Q4 2024 Lemonade Inc Earnings Call
God Bless and God bless!
Maxine: Hello, and welcome everyone should eliminate fourth quarter 'twenty 'twenty four earnings call. My name is Maxine and I'll be coordinating today's call. If you would like to ask a question. You made these type of questions Doctor led by one and you said I think he pad.
James: I will now hand, James <unk> director of communications at eliminates the game. That's a please go ahead.
Speaker Change: Good morning, and welcome to eliminate fourth quarter 2024 earnings call joining us on our call today, we have Daniel Schreiber, CEO and co founder shy reading Gardner, President and co founder and Tim Bixby, Chief Financial Officer.
Maxine: Our letter to shareholders covering the company's fourth quarter 2024 financial results is available on our Investor Relations website at investors that lemonade dotcom.
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.
Actual results may differ materially from those indicated by these forward looking statements as a result of various important factors, including those discussed in the risk factors section of our Q3 2023 Form 10-Q filed with the SEC on October 31, 'twenty 'twenty, four and our other filings with the SEC.
Any forward looking statements made on this call represent our views only as of today and we undertake no obligation to update them.
We will be referring to certain non-GAAP financial measures on today's call, including adjusted EBITDA adjusted free cash flow and adjusted gross profit, which we believe may be important to investors to assess our operating performance.
Maxine: Reconciliations of our non-GAAP financial measures to the most directly comparable GAAP financial measures are included in the letter to shareholders.
Maxine: Our letter to shareholders also includes information about our key performance indicators, including customers enforced premium premium for customer annual dollar retention gross earned premium gross loss ratio gross loss ratio ex cat trailing 12 month loss ratio and net loss ratio and a definition of each metric why each of.
Maxine: Useful to investors and how we use each to monitor and manage our business.
Daniel: With that I'll turn the call over to Daniel for some opening remarks Daniel.
Daniel: Good morning, and thank you for joining us to discuss eliminates results for Q4 2024.
Daniel: Cost of food Guy Michael about Kpis, the fourth quarter was comfortably a best quarter ever.
Daniel: Rounding out a very strong 2020 full itself best year, so far.
Maxine: Q4 saw continued accelerating growth ending the year at 26% IP growth, marking our fifth consecutive quarter of accelerating top line growth.
Daniel: Our topline come at the expense of our bottom line.
Daniel: Besting our own prior guidance and expectations Q4 delivered adjusted free cash flow of $27 million, a strongest sorry about.
Maxine: <unk> enjoyed that to 'twenty to 'twenty four overall was cash flow positive to the tune of $48 million, our first cash flow positive year.
Maxine: This is a key milestone for obvious reasons and we are thrilled to cross it a full year ahead of expectations.
Maxine: Underpinning. These results was our loss ratio on a TTM or trailing 12 month basis, the more steady and dependable metric.
Maxine: We ended the year at 73% gross loss ratio right, where we wanted to be and 12 points improved year over year powering significant margin expansion our results for the quarter at 63% is our best result ever and by some margin.
Maxine: We're obviously pleased with this result, particularly against the backdrop of notably active cat year and inflationary pressures.
Maxine: Accelerating top line growth and gross margin expansion isn't attractive combination yielding outstanding gross profit growth rates, our gross profit doubled year over year to $167 million again, a record high for laminate.
Maxine: Below the gross profit line, we continue to deliver considerable operating leverage with operating expenses, excluding group spend declining in inflation adjusted terms in 2024 as compared to 2023.
Maxine: The upshot of these trends in Q4, excluding growth spending we were EBITDA positive for the first time, the fact pattern that reinforces our confidence and I Trust yours too eliminates projected path to profitability.
Maxine: Looking ahead to 2025, we expect more of the same we will grow the business while scaling the operation.
Maxine: Our guidance for 2025 contemplates RFP growth of 28%.
Maxine: Stained acceleration towards our targets cruising velocity in the 30 as expected next year.
Maxine: With our loss ratio would now within our target range.
Maxine: I plan to continue delivering operational efficiencies, we expect to see sustained positive adjusted free cash flow and sequential EBITDA improvement for the full year of 2025.
Maxine: These are notable particularly given our plans to ramp gross spend by approximately 40% year over year. In addition to the expected impact from the devastating California fires.
Maxine: All told while the California fires token on variable toll on the communities of Los Angeles.
Maxine: We are gratified that our people technologies and financials, all prove themselves true to the moment.
Shai: To give you more color on these fires a response to them and the impact on US, let me hand over to Shai Shai.
Shai: Thanks Daniel.
Maxine: First let me say our hearts go out to those affected by the California wildfires.
Maxine: We extend our deepest sympathies for those who have suffered from this terrible event.
Maxine: I am proud to report that eliminate team did an incredible job handling this catastrophe by helping hundreds of policyholders and their families on the ground.
Maxine: We use our AI platform and well trained team to deliver an unprecedented level of service quality settling hundreds of claims in real time, even as the fires raged on.
Maxine: You will find more detail in our shareholders letter.
