Q1 2025 Lemonade Inc Earnings Call
Yael Gavish, Yael Wissner, Timothy Bixby, Daniel Schreiber Yael Gavish, Yael Wissner, Timothy Bixby, Daniel Schreiber
Maxine: Hello, and welcome everyone to the eliminated Q1, 'twenty 25 earnings call. My name is Maxine and I'll be coordinating the call today. If you would like to ask a question you may do so by pressing star one if you think he Pat I don't know how JBT.
Speaker Change: On 18th to begin please go ahead.
Speaker Change: Good morning, and welcome to eliminate its first quarter 2025 earnings call joining us on our call today, we have Daniel Schreiber, CEO and cofounder me call longer Chief product officer and meter of our core business and Tim Bixby Chief Financial Officer.
Speaker Change: Our letter to shareholders covering the company's first quarter 2025 financial results is available on our Investor Relations website at <unk> Dot Com Backslash investor.
Speaker Change: I would like to remind you that managements remarks made on this call may contain forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.
Speaker Change: 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 Form 10-K filed with the SEC on February 26, 2025, and our other filings with the SEC.
Speaker Change: Any forward looking statements made on this call represent our views only as of today and we undertake no obligation to update them.
Speaker Change: 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.
Speaker Change: Reconciliations of our non-GAAP financial measures to the most directly comparable GAAP financial measures are included in our letter to shareholders.
Speaker Change: Letter to shareholders also includes information about our key performance indicators, including customers enforced premium premium per customer annual dollar retention gross premiums gross loss ratio gross loss ratio ex cat.
Speaker Change: 12 month loss ratio and net loss ratio and a definition of each metric why each is useful to investors and how we use each to monitor and manage our business with that I'll turn the call over to Daniel for some opening remarks.
Daniel Schreiber: Good morning, and thank you for joining us to discuss eliminates results for Q1 2025.
Daniel Schreiber: A pleasure to report that across all of our key metrics and financial performance in the first quarter was strong.
Daniel Schreiber: Everything in the business is progressing very much to plan.
Daniel Schreiber: At 27% year on year growth Q1 was our sixth consecutive quarter of accelerating topline growth paths.
Daniel Schreiber: Perhaps most notably with the exception of our gross spend we've seen no material corresponding rise in our expense base quite the country.
Daniel Schreiber: In real terms, excluding growth spend in the past 10 quarters, we have seen a decline in our expenses, while the book could increase by more than 65%.
Daniel Schreiber: When you see a topline surging by Toussaud's, even as fixed costs stay flat or full what youre seeing is AI hard at work.
Daniel Schreiber: AI was never a fashionable equity into rollout on earnings calls, it's always been core to our culture to our differentiation and to our strategy and its power is increasingly apparent in our P&L.
Daniel Schreiber: We expect this dynamic to persist with the growth of our gross profit far outpacing the growth of our fixed costs.
Daniel Schreiber: This is why we are comfortable reiterating our expectation of achieving EBITDA breakeven by the end of next year now just a few quarters away. We are also reiterating our EBITDA guidance for this year and modestly raising our expectations for gross earned premium and revenue. We also reiterate our expectation of generating positive adjusted free cash flow in 2025.
Daniel Schreiber: Despite the unfavorable impact of the California wildfires in the first quarter.
Daniel Schreiber: Speaking of the California wildfires their impact on our Q1 results was notable contributing 16 percentage points to our gross loss ratio.
Daniel Schreiber: Even with that impact our trailing 12 month gross loss ratio remained stable and in line with our target range at 73%, while adjusted gross profit actually improved 25% year on year.
Daniel Schreiber: That I think speaks volumes to the quality of our book and resilience of our business.
Daniel Schreiber: We are closely monitoring the evolving tariff environment, particularly for imported auto parts.
Daniel Schreiber: Headline <unk>, 25% tariff on auto parts should at NGL, we'd like to increase loss trends in that category by single digit percentage points, which we would endeavor to reflect in our rates as soon as possible in order to maintain stable loss ratios.
Daniel Schreiber: Finally, you may have noticed that we changed the timing of our shareholder lessor to align more closely with common practice. We have also refreshed our investor web site, so pop over to investors or eliminate dot com or eliminate dot com lascar investor and check it out.
Daniel Schreiber: The same vein, we're also going to mix things up a little on the call and trying to bring in a wide array of voices from the management team and to kick this off as far as taking a vacation with his family. He has asked me how longer to update you on our cob business.
Speaker Change: Both our chief product officer, and the executive leading our car business and so her contribution in perspective is central to everything that we do eliminate hum.
Daniel Schreiber: Thanks Danielle.
Daniel Schreiber: <unk> continued to build momentum this quarter and for the first time, it's quarter over quarter ISP growth outpaced the rest of the business. That's a key milestone and one that signals. The engine is starting to ramp.
Daniel Schreiber: There are two elements that we consider our unique differentiators first our LTV and telematics model, which should give us a unique ability to find and price ideal customers.
Speaker Change: This is true, especially for safety younger drivers, who other insurance from teaming overcharged relying on blunt H based risk bucket.
Speaker Change: With industry, leading telematics adoption and a continuous lifestyle flow of driving data for each customer, we can fine tune pricing and automate processes with unrivaled precision second we've got a large untapped growth for nearly $2 5 million noncore customers, who would you rather spend north of $3 billion annually.
Speaker Change: On auto insurance.
Speaker Change: We're turning those advantages into impact through product development and geographic expansion, we've been running a series of experiments on what we're calling D zero telematics and it seem conversion rates jumped by over 60% in the past few months.
Speaker Change: Crossrail is improving too we've optimized our funding flows leading to more than doubling our cross sales volume year over year geographically, we launched Colorado this quarter, pushing us back 40% coverage of the U S auto market and to nearly 60% of our existing customer base.
Speaker Change: With more states coming prioritized by profitability and fit as always growth comes with discipline caused loss ratio is still elevated not unexpected for you on the books.
