Metromile, Inc.
Q1 2021 Earnings Call Transcript

Published: 17 May 2021

[Operator:]

Greetings, and welcome to the Metromile, Inc. First Quarter 2021 Earnings Call. . As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Garrett Edson of ICR. Thank you, Garrett, you may begin.

[Garrett Edson:]

Thank you, operator. Good afternoon, and welcome to Metro Mile's First Quarter 2021 Earnings Call. This afternoon, the company released its financial results for the quarter ended March 31, 2021. The shareholder letter is available in the Investor Relations section of the company's website at www.metromile.com. I would like to remind everyone that certain statements made in the course of this call are not based on historical information and may constitute forward-looking statements. This call will include statements regarding our ability to grow our business as well as certain projections for the first quarter and full year 2021 and are based on management's current expectations and beliefs and are subject to a number of trends and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. I refer you to the company's filings made with the SEC for a more detailed discussion of the risks and factors that could cause actual results to differ materially from those expressed or implied in any forward-looking statements made today. All such forward-looking statements are made as of today, May 17, 2021, and the company undertakes no duty to update any forward-looking statements that may be made during the course of this call.

[Dan Preston:]

Thank you. Good afternoon to everyone, and welcome to our first quarter 2021 earnings call. We appreciate your interest and continued support of Metromile. On today's call, I'll provide a brief overview for our first quarter performance and provide updates on our recent progress and overall growth strategy for 2021 and beyond. Lindsay will follow with additional details on our first quarter 2021 results. And then we'll open the line for Q&A. We had a solid start to 2021 and our first quarter as a public company. We delivered on our first quarter outlook, increasing policies in force to the year 96,000, at the top end of our range, while we generated further year-over-year improvements in our accident quarter loss ratio and contribution margins and came in well within our expected range, further validation of our per mile and behavioral pricing model. Our primary focus on unit economics continues to bear out in our results, which we believe positions us very well for the back half of 2021 when we expect to accelerate our growth trajectory significantly. Since our last call, we have been laying the ground with to execute on our long-term sustainable growth strategy successfully. First, one of our primary strengths is the team we have built at Metromile over the last decade. This combination of visionary technology and consumer product talent, along with seasoned insurance leaders, allows us to reshape insurance products while delivering consistent underwriting results. Our digital innovation is working to make insurance fair and more individualized every day, empowering the customer while building a high-margin business. We believe that same technology advantage creates cost structure advantages that return a meaningful profit for every policy sold. We have the right team in place to succeed and even more so with our two most recent leadership hires who both start next week.

[Lindsay Alexovich:]

Thank you, Dan, and good afternoon, everyone. Let me take you through some of our first quarter 2021 results. In the first quarter, we generated a direct earned premium of $25.8 million, a 4% increase from the prior year period. At the end of the quarter, we had 95,958 policies in force, a 4% increase from the end of 2020. We want to reiterate that fluctuations in driving patterns can cause the total premium to vary in any given period. Our premium run rate, which we define as ending policies in force multiplied by average annual premium per policy as of March 31, 2021, was $106 million. Average annual premium per policy was $1,100 at the end of the first quarter of 2021. Our one year retention or the percentage of customers who remained with us after 2 policy terms as of March 31, 2021, was 59.9%. This figure remains slightly elevated from what we would expect going forward as some cancellations resulting from nonpayment were not processed due to government-mandated COVID-19 payment extension. We expect the 1-year retention figure to revert to normalized levels in the second quarter as these cancellations are processed. And please note that while these cancellations will have an impact on our policies in force at the end of the second quarter, we have anticipated this impact in our outlook for end of year 2021 policies in force.

[Dan Preston:]

Thanks, Lindsay. Based on our first quarter performance, we are reaffirming our outlook for the full year 2021. We continue to project ending the year between 125,000 and 133,000 policies in force, which entails year-over-year policy in force growth of 35% on the low end and 44% on the high end. As a reminder, we accelerated our marketing spend in November 2020 in anticipation of our -- of ramping up our growth in 2021 and beyond. As a result, we would expect our policies in force sequential growth trajectory to steadily increase throughout the year as marketing channels mature and as we enter new markets, with the majority of our growth to be weighted in the latter part of 2021. In an effort to provide more transparency, we are initiating our outlook for the end of 2021 premium run rate to be between $143 million and $176 million. Our end of year assumptions are based on the following

[Operator:]

. Our first question comes from Arvind Ramnani with Piper Sandler.