Maxine: <unk> some incredible feedback received from affected customers, who spoke about the great eliminate experienced during a very difficult time.
Maxine: This event.
Maxine: Our team's response to it points to the efforts made to create systems that allow a seamless collaboration between humans and machines working together to care for people at their time of greatest need.
Maxine: It's really the essence of why eliminate exists.
Maxine: I'll leave the full coverage of the impact of the California fires for the next quarters, earning report.
Maxine: But what I can already say is that our cautious underwriting.
Maxine: And geographic diversification and strong reinsurance programs, all positioned us well for moments like these.
Maxine: Indeed, some of the market share based loss assumption calculations done by some investors and analysts yielded the loss estimates for eliminate well north of $200 million.
Maxine: That's about five times higher than our actual experience on a gross loss basis.
Maxine: These events are expected to lead to approximately $20 million EBITDA impact overall.
Maxine: We're able to achieve this outcome due to our conservative homeowners underwriting strategy and the gradual removal of higher risk homeowners policies from our book.
Maxine: We expect to continue to see AI driven efficiency gains this year.
Maxine: When excluding the impact of the California fires, our EBITDA guidance reflects approximately a 25 year over year improvement, even as we expect our business to grow by 28%.
Speaker Change: With that let me turn over the call to Tim to cover our financial results and guidance in more detail Tim.
Tim: Thanks, Sean.
Tim: I'll review highlights of our Q4 results and provide our expectations for Q1 and the full year 2025, and then we'll take some questions.
Tim: In short our Q4 financial results were exemplary across the board and kept a very strong year for eliminate we remain very much on track with our ambitious goals for positive EBITDA by the end of next year loss ratio tracking to target consistently accelerating topline growth with little change in fixed overhead expenses.
Tim: And very favorable cash flow dynamics Q.
Tim: Q4 brought our best ever loss ratio, helping to drive a near doubling of gross profit in 2024.
Tim: In force premium grew 26% to $944 million, while customer count increased by 20% to $4 million.
Tim: Premium per customer increased 5% versus the prior year to $388.
Tim: Given primarily by rate increases.
Tim: Annual dollar retention, our ADR was 86% down one percentage points. Since this time last year, the slight sequential decline and year on year decline is not unexpected given our efforts to reduce the less profitable portions of our home book in the second half of the 2024.
Tim: These efforts likely dampened our ADR by about three percentage points.
Tim: Gross earned premium in Q4 increased 25% as compared to the prior year to $226 million in line with ISP growth.
Tim: Revenue in Q4 increased 29% from the prior year to $149 million.
Tim: The growth in revenue was driven by the increase in gross earned premium a slightly higher effective ceding commission rate under our quota share reinsurance structure.
Tim: And a 32% increase in investment income.
Tim: Our gross loss ratio was 63% for Q4 as compared to 77% in Q4, 2023 and 73% in Q3 2024.
Tim: Excluding the total impact of cats in Q4, which was roughly one percentage point, our gross loss ratio ex cat was 62%.
Tim: Total gross prior period development had a roughly 5% favorable impact.
Tim: With a negligible portion of that driven by cat.
Tim: We saw this favorable prior period development across all products with the exception of our pet product line.
Tim: On a net basis prior period development at a roughly 7% favorable impact of which approximately 1% was from cat.
Tim: Trailing 12 months or TTM loss ratio was about 73% or 12 points better year on year and four points better sequentially.
Tim: All of these insurance metrics and more are included in our insurance supplement that you'll find at the end of our shareholder letter.
Tim: Gross profit increased 90% as compared to the prior year, driven primarily by premium growth and significant loss ratio improvement.
Tim: While adjusted gross profit increased 88% driven by premium growth and loss ratio improvement.
Tim: Operating expense, excluding loss and loss adjustment expense increased 38% to $124 million in Q4 as compared to the prior year driven primarily by an increase in gross spend.
Tim: Other insurance expense grew 35% in Q4 versus the prior year.
Tim: Slightly ahead of the growth of earned premium.
Tim: Total sales and marketing expense increased by $23 million or <unk>, 95%, primarily due to increased gross spend of approximately $23 million.
Tim: And a modest customer support expense increase.
Tim: Total gross spend in the quarter was $36 million more than double the $13 million in the prior quarter.
Tim: Full year gross spend more than doubled in 2024 from $55 million to $122 million.
Tim: We continue to utilize our synthetic agents growth funding program and have continued to finance, 80% of our growth spend.
Tim: As a reminder, youll see 100% of our gross spend flows through the P&L as always while the impact of the growth mechanism is visible on the cash flow statement and the balance sheet and the net financing to date is about $83 million as of December 31.
Tim: Technology development expense was up just 3% year on year to $22 million, while G&A expense increased 16% as compared to the prior year to $34 million, primarily due to increasing interest expense from our financing agreements.
Tim: Personnel expense and head count control continued to be a high priority total head count is down about 2% as compared to the prior year at 235, while the topline RFP again grew fully 26%.
