Q4 2024 Root Inc Earnings Call
If anyone should require operator assistance. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded.
Matt: It is now my pleasure to introduce Matt <unk> head of Investor Relations and corporate development. Please go ahead.
Thank you for joining us.
Matt: Rudy is hosting this call to discuss its fourth quarter and full year 2024 earnings results.
Alex Tim: Participating on today's call are Alex Tim Co founder and Chief Executive Officer, and Megan <unk> Chief Financial Officer.
Alex Tim: Earlier today <unk> issued a shareholder letter announcing its financial results.
Alex Tim: While this call will reflect items discussed within that document.
Alex Tim: For more complete information about our financial performance. We also encourage you to read our 2024 Form 10-K, which was filed with the Securities and Exchange Commission earlier today.
Alex Tim: 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.
Alex Tim: Please note that these forward looking statements reflect our opinions as of the date of this call and we are not obligated to revise this information as a result of new developments that may occur.
Alex Tim: 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.
Alex Tim: For a more detailed description of our risk factors. Please review, our 2024 Form 10-K and shareholder letter.
Alex Tim: A replay of this conference call will be available on our website under the Investor Relations section.
Alex Tim: I would also like to remind you that during the call. We will discuss some non-GAAP measures, we'll talking about routes performance.
Greetings and welcome to the Route Inc. Fourth quarter 2024 earnings Conference call.
You can find reconciliations of these historical measures to the nearest comparable GAAP measures in our financial disclosures all of which are posted on our website at IR joining route dot com.
At this time all participants are in a listen only mode.
Question and answer session will follow the formal presentation.
If anyone should require operator assistance. Please press star zero on your telephone keypad.
Speaker Change: I will now turn the call over to Alex Tim roots cofounder and CEO. Thanks, Matt simply put 2024 was a landmark year for route we.
As a reminder, this conference is being recorded.
La Mahler: It's now my pleasure to introduce not La Mahler head of Investor Relations and corporate development. Please go ahead.
Speaker Change: We delivered in every facet of our operations, culminating in our first full year of net income profitability. We achieved a gross combined ratio of 95 on $1 3 billion.
Thank you for joining us.
Speaker Change: Rudy is hosting this call to discuss its fourth quarter and full year 2024 earnings results.
Speaker Change: Gross premiums written generating GAAP net income of $31 million and adjusted EBITDA of $112 million.
Alex Tim: Participating on today's call are Alex Tim Co founder and Chief Executive Officer, and Megan <unk> Chief Financial Officer.
Speaker Change: Ill incredible improvements from 2023.
Alex Tim: Earlier today <unk> issued a shareholder letter announcing its financial results.
Additional accomplishments for the year include growing policies in force delivering what we believe is one of the best loss ratios in the industry continued investments in our pricing and underwriting technology, reducing run rate interest expense and making significant strides to diversify our distribution.
Alex Tim: While this call will reflect items discussed within that document.
Alex Tim: For more complete information about our financial performance. We also encourage you to read our 2024 Form 10-K, which was filed with the Securities and Exchange Commission earlier today.
Alex Tim: 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.
Speaker Change: First of all 2024 was just the beginning for route.
Speaker Change: We are excited for the year ahead, as we accelerate our growth trajectory further expand our partnerships channel and reinvest in our business to drive long term returns.
Alex Tim: Please note that these forward looking statements reflect our opinions as of the date of this call and we are not obligated to revise this information as a result of new developments that may occur.
Speaker Change: The progress achieved in 2024, it was possible due to the foundation we built in previous years. We believe this foundation will continue to drive momentum in our business for years to come.
Alex Tim: Forward looking statements are subject to various risks uncertainties and other factors that could cause our actual results to differ materially.
Speaker Change: Specifically our policies in force grew by 21% year over year to more than 414000, while achieving what we believe is a best in class underwriting performance, our gross loss ratio of 59% and the gross combined ratio of 95.
Alex Tim: From those expected and described today.
Alex Tim: For a more detailed description of our risk factors. Please review, our 2024 Form 10-K and shareholder letter.
Alex Tim: A replay of this conference call will be available on our website under the Investor Relations section.
Speaker Change: We deployed our latest pricing and underwriting models further enhancing our predictive power and allowing us to continually offer the best prices to the best drivers.
Alex Tim: I would also like to remind you that during the call. We will discuss some non-GAAP measures, we'll talking about routes performance.
Alex Tim: You can find reconciliations of these historical measures to the nearest comparable GAAP measures in our financial disclosures all of which are posted on our website at IR join route dotcom.
Speaker Change: Given our performance, we were able to reduce our run rate interest expense by more than 50% and dramatically reduce our reinsurance costs.