Speaker Change: But all the cohorts are seasoning nicely, which gives us confidence in the model, we typically see a double digit loss ratio improvement as new cohorts past renewal date. This dynamic is worth underlining short lived spikes in loss ratios associated with the new business penalty.
Speaker Change: Understood phenomena consented for signal about the lifetime profitability of new business and so we routinely look past these in preference of the predicted lifetime loss ratio.
Speaker Change: So while we still have a lot of work to do this year and planned significant rollouts and improvements in the coming quarters.
Speaker Change: Then what I would call is already gaining speed and boosting our confidence that car will increasingly drive our growth.
Tim Bixby: I'll now hand, the call over to Tim who will speak to our financial performance and outlook.
Speaker Change: Tim.
Speaker Change: Great. Thanks, Nicole.
Speaker Change: Will review highlights of our Q1 results and provide our expectations for Q2 and the full year 2025, and then we'll take some questions.
Speaker Change: In short our Q1 financial results were very solid and our experience with regard to the California wildfires proved out our conservative underwriting approach.
Speaker Change: Product mix and the protection afforded by a thoughtful reinsurance strategy.
Speaker Change: In force premium grew 27% to just above $1 billion.
Speaker Change: While customer count increased by 21% to $2 5 million.
Speaker Change: Premium per customer increased 4% versus the prior year to $396 driven primarily by rate increases.
Speaker Change: Annual dollar retention, our ADR was 84% a 4% decrease since this time last year and down slightly versus 86% in the prior quarter.
Speaker Change: In broad strokes, we saw an unfavorable impact to ADR from our continuing effort to improve the profitability of our home book of about four points.
Speaker Change: About two points of unfavorable from our pay per mile car product and about two points favorable from the rest of the book.
Speaker Change: We expect ADR to normalize and resume improvement over the coming quarters.
Speaker Change: Gross earned premium in Q1 increased 24% as compared to the prior year to $234 million in line with ISP growth.
Speaker Change: Revenue in Q1 increased 27% from the prior year to $151 million.
Speaker Change: 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.
Speaker Change: And a 26% increase in investment income.
Speaker Change: Our gross loss ratio was 78% for Q1 as compared to 79% in Q1, 2024 and 63% in Q4 2024.
Speaker Change: Excluding the total impact of cats in Q1, which was roughly 19 percentage points, our gross loss ratio ex cat was 59%.
Speaker Change: Total gross prior period development and had a roughly 8% favorable impact with a negligible portion of that driven by cat.
Speaker Change: We saw this favorable prior period development across all products with the exception of pet with the largest impact in our homeowners multi apparel business.
Speaker Change: On a net basis prior period development had a roughly 10% favorably favorable impact of which 1% was from cat.
Speaker Change: Trailing 12 months or TTM loss ratio was about 73% or 10 points better year on year and stable sequentially.
Speaker Change: All of these insurance metrics and more are included in our insurance settlement that you'll find at the end of our shareholder letter.
Speaker Change: Gross profit increased 11% as compared to the prior year, driven primarily by premium growth offset by the California Fair plant impact while adjusted gross profit increased 25% driven primarily by premium growth.
Speaker Change: Operating expenses, excluding loss and loss adjustment expense increased 29% to $127 million in Q1 as compared to the prior year driven primarily by an increase in growth spend and the impact of the fair plan assessment.
Speaker Change: Other insurance expense grew 51% in Q1 versus the prior year, driven primarily by the impact of the fair plan assessment.
Speaker Change: Total sales and marketing expense increased by $13 million or 42%, primarily due to increased gross spend of approximately $18 million.
Speaker Change: Offset by a stock compensation benefit related to the chewy warrant termination.
Speaker Change: Total gross spend in the quarter was $38 million nearly double the $20 million in the prior year quarter.
Speaker Change: We continue to utilize our synthetic agents growth funding program and have continued to finance, 80% of our growth spend.
Speaker Change: As a reminder, youll see a 100% of our gross spend to flow through the P&L as always while the impact of the growth mechanism is visible on the cash flow statement and the balance sheet.
Speaker Change: And the net financing to date is $102 million as of the end of the quarter.
Speaker Change: Technology development expense was up just 5% year on year to $22 million, while G&A expense increased 20% as compared to the prior year to $36 million.
Speaker Change: Primarily due to the growth in interest expense from our financing agreement.
Speaker Change: Personnel expense and head count control will continue to be a high priority.
Speaker Change: Total head count is up just slightly about 2% as compared to the prior year at 1260, while the topline RFP as a reminder grew fully 27%.
Speaker Change: Net loss was $62 million in Q1, or a loss of <unk> six per share as compared to a net loss of $47 million or <unk> 67 cents per share loss in the prior year.
Speaker Change: Adjusted EBITDA loss was $47 million in Q1 versus $34 billion EBITDA loss in the prior year.
Speaker Change: Our total cash cash equivalents and investments ended the quarter at approximately $996 million.
Speaker Change: Up $69 million versus Q1 of last year and down $25 million versus the prior quarter, primarily driven by the impact of the wildfires.
Speaker Change: With these metrics in mind I will outline our specific financial expectations for the second quarter and for the full year 2025 from.
Speaker Change: From a gross spend perspective, we expect to invest roughly $45 million in Q2 to generate profitable customers with a healthy lifetime value.
Speaker Change: This amount will likely increase slightly in Q3, and then may decline somewhat in Q4 to a level similar to the Q1 growth spend rate totaling roughly $170 million for the year.
Speaker Change: This expected quarterly spend pattern is.
Speaker Change: Fairly similar to prior years.
Speaker Change: For the second quarter of 2025, we expect in force premium at June 30 of between $1 <unk>, one and one point over six 4 billion.
Speaker Change: Gross earned premium between $246 million to $448 million revenue between 157, and $159 million and an adjusted EBITDA loss of between 44 and $41 million.
Speaker Change: Stock based compensation expense of approximately $16 million and a weighted average share count of approximately 73 million shares.
Speaker Change: For the full year 2025, we expect in force premium at December 31 of between one two or three in 120 8 billion.