Tim: Net loss was $30 million in Q4, or a loss of <unk> 42 per share as compared to a net loss of $42 million.
Tim: <unk> 61 per share in the prior year.
Tim: Adjusted EBITDA loss was $24 million in Q4 versus an EBITDA loss of $29 million in the prior year.
Tim: Our total cash cash equivalents and investments ended the quarter at approximately $1 billion up $42 million versus the prior quarter and up $76 million for the full year.
Tim: Showing continuing positive net cash flow trend.
Tim: With these metrics in mind I will outline our specific financial expectations for the first quarter.
Tim: And the full year of 2025.
Tim: From a growth spend perspective, we expect to invest roughly $35 million in Q1 to generate profitable customers with a healthy lifetime value.
Tim: This amount will likely increase in both Q2 and Q3 and then May decline somewhat in Q4 to a level similar to the Q1 gross spend rate.
Tim: Totaling roughly $165 million for the year.
Tim: This expected quarterly spend pattern is similar to what we've seen in prior years.
Tim: For the first quarter of 2025, we expect enforced premium of between $997 million and $1 billion.
Tim: Gross earned premium of between 229 and $231 million revenue of.
Tim: Between 143 and $145 million and.
Tim: <unk> EBITDA loss of between 49 and $46 million.
Tim: This does include an approximately $20 million expected impacts from the California wildfires.
Tim: Without that fire impact that guidance would be as a result about $20 million better.
Tim: Stock based compensation expense of approximately $18 million capital expenditures of approximately $2 million.
Tim: And a weighted average share count of approximately 73 million shares.
Tim: And for the full year 2025, we expect enforced premium at year end between 123 and $1 $8 billion.
Tim: Gross earned premium of between one point <unk>, five and $1.028 billion Rev.
Tim: Revenue between 655, and $657 million and adjusted EBITDA loss of between 140 and $135 million is also includes that same $20 million is expected to be a headwind from the California wildfires I mentioned in the Q1 figures.
Tim: Also expect stock based compensation expense for the full year of approximately $60 million capital expenditures of approximately $10 million and a weighted average share count for the full year of approximately 74 million shares.
Tim: And with that I would like to hand things back over to Shai to answer some questions from our retail investors.
Shai: Thanks, Tim.
Tim: I will now turn to our shareholders' questions submitted through the same platform.
Shai: There were several questions about our car business, including our strategy to convert car customers from our waitlist expected loss ratios or new car customers our go to market strategy.
Tim: Thailand customer rates in the future and the impact of self driving cars on our business.
Tim: Let me try to tackle all of these together.
Tim: We spoke about her car strategy in great detail in November so I would invite you to kindly check or presentations, specifically those delivered by Daniel and Maya.
Speaker Change: Car insurances, indeed of top strategic priority at the moment.
Speaker Change: <unk> is expected to be a significant growth engine in the next phase.
Tim: With Unparallel telematics technology and adoption.
Tim: We are at the cutting edge of precision car insurance.
Tim: The essence of our growth strategy is that our best in class first party data will enable us to offer unbeatable prices for the customers we want.
Tim: And it is absolutely true that we possess a structural tailwind in the form of a waitlist and well over 2 million active customers we.
Tim: We expect this will enable us to grow the car business with efficiency levels unavailable to our competitors.
Tim: I do think it's important to highlight that our car product is currently only available in eight states and we expect to begin ramping that up considerably through 2025 and 26 <unk>.
Tim: Something that will be needed before we can fully tapped that 2 million plus pool of customers.
Tim: There are exciting early indications in experiments we're running.
Tim: That prove our thesis.
Tim: We're seeing considerable conversion rate unlocks alongside attractive new customer lifetime loss ratios.
Tim: His early days on some of those tests and we expect to cover these topics in more detail in upcoming quarters.
Tim: As far as some of the more future oriented elements of the question. We don't see any reason why we shouldnt be able to realize best in class multiline customer rates in the long term.
Tim: By delivering a truly delightful insurance experience our goal is to capture maximum wallet share across our customers' insurance needs.
Tim: As for self driving cars.
Tim: We're keeping a close eye on this.
Tim: The disruption that has the potential to alter how risk is allocated in the car business.
Tim: Dislocations like these create tremendous innovation opportunities for Disruptors that don't have large legacy business to protect.
Tim: We follow these developments with keen interest, but that's all I can say on that topic right now.
Tim: Moving to the next question.
Tim: I understand that growth should always come with profitability and careful capital reserves.
Tim: In that light do you see at 30% annual growth is a growth ceiling or could eliminate surprised with 40 or 50% growth sometime in the future.
Tim: We recently guided to and expected multiyear growth rate in the <unk> beginning in 2026.
Tim: That is based on what we know today.
Tim: As we pursue our strategy. It is entirely possible that we may realize unlocks in our unit economics that altered the status quo that can come from multiple places.
Tim: <unk> cross sell retention marketing efficiency or other drivers.
Tim: Rest assured that we love growth and will leave no stone unturned in our pursuit of sustained acceleration.
