that will impact them and your dollar attention and crossails and multi-product lines and all those things have been relatively stable where approaching the point.
Speaker Change: but we can unleash a lot of those capabilities.
Speaker Change: Thank you. And yet I was going to be my next question just expanding on how the upsell process and the experience there is going for moving renters policy holders to auto. Thank you.
Speaker Change: Sean, we'll talk about this at some length so this is my second promo for the investor day. We will just show some really interesting stats when we go on a...
Speaker Change: and we can give up there. So I leave some of the firemen's actually stuff for a couple of weeks from now, but we're doing a lot and we haven't wanted to have come up until fairly recently, practically with holding.
Speaker Change: Those kind of cross elves, no point crossing your product that wasn't itself profitable. That's not the way we do things. As a car now, a rise of its destination, always nearing it. And we're starting to do a lot of trial and error and we will share some of the numbers behind that just a couple of weeks from it.
Speaker Change: Great, thanks for looking forward to it.
Speaker Change: i
Speaker Change: Thank you. The next question comes from Charlie Wodgers from Jeffree's case. Go ahead Charlie, your line is now open.
Charlie Wodgers: Hi, good morning and thanks for taking the questions.
Charlie Wodgers: So I think you guys were mentioning earlier that embedded in the guide for the fourth quarter there is some...
Charlie Wodgers: I was wondering if you guys could elaborate or talk a little bit about what your expectations for law for the leader. I can't Milton might be within that.
Speaker Change: Our experience with all the cats today, including Milton, has been quite nominal. Obviously, they can develop more over time, Milton's the most recent one. But we are not concerned about that developing anything material at this point for far enough past.
Speaker Change: Sucat.
Speaker Change: and that's not too troubling. Two four is a tricky one generally because the law is just tend to be a fair amount better than the other.
Speaker Change: Almost all three quarters notably better historically they have been we've had one or two exceptions with free storms and so we're...
Speaker Change: and some of what caucus there's an opportunity to have just another great order for sure. And then we've also built in an assumption that will be highly likely to happen, which is the pace.
Speaker Change: of our growth spend to set us up for continuing accelerated growth. If you look at our growth rate to the quarters of this year, you've seen that growth year on your growth rate and that's up each quarter consistently through the course of the year.
Speaker Change: and so we're able to do that at the same time as we see boss ratios, the great improvement. So that combination is something that's led to a great year to date period and the Q4 numbers we hope will come in there.
Speaker Change: as expected or better.
Speaker Change: Okay, great, thanks. And then could you maybe just give Kat and Pewide on a net basis?
Speaker Change: The End.
Speaker Change: Yeah, so the cat in the gross basis was about 6% on a net basis that would have been about 11%.
Speaker Change: and then...
Speaker Change: Prior Period Development was about 3% on a gross basis, that would have been about 1%.
Speaker Change: and a favorite, both of those favorite, well, on a net basis.
Speaker Change: and that was PD not PYD correct.
Speaker Change: That's right, prior year development is not something that shows up in the queue that will be year-to-day about $6 million.
Speaker Change: and the Labour Bull development. Although that's a year to date figure, so the development in the quarter was slightly unfavorable, about $2 million unfavorable.
Speaker Change: in the quarter for prior years development.
Speaker Change: Okay, great, thanks for the color there. And then I guess last one if I could, thanks again for the additional disclosures in the insurance portion of the supplement.
Speaker Change: Is there any way that you could help dimension within, I believe, what's called, homo-type peril in there?
Speaker Change: The kind of difference between, you know, renters, condo, and I guess would be potentially considered traditional homeowners. Just in terms of potentially premium per customer or policy, law ratio, I guess any color in there would be helpful.
Speaker Change: The New Disclusion for the helpful, the Super helpful and the role.
Speaker Change: will continue to evaluate that. I can share some of the metrics we shared in the past. We do sort of group home, home, and condo together, and that tends to run a price.
Speaker Change: for customer in this sort of $1500 range, whereas a renter is probably a 170 dollar range, so those are notable differences. But that's not something we're necessarily going to break out of this close-up recorder, but just for an order of magnitude basis that should give you a feel for the distinction.
Speaker Change: Okay, great. Thanks again for the answers.
Speaker Change: The End
Speaker Change: Thank you as a reminder if you would like to ask a question you may decept the person staffer above one on your to the thank you card. Our next question comes from Matt Smith in the holds of Ferguson financial. Please go ahead Matt, your noneis now open.
Speaker Change: [inaudible]
Matt Smith: Thanks for coming on. I'm impressed on a great core of everyone. Looking through the letter, I think the linear term priorities are really on limiting exposure to home, and as you said, leaning in on car, but thinking longer term will home kind of remain as a shrinking piece of the business or if there's some plan to re-accelerate a growth in that area once the LPD Diane can prove.
Speaker Change: Matt Goodman and good to hear voice. I'm really important. It's an important part of every consumer's purchase and insurance need, and we do aim to cater to our customers 360 degrees.
Speaker Change: That said, there are many areas in home where we don't have a distinct advantage and where the volatility and the exposure doesn't make sense for us.
Speaker Change: We have provided ourselves and being a capital light.
Speaker Change: Um...
Speaker Change: Company with low volatility and we've not always been able to hold true to that and that's largely been because of exposure to home. So we have over the course of the last few years worked hard to do a number of things in the past. We relied on re-entrifying to offload a lot of that with circuit beam diversifying geographically and otherwise.
Speaker Change: and we hinted a couple of quarters ago that we're also looking at placing...
Speaker Change: Homanus policies on third party paper when necessary. So, prioritization is really the customer centricity, making sure that we cater to all of our customers needs to make sense to write that home policy on our paper. We do that, we make sense to write it on our paper and re-entroidable do that.
Speaker Change: for make sense to use a partner's paper as a dumb example for earthquake insurance since a very in-section. We will do that as well. So we're playing with those tools.
Speaker Change: I do think it would be fair to say that while we will, I think always cater to the customers' needs and offer our homeowners in trends in the way that best suits are business model and plays a competitive advantage. Competitive advantages will be and has been more pronounced in other products.
Speaker Change: So in kind trunks I think we've gotten extraordinary, competitive advantage, we will elaborate on that at some length in a couple of weeks in our investor day, we've demonstrated, I think, very ably in patent trunks and renters and trunks.
Speaker Change: I think in homeowners in trend, where it is so exposed to the weather, that does mute some of the capabilities that we bring to bear on other products and for that reason, where we'll continue to offer it, I don't want to overstate the competitive advantage that we enjoy in that sector.
Speaker Change: One of the things to add sorry matters is some of the enough to learn what you just want.
Speaker Change: So just one last thought, which is with a launched homeowner's insurance in France with launch homeowner's insurance in the UK. Those are growing well, cat exposure in those places is a tenth or less of what you see across the US.
Speaker Change: So in areas where it makes financial sense we're expanding on our own paper and in areas where it falls I think unreasonable exposure we're shrinking the footprint at least when we write on our own paper.
Speaker Change: Thanks for the color and looking forward to seeing you guys in a few weeks.
Speaker Change: Thank you, that does conclude our Q&A session. Thank you for joining you may now disconnect your lines.
Speaker Change: [inaudible]