[Arvind Ramnani:]

I just have a couple of questions regarding your partnership with Hippo. If you can kind of just expand a little bit more on the rationale for partnering with Hippo instead of continuing to expand geographically. And also, any details that you can share in terms of how you're going to split revenues and cost? And what are some of the milestones you have in place to determine success from this partnership?

[Dan Preston:]

Sure. Arvind, thanks. So the starting point here is on your question on data expansion relative to homeowners. Those 2 tracks of work do not necessarily conflict the two different teams internally that are working on that. So fortunately, we don't necessarily sacrifice any of the state expansion to be able to offer the homeowners products here. The way that we structured it is that both partners here, both us and Hippo will be cross-selling each other's products as part of the experience. And so as you come to Metromile.com or in the app to get a quote with us, we'll be able to offer you a bundle with both our product and Hippo's. And so what that will mean to the consumer is they can save up to an additional 15% with both products. And then there's basically a commission structure between both companies where each of us will earn a percentage of that premium based on selling those policies alongside their own product. So that kind of arrangement ultimately allows us to build the business in tandem.

[Arvind Ramnani:]

Great. Great. And I guess one of the things you and I have always talked about it, you've always taken a lot of pride in the customer experience for Metromile customers. And given like Hippo is kind of InsurTech and how are you going to kind of make sure that going forward, year 2, year 3 sort of the kind of the customer experience that your customers you expect to get from Metromile is also something that they get from Hippo?

[Dan Preston:]

Absolutely. Yes, that was actually at the center of our decision to work with Hippo. Fortunately, because both our platform and theirs are highly digitized and we have the ability to integrate with pretty simple APIs, it allows us to be pretty flexible with the experience. And so what we're going to be doing is actually building this into the quote flow experience in a very seamless way. And then ultimately, as part of your ongoing customer experience as well, really within the Metromile app otherwise, being able to manage your policy and take the actions that you would as they were one experience with Metromile. So to your point, that's actually at the core of what we've been looking for in a homeowners partner. And we actually found that in Hippo and think we have a lot of alignment and frankly, technical capabilities to be able to make that a seamless experience.

[Arvind Ramnani:]

Great. Great. And just last question for me is, is this kind of like an exclusive agreement? And is there -- if I decide -- if you or Hippo decide to kind of part ways, what's the out clause?

[Dan Preston:]

Yes. So I don't want to say too much about all of the details of the contract, but what I'll say is that I think each of us look at the market in a bit of a diverse way and that not all products fit all customers. And so for instance, we're not going to be attracted to high-mileage drivers, and that's on purpose. Similarly, Hippo doesn't offer a product for certain segments. We may want to ultimately sell another product there in the long term. And so I think there's a clear alignment of the 2 products in the market, and we're focused on that 1 as a starting point. As both companies grow, I expect that our customers will have a diversity of needs, and I'm sure that will expand for both of us over time. But I think that's a day 2 question.

[Operator:]

Our next question comes from Josh Siegler with Cantor Fitzgerald. .

[Joshua Siegler:]

Congratulations on deal with Hippo. Can you elaborate a little more on how you plan to proactively market bundled insurance to existing and new customers?

[Dan Preston:]

Yes, absolutely. So the starting point will be with our current direct online channels. As people come to the funnel, the thing that we ultimately have found is that there is a large group of customers who look to bundle both homeowners and auto. And I think it's something like 50% of consumers nationally. And so what this means is that there are a bunch of segments within different marketing channels that today are probably higher cost of acquisition than they will be when we start being able to offer the bundle. So I think this just opens up opportunities to better segment and do better work within existing channels. And certainly, we both benefit from each other's marketing in the process, right? So as we are selling more per mile insurance, hopefully we'll be helping Hippo grow. Similarly, as they're growing their business, we'll be a good option for many of their customers as well. So it does open up new growth opportunities in both indirect and direct ways.

[Joshua Siegler:]

Yes. That makes sense. Shifting gears a little bit. As auto sales have rebounded, have you seen a larger inflow of customers from your OEM channels?

[Dan Preston:]

It's a good question. We've certainly seen that used cars have accelerated. I think you've seen this generally with some of the inflation numbers and other things. There isn't a distinct difference from what we can tell in new cars in those channels right now. We're certainly seeing generally strong demand for that product overall, and it hasn't shifted much even as people have started to return back on the roads. We're still seeing solid response rates in general.

[Joshua Siegler:]

Got it. Got it. And what impact, if any, did the government stimulus have on your business? Do you think there is any significant pull forward?