Tim: Similarly rest assured that we will continue to do so in a long term profitable manner.
Tim: And with that let me turn 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.
Tim: So all that stuff, but if I have one.
Tim: Kepler.
Tim: Please proceed.
Tim: Right.
Tim: Your question. Please ensure that your line is on mute.
Tim: Our first question.
Tim: Okay.
Tim: Morgan Stanley.
Tim: Okay.
Tim: Yeah.
Tim: Your line is now open. Please go ahead.
Tim: No.
Tim: Hi, good morning, Hi.
Tim: So my first question is on.
Tim: The.
Tim: Auto market and also your path to profitability.
Tim: Obviously, one of the things you guys talked about it.
Tim: The current are growing into a personal auto business and then obviously that business is fairly competitive and asking.
Tim: To expand your business mix.
Tim: More of a business mix shift can you maybe talk about.
Tim: What is a path to GAAP net income profit going forward.
Tim: Just on the guidance you've provided in 2025 can you maybe also help us contextualize, how that guidance into an eventual GAAP net income profitability.
Tim: Yes.
Tim: Okay.
Tim: Sure.
Tim:
Tim: A couple of thoughts so I think the.
Tim: The general overall path from a product mix standpoint, with and particularly with regard to car was laid out pretty carefully at our Investor day, we're in the process now of.
Tim: Shifting from car as they did.
Tim: Declining business in terms of customer count, but a very stable business in terms of in force premium.
Tim: To a point now where our loss ratios have come down significantly.
Tim: Over the past year, it's not quite at our target, but it's getting awfully close and so now over the course of 2025, we will continue to see that shift from.
Tim: Somewhat declining rate of customer count and stable IP.
Tim: To a growing customer count as loss ratio continues to improve over the longer term, we laid out a plan where car represented something like 40% of our total book of business and our multi year long term plan, so still less than half the business.
Tim:
Tim: And at that time would be still a very small part of what you are correct. It is a competitive market in terms of our path to profit.
Tim: Have laid out for almost three years now.
Tim: Unchanged.
Tim: So cash flow positive actually was changed came in a little bit.
Tim: About a year ahead of our original plans in this past year 2024, we are still on track as we have been for two plus years to be EBITDA positive.
Tim: 2025 that will be followed by <unk>.
Tim: We expect continuing EBITDA positive.
Tim: I'm, sorry, I said 'twenty 'twenty five 'twenty six.
Tim: So that is unchanged and then GAAP profitability, while we haven't given an exact date, because that's a little harder to project that a lot of.
Tim: Nonoperating components as you know that come into net loss, we expect that to follow within roughly a year thereafter and that is also unchanged.
Tim: If car grows somewhat faster we're still confident.
Tim: In those projections if car growth somewhat slower same story.
Tim: London mental.
Tim: Sort of truth of our business model is that our mix of product and shift a fair bit yet it doesn't fundamentally change the cash flow dynamics and the long term sort.
Tim: From a capital allocation dynamics, and that's something that gives us great confidence in it is really why those projections haven't changed much at all for almost three years.
Tim: Alright, I really appreciate it that's it sounds like net GAAP income positive exiting 2025 or thereabout give or take.
Tim: So maybe I'll take LTV to CAC.
Tim: Sorry go ahead.
Tim: Yes, that's a fair estimate.
Tim: Okay got it.
Tim: My follow up with that.
Tim: That business mix shift and then how you think about LTV to CAC right like currently in your shareholder letter you were talking about a three to one LTV to CAC at that business mix shift.
Tim: Does your LTV.
Tim: <unk> changed going forward in other words.
Tim: That business mix shift will change the 301 LTV to CAC ratio or how should we think about that.
Tim: Yeah.
Tim: So historically we've seen.
Tim: A fairly significant mix change in our business and yet that metric has remained fairly stable now part of that is because we're choosing how to allocate our growth spend in the way that.
Tim: <unk> delivers the highest return and over time that gives us great flexibility to grow one product versus another grow one region versus another or emphasize one channel versus another and so some of that is by our choice. We will continue to stand where that overall LTV to CAC remains in that target range now that.
Tim: The end customer the last customer requiring it's going to be less than three to one and thats a good thing because it enables us to test new channels and new geographies.
Tim: And new approaches, but that first customer is much more valuable.
Tim: Each quarter as we as we spend and so that 301 has been quite reliable we did see some exception a year or year and a half ago, where our spend rates were somewhat more.
Tim: Subdued there were somewhat lower and then your LTV to CAC not surprisingly increases we saw numbers.
Tim: In the fours and nearing five but at our as we kind of get through our cruising growth rate growth rate next year of 30% annual <unk> growth or better as we intend.
Tim: Can you sort of track to that three to one.
Tim: 301 level, there's a lot of component as you mentioned that go into that.
Tim: We're discounting conservatively, we factor in the expected losses.
Tim: Expected upsell.
Tim: Our dollar retention is strong and so all of those are factored into our LTV calculations.
