Root, Inc.

Welcome to the Root Incorporated Second Quarter 2021 Earnings Conference Call. My name is John. I'll be your operator for today's call. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session. During the question-and-answer session, if you do have a question, please press star then 1 on your touch-tone phone. Now, I'll turn the call over to Christine Patrick. Christine, you may begin.

Good morning, and thank you for joining us today. Root is hosting this call to discuss its second quarter 2021 earnings results. Participating on today's call are Alex Tim, co-founder and CEO, and Dan Rosenthal, chief financial officer. During the question and answer portion of the call, our presenters will be joined by Matt Ben-Octopore, chief data science and analytics officer, and Frank Palmer, chief insurance officer. Last evening, Root issued a shareholder letter announcing its financial results. While this call will reflect items discussed within that document, for more complete information about our financial performance, we also encourage you to read our 10-Q as well as our 2020 Form 10-K. Before we begin, I want to remind you that matters discussed on today's call will include forward-looking statements related to our operating performance, financial goals, and business outlook, which are based on management's current beliefs and assumptions. Please note that these forward-looking statements reflect our opinions as of the date of this call and we undertake no obligation to revise this information as a result of new developments that may occur. Forward-looking statements are subject to various risks, uncertainties and other factors that could cause our actual results to differ materially from those expected and described today. In addition, we are subject to a number of risks that may significantly impact our business and financial results. For a more detailed description of our risk factors, once again, please review our Form 10-K, where you will see a discussion of factors that could cause the company's actual results to differ materially from these statements, as well as our shareholder letter released today. A replay of this conference call will be available on our website under the Investor Relations section. I would also like to remind you that during the call, we will discuss some NOMGAP measures in talking about Roots performance. You can find the reconciliation of those historical measures to the nearest comparable gap measures in our shareholder letter released today and on our filings with the SEC, each of which will be posted on our website at ir.joinroot.com. I will now turn the call over to Alex Tim, Root's co-founder and CEO.

Thank you, Christine. Good morning, everyone, and thank you for joining us on our second quarter call. Today, I will provide a summary of our second quarter business results. Then I'll turn the call over to Dan for a deeper dive into our second quarter financials. Before touching on those topics, I'm extremely excited to share further detail on our exclusive partnership with Carvana that we announced last night. Our partnership has deepened as the two companies have gotten to know each other and understand each other's businesses and shared values. Mutual respect has been built as we are two companies focused on delivering the best customer experience through technology platforms. And after success with our initial partnership, It made sense to find ways of accelerating this opportunity by expanding our relationship. This industry-first partnership goes beyond what any other carrier or aggregator has done before, empowering Root to build a fully integrated insurance solution for Carvana customers. As a tech company with a full-stack insurance carrier, Root is best positioned to deliver personalized, bindable quotes embedded into the car ownership experience. Meeting customers where they are at the point of sale creates a natural onboarding experience that is likely to result in meaningful uptake with an attractive customer profile and attractive acquisition costs. Carvana's investment in the company underscores their commitment to the partnership while providing Root with additional capital. We are hard at work bringing the new partnership with Carvana to life and will share our progress along the way. Now, turning to the second quarter. We continue to operate on the three key drivers I laid out at the beginning of the year. First, the powerful competitive advantages enabled by our investment in proprietary technology and telematics. Second, how these advantages uniquely position us to manage risk as we achieve scale. And third, how our seasoned states will increasingly contribute to our management of the business, deployment of capital, and profitability. A key milestone was the release of our latest underwriting model, UBI 4.0. This brings to market increased predictive power that allows us to give the best drivers rates they deserve. The enhancements to the model leverages more than three times the data of our prior model, allowing us to better identify extreme risks and more accurately predict loss. We now have UBI 4.0 running in 16 states, allowing over half of our current customer quotes to utilize this model with continued rollout over the coming months. The advantage of our technology is not just on display when a customer shops and binds with us. It's also apparent in our retention metrics. Through scaling our data sets and improving pricing algorithms, we have been able to better segment our risks, resulting in increasing retention among the best 25% of drivers, while simultaneously decreasing the worst 25% of drivers that renew. This further validates that we're giving customers the policy and pricing Commensurate with their risk, a concept that is central to our sense of fairness. We continued down the path of national expansion, having launched our entry into Wisconsin during the second quarter. We were also able to accelerate our entrance into Washington State following the insurance commissioner's ban on the use of credit score, a bias we believe should be removed from rate setting altogether. Through our data science capabilities, we were able to move from research to filing in less than two months. An effort that takes most competitors in excess of a year. As incumbent carriers in the state struggle to reflect the change, we will be able to enter the disrupted market with a pricing model that reflects the elimination of credit score across all variables. Our flexible platform best positions route to win in a future where this bias is consistently eliminated nationally. During the second quarter, our marketing environment proved to be a challenge. Across virtually all of our digital ad channels, we saw placement costs increase substantially, which has since become a documented trend across the entire consumer product landscape. While we were in the process of ramping customer acquisition, the prices we were seeing, particularly later in the quarter, simply got beyond our standards and we began flattening or ramping spend down in certain channels to more acceptable levels. Given the magnitude of the cost increase this quarter, we recognize the value in diversifying our customer acquisition channels through technology and data science, building embedded insurance partnerships, and expanding our independent agent product. We see enormous and largely untapped opportunity in creating bespoke insurance offerings for relevant consumer verticals as we expand our network of partners. As a tech company with a full stack insurance carrier that owns the end-to-end consumer experience, we are in the unique position to offer a fully integrated digitally native experience. Our exclusive partnership with Carvana is a significant step forward in demonstrating our value in this area, and we look forward to sharing the progress we are making in this channel in the quarters ahead. To extend our value proposition to more customers, we continue to build out our independent agency product. Nearly a third of customers shop for insurance with an agent, and this number has stayed steady over the past decade, even with the rise of direct channels. We are leveraging our technology to create convenience and transparency for both agents and consumers, and we'll share more on our work in this space in the coming quarters. Broadening our approach to customer acquisition channels is critical for us to manage your capital over the long term. We are conscious of bringing the right risks onto the book for the right costs, and believe using our technology advantage to tap into these enormous opportunities positions us to more efficiently deploy your capital over the long term. We believe we're on the path to truly unique opportunities within these channels, and we can't wait to update you in coming quarters. I'm thankful for the continued support of our investors, our team, and our customers. With that, I'll turn the call over to Dan.