Alex Tim: I will now turn the call over to Alex Tim was co founder and CEO. Thanks, Matt.
Speaker Change: They're validating our progress to date and providing a tailwind going into the new year.
Alex Tim: We put 2024 was a landmark year for route.
Speaker Change: We continue to expand into new channels with indirect and drive profitable acquisition investments.
Alex Tim: We delivered in every facet of our operations.
Alex Tim: <unk> in our first full year of net income profitability, we achieved a gross combined ratio of 95 on $1 $3 billion of gross premiums written generating GAAP net income of $31 million and adjusted EBITDA of $112 million.
Speaker Change: We have found success and data rich lower funnel channels and we'll continue to scale. These wins, while leveraging our success to expand into mid to upper funnel strategies.
Speaker Change: While this will take additional time to produce results. It is the right investment to consistently grow this channel over the long term.
Alex Tim: All incredible improvements from 'twenty to 'twenty three.
Speaker Change: Building differentiated access to customers remains a core pillar in our long term growth strategy through our partnership channel.
Alex Tim: Additional accomplishments for the year include growing policies enforce delivering what we believe is one of the best loss ratios in the industry continued investments in our pricing and underwriting technology, reducing run rate interest expense and making significant strides to diversify our distribution.
Speaker Change: We more than doubled our new writings in 2024 and as the fourth quarter, New writing through the partnership channel represent roughly a third of our overall new business.
Speaker Change: Our progress is driven by our proprietary technology stack I can seamlessly integrate into existing partner platforms.
Best of all 2024 was just the beginning for route.
Alex Tim: We are excited for the year ahead, as we accelerate our growth trajectory further expand our partnerships channel and reinvesting in our business to drive long term returns.
Speaker Change: All with meeting customers and contextually relevant times.
Speaker Change: Our partnerships pipeline remains strong across our three channels of automotive financial services and independent agents.
Alex Tim: The progress achieved in 2024, it was possible due to the foundation we built in previous years. We believe this foundation will continue to drive momentum in our business for years to come.
Speaker Change: Along with further growing the partnership channel in 2025, we expect to continue to graduate current partners to fully embedded experiences and eliminate friction from the purchase experience.
Alex Tim: Specifically our policies in force grew by 21% year over year to more than 414000, while achieving what we believe is a best in class underwriting performance, our gross loss ratio of 59% and the gross combined ratio of 95.
Speaker Change: A great example of that as Carvana insurance built with route which offers a three click findable purchase experience on our partner platform that our customers have come to know and trust.
Speaker Change: We remain confident in our long term growth avenues across both channels, while maintaining a focus on national expansion.
Alex Tim: We deployed our latest pricing and underwriting models further enhancing our predictive power and allowing us to continually offer the best prices to the best drivers.
Speaker Change: We are proud to highlight the recent launch of Minnesota, enabling us to now reach 76% of the U S population.
Alex Tim: Given our performance, we were able to reduce our run rate interest expense by more than 50% and dramatically reduce our reinsurance costs further validating our progress to date and providing a tailwind going into the new year.
Speaker Change: We have filings pending an additional states and expect continued progress in the year ahead.
Speaker Change: Above all providing customers a delightful experience and a great price no matter what channel they come through remains our top priority.
Alex Tim: We continue to expand into new channels with indirect and drive profitable acquisition investments.
Speaker Change: As we invest in and accelerate our growth we will maintain our laser focused mindset on disciplined underwriting driven by our proprietary tech platform and data science algorithms.
Alex Tim: We have found success and data rich lower funnel channels and we'll continue to scale. These wins, while leveraging our success to expand it to mid to upper funnel strategies.
Speaker Change: Because our gross loss ratio continues to trend below our long term target of 60% to 65% we are able to reduce rates in select states affording our best savings through our best drivers, while achieving our returns.
Alex Tim: While this will take additional time to produce results. It is the right investment to consistently grow this channel over the long term.
Alex Tim: Building differentiated access to customers remains a core pillar in our long term growth strategy through our partnership channel.
Speaker Change: As we've stated although lower rates can lead to improved renewals and your writings. It is important to note. We do not set prices with the primary goal to gain market share.
Alex Tim: We more than doubled our new writings in 'twenty 'twenty, four and as the fourth quarter, New writing see the partnership channel represent roughly a third of our overall new business.
Speaker Change: Rather our goal is to set prices accurately and our data science acumen and high telematics adoption rate enables us to effectively segment and price accordingly.
Alex Tim: Our progress is driven by our proprietary technology stack that can seamlessly integrate into existing partner platforms, all with meeting customers a contextually relevant types are.