Speaker Change: Gross earned premium of between one point <unk> eight and one point <unk> three 1 billion.
Speaker Change: Revenue between 661% and $663 million and adjusted EBITDA loss of between 140 and $135 million.
Speaker Change: Stock based compensation expense of approximately $60 million and a weighted average share count of approximately 74 million shares.
Speaker Change: And with that I would like to hand things back over to Daniel to answer some questions from our retail investors Daniel.
Daniel Schreiber: Thanks, Tim and we'll start with questions from the state platform retail industrial questions. So freaked out about EBITDA losses, which have been narrowing and asked that we elaborate on the timeline for reaching EBITDA profitability and what levers we will drive. This so thanks for that questions. Hopefully you can happy to delay on this front.
Speaker Change: Yeah.
Speaker Change: Been guiding to adjusted EBITDA breakeven by year end 2026, since our very first Investor day back in 2022.
Speaker Change: It's related to that guidance and our 2024 Investor day, and we continue to reiterate our expectation to be adjusted EBITDA positive by Q4 of next year with 2027 being our first full year of positive.
Speaker Change: Adjusted EBITDA.
Speaker Change: Unchanging message across the years I think speaks to the grounded nature of our multi year plan and the execution that has consistently delivered to plan. The business is doing exactly what we expected it to do all along and it was important ways. You can set your watch to it and Thats because the clockwork is pretty simple.
Speaker Change: As we continue to grow the business, we generate more gross profit and at.
Speaker Change: At the same time, thanks to AI, we're seeing no commensurate increase in our fixed costs.
Speaker Change: And so with a return of the flywheel gross profit comes closer and closer to eclipsing operating costs.
Speaker Change: That means that the business is getting closer and closer to profitability.
Speaker Change: This progression has proven reasonably predictable and we have a fairly good handle on its levels, giving us confidence that we are only a few quarters from crossing that all important line.
Speaker Change: Also remember that our underlying business is already profitable last quarter, we disclosed that we had opted not to spend on growth the quarter would have been EBITDA profitable and is 2024 was cash flow positive the reliable free cash flow to EBITDA profitability, particularly given the dynamics of the cash flow dynamics.
Speaker Change: Insurance space.
Speaker Change: I encourage you to have a look at page four in our shareholder letter.
Speaker Change: Thank you will see that highlights and give some visuals to the trajectories that I just touched on.
Speaker Change: The next question comes from people bag, Who's asking about cross sales, particularly to call and what rates. We can expect to see in the coming years. So paper bag. Thanks for that second the central area of focus over the coming months and quarters and years.
Speaker Change: Moving out to a multi year view ambition is to drive industry, leading multiline customer rates. So large incumbents to PTC levels in both <unk> and <unk> I think maybe some of the direct players are in the mid twenties.
Speaker Change: So it's a major opportunity for us with our existing customer customer spending probably over $3 billion on timelines, we expect to be tapping into that and to continue to do that.
Speaker Change: Installed base of customers grows.
Speaker Change: I think it's reasonable to assume that we can approach the multiline customer levels in the teens on a five year horizon.
Speaker Change: And ultimately to reach parity with the rest of the industry and you've got the models to show just how impactful that would be in our business.
Speaker Change: But it's important to clarify that our model is not dependent on this acceleration and indeed crosses in our modeling we cross.
Speaker Change: EBITDA and net income breakeven, while multiline customer rates are expected still to be in the single digits. So we think we'll be profitable in the high single digits, even though we think that in the years following will go into the teens and ultimately into the Twenty's as well.
Speaker Change: The biggest driver of cross sell acceleration, our state coverage expansions and leveraging telematics insight offer unbeatable prices to the best drivers.
Speaker Change: If we isolate specific states, where we have a full suite of products available we already see multiline rates that are nearly double the 5%.
Speaker Change: The level that we see across the book at the moment, so closer to 10%. So that gives us confidence that in the coming years will be able to replicate that everywhere.
Speaker Change: Cross sells have another impact that dovetails nicely to a total fixed question over time as cross sells around pop category growth is a powerful lever.
Speaker Change: <unk> profitability trajectory by allowing us to moderate the growth spend.
Speaker Change: But which would otherwise be required in order to sustain our target of 30, plus some CAGR. Thanks for that question.
Speaker Change: Cyber cat asks about the tariffs and geopolitical tension whether that will impact on our expectation of being.
Speaker Change: And the strategies in terms of <unk>, how much confidence we have notwithstanding that.
Speaker Change: I think I touched on this a bit already in my opening remarks.
Speaker Change: But our business has proven highly resilient in the past few years. So based on everything we know today about shifting macro environment I am pleased to reiterate.
Speaker Change: 30 plus percent.
Speaker Change: Growth in 2026 and beyond.
Speaker Change: Actor is inherently resilient fairly recession proof and not inherently exposed to global trade sucking much lesser than many many sectors.
Speaker Change: The one thing that we do need to monetize is inflation and we're keeping a close eye on that because that has an <unk>.
Speaker Change: <unk> would again impact our business.
Speaker Change: Our business is also pretty diversified these days, but it's across products and geographies not all of which are impacted by tariffs. So auto parts is the obvious place to look but in pet insurance and renters insurance and home insurance and certainly our European business, which is growing at quite a clip.
Speaker Change: Those remain largely immune even Tibet.
Speaker Change: Okay.
Speaker Change: Ill pass the mic back over to moderate side look we'll take some questions from the street.
Speaker Change: Thank you if you would like to ask a question you may describe questions John Philip I want to thank Deepak now if you do change your mind. Please press star followed by Q.
Speaker Change: When does that answer your question. Please ensure that your line is I mean is it nicely.
Speaker Change: Our first question today comes from Jack Atkins from BMO. Please go ahead Katz. Your line is now open.
Jack Atkins: Thanks. Good morning, just wanted me the subrogation benefits recorded from the California wildfires any other color you can provide on that did you sell your subrogation rights or is there the potential for additional recoveries in coming quarters.