Tim: Alright, Thank you really appreciate it.
Tim: Okay.
Tim: Thank you. The next question comes from Jason <unk>.
Speaker Change: From Oppenheimer. Please go ahead Sir.
Tim: Yeah.
Tim: Thanks for taking my questions.
Tim: The California fires.
Tim: Any development since the analyst day, which was quite robust.
Tim: Hello.
Tim: And any other developments worth calling out or changed in 2025 strategy.
Tim: And then just two quick housekeeping.
Tim: The disclosure on the California impact include the fair plan assessment or could that be incremental to what you've already disclosed and then just can you review the timing of our rate increases during 'twenty five can we assume they tend to be like more midyear.
Tim: Even lease spreads.
Tim: Yes.
Tim: Sure.
Tim: So let me let me take a few of those in order a reverse order actually so rate increases.
Tim: Somewhat smooth so we're nearing.
Tim: Adequacy across almost across the board, but theres still rate to earn in but I would think of that as more.
Tim: Somewhat more smoothed over the year the fair plan is taken into account.
Tim: Just as a reminder, everything related to California is a Q1 event Q1 is still in our future, but we do have a lot of data at this point, obviously and so we factored in everything we know about and we do know about what we expect the fair plan assessment.
Tim: Assessment to be with regard to the long term plan at Investor Day.
Tim: I would.
Tim: And to give you a headline that everything is exactly on track.
Tim: That's a good thing Q4 came in really nicely.
Tim: The cat experience was sort of round it almost a zero and thats.
Tim: That is a good result that is somewhat better than are.
Tim: There are definitely better than expected.
Tim: But across the board, we're just seeing nice continued trends.
Tim: That we've seen through most of 'twenty four really strong.
Tim: <unk> growth in European customers.
Tim: Hitting on all cylinders as we spoke about.
Tim: <unk> stable.
Tim: Even though there has been a customer count change there.
Tim: And even our ADR.
Tim: Environment, where we were able to mitigate our risk and our home business as we spoke about last year, a couple of times to make sure that when something like the California fires happens that we are.
Tim: Not immune to it but we are conservative and protected from from real downside, even despite all that the ADR as we noted came in only one point less.
Tim: Without those conservative efforts around home that might have been something like three points better as we noted in the letter so really everything right on track with our detailed analysis in November.
Tim: Okay.
Tim: Thank you.
Tim: Okay.
Speaker Change: Thank you. The next question comes from Tony <unk> from <unk>. Please go ahead, Tony Your line is now open.
Tony: Hey, good morning, Thanks for taking our question.
Speaker Change: You pointed to.
Speaker Change: And well communicated a sizable uplift in the growth spend in 2025 to accelerate ISP growth back towards 30%.
Speaker Change: Should we think of the level of growth spend in 2025 as likely to stay roughly the same in absolute terms.
Speaker Change: In the years beyond 2025 in order to keep that that cruising pace, you talked about a 30% growth.
Speaker Change: I would expect it to continue to grow in absolute terms, but not to grow in percentage percentage terms at the magnitude you've seen last year 'twenty three 'twenty four and 'twenty four 'twenty five in absolute terms will grow.
Speaker Change: But.
Speaker Change: The growth rate will decline and Thats really what enables us to kind of keep all of the parts in balance as we get to that that EBITDA breakeven point when.
Speaker Change: When we see LTV to CAC, improving or we see.
Speaker Change: Some positive impacts and we're able to kind of increase that growth spend.
Speaker Change: Proactively.
Speaker Change: To do that we've done that in the past, but right now.
Speaker Change: It is our assumption.
Speaker Change: What we know today.
Speaker Change: Okay.
Speaker Change: Got it is there are not at not an ability to perhaps keep that growth spend similar and just focus on.
Speaker Change:
Speaker Change: Cross selling existing products and is there sort of zero growth standard required to.
Speaker Change: To fund the growth that's through cross sale.
Speaker Change: Short answer is yes, I think thats absolutely.
Speaker Change: True and over time that ability to cross sell and.
Speaker Change: And upsell customers.
Speaker Change: The efficiency of doing that will increase as you go from we've gone from 1 million customers to $2 million that we are heading to $3 million.
Speaker Change: That will only increase over time.
Speaker Change: Whether we would choose to keep it dead flat zero. That's a choice. We can we can make but absolutely that theme and that trend youre right.
Speaker Change: Okay, and then just last one on the growth side are you deploying.
Speaker Change: I guess, what youre deploying this year or is it focused on growing in any one particular product line.
Speaker Change: And do you expect the car side to see an uplift this year.
Speaker Change: So a continued gradual shifts.
Speaker Change: So I wouldn't think of it as like a break in the pattern, but a gradual shift.
Speaker Change: The growth drivers over the past year have really been.
Speaker Change: Pet number one.
Speaker Change: With car stable and renters, certainly growing as well, you'll now start to see that shift where where car we will start to become a bigger percentage of the overall business.
Speaker Change: Europe continues to do its thing.