Speaker Change: Our pricing platform also allows us to remain nimble and fast, particularly in times of high macroeconomic uncertainty.
Alex Tim: Our partnerships pipeline remained strong across our three channels of automotive financial services and independent agents.
Speaker Change: We're able to leverage our real time actuarial reviews to incorporate changing trends into our pricing algorithms and continually offer at the best prices to our best drivers.
Alex Tim: Along with further growing the partnership channel in 2025, we expect to continue to graduate current partners to fully embedded experiences and eliminate friction from the purchase experience.
Speaker Change: At route it's all about the long term.
Speaker Change: That means we invest our capital to drive intrinsic value creation based on an economic framework over the life of the customer not calendar period results.
Alex Tim: A great example of that as Carvana insurance built with route which offers a three click findable purchase experience on a partner platform that our customers have come to know and trust.
Speaker Change: At times this framework can be at odds with being a public company. However, we believe this creates a tremendous opportunity for long term investors.
Alex Tim: We remain confident in our long term growth avenues across both channels, while maintaining a focus on national expansion.
Speaker Change: I will now hand, the call over to Megan to discuss our fourth quarter operating results in more detail.
Alex Tim: We are proud to highlight the recent launch of Minnesota, enabling us to now reached 76% of the U S population.
Megan: Thanks, Alex we are thrilled to share that for a second consecutive quarter. We delivered net income profitability capping off a great 2024 for rate. This remains a testament to our data and technology advantage, our disciplined underwriting and our unwavering focus on capital and expense management.
Alex Tim: We have filings pending an additional states and expect continued progress in the year ahead above.
Alex Tim: Above all providing customers a delightful experience and a great price no matter what channel they come through remains our top priority.
Alex Tim: As we invest in and accelerate our growth we will maintain our laser focused mindset on disciplined underwriting driven by our proprietary tech platform and data science algorithms.
Megan: For the fourth quarter, we delivered net income of $22 million, a $46 million improvement year over year.
Megan: We also generated operating income of $35 million and adjusted EBITDA of $43 million in the fourth quarter.
Alex Tim: Because our gross loss ratio continues to trend below our long term target of 60% to 65% we were able to reduce rates in select states are 40, and our best savings to our best drivers, while achieving our returns.
Megan: These metrics improved $47 million and $43 million year over year, respectively.
Megan: Our outstanding results continue to be driven primarily by growth in our net earned premium consistently strong loss ratio performance are closely manage fixed expense base and responsible deployment of marketing investment.
Alex Tim: As we've stated although lower rates can lead to improved renewals and your writings. It is important to note. We do not set prices with the primary goal to gain market share.
Alex Tim: Rather our goal is to set prices accurately and our data science acumen and high telematics adoption rate enables us to effectively segment and price accordingly.
Megan: As we've consistently noted we do not defer the majority of our customer acquisition costs over the life of our customer which leads to accelerated expense recognition relative to earned premium.
Alex Tim: Our pricing platform also allows us to remain nimble and fast, particularly in times of high macroeconomic uncertainty.
Megan: We saw material increases in policies in force gross written premium and gross earned premium compared to the fourth quarter of 2023, we.
Alex Tim: We are able to leverage our real time actuarial reviews to incorporate changing trends into our pricing algorithms and continually offer at the best prices to our best drivers.
Megan: We achieved this growth while delivering a Q4 growth accident period loss ratio of 61%.
Alex Tim: At route it's all about the long term.
Megan: Two point improvement year over year, which was driven by our continued investment in data science and technology.
Alex Tim: That means we invest our capital to drive intrinsic value creation based on an economic framework over the life of the customer not calendar period results.
We posted a fourth quarter gross combined ratio of 91% and 19 point improvement year over year.
Alex Tim: At times this framework can be at odds with being a public company. However, we believe this creates a tremendous opportunity for long term investors.
Megan: In the fourth quarter of 2024, we see it at approximately 9% of our gross earned premium and the difference between our gross and net loss in LAE ratio was just one point for the quarter.
Alex Tim: I will now hand, the call over to Megan to discuss our fourth quarter operating results in more detail.
Megan: Our improvements in our reinsurance costs were made possible through our continued improvement in underwriting results we.
Megan: Thanks, Alex we are thrilled to share that for a second consecutive quarter. We delivered net income profitability capping off a great 'twenty 'twenty four for it. This remains a testament to our data and technology advantage, our disciplined underwriting and our unwavering focus on capital and expense management.
Megan: We continue to maintain strong reinsurance protection for tail risk events, including catastrophe and excess of loss cover.
Megan: The improvement in our operating results enabled the refinancing of our debt facility with Blackrock in October, which we expect to reduce our run rate interest expense in 2025 by approximately 50% Blackrock.