Speaker Change: Yes.
Speaker Change: Sure.
Speaker Change: Morning, So the sub Ro.
Speaker Change: It was reasonably interesting if.
Speaker Change: If you look at the general impact of the California fires.
Speaker Change: There were primarily two events.
Speaker Change: Two major events Palisades fire and the fire.
Speaker Change: The sub Ro.
Speaker Change: Yeah.
Speaker Change: Market and opportunity for us was much more distinct.
Speaker Change: For the <unk> fire as it was for many other players and so we did.
Speaker Change: Sale of those rights.
Speaker Change: At a pretty healthy ratio.
Speaker Change: And youll see that in the detailed disclosures something on the order.
Speaker Change: $8 million impact there there is an opportunity to recover more overtime.
Speaker Change: If the losses exceed a certain percent for example on the Palisades fire. There is some opportunity, but I would expect that a substantial amount of the subrogation is already represented in the numbers.
Speaker Change: Got it thank you and then.
Speaker Change: Maybe just one on the.
Speaker Change: The fair plan assessment and in California.
Speaker Change: Im going to plan to recoup any of that with rate increases or supplemental fees I think insurers are able to request okay.
Speaker Change: Half of the initial assessments. So just wondering how youre thinking about that.
Speaker Change: The plan is yes, we do expect to recoup over time, there are a number of.
Speaker Change: Rules and requirements around how you go about that and there is also potential customer impact we're thoughtful about.
Speaker Change: But we are proceeding as if we'll be able to endeavor to recover as much as it has allowed which is.
Speaker Change: 50% limit.
Speaker Change: And some will come in year, one, but there's not really a two year period over which all of this will be fully resolved. So we will proceed full speed ahead.
Speaker Change: Look to recover all of that.
Speaker Change: Thank you.
Speaker Change: Thank you. The next question comes from Jason <unk> from Oppenheimer. Please go ahead. Your line is now 18.
Speaker Change: Thanks, a few questions one.
Speaker Change: Can you give us the impact of the wildfires on gross profit in the quarter.
Speaker Change: Housekeeping.
Speaker Change: Then on the tariff question, obviously some of your commentary.
Speaker Change: So are you assuming any impact in the full year guide is there any conservatism or kind of you're just kind of turning the business as is and we will have to adjust as we go and then maybe give us a little more detail on car.
Speaker Change:
Speaker Change: Which states will be you highlighted Colorado, but over the next 12 months, which states will be biggest for you and where should we pay attention. Thank you.
Speaker Change: Yeah.
Speaker Change: Sure So maybe I'll take the first two.
Speaker Change: California.
Speaker Change: And on the tariff impact.
Speaker Change: Pact and then I'll turn it to Daniel maybe on some of the car thoughts.
Speaker Change: So there is a nice little table in the letter from today that I would.
Daniel Schreiber: Point, everyone to that breaks down the California wildfire impact is.
Daniel Schreiber: We could within the disclosure restrictions and Youll see a line item.
Speaker Change: Yeah that goes from a top line to our Bottomline impact essentially.
Daniel Schreiber: And it lines up quite nicely with what our estimate was.
Speaker Change: When we gave our prior guidance.
Speaker Change: Initial estimate was about a $45 million gross impact that turned out to be about 44. So right in line, we estimate the EBITDA impact.
Speaker Change: Which is also at the time, the net loss or net operating loss impact of about $20 million that came in at about 22.
Speaker Change: Negative impact.
Speaker Change: And then.
Speaker Change: Added to that to get to the true eventual net income impact is the California Fair plan assessment amount, which is also detailed in that table. We were not aware of that of course at the time because it has not been issued yet.
Speaker Change: So I think from here from a gross profit impact I would I would look at that.
Speaker Change: Total net income is probably the best proxy.
Speaker Change: Proxy.
Speaker Change: The detail is there they are in the letter.
Speaker Change: From a tariff.
Speaker Change: Expectation or impact.
Speaker Change: We did reiterate.
Speaker Change: Our full year guidance for growth, we actually upped.
Speaker Change: A couple of.
Speaker Change: Key metrics below the top line.
Speaker Change: Partly to take account of the.
Speaker Change: Better than expectation result in Q1.
Speaker Change: Tariffs.
Speaker Change: A bit tricky.
Speaker Change: Understate, what we're all kind of living living through.
Speaker Change: Good reminder, though.
Speaker Change: Is that obviously the tariff structure.
Speaker Change: Has been a little bit volatile and is likely to change or could potentially change. Nevertheless, a tariff for example on car.
Speaker Change: Car parts, our cars in general lets say, 25% by the time it kind of works its way through.
Speaker Change: Through the math.
Speaker Change: <unk>.
Speaker Change: Claims affected the percent of your business is domestic versus foreign and a number of other numbers you get from a headline number of 25% down to typically single digit impacts which is not zero.
Speaker Change: So we are.
Speaker Change: Able to reiterate our growth metrics, assuming that there is a modest headwind, but thats an inflation impact that we have.
Speaker Change: If we take into account, we will adjust that as we go but we're.
Speaker Change: We're quite comfortable with.
Speaker Change: Where we are now based on what we know now for the full year.
Speaker Change: And we will come back in three months and update that.
Speaker Change: I don't know Daniel did you have any maybe some thoughts to add on the car front.
Daniel Schreiber: Yes, gladly hi, Jason good morning.
Daniel Schreiber: So you asked what to pay attention on car and the geographic expansion.
Daniel Schreiber: Definitely would encourage you to pay attention. We certainly are paying very close attention to calling the proceeding in coming quarters.
Daniel Schreiber: We've spoken in the past about the kind of I'll use the time I think tinkering that we're doing this.
Daniel Schreiber: So sorry today's letter.
Daniel Schreiber: We put some numbers to what that tinkering is yielding 60% increase in conversion, 100% increase in cross sells over recent quarters. So we're certainly seeing a very strong ROI.