[Dan Preston:]

Interesting. It's hard for us to say that there is a direct correlation there. Most of the response that we've seen throughout the year were directly related to different campaigns we were doing. So I don't think we saw a particular noticeable impact from the stimulus on other growth or retention directly?

[Joshua Siegler:]

Got it. Great. And if I could just sneak one more in, can you help us quantify what the impact the 2Q retention will be from the payment extensions?

[Dan Preston:]

Yes. So I think of this as being mostly impactful for like half of the quarter. So if you think of -- most of -- nearly all of those type of happened this pace from the beginning of Q2 to today. So during that period, you have a pretty muted growth rate and then it accelerates from here to the end of the quarter.

[Operator:]

Our next question comes from Jed Kelly with Oppenheimer.

[Jed Kelly:]

Great. Just on the back -- or the run rate at the end of the year, can you kind of disclose how much is going to come from current states versus new states? And in terms of your state rollout plan, where are you with the regulators versus, say, 6 months ago?

[Dan Preston:]

Yes. So in terms of filings themselves, we've been doing a fair amount of work in ensuring, in the first 13 states, which we anticipated this year, all of our baseline authority and other areas are set up. And so I think we're in a good position there. We're also in the process of finalizing all of the filings too, which will go out shortly. And those will start to represent the first states that will go live this year. So we made good progress there. And sorry, remind me the first part of your question.

[Jed Kelly:]

Just where the first part was, how much is coming from current the growth at the end of the year and fourth quarter? How much is going to come from like current states you're operating in versus new states?

[Dan Preston:]

Yes. Hard to provide a specific number right now, but it should contribute pretty meaningfully to overall growth there. If you just kind of think of like the increase in TAM overall, it's going to increase TAM by the end of the year by about 60%, I believe. And so that will represent a pretty meaningful increase in total policies sold as we enter those new markets. We also have for instance, long waiting lists of people who have come to get close to about their e-mail and address. In those cases, we expect to see a fair amount of demand just day 1 when you first launch those markets.

[Jed Kelly:]

And then I might have missed this. But with the agreement with Hippo, is that exclusive? And if not, would you use other tech-enabled insurance companies like yourself, like Hippo to drive more customer acquisition? And just how do you see your customer acquisition strategy evolving? I mean you look at some of the sell-side notes or sell-side estimates of your competitors, it looks like they're going to be spending a lot over the next 2 to 3 years. So can you just remind us how you're approaching customer acquisition over the next 18 months?

[Dan Preston:]

Yes, absolutely. So to your question on exclusivity, so we don't have exclusivity today with Hippo. As we go into new markets, we're going to make sure that we have the right product set up for all of our customers. We think that Hippo's a great partner and will be a core part of that. Customer acquisition, generally, we market through a lot of the online direct channels as a primary source of traffic for the business. And in addition to that, we've been seeing some strong growth with our ride-along products, which is, in many ways, an augmentation to the existing online channels and then in many ways, a way for customers to share with others and you see growth from that channel as well. I do think that what this -- and just speaking to kind of the earlier comment, I think that, as we're able to offer homeowners alongside, it allows us to better convert traffic that we're going to be able to acquire a lower cost now that we have both products together. And it also opens up opportunities, of course, for us to be able to sell our product alongside Hippo's as well.

[Jed Kelly:]

And then just on the prior period adjustment, is that from like a couple of years ago when you guys were first starting? Or how much of that is that result from years ago? Or how should we view prior period adjustments going forward as your algorithm gets better?

[Dan Preston:]

Yes. So prior period development largely reflects all of the history from 2016 through to today, so there's a fair amount of impact there. And so these are -- about 85% of that increase is related to large loss bodily injury claims. And primarily, what we're seeing there, there's some aspect of, I think, what's called social inflation, and this is primarily a higher level of attorney-represented claims with more soft tissue issues. But these are out of a handful of claims in Q1. So there are 30 large losses in. A portion of those is largely what drove the reserve changes. So this is largely going to be a function of scale as we grow the business over time. Those few large losses will have more minimal kind of impact over time and just make it more predictable over time.

[Operator:]

There are no further questions at this time. I would like to turn the floor back over to Dan Preston for any closing comments.

[Dan Preston:]

Great. Thank you very much. We appreciate all of your questions and time on the earnings call today. Look forward to staying in touch and talking again soon. Take care.

[Operator:]

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation. Have a wonderful evening.