Megan: For the fourth quarter, we delivered net income of $22 million, a $46 million improvement year over year. We also generated operating income of $35 million and adjusted EBITDA of $43 million in the fourth quarter.
Megan: Blackrock has been a great partner to us over the past few years and we are pleased to continue our relationship with them.
Speaker Change: Overall, it was a fantastic 2024 for it but as Alex noted it is still early in our journey, we remain focused on growing in a thoughtful and disciplined manner, we're expanding our footprint and distribution channels and investing in opportunities for the business that present high return potential including measured exceed.
Megan: These metrics improved $47 million and $43 million year over year, respectively.
Megan: Our outstanding results continued to be driven primarily by growth in our net earned premium consistently strong loss ratio performance are closely manage fixed expense base and responsible deployment of marketing investment.
Megan: Paramount's across the marketing funnel.
As we've consistently noted we do not defer the majority of our customer acquisition costs over the life of our customer which leads to accelerated expense recognition relative to earned premium.
Megan: We believe continued investments in our people and infrastructure as well as targeted customer acquisition investment to enable profitable growth is the right decision to drive long term success and shareholder value.
Megan: We saw material increases in policies in force gross written premium and gross earned premium compared to the fourth quarter of 2023, we.
Megan: Running the business and our lifetime unit economic framework Manpack, the degree of GAAP profitability in any given quarter, but we believe it will eventually translate to strong calendar year results just as we saw take place in 2024, we remain excited for our future and appreciate your continued support with that we look forward to your question.
Megan: We achieved this growth while delivering a Q4 growth accident period loss ratio of 61%.
Megan: Two point improvement year over year, which was driven by our continued investment in data science and technology.
Megan: <unk>.
Megan: We posted a fourth quarter gross combined ratio of 91% and 19 point improvement year over year.
Megan: Yes.
Speaker Change: Ladies and gentlemen at this time to begin the question and answer session.
Speaker Change: Like to ask a question. Please press star one on your telephone keypad as a confirmation tone will indicate your line is in the question queue.
Megan: In the fourth quarter of 2024, we see it at approximately 9% of our gross earned premium and the difference between our gross and net loss and LAE ratios with just one point for the quarter.
Speaker Change: You May press Star two if you would like to remove your question from the queue.
Speaker Change: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Megan: Our improvements in our reinsurance costs were made possible through our continued improvement in underwriting results. We continue to maintain strong reinsurance protection for tail risk events, including catastrophe and excess of loss covers.
Speaker Change: And our first question comes from the line of Tommy with joined with <unk>. Please proceed.
Tommy: Hey, good afternoon.
Megan: The improvement in our operating results enabled the refinancing of our debt facility with Blackrock in October, which we expect to reduce our run rate interest expense and 2025 by approximately 50% of.
Tommy: With what you see as some geographies and customer segments, allowing for selective rate decreases.
Tommy: And mapping that against others still needing rate increases what do you expect to be the direction of the premium per policy in the year ahead.
Megan: Blackrock has been a great partner to us over the past few years and we are pleased to continue our relationship with them.
Overall, it was a fantastic 'twenty 'twenty four for it but as Alex noted it's still early in our journey, we remain focused on growing in a thoughtful and disciplined manner, they're expanding our footprint in distribution channels and investing in opportunities for the business that present high return potential including measured.
Tommy: Yes, I think you are going to see us.
Tommy: File and continue to see some modest rate decreases and so that you will see apply some pressure.
Tommy: Two two average premiums now at the same time and we've talked about this before.
Tommy: We are still growing our independent agency channel as well as our partnership channel in those policies. They retained longer they usually have more vehicles associated with them and so they are fatter policies and so on a per policy basis you may.
Megan: Paramount across the marketing funnel.
Megan: We believe continued investments in our people and infrastructure as well as targeted customer acquisition investment to enable profitable growth is the right decision to drive long term success and shareholder value.
Tommy: See it to be relatively flat to modestly increasing.
Megan: Running the business and our lifetime unit economic framework Manpack, the degree of GAAP profitability in any given quarter, but we believe it will eventually translate to strong calendar year results just as we saw take place in 'twenty 'twenty four we remain excited for our future and appreciate your continued support with that we look forward to your question.
Tommy: Got it.
Tommy: And when we think about modeling the cession rate on your premium going forward as the fourth quarter a good run rate of that mid single digits number. It doesn't look like you can get much lower than that.
Speaker Change: Yeah, Thanks, Toni <unk>.
Speaker Change: The reinsurance structure has certainly evolved as you've seen our underwriting results improved over the last 24 months, we've been able to reduce the quota share sessions.