Daniel Schreiber: All the experimentation that we're doing and we do want to continue some of these we've still got quite a few irons in the fire.
Daniel Schreiber: Three of those in the coming months and quarters.
Daniel Schreiber: To continue to refine the proposition the true growth in card is already growing its accelerating.
Daniel Schreiber: It is now pacing for the first time, the rest of our business this quarter, but I think we will put the pedal to the metal and all the other correlated euphemisms in jokes.
Daniel Schreiber: Once we.
Daniel Schreiber: Complete a few more of the experiments that we have running.
Daniel Schreiber: We are.
Daniel Schreiber: Kind of walking and chewing gum. So in parallel to doing that we are also expanding geographically.
Daniel Schreiber: We are still after the Colorado launch only available to 40% of the nations customers. So there's a lot of headroom there and we will do both together we are not ready to start.
Daniel Schreiber: Naming states or dates we'll announce them as we go but I think if you ask me about where the focus is.
Daniel Schreiber: Our focus is on the first part of that equation Rob.
Daniel Schreiber: Rather nominal geographic expansion, which will flow naturally after we feel the confidence that we are readily gaming.
Daniel Schreiber: Thank you.
Speaker Change: And Jason just one clarification on my comments around gross profit were all germane to GAAP gross profit.
Speaker Change: We also have an adjusted gross profit number which would be slightly different due to its definition. It would exclude the impact of the fair plan.
Speaker Change: That would result in a modest.
Speaker Change: The difference in terms of the impact of the fires overall.
Speaker Change: Yeah.
Speaker Change: Thank you. The next question comes from Bob <unk> from Morgan Stanley. Please go ahead, Bob Your line is now 18.
Speaker Change: Good morning.
Bob: Maybe first one is on the car business.
Bob: I think one thing you mentioned is that lifetime loss ratio should be better than the current loss ratio just given that once they start to renew the LTV equation I really should pick up.
Bob: Can you maybe help us think about how we should assume.
Bob: Retention rate for your current cohort of business in the car side and also what's kind of the driver for that retention rate.
Bob: So I would I would think of the retention rate generally is in line with the rest of our business, but adjusted for a couple of nuances.
Bob: That the car business has gone from.
Bob: Basically a flat or no growth spend.
Bob: Approach to flattening and now growing.
Bob: So by definition when you grow at a more rapid pace. It grew more rapidly than the overall book.
Bob: Youre going to see.
Bob: What we would call a new business penalty, where the short term retention aspects and the loss ratio experience is going to be slightly worse than you would expect over the lifetime and so for some time.
Bob: As we increase and accelerate the investment there youll continue to see somewhat.
Bob: Lower or worse.
Bob: Short term retention rates on car then you might see otherwise on the other hand, you see a pretty consistent uptick of improvement at renewal.
Speaker Change: So car.
Speaker Change: Policies renew at six months as you know versus 12 and at six months, we typically see something on the order of a double digit 10% ish.
Speaker Change: Improvement.
Speaker Change: In terms of the loss ratio and also some improvement in retention rates.
Speaker Change: And so I think youll see it as normalized as we have with our other more mature products.
Speaker Change: The car growth acceleration continues into the later part of this year and into next year.
Speaker Change: We don't disclose exact retention rates by product and so im kind of unable to go too much further into it there, but thats generally how we are thinking.
Speaker Change: Think about the business.
Speaker Change: Okay. So maybe another thought is.
Speaker Change: Cross Cross sell is probably just as a note or something thats that are quite important.
Speaker Change: To this.
Speaker Change: As the customer count grows as the as we expand our cross sells and you saw a pretty very solid uptick.
Speaker Change: Quantity of cross sells.
Speaker Change: Q1, that's a dynamic that helps overall retention generally and so thats another sort of.
Speaker Change: A tailwind that.
Speaker Change: We will see move in the right direction, especially as car grows as a proportion of the business.
Speaker Change: Okay got it.
Speaker Change: Very helpful that sounds like once you bundle the product and the cross sell but the retention rates should be relatively higher than the industry at least thats, what I thought so maybe.
Speaker Change: Maybe moving on to the second question you touched on this a little bit like regarding full year guidance you beat earnings.
Speaker Change: By higher than what you are moving up the full year guidance. It does sound like it's because of the tariff unknown and things of that nature.
Speaker Change: Is it fair to assume that if tariff comes in below that 25% assumption that you have your full year adjusted EBITDA should actually be reasonably higher than what youre guiding to.
Speaker Change: The guidance not moving as much as.
Speaker Change: The first quarter beat its just purely a function of conservatism.
Speaker Change: I think I would not recommend we isolate tariffs as the sole driver. It's just one of many drivers.
Speaker Change: In terms of things that are more or less certain and so our trajectory when one quarter into the year. It doesn't give you a.
Speaker Change: Too much information about Q3, and Q4 and so this is the time, where if you look back last year the year before historically, we've been moderately.
Speaker Change: We are cautious about what we see in the back half of the year that fund.
Speaker Change: Sunday mentally changes when you report Q2, because youre into Q3, and you've got a majority of the information for the year. So if tariffs disappear go to zero certainly that would be a benefit.
Speaker Change: Yeah.
Speaker Change: It's not a binary thing where that's the only risk in the business. So.
Speaker Change: I'd say, we approached our guidance very much as we have in the last <unk>.
Speaker Change: Several quarters, which is.
Speaker Change: Very close to our exactly what we expect to happen with some.
Speaker Change: A bit of conservative around the things, where we have high uncertainty and there are things that can go the other way. So I'd say, it's very balanced as it has been for several quarters.
Speaker Change: And that gives us really well.
Speaker Change: <unk>.
Speaker Change: Just to add that our.
Speaker Change: Our revenue guide was raised commensurate with our Q1 beat but Q1 EBITA came in very much to plan. So we are reiterating those no significant so I think you'll see we're being fairly consistent.
Speaker Change: Okay. Thanks, I really appreciate it.
Speaker Change: Thank you. The next question comes from Angie <unk> from TD Securities. Please go ahead, Andrew Your line is now 18.