Speaker Change: Heading towards used to be a couple of percentage points of the business, that's probably heading towards something like five so.
Speaker Change: It's starting to become a material driver.
Speaker Change: Pet, though it's a small business is growing.
Speaker Change: 25%, a year or more as the market and so that's not something to be.
Speaker Change: Ignored but in aggregate.
Speaker Change: The car market is the biggest and that's.
Speaker Change: Thats, where youll see the most fundamental change.
Speaker Change: <unk> 234 years.
In particular.
Speaker Change: Alright.
Speaker Change: Got it thanks, Dan.
Speaker Change: Thank you. The next question comes from Andrew Andrew Simpson Jefferies. Please go ahead Angie Your line is now open.
Speaker Change: Hey, good morning.
Speaker Change: I heard you talk about opex growth and growth spend or Opex spend can you maybe just expand on technology development spend it was kind of flattish year over year and lower as a percentage of premiums earned but.
Speaker Change: I would think just the tech forward company Youre still going to be spending a bit how do you see that kind of going into 'twenty five 'twenty six.
Speaker Change: Okay.
Speaker Change: Yes, that's a line where you see really terrific leverage so when you think about the productivity of that team it's growing dramatically.
Speaker Change: Exponentially might be it might be a stretch because of a math major but it is growing significantly the amount of.
Speaker Change: Product and content.
Speaker Change: Coming out of what's really a roughly a fixed team in terms of size and cost continues to increase every day every week every month and Thats a trend that we've seen for some time.
Speaker Change: If you track our head count that's a big part of why we've been able to see.
Speaker Change: Actually a decline in total head count.
Speaker Change: That doesn't mean, there is a decline in hiring.
Speaker Change: Natural turnover that happens at a company and so we're constantly looking for great skills and assets to bring into the business.
Speaker Change: And that's something that does not change, but if we can drive and support the times of automation that we're seeing now that tech team. Our current testing has the ability to support a business that's twice as big or five times a day.
Speaker Change: Without significant.
Speaker Change: Dollar or cost increases.
Speaker Change: I guess I'd just add Andrew.
Speaker Change: I'm sorry.
Speaker Change: We are seeing in our engineering team is something that we spoke about in our Investor day.
Speaker Change: Some of our London teams.
Speaker Change: Which is that we have.
Speaker Change: As you're walking phenomena, but it's just not all human.
Speaker Change: So we're finding that we're able to harvest AI and engineering very powerful ways.
Speaker Change: You'll see some of the largest tech companies in the world to talk about how much of that code is not being driven by AI.
Speaker Change: Most of the <unk>.
Speaker Change: <unk> extract from using these technologies.
Speaker Change: Definitely our output continues to grow.
Speaker Change: Human head count does not.
Speaker Change: Thanks, and then on the auto Waitlist Us 700000.
Speaker Change: Not too familiar with what exactly this metric is this is that states, where you plan to be actively writing in the next couple of years have you maybe done preliminary preliminary pricing on the back end of these customers how could we think of if we're to think of that as a submission number how could we think of perhaps a quote ratio back to back.
Speaker Change: To it.
Speaker Change: Yes, we've seen a tremendous amount of demand for our core product, where you kind of spoke in broad terms about how we're still holding it back a little bit shy referenced some of the testing that we're doing about different ways to accelerate its growth and the early results have been nothing sort of.
Speaker Change: Tommy.
Speaker Change: Very encouraging to us.
Speaker Change: Before we on the rapid growth, we have to make sure that everything we've seen.
Speaker Change: Car growth run away from companies that haven't got all the foundations in place we are keen to not let that happen to us and therefore, we are.
Speaker Change: I'm being restrained and engines are rubbing, but we're not we're not putting it into first gear fully quite yet so many come I suppose I should hold myself.
Speaker Change: You get the idea.
Speaker Change: And so I think that during the course of this year, we will see the results of all the different tests that we have running.
Speaker Change: As I say kind of a sneak peak of that we've been doing better and faster than we anticipated.
Speaker Change: Until that happens until we feel that we could scale, there's hundreds of millions of dollars rapidly and ultimately by billions of dollars without it causing.
Speaker Change: Degradation of our underlying business.
Speaker Change: When we get to that point Youll see us and we could not before that we will spend much of 2025 still tinkering in that regard I'm hopeful that towards the end of the year, we will have passed that threshold in different places.
Speaker Change: You're talking about to your question, but we are now live in about the statement.
Speaker Change: Comprise roughly 25% of the U S population.
Speaker Change: That does not overlap necessarily will be 70% wait list.
Speaker Change: In fact, it's probably underweighted from people in their states don't have to be on the waitlist. They can just buy the product.
Speaker Change: So.
Speaker Change: There isn't.
Speaker Change: The kind of the weightlifting cause and predominantly.
Speaker Change: People in state.
Speaker Change: And we haven't offered it yet we will start to add states as we go through this year and accelerate that significantly going into 2026.
Speaker Change: Great. Thank you.
Speaker Change: Thank you. The next question comes from K T.