Megan: Yeah.
Speaker Change: Ladies and gentlemen at this time to begin the question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad and a confirmation tone will indicate your line is in the question queue.
Speaker Change: Quite a bit so yes going forward, our focus is going to continue to be purchasing the per risk and catastrophe reinsurance covers to continue to protect the business from tail risk events and volatility so.
Megan: You May press Star two if you would like to remove your question from the queue.
Megan: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Speaker Change: So you saw and in Q4, our session levels of earned premium were around 9%.
Speaker Change: And our first question comes from the line of Tommy Ms Joint with K B W. Please proceed.
Speaker Change: We do expect that the session levels going forward will be materially consistent with where they were in Q4.
Speaker Change: Hey, good afternoon.
Speaker Change: Thanks, and then just last one.
Speaker Change: With what you see as you know some geographies and customer segments, allowing for selective rate decreases.
Speaker Change: You gave some commentary about the retention levels on recent cohorts.
Speaker Change: Improving.
Speaker Change: And mapping that against others still needing rate increases what do you expect to be the direction of the premium per policy and in the year ahead.
Speaker Change: Are there any data points that you guys would be willing to share or disclose around what those retention versus churn metrics actually look like.
Speaker Change: Well no we are not going to share necessarily that any data additional data points right now but.
Speaker Change: Yeah, I think you are going to see us.
Speaker Change: Hi file and continue to see some modest rate decreases and so that you will see apply some pressure.
Speaker Change: What I will say is theres been a couple of things one on pitch churn.
Speaker Change: We have seen a lot of the sort of hyper growth penalty that we saw really coming out of 2023 into 2024, abate and normalize and said that as we've said before we'll be a tailwind to pip growth and so that certainly beneficial in terms of those new cohorts I think are.
Speaker Change: Two two average premiums now at the same time and we've talked about this before.
Speaker Change: We are still growing our independent agency channel as well as our partnership channel in those policies they retain longer they usually have more vehicles associated with them and so they are fatter policies and so on a per policy basis you may.
Speaker Change: Our retention is fairly consistent.
Speaker Change: See it to be relatively flat to modestly increasing.
Speaker Change: Got it thank you.
Thanks Tommy.
Speaker Change: Got it.
Speaker Change: As a reminder, if you would like to ask a question. Please press star one on your telephone keypad.
Speaker Change: And when we think about modeling the cession rate on your premium going forward as the fourth quarter a good run rate of that mid single digits number. It doesn't look like you can get much lower than that.
Speaker Change: And the next question will come from the line of Elyse Greenspan with Wells Fargo. Please proceed.
Speaker Change: Yeah. Thanks, Toni Yeah. The reinsurance structure has certainly evolved as you've seen our underwriting results improved over the last you know 24 months, we've been able to reduce the quota share sessions are quite a bit. So yeah going forward. Our focus is going to continue to be purchasing the per risk and.
Elyse Greenspan: Hi, Thanks, good evening.
Elyse Greenspan: My first question.
Speaker Change: So we're talking about in the prepared remarks right you guys are going to reduce rates as the loss ratio has kind of been trending below right the 60% to 65% target.
Speaker Change: As we see some rate reductions, which makes sense given the profitability where would you expect.
Speaker Change: Strophe reinsurance covers to continue to protect the business from terrorist events and volatility and so yeah, you saw and in Q4, our session levels of earned premium were around 9% and we do expect that the session levels going forward will be materially consistent.
Speaker Change: The loss ratio to settle out based on expectations right for some rate declines and what do you see from a loss trend perspective, when you think about 2025.
Elyse Greenspan: Thanks Elyse.
Speaker Change: With where they were in Q4.
Elyse Greenspan: We're really projecting a low to mid single digit loss trend is really what we're seeing right. Now in 2025. There is some uncertainty around that we're always monitoring that and if we ever see.
Speaker Change: Thanks, and then just last one.
Speaker Change: You gave some commentary about the retention levels on recent cohorts.
Speaker Change: Improving are there any data points that you guys would be willing to share or disclose around you know what those retention versus churn metrics actually it looked like.
Elyse Greenspan: That change, we would certainly change our rate position and we think particularly with our technology stack and our ability to detect those rates very quickly as you saw in the last inflationary environment, where we reacted very quickly and got the company into a position to grow faster than almost all of our competitors. We think we can do that again, if we see any changes in the macro.
Speaker Change: Well no we were not going to share necessarily that any data additional data points right now, but what I will say is theres been a couple of things one on pitch churn.
Elyse Greenspan: Economic.