Speaker Change: Okay.
Andrew: Hey, Thank you and good morning.
Speaker Change: Hum.
Speaker Change: Little bit on the.
Speaker Change: Call about a higher growth spend or customer acquisition I'm kind of curious.
Speaker Change: Sure.
Speaker Change: And the components of that.
Speaker Change: The change in online.
Speaker Change: Online AD spending has pricing gone up could you give a little.
Speaker Change: Color around how pricing is in your your AD spend and then secondly.
Speaker Change: Maybe a little color, possibly on where you advertise online where do you.
Speaker Change: Where do you claim most.
Speaker Change: Sure. So a couple of thoughts there.
Speaker Change: I would say broad strokes no real change in in overall costs. So we're seeing a similar level of efficiency.
Speaker Change: The prior quarters of the prior year.
Speaker Change: And the mix of channels I would say.
Speaker Change: Changes, but probably in the long tail. So if you if you ranked.
Speaker Change: Distribution channels from from high to low you'd see some other similar names you've seen for some time.
That you recognize pik tuck in Utah.
Speaker Change: Youtube and podcasts and.
Speaker Change: Kind of the usual suspects, but that long tail does change quite a bit and that's really where our.
Speaker Change: Our growth team.
Speaker Change:
Speaker Change: Earn their keep in some ways as they are able to find and leverage and manage those channels that are less well known to find the new ones that are much more productive and to maybe some of the others that are less so and so that does tend to change quite a bit.
Speaker Change: That's the human side on the flip side, we have an AI LTV model that functions in real time to manage all this and evaluate the expected lifetime value of each of those customers in real time and so.
Speaker Change: The combination of those is is what gives us a real consistency in the overall efficiency, but yes. If you look under the Hood you would see a fair amount of change we're optimizing the channel we're optimizing by geography, we're optimizing back product.
Speaker Change: Under the covers there's a.
Speaker Change: Theres a fair amount of.
Speaker Change: Change.
Speaker Change: From an overall perspective, there is a slight change I would call it and how we allocate the total so.
Speaker Change: You've probably if you've been out and about a bit in key metro areas in the U S, primarily youre going to see eliminate in.
Speaker Change: And the brand spend world in public.
Speaker Change: On a billboard or somewhere public in different places where.
Speaker Change: That's a little more lean in this year, particularly this.
Speaker Change: Part of the year Q1, Q2, Q3, youll see more of that.
Speaker Change: Embedded in our growth spend numbers.
Speaker Change: That's typically more of a longer term investment you don't always get a return the next day like you do online but.
Speaker Change: We believe it's really the right time to push that number it's relatively modest in dollar terms, but youre going to see more of that in public. So those are kind of the highlights.
Speaker Change: Uh huh.
Speaker Change: The brand spend and ad spend.
Speaker Change: Thanks for that yes that was very helpful and maybe earlier Daniel was commenting that with AI.
Speaker Change: There is no commensurate increase in fixed cost.
Speaker Change: I think about AI.
Speaker Change: And lemonade.
Speaker Change: And still even with two 5 million customers.
Speaker Change: Some of these other carriers are.
Speaker Change: Dramatically bigger in terms of the data that they have.
Speaker Change: Do you think or maybe you could talk a little bit about the playing field.
Speaker Change: Whether youre AI has level a bit or maybe or even ahead of competition.
Speaker Change: Utilizing data and analytics.
Speaker Change: Sure Bob.
Speaker Change: Companies in our space.
Speaker Change: To show exactly what they are doing behind the scenes. So there's an element of.
Speaker Change: And kind of.
Speaker Change: Speculation, if you like and what im going to say, but I have said on multiple occasions.
Speaker Change: That already now prior to our <unk> III I don't think there is a carrier in the United States that we would trade dataset with.
Speaker Change: And <unk> been around for us.
Speaker Change: Tonnes milled tons close to or more than a century. So.
Speaker Change: They don't have more data than we do they do.
Speaker Change: When you have the digital infrastructure that we have you're able to connect dots and the way that is far more meaningful I remember one.
Speaker Change: One of the incumbent telling me that the number one cause of loss and that system is other than.
Speaker Change: And they suffer from a tremendous kind of garbage in garbage out kind of situation.
Speaker Change: <unk> James spoke a couple of years ago about Geico, having 600 systems.
Speaker Change: One another so it's not me tonnage of data or how many years of being in operation. It's really about what kind of system you built in order to collate high quality actionable data and then what systems are built in order to act upon them and when you are selling insurance using AI that in real time can use.
Speaker Change: All of the signals that we have and Tim alluded to this in his answer to your question.
Speaker Change: Right down to do I want this customer how much of my projecting them to be worth over the lifetime, how much would I invest upon them to the best of my knowledge there isn't some other carrier in the nation, perhaps in the world that has that kind of capability.
Speaker Change: I think going forward this compounds.
Speaker Change: Im talking just yesterday at the annual General meeting again, Jane who runs insurance of that Berkshire Hathaway.
Speaker Change: Said that they're really going to take a wait and see approach to AI direct closes.
Speaker Change: Individual insurance operation to dabble in AI.
Speaker Change: We have not yet made a conscious big time efforts and this and he said, but theyre going to be in a state of readiness.
Speaker Change: Warren Buffett added that he wouldn't trade all the AI over the next 10 years for one <unk>.
Speaker Change: And of course that perspective.
Speaker Change: Well respected but it's dramatically different.
Speaker Change: We are all in on AI and digital systems, we do think that ultimate competitive advantage.
Speaker Change: Is rooted in that and our ability to quantify risk AI, the ability to quantify risk delight consumers and crush costs and that is a pure pass it and it is now moving from being a hypothesis that we have been charging from the rooftops to something readily visible in our results. We spoke earlier about 10 quarters.
Speaker Change: During which our real underlying cost structures have declined even as our book has come close to doubling and I think that that is already concrete immensely powerful.
Speaker Change: Evidence of this AI and.