Speaker Change: <unk> Autonomous research. Please go ahead Peter your line is now open.
Speaker Change: Thank you and good morning.
Speaker Change: Wanted to go back to the ISP guide.
Speaker Change: And thinking about 28% in 2025 relative to the 30% goal right.
Speaker Change: The shareholder letter you guys mentioned that you were entering 2025 with rate adequacy across the majority of the portfolio, which to me would kind of imply being.
Speaker Change: Being in a position that you are ready to grow across the majority of the portfolio. So.
Keeping that in context with the increase in gross spend expected in 2025 watts.
Speaker Change: Thing that ISP growth rate from hitting 30% this year.
Speaker Change: Our growth rate.
Speaker Change: I've said over time.
Speaker Change: I believe it's still true is really of our choosing.
Speaker Change: We can grow faster or slower within a pretty tight range, depending on how much growth spend allocate.
Speaker Change: And so.
Speaker Change: Our goal is to build for the short term and for the long term and so we could potentially grow faster in the very short term.
Speaker Change: But that those those choices might impinge, our ability to grow in 'twenty six 'twenty seven or over the long term plan and so we're balancing those two.
Speaker Change: As we allocate capital our growth our top line has accelerated every quarter for six quarters our guidance implies.
Speaker Change: Growth, yet again to roughly 20% Iot growth year on year right on track with what we highlighted at our Investor day.
Speaker Change: Just shy of 30% that we said would be coming as expected in 2026 and beyond so all systems are go.
Speaker Change: <unk>.
Speaker Change: Growth for us is not something that happens to us we really drive it.
Speaker Change: And because we want to allocate capital in the most efficient way.
Speaker Change: For both the short term and the long term and we're tracking not just for growth, we're tracking to breakeven and profitability and beyond that's what.
Speaker Change: Really gives us comfort that growing 28% versus $25 to 35 is the right range. At this time, if you look back at our track record over six quarters you can see.
Speaker Change: Very distinct consistent trend and we expect that trend to continue.
Speaker Change: Okay.
Speaker Change: And then maybe as a follow up leaning more towards the car side I mean, we're seeing a lot of incumbents in the market invest quite a bit into growth right now and I can understand.
Speaker Change: Only being in a select handful of states are only 25% of the market today, but I mean, the reality of the matter is that there's only so many cars on the road in the U S and whether.
Speaker Change: Whether or not eliminate is able to acquire those customers really comes down to how quickly you guys want to push the growth pedal on the car front right now so I'm just curious what is giving you guys the confidence that you.
Speaker Change: You'll be able to lean in heavily to growth in 2026 and won't be missing much of the consumer shopping behavior, we might see in 2025.
Casey: Hey, Casey.
Casey: So yes, we.
Casey: We gave a bit of capital.
Casey: <unk> of color about this in our strategy.
Casey: And remember Investor day, we are not going to compete head on with Geico Progressive State farm on AD spend and hope to outplay them at the game that they play so very very well.
Casey: The way we win by doing things differently in two fundamental ways in which we define one is that we're not a cough fast insurance company. So we now have approaching $2 5 million customers and that's growing fast.
Casey: Who most of whom needs to buy car insurance and to whom we can sell contracts with no incremental spend and we've been testing for some months some quarters now all the different avenues in which to trigger that we're getting.
Casey: Continuous improvement in our <unk>.
Casey: Ability to upsell and cross sell costs of our existing portfolio.
Casey: The second element that I'll talk about in a second disk to required fine tuning and getting exactly what getting the pricing exactly right.
Casey: Playing with the levels of conversion, we're seeing tremendous progress perhaps him on next shareholder natural shortly will give.
Casey: Deep dive insights into all of the progression that we've seen in the past few months, but that is one avenue of growth the second Avenue of growth.
Casey: It's going to be getting to the customers that we want at a price that others cannot.
Casey: And that's really about the use of telematics and squaring some pretty.
Casey: Tricky cycles in terms of how do you get to them and give them the price that they want at the moment of Verizon even before the revenue for those 30 days or so usually needed for telematics to give you a true read on their behavior.
It is here that we've been doing also a series of really interesting and very very encouraging experiments that will allow us on these fiscal two overtime. So yes, if you could just spend our way into competing head long the incumbent that's not what we want to do that.
Casey: We're taking extra few months extra few quarters to get the pricing the filing the messaging the advertising everything just so is that when we do unleash it we'll be able to grow effectively in a profitable way.
That kind of sidesteps with the whole rest of the industry is operating now there may be some something based on 25. This is one of them in some categories in the world. So there'll be something this year there'll be something next year there'll be something every year and we are growing cognizant don't get me wrong. It is growing.
Casey: It is Greg while we are still experimenting and finding the absolute best formulas and when we feel greater confidence Youll see us.
Casey: Take off at a much faster rate not beforehand.
Alright. Thank you so much I appreciate the detail if I could just squeeze one more in on the $45 million gross losses from the California wildfires, how does that breakdown between homeowners and renters slash condos policies.