Speaker Change: We have seen a lot of the sort of hyper growth penalty that we saw really coming out of 2023 into 2024, abate and normalize and said that as we've said before our well will be a tailwind to pip growth and so that's certainly beneficial in terms of those new cohorts you know I think our our retention is fairly.
Elyse Greenspan: Landscape.
Elyse Greenspan: I think youre going to see but right now our <unk>.
Elyse Greenspan: Expecting like I said low single digit trends low to mid single digit trends and.
Elyse Greenspan: Some slight rate decreases and so thats not going to net out to maybe some slight increases in the loss ratio, but nothing material.
Speaker Change: Consistent.
Elyse Greenspan: Okay. That's helpful and then we've seen.
Speaker Change: Got it thank you.
Elyse Greenspan: A couple of quarters in a row of positive earnings obviously right you guys are growing and there are some tradeoffs there.
Speaker Change: Thanks Tommy.
Speaker Change: As a reminder, if you'd like to ask a question. Please press star one on your telephone keypad.
Elyse Greenspan: How do you think about I guess have we seen an inflection in could you give us any sense of where you would expect earnings to trend in 2025.
Speaker Change: And the next question will come from the line of Elyse Greenspan with Wells Fargo. Please proceed.
Elyse Greenspan: We don't manage the company to a quarterly P&L, our quarterly earnings basis, we are always looking to manage the company to a lifetime value basis and.
Speaker Change: Yeah.
Elyse Greenspan: Hi, Thanks, and good evening. My first question on you know you guys were talking about you know in the prepared remarks right. You guys are going to reduce weight says that loss ratio has kind of been trending below right the 60% to 65% target.
Elyse Greenspan: We have seen a favorable growth environment year to date, we're continuing to see our loss ratio perform year to date as well and so we think there's lots of opportunities to actually scale the company and grow.
Elyse Greenspan: You know as we see you know some rate reductions, which makes sense given the profitability where would you expect you know the loss ratio to settle out based on expectations right for some rate declines and what do you see from a loss trend perspective, you know when you think about 2025.
Elyse Greenspan: And we're doing that through our partnership channel and adding additional partnerships, we're doing that through our.
Elyse Greenspan: Adding states and getting national and so youre going to continue to see state expansion from US and then lastly, we're going to continue to push new marketing channels that we're seeing in scaling those new marketing channels and all of that is going to result in additional growth now that may mean in a certain quarter you will see P&L pressure.
Elyse Greenspan: Yeah.
Elyse Greenspan: And thanks Elyse.
Speaker Change: We're really projecting a low to mid single digit loss trend that's really what we're seeing right now in 2025. There is some uncertainty around that we're always monitoring that and if we ever see.
Elyse Greenspan: Because we are investing into the business.
Elyse Greenspan: And we know that's the right investment to make over the long term, but in the short term you may see that actually reduce earnings in any given quarter.
Speaker Change: You know that change we would certainly change our rate position and we think particularly with our technology stack and our ability to detect those rates very quickly as you saw in the last Ah inflationary environment, where we reacted very quickly and got the company into a position to grow faster than almost all of our competitors. We think we can do that again, if we see any changes in the macro.
Elyse Greenspan: And then.
Speaker Change: You were saying rightful.
Elyse Greenspan: Low to mid single digit loss trend in 'twenty five.
Elyse Greenspan: How are you thinking about the impact of tariffs.
Speaker Change: So economic.
Speaker Change: Landscape.
Elyse Greenspan: And I guess, if there is some kind of impact it that'd be something we would really expect right in the back half I guess as opposed to perhaps.
Speaker Change: I think youre going to see but right now our we're expecting like I said low single digit trends are low to mid single digit trends and some.
Elyse Greenspan: Part of 'twenty five any color you could give there. Thank you.
Speaker Change: Some slight rate decreases and so that's not going to net out to maybe some slight increases in the loss ratio, but nothing material.
Elyse Greenspan: Thanks, Elyse, we're not right now predicting any impacts from the tariff does happen, we will be watching that real time and again.
Speaker Change: Okay. That's helpful. And then you know we've seen you know a couple quarters in a row right of positive earnings obviously right you guys are growing and there are some tradeoffs there.
Elyse Greenspan: Because of our technology platform when those changes happen through our reserving system that is automated we can detect those changes real time very quickly we can respond with rate trend and that's again, what put us in such a good position to grow our pip materially in 2024, and 2023 and so we do believe if a disruption like that happens in the Mac.
Speaker Change: You know how do you think about I guess, you know have we seen an inflection in you know can you give us any sense of you know where you would expect earnings to trend up in 2025.