Speaker Change: In practice that kind of operating leverage.
Speaker Change: As I believe impossible without the kind of infrastructure that we have in place and I believe others do not.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: Thank you.
Speaker Change: Absolutely achieve AI is an amazing strategy and.
Speaker Change: If I could sneak one more in.
Speaker Change: You highlighted 29 rate filings in 'twenty, four and then already to 24 in the first quarter of 2005.
Speaker Change: What is it.
Speaker Change: No.
Speaker Change: Maybe just the part of it is.
Speaker Change: Where are rates going right now in that book like where they are.
Speaker Change: Any detail on where rates went in the quarter net.
Speaker Change: Be of interest and I assume these telematics or on your existing card customers to that youre kind of seeing how they are driving and whats happening and thats why youre able to file so quickly maybe just a little a little more color on that.
Speaker Change: So it's very much along the lines that you are.
Speaker Change: Outlining that which is to say, we're not predominantly now focus on rate adequacy in other words, we've got to the rates that we need in order to.
Speaker Change: Book level.
Speaker Change: Everything to make sense and mature customers.
Speaker Change: Loss ratios were feeling pretty good about that.
Speaker Change: The tinkering that I keep talking about earlier is about.
Speaker Change: Playing with all the levers and all the data that we get in order to become ever more precise matching individual behaviors to rates and constantly refining those refiling and seeing the results.
Speaker Change: On those results finding again. So this is really about refining the precision of our pricing in order to be able to get to the right customer with the right price that impacts everything conversion retention and profitability that is kind of where the whole thing comes together, we're seeing rapid progress we spoke about some of those numbers.
Speaker Change: But those are what those 24 filings are there to do and we'll be doing a lot more of that in the coming months as well.
Speaker Change: And in terms of.
Speaker Change: All growth.
Speaker Change: In terms of the overall growth profile.
Speaker Change: Fairly consistent trend that we're adding are a very healthy number of customers somewhere on the order of two thirds of our growth, let's say in recent quarters and in Q1.
Speaker Change: Growth in IP comes from adding new customers that means the substantial minority. The other third comes from primarily rate increases also upsells and cross sells but.
Speaker Change: Rate increases and that's the theme we've seen over time were anywhere from from 20% to 20% to a third of our growth continues to come from.
Speaker Change: Rate increases in new cross sells and Upsells. So that's been a fairly consistent theme.
Speaker Change: When you see us heading towards 30% plus growth.
Speaker Change: We would assume that those teams will continue we will continue to add a significant number of customers more than a majority of that growth will come from adding customers, but that.
Speaker Change: The ability to grow over time from our existing customers.
Speaker Change: Continue to increase over time.
Speaker Change: Thanks appreciate it.
Speaker Change: Thank you. The next question comes from Casey.
Speaker Change: I was wondering this research. Please go ahead. Your line is now open.
Speaker Change: Thank you and good morning, everyone.
Speaker Change: To circle back to the ISP guide, which.
Speaker Change: For the full year it looks like it hasn't changed despite.
Speaker Change: Significantly better than expected results this quarter.
Speaker Change: Wonder if you guys could walk us through your thinking there and any timing consideration to keep in mind as the year progresses, and then sort of as an addendum how much of the 28% credit that you guys are guiding to for the full year is expected to come from the card product.
Speaker Change: Sure so.
Speaker Change: In terms of the overall growth.
Speaker Change: <unk> is really the best measure most direct measure of that we grow at a pace of our our own choosing and so while there is some rain.
Speaker Change: A range around the pace of growth the amount of dollars, we spend in the pace at which we spend it really drives that growth number.
Speaker Change: So our our strategy for the remainder of the year. It takes into account what happened in Q1. So we've acknowledged the fact that we performed somewhat better on certain metrics, but despite our disclosures around the California, wildfires as being separate and different and unique although which it was.
Speaker Change: It's part of the business.
Speaker Change: Was a cash use and we'd have to we'd have to manage that business. We're managing the top line. We're managing the bottom line, we were able to reiterate that we will be EBITDA breakeven at the end of <unk>.
Speaker Change: Next year, which is the date that Hasnt moved since we started thinking about it a few years ago and so we're managing all of those things is still on track to accelerate the topline growth rate, we could grow faster. This has been true for a very long time.
Speaker Change: But growing faster would change the dynamics of the rest of the P&L and so we approach it in sort of a balanced way. So we don't just roll forward the first quarter, but we do take into account the <unk>.
Speaker Change: <unk> of the.
Speaker Change: Of the first quarter.
Speaker Change: And on the car piece, how much of the full year growth that you guys currently expecting will come from from car.
Speaker Change: So.
Speaker Change: We haven't put out a specific number.
Speaker Change: <unk>.
Speaker Change: For good reasons, one is we're very opportunistic in our LTV models tell us where to go and how fast to go and when they really pushed accelerator, but within reason I would expect a similar dynamic as we saw in Q1 to continue which is that.
Speaker Change: Our car is expected to grow at a faster pace than the rest of the book.
Speaker Change: And we expect that to continue for quite some time and if everything stays on track as we expected I would expect that pace to even accelerate.
Speaker Change: I would expect the themes you saw in Q1.
Speaker Change: To continue throughout throughout.
Speaker Change: Throughout the rest of the year.
Speaker Change: Got it Okay, and then if I can just sneak in one more.
Speaker Change: On the retention ratio this quarter I think that the slipped down to.
Speaker Change: Any forward makes sense given you guys are still working on Remixing out of some of those more tad exposed geographies.
Speaker Change: But it is much lower than we've seen for quite some time and it is the lowest we've seen.
Speaker Change: Started messaging the nonrenewals.
Speaker Change: So I'm just curious is this sort of a bottom on the retention ratio or should we expect that to continue to decline.
Speaker Change: Over the next couple of quarters, and then as we think about retention going forward. How long does it take for you guys to start to see improvement to the bottom line after non renewing a cohort of customers in a given quarter.
