Release Date: August 07, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Root Inc (ROOT, Financial) achieved operating income and positive adjusted EBITDA for the second consecutive quarter.
- The company reported a 79% year-over-year improvement in net loss, reducing it to $8 million.
- New writings in the partnership channel grew by 120% compared to Q2 last year.
- Root Inc (ROOT) achieved a gross loss ratio of 61.6%, one of the best in the industry.
- Operating cash flow was positive for the fourth consecutive quarter, driven by improvements in loss ratio and reduced net loss.
Negative Points
- Root Inc (ROOT) faced elevated competition in its marketing channels, impacting growth.
- The company experienced weather-related losses, particularly from hailstorms in Colorado.
- Despite improvements, Root Inc (ROOT) still reported a net loss of $8 million for the quarter.
- Marketing costs have increased due to a more competitive environment, making customer acquisition more expensive.
- The company had to make $16 million in capital contributions to fund growth and net written premiums.
Q & A Highlights
Q: You called out seeing competition increase in your various marketing channels. Do you think the competitive landscape is going to get any easier over the coming years? How do you think about your go-to-market strategy given that customer acquisition could remain pretty competitive for an extended period of time?
A: (Alexander Timm, CEO) We did see competition increase in the quarter, and our marketing machine reacted as designed, hitting our target unit economics. We will not chase growth for growth's sake and will continue a disciplined approach to deploying capital. We have material opportunities for growth through our robust partnerships pipeline, state expansion, and investing in new marketing channels. Long term, there's ample opportunity for growth, but we will monitor the competitive environment and react appropriately.
Q: Can you share some comments on what you've seen in terms of turnover or retention rates of your book of business over the second quarter and quarter to date?
A: (Alexander Timm, CEO) We've continued to grow policies in force (PIF) in the quarter despite moderated new writings from the competitive environment. We see a favorable retention profile in our partnerships channel, which is building a higher retaining customer base. Our underwriting model can price business profitably across different retention profiles, and we feel good about where we are.
Q: Looking at the G&A and tech development spend, I thought I'd see more operating leverage there. Can you talk about that?
A: (Megan Binkley, CFO) The increases in tech and dev, G&A are due to modest investments in our product and people, including headcount investment in product delivery teams. We also saw $1.5 million of accelerated amortization of certain internally developed software costs. Our expense base is scalable, and you should expect continued improvement in our operating expense ratios going forward.
Q: Can you talk about the cadence of PIF growth over the course of the quarter and into the third quarter?
A: (Alexander Timm, CEO) We saw typical seasonality with more new writings in Q1 and early Q2. We have been holding our PIF steady and are happy with the strong growth year to date. We are monitoring the competitive environment to make the right decisions for the company and drive towards near-term profit.
Q: How do you see the accident period loss ratio trending from here?
A: (Alexander Timm, CEO) In Q2, we saw some storms, particularly in Colorado, which added a couple of points to the loss ratio. We are watching Q3 for typical hurricane exposure. We are very happy with our loss ratio and rate adequacy and are not anticipating major rate changes at this point.
Q: Are you expecting any rate changes?
A: (Alexander Timm, CEO) You may see moderate declines or small changes in a handful of states. We are very happy with where our rates are and may see some declines in some states.
Q: What are you considering from a capital perspective when you say you're continuing to look to optimize the structure?
A: (Megan Binkley, CFO) Capital efficiency and cost of capital are critical aspects of our strategy. We expect that improvement in our business results will translate to a lower cost of capital. The prepayment penalty on our current debt facility expired in July, and we are actively looking at options to reduce our interest expense.
Q: How does your mix of coverage compare to the industry in terms of providing comprehensive coverage?
A: (Alexander Timm, CEO) We saw hail losses in Colorado, which was the biggest weather event for us. Our customer base tends to be younger and more tech-savvy, and we target monoline auto. We believe we have a good mix of coverages appropriate for our customer base.
Q: How many of your customers download the Root app and share telematics data?
A: (Alexander Timm, CEO) The vast majority of our direct business customers download the Root app and share telematics data. Our technology can leverage varying amounts of data to create high-fidelity predictions of future loss costs. We believe we have one of the highest telematics adoption rates in the industry.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