Casey: Yes so.
Casey: <unk>.
Casey: We had something on the order of 850, maybe 900 claims at this point across the two fires.
Casey: Like 90% of the number of claims were renters claims not unexpected.
Casey: But the dominant share of the dollar impact of the claims was.
Casey: Something on the order of 30, or so large home losses.
Casey: So skewed fairly heavily towards home.
Casey: In terms of the dollar amount I would say three quarters the majority.
Casey: Or more was home driven now of course, we do have reinsurance in place that mitigated significantly losses for most.
Casey: Of those losses above 750000.
Casey: And so the reason the difference between our gross and net was it was quite significant only a $20 million impact on the bottom line versus 45 gross and the top is it.
Casey: Pretty significant.
Casey: Different and that's really driven by that reinsurance all of the different reinsurance structures that we have in place.
Casey: Got it thanks for the color guys.
Casey: Yeah.
Casey: Thank you.
As a reminder, if you would like to ask a question you may do so by pressing star when they buy one and your telephone keypad now.
Speaker Change: Our next question comes from Matt O'neill <unk> Partners. Please go ahead, Matt Your line is now open.
Speaker Change: Matt.
Speaker Change: It is now open. Please go ahead.
Speaker Change: I apologize I was on mute there. Thank you for taking the question.
Speaker Change: Kevin I was curious if you guys could elaborate on any changes that you've seen.
Speaker Change: And the car market from the time of the Investor Day, I realize it hasn't been very long, but if theres been any areas where.
Speaker Change: The cross sell and the weightless build has been incrementally promising or where does it sort of macro backdrop has changed with respect to pricing or competition.
Speaker Change: Hey, Matt.
Matt O'Neill: No in terms of the macro does not been any change in the last three months.
Speaker Change: <unk> in particular.
Speaker Change: Internally, yes, we've seen continued progress and I had kind of intimated to this a few minutes ago as well.
Speaker Change: I'm quite a few of the trials that we've been running things have come in better pasta more compelling than perhaps we have the confidence sort of indicated in investor day. So.
Speaker Change: Things are moving along at least as well as we had hoped amongst several avenues I think slightly ahead of where we expected to be at this point.
Speaker Change: Understood and I think I heard in response before though that we should not get.
Speaker Change: Overly excited or buildout overly aggressive growth in either enforced premium or number of car customers between now and year end until much of the testing is is really kind of completed is that.
Speaker Change: That's correct right.
Speaker Change: I think thats.
Speaker Change: Correct, yes, we've been giving kind of guidance thats what were doing for them.
Speaker Change: I guess for the last couple of years in terms of re accelerating growth in terms of getting to cash flow positive EBITDA positive you can see so many of the building blocks falling into place as much as we had promised.
Speaker Change: 26% growth in the outgoing year, 98% growth in gross profit and we did encourage and Baxter.
Speaker Change: To do as we do which is to monetize gross profit in preference to our RFP.
Speaker Change: The topline is wonderful, but some of the things between the top and the bottom line have been moving even more dramatic fashion. So we've seen a 100% growth defensively.
Speaker Change: Gross profit.
Speaker Change: Seen zero percent growth or even negative growth in most of our expense line, which has yielded.
Speaker Change: Cash flow positive positivity unexpected, but yes, we will grow our top line as well as we said at the Investor day, we're going to get into the <unk> next year will make it half way that this year, we anticipate and will update as more information comes in from our various experiments if we make any changes we'll of course update you.
Speaker Change: But that's how we see it playing out this year.
Speaker Change: Excellent if I could just squeeze one more in.
Speaker Change: On the on the car and fragrance in the gross gross loss ratio to 83% is there anything.
Speaker Change: Particularly at all to call out there.
Speaker Change: Yeah, just thinking about the durability of that segment going forward. Thanks.
Speaker Change: Yes. It is.
Speaker Change: A pretty significant improvement as you noted.
Speaker Change: Each as you get closer and closer to the rates you filed the improvements tend to get a little bit tougher inflation.
Speaker Change: Inflation today, obviously has radically improved versus a year ago or two years ago that said, we are very focused on our ability to keep up with.
Speaker Change: Pricing needs, an inflation impact and things that are unexpected.
Speaker Change: I would say that we have a structure and a process and a level of automation today for filings compared to a year or two ago that is.
Speaker Change: 19 debt. So we are ready for all of its realities in terms of things.
Speaker Change: Things that are unexpected, but the things that are known and expected.
Seeing.
Speaker Change: Really nice improvement.
Speaker Change: Historically.
Speaker Change: <unk>.
Speaker Change: Our ability to deliver a 63% best ever loss ratio is in large part because of that what we're seeing and even the more challenging or the newer parts of the business like car or otherwise. So I would expect continued improvement there.
Speaker Change: Things are unexpected happened, we will be able to keep up with it or better.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: That was our final question. This does conclude today's call. Thank you all for joining you may now disconnect your lines.
Speaker Change: Yeah.
Speaker Change: [music].
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Yeah.