Speaker Change: So on the ADR annual dollar retention as it is a good metric, but it is a double edged sword. It takes into account the entire business.
Speaker Change: And we feel it's better to have that metric.
Speaker Change: To share the metric that we look at internally publicly.
Speaker Change: And that metric can move for a number of reasons.
Speaker Change:
Speaker Change: Our efforts to improve the profitability of the overall book.
Speaker Change: <unk> had a significant impact on that number and thats.
Speaker Change: Right.
Speaker Change: Our strategy that we have.
Speaker Change: Followed for some time and taking into account.
Speaker Change: Absent the part of the reason we broke that out so you can see that absent those efforts the underlying.
Speaker Change: Risk remaining parts of the book of business show that continuing positive trend, which is what we would <unk>.
Speaker Change: Expect.
Speaker Change: As to whether it's the bottom it's hard to two.
Speaker Change: Predict that number with exact precision.
Speaker Change: But I would expect that it could be flat it wouldn't surprise me if it were flat at this level for some time as we continue these efforts.
Speaker Change: I wouldn't say I wouldn't expect it to show us significant additional deterioration, but it is a tougher one to project.
Speaker Change: Too far with with precision.
Speaker Change: Yes.
Speaker Change: On the other side of the coin.
Speaker Change: Clean the book efforts really kind of came home and in a great way in the California Wildfire example.
Speaker Change: Hmm.
Speaker Change: Several millions of dollars double digit millions of dollars of benefit we would otherwise see.
Speaker Change: As losses I'm not.
Speaker Change: Not occur because of our efforts over time to clean the book, it's something we kind of track and make sure that the efforts, we're making to improve profitability there actually resulting in dollars and this was a hard examples in the first quarter, where we saw that actually came true so balancing a lot of things.
Speaker Change: But ADR should overtime.
Speaker Change: Continue its trajectory.
Speaker Change: Got it thank you.
Speaker Change: Thank you thanks, Kevin.
Speaker Change: Thank you. The next question comes from Matt now for Ft Partners. Please go ahead Matthew Your line is now open.
Zach: Hey, there this is zach.
Speaker Change: On for Matt. Thanks for taking the question I just wanted to ask quickly about you talked about incorporating telematics earlier.
Point of sale and now when you've done that you've seen the 60% boost in conversion rates I guess my question how widely rolled out is this and what's the kind of gate limiting factor right now and pushing that out more broadly. Thanks.
Speaker Change: Hey, Zach, yes, it's not very broadly rolled out.
Speaker Change: We the trajectory that we're seeing we kind of gave you a snapshot of that 60% number but we're not done with that we think with every experiment.
Speaker Change: Learning more things and then we move onto the next AEP test. So I think there's quite a lot of leg legs still.
Speaker Change: And a lot of those experiments. So we're not yet focus on massive rollouts I kind of alluded to this in an earlier question as well we're much more focused on fine tuning and getting this all right and ready for what we perceive prime time and the opportunity that's ahead.
Speaker Change: So it's in a few states, where we can iterate relatively quickly filing new states, where our regulators.
Speaker Change: Favorably disposed to quick tons of filings and experimentation it will roll out more.
Speaker Change: Uniformly across all of our states once we feel we've reached a certain stable point, we're not quite there yet.
Matthew: Matthew Your line is still open.
Speaker Change: Uh huh.
Speaker Change: That's all for me thank you.
Speaker Change: Thank you. The next question and I'll start on your question today comes from Tony <unk> from <unk>. Please go ahead, Tony Your line is now open.
Tony: Hey, good morning, guys.
Speaker Change: It definitely sounds like the cross sell opportunity is very important to gain operating leverage around our growth spend.
Speaker Change: Perhaps one datapoint you could share us what percentage of the new car sales.
Speaker Change: I know you guys are generating our cross sales from existing customers versus new customers.
Speaker Change: Yeah.
Speaker Change: Yes so.
Speaker Change: Thank you.
Speaker Change: Yeah.
Speaker Change: In terms of trends in the quarter, we saw more of our growth.
Speaker Change: Coming from cross sells more of our growth.
Speaker Change: Coming from car.
Speaker Change:
Speaker Change: I think if you look at a couple of the metrics you can see this dynamic one is our multi policy rate is increasing and that's a dynamic that's not solely related to car, but we're now heading towards almost 5% of our customers having multi policy.
Speaker Change: In terms of the of the.
Speaker Change: Cross sell aspect something like half of our new sales are now coming.
Speaker Change: A car coming from existing customers that's up.
Speaker Change: If you look back over a longer period of time that would've looks more like a third.
Speaker Change: So still plenty of room to grow but definitely an upward themes is something on the order of half of those cross sales coming from existing customers.
Speaker Change: And $2 5 million to go.
Speaker Change: $2 5 million less the ones, we have already sold.
Speaker Change: It's a pretty deep pool.
Speaker Change: And a much more efficient way to acquire new business.
Speaker Change: Okay got it and then just the second one the changes to the chewy partnership was.
Speaker Change: Or was that just the the exploration of the warrants was that separate from what's going on with that.
Speaker Change: Business relationship just to clarify what happened there.
Speaker Change: Sure, Yes, chewy is all good news.
Speaker Change: The chewy folks are terrific, we love everything we're doing and the partnership is is humming along and generating tons of policies for us we don't break it out for our reasons and their reasons and specific metrics, but it's going well.
Speaker Change: The contract that was terminated was a warrant structure and so we had going into this.
Speaker Change: Partnership with Chewy, we had a structure, where we would have the opportunity to pay commissions in cash or equity initially we chose.
Speaker Change: Almost entirely equity for cash preservation reasons, and Optionality and we determined over time as we headed into your the end of year two of the agreement to switch that back to our cash structure. So we terminated just the warrant agreement everything else from a commercial perspective is steady and strong and continues.
Speaker Change: Got it thank you.
Thank you.
Speaker Change: That does conclude our Q&A session for today and that does conclude today's call. Thank you will secure evening you may now disconnect your lines.
Speaker Change: [music].