Elyse Greenspan: Crow economic landscape through tariffs or otherwise that being on a tech chassis actually positions you better than a lot of our incumbent competitors and so we're constantly monitoring that and we are prepared to act very quickly and swiftly if that if anything changes in the environment.
Speaker Change: We don't manage the company to a quarterly P&L, our quarterly earnings basis, we are always looking to manage the company to a lifetime value basis and we.
Speaker Change: We have seen a favorable growth environment year to date, we're continuing to see our loss ratio performed year to date as well and so we think there's lots of opportunities to actually scale the company and grow.
Elyse Greenspan: Thank you.
Speaker Change: And we're doing that through our partnership channel and adding additional partnerships, we're doing that through our adding states and and getting national and so youre going to continue to see state expansion from US and then lastly, we're going to continue to push new marketing channels that we're seeing in scaling those new marketing channels and all of that is going on.
Elyse Greenspan: Okay.
Speaker Change: The next question comes from the line of Andrew Anderson with Jefferies. Please proceed.
Hi, guys. This is Charlie on for Andrew Congrats on the quarter.
Speaker Change: My first question is just around AD spend is going into 'twenty five.
Speaker Change: Can you guys talk about whether or not you're shifting the type of AD spend between the brand awareness spend versus performance marketing or I guess any color around directionally, how the bits and pieces in there should be moving this year would be helpful.
Speaker Change: Result in additional growth now that May mean in a certain quarter you will see P&L pressure, because we are investing into the business.
Speaker Change: And we know that's the right investment to make over the long term, but in the short term you may see that actually reduce earnings in any given quarter.
Speaker Change: Yes.
Speaker Change: Our increased investment in our acquisition spend we are going more up funnel, it's not brand awareness spend but it is more upfront and the channels like Youtube and video as well as more into direct mail and so we are seeing several channels that you would classify as more up funnel mid funnel channel.
Speaker Change: And then you know you were saying rightful low to mid single digit loss trend and twenty-five.
Speaker Change: How are you thinking about the the impact of tariffs and I guess, if there is some kind of impact it that'd be something we would really expect right in the back half I guess as opposed to perhaps the fun part of 'twenty five any color you could give there. Thank you.
Speaker Change: <unk> are working that's important though what we're not doing is just investing our marketing dollars to try to drive brand awareness. What we are doing is we are taking the same competency and the same technology that we built in lower funnel channels allows us to take all of the rich data and really assign exactly what an appropriate bid is for our customer and to.
Speaker Change: Yeah. Thanks at least we're not right now predicting any impacts from the tariffs if it does happen we will be watching that real time and again.
Cause of our technology platform when those changes happen through our reserving system that is automated we can detect those changes real time very quickly we can respond with rate trend and that's again, what put us in such a good position to grow our pip materially and try and 24 in 2023 and so we do believe if a disruption like that happens in the macro.
Speaker Change: Understand what our customers, whereas we're using that same technology in these data rich channels that are more mid to upper funnel channels. So that we can still drive returns. So we are taking it with the same level of discipline.
Speaker Change: And real rigor around making sure that we are hitting our IRR on all of those dollars that we invest and if we ever see that not the case, we will pull back.
Speaker Change: Economic landscape or through tariffs or otherwise that being on a tech chassis actually positions you better than a lot of our our incumbent competitors and so we're constantly monitoring that and we are prepared to act very quickly and swiftly if that if anything changes in the environment.
Speaker Change: But we are seeing meaningful opportunities to continue to invest in the business.
Speaker Change: In our direct channel and in new channels as well so it will be more mid to upper funnel, but that does not mean that it's just going to be brand awareness. We're still rigorously measuring every dollar we spend.
Speaker Change: Thank you.
Speaker Change: Okay. Thanks, and then just.
Speaker Change: A follow up.
Speaker Change: And the next question comes from the line of Andrew Anderson with Jefferies. Please proceed.
Speaker Change: Between the direct and the embedded our partnership channel.
Speaker Change: Where are you guys seeing better returns going into 2025.
Speaker Change: Hi, guys. This is Charlie on for Andrew Congrats on the quarter.
Speaker Change: I'd say, both both of those channels really are operating at our target returns.
Speaker Change: My first question is just around AD spends going into 'twenty. Five can you guys talk about whether or not you're shifting the type of AD spend between like brand awareness spend versus performance marketing or I guess any color around directionally, how the bits and pieces in there should be moving this year would be helpful.
Speaker Change: There are some puts and takes for each channel certainly in the direct channel you have low customer acquisition cost, but you expense a lot of those dollars upfront in the embedded channel and the partnerships channel.
