Root, Inc.

Good day, and thank you for standing by. Welcome to the Root Third Quarter 2021 Earnings Conference Call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during this session, you'll need to press star 1 on your telephone. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Christine Patrick, Vice President of Investor Relations.

Please go ahead. Good morning, and thank you for joining us today. Root is hosting this call to discuss its third quarter 2021 earnings results. Participating on today's call are Alex Timm, Co-Founder and Chief Executive Officer, and Dan Rosenthal, Chief Operating Officer, Chief Revenue Officer, and Chief Financial Officer. During the question and answer portion of this call, our presenters will be joined by Matt Benochteport, 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 last evening. A replay of this conference call will be available on our website under the Investor Relations section. I would like to also remind you that during the call, we are discussing some non-GAAP measures and talking about Roots Performance. You can find the reconciliation of those historic measures to the nearest comparable gap measures in our shareholder letter released last evening and 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 Timm, Root's founder and CEO.

Thank you, Christine. Good morning, everyone, and thank you for joining us on our third quarter call. During the quarter, we made progress on many of our key initiatives. and deepened our founding commitment to building world-class technology that addresses the longstanding inefficiencies and unfairness in the auto insurance industry. We're seeing the movement toward fairness grow, as evidenced by some of the largest incumbents following our lead in questioning the use of credit scores and pricing. We're excited to be leading this charge in the industry and bringing others along with us. This quarter, we placed the Chief Revenue and Chief Operating Officer responsibilities under Dan Rosenthal. In his new role, Dan oversees three critical areas of Root, marketing, insurance, and business growth development. This gives him the ability to drive profitable top-line growth and streamline operations. With Dan's history of entrepreneurial success, I think he is the perfect person to lead this charge for our organization. I'd now like to walk you through highlights of the third quarter. We made progress toward diversifying our distribution channels, an initiative we detailed on last quarter's call. Roots technology enables us to offer, quote, in under a minute, providing meaningful opportunities to build differentiated access to customers and broaden our distribution. By embedding our product offering in moments that meet consumers when they need us most opens up a sizable and largely untapped opportunity in adjacent industries. This also creates a vastly superior customer experience. To bring this to life, we focused on building an embedded product that powers our exclusive partnership with Carvana. Since announcing our partnership in mid-August, cross-functional Root and Carvana teams have been hard at work developing a fully integrated point-of-sale offering. We are currently testing the first iteration in 12 states. Early signs are positive, and we look forward to providing additional detail and results in the months ahead. We have made investments to bring the speed and ease of use powered by our technology to the independent agency channel, giving Root access to a larger demographic of consumers. We have developed a quote and buying process that takes a fraction of the time required compared to other carriers' platforms. This increases productivity for our agency partners. We're currently testing this product in five states with largely positive feedback to date. While investing in the diversification of our distribution channels, we have significantly dialed back our spend in performance marketing, reducing sales and marketing spend by 40%. This move has greatly reduced our customer acquisition costs, which can be seen in a $45 million improvement to our operating loss compared to the second quarter of this year. This is a prudent use of capital, particularly given the current inflationary loss environment we find ourselves in. We believe the diversified channel approach will enable us to further lower customer acquisition costs, attract customers with higher lifetime values, and provide additional levers to deliver strong, profitable top-line growth. We have substantially improved our pricing and underwriting models. We continue the rollout of UBI 4.0, our latest and greatest telematics model, and Model 4.1, our national pricing model. UBI 4.0 is currently active in 20 of our 31 states. representing roughly 70% of our addressable market. This model enables a precise telematics quote, improves overall segmentation, and does more with less data. Since the rollout of this model, we have been able to extend quotes to an additional 10% of users. We are also in the process of rolling out McModel 4.1, which leverages Root's growing data set to expand modeled coverages, improve segmentation, and better predict the lifetime value of a customer. As I've stated previously, By growing the data set, we can accelerate the momentum of our flywheel. As our pricing algorithms improve, we bring down the cost of insurance for good drivers, which allows us to attract and retain a more profitable mix of business. In addition to these segmentation improvements driven by model enhancements, we're also tightening our underwriting by refining contracts and endorsements and leaning on our state management group to unlock state-level efficiencies. We will see the results of these improvements in the quarters to come. The actions we've taken this quarter demonstrate our awareness of deploying your capital thoughtfully and balancing growth and profitability. We still have work to do, but we know what we need to do to positively impact our bottom line. This is an ongoing process and we will continue to find ways to drive toward profitability. I'm thankful for the continued support and trust of our customers, team members, and investors. With that, I'll turn the call over to Dan.