Speaker Change: We're continuing to see real momentum, we see longer retention in those channels, we see higher average premiums in those channels and it's and it's a commission rate, which all and might mean higher customer acquisition costs, but you incur those over a longer period of time and so we're actively investing in both channels on the embedded side, we're investing in technology and development.
Speaker Change: Yeah in our on our increased investment in our acquisition spend we are going more up funnel, it's not brand awareness spend but it is more up funnel into channels like Youtube and video as well as more into direct mail and so we are seeing several channels that you would classify.
And continuing to scale, our embedded platform and then on direct we're really investing again more inside of that data platform. So that we can continue to expand in the mid to upper upper funnel channels.
Speaker Change: As more up funnel or mid funnel channels are working that's important though what we're not doing is just investing our marketing dollars to try to drive brand awareness. What we are doing is we are taking the same competency and the same technology that we built in lower funnel channels that allows us to take all of the rich data and really assign exactly what an appropriate.
Speaker Change: Okay, and then just kind of following up on that specifically I think over the past couple of quarters, we've talked about competition.
Speaker Change: And how that's ramping at different competitors might be and better positions with their books do you expect the dynamics as you see them right now between the two channels to be consistent going through 'twenty five or would you expect those dynamics to shift in the back half.
Speaker Change: Preet bid is for our customer and to understand what our customers, whereas we're using that same technology. In these data rich channels that are more mid to upper funnel channels. So that we can still drive returns. So we are taking it with the same level of discipline and real rigor around making sure that we are hitting our IRR on all of those dollars that we invest and if we ever see that not the case, we will pull back.
Speaker Change: So I'd say, we're really expecting that.
Speaker Change: To stay pretty consistent we're always monitoring the competitive environment, we did see competition increase a bit in Q4.
Speaker Change: But we are seeing meaningful opportunities to continue to invest in the business.
Speaker Change: But I think really we're anticipating it to be fairly stable from here.
Speaker Change: In our direct channel and in new channels as well so it will be more mid to upper funnel, but that does not mean that it's just going to be brand awareness. We're still rigorously measuring every dollar we spend.
Speaker Change: Okay.
Speaker Change: Thanks for the answers guys.
Speaker Change: Thanks, Charlie.
Speaker Change: Thank you.
Speaker Change: Okay. Thanks, and then just a follow up between the direct and the embedded our partnership channel.
Speaker Change: There are no further questions at this time I would like to turn the call back that Alex Xu for closing remarks.
Speaker Change: Thanks, everybody for joining and I want to especially thank the team at root for delivering what was yet again another tremendous quarter. Thanks everybody.
Speaker Change: Where are you guys seeing better returns going into 2025.
Speaker Change: I'd say, both both of those channels really are operating at our target returns.
Speaker Change: This concludes today's conference you may disconnect your lines at this time and enjoy the rest of your day.
Speaker Change: There's some puts and takes for each channel certainly in the direct channel. You know you have low customer acquisition costs are but you are expense a lot of those dollars upfront in the embedded channel and the partnerships channel I'm, we're continuing to see real momentum, we see longer retention in those channels, we see higher average premiums in those channels.
Speaker Change: And it's a commission rate, which all and might mean higher customer acquisition cost, but you incur those over a longer period of time and so we're actively investing in both channels on the embedded side, we're investing in technology and development and continuing to scale our embedded platform and then on direct we're really investing and getting more inside of that data platform. So.
Speaker Change: We can continue to expand in the mid to upper upper funnel channels.
Speaker Change: Okay, and then just kind of following up on that specifically I think over the past couple of quarters, we talked about competition.
Speaker Change: And how that's ramping as different competitors might be in and better positions with their books do you expect the dynamics as you see them right now between the two channels to be consistent going through 'twenty five or would you expect those dynamics to shift in the back half.
Speaker Change: So I'd say, we're we're really expecting that our to stay pretty consistent we're always monitoring the competitive environment. We did see competition increase a bit in Q4.
Speaker Change: You know I think really where we're anticipating it to be fairly stable from here.
Speaker Change: Okay.
Speaker Change: Great. Thanks for the answers guys.
Speaker Change: Thanks, Charlie.
Speaker Change: Thank you.
Speaker Change: There are no further questions at this time I would like to turn the call back that Alex Tim for closing remarks.
Alex Tim: Thanks, everybody for joining and I want to especially thank the team at root for delivering what was yet again another tremendous quarter. Thanks everybody.
Alex Tim: This concludes today's conference you may disconnect your lines at this time.
Alex Tim: Enjoy the rest of your day.
Alex Tim: [music].
Alex Tim: Okay.
Alex Tim: Okay.
Alex Tim: Okay.
Alex Tim: Okay.
Alex Tim: Yeah.
Alex Tim: Uh-huh.