Wall Street Researcher
ROOT – NASDAQ
INSIDER BUYS – FUNDS ADD TO POSITIONS
These shares have bottomed after restructuring and slashing costs dramatically . Recent Insider and Institutional Buys have caught our attention. Short volume peaked in Nov 2021. There currently are 12 million shares short providing an explosive upside should the shorts decide to cover.
Dropping from a yearly high of $15.41 to a low of $1.30 these shares are ready to advance once again . Black Rock Inc and Millennium Magement have recently added to their positions. SEE HERE
Daniel Rosenthal – CEO – purchased 702,000 shares on 2-23-22
L. Hilsheimer – Director – purchased 28,735 @ $1.75 on 3-1-22
Beth Birnbaum – Director -purchased 22,518 on 3-1-22
We look for a significant bounce in these shares and urge all speculators to watch carefuly for a significant BREAKOUT and climb aboard
Root Inc develops and launches a direct-to-consumer personal automobile insurance and mobile technology company. It is a direct-to-consumer personal auto insurance, renters insurance and mobile technology company. It generates revenue from the sale of auto insurance policies within the United States.
Letter To Shareholders – Complete Letter Here
2021 was a challenging year for insurtechs and auto insurer capital market investors as inflationary pressures led to rapidly accelerating loss trends. Despite the challenges of our new environment, Root’s technology has enabled us to not only recognize the trends early, but take swift action to proactively address these environmental pressures. While we’ve learned from and adjusted to these challenges, our underlying belief in our business has not changed.
By focusing on data science and technology, we continue to drive increased efficiencies and segmentation. With our transformational Carvana partnership, we are reinventing how and when insurance products are purchased. We believe these investments will meaningfully build better customer experiences and a path to profit. Furthermore, we’re excited to say that our beliefs are backed by our data, as seen in our results:
• Stabilized loss ratios versus Q3 despite auto insurance peers continuing to report sequential increases in Q4. This was a result of improved underwriting, segmentation, and state management efforts. The speed at which we responded to trend was only possible because our data science and technology allowed us to spot the trend early and act quickly. To do this while also shipping the next generation of our segmentation models is our strategy in action.
• Shipped and iterated on the Carvana embedded product, increasing weekly new writings from our platform by 3.5x and setting the groundwork for further expansion.
• Reduced direct operating loss from $172 million in Q2 to $92 million in Q4.
• Materially reduced our cash burn in response to the loss environment by cutting marketing spend by 62% in Q4 and run-rate fixed expenses by roughly $48 million annually from peak 2021 levels. This material, decisive action shows our agility and ability to optimize for profit when the environment calls for it.
• Closed our BlackRock term loan facility of $300 million with a 5-year duration in Q1’22. This is both longer duration and larger than any facility we have secured to date, providing new capital for us to focus on our long-term path to profit. When scaling an insurance company, there are high fixed costs upfront—product development, acquisition costs, and the cost to acquire data to train our algorithms.
Over the last six years, we have borne many of these costs as we strengthen the competitive advantage that comes from our data science and technology. As we mature and our environment has shifted, the focus on the profitability of the business we’re writing has improved significantly over the last few quarters.
We believe we have line of sight to profitable unit economics and capital to execute on the strategic priorities to get us there.
Customer Experience We fight every day to meet a customer’s evolving needs by leveraging our technology to dramatically improve the customer experience. Our unique ability to meet consumers where they are with embedded products enables us to cost-efficiently address a pressing auto insurance need at the point it arises.
The combination of convenience, fair pricing, and unparalleled customer service from binding through claims are the building blocks of long-term customer loyalty. Carvana update Our exclusive partnership with Carvana is the first step to building an industry-leading embedded experience with the ideal partner that is the fastest-growing auto seller in the United States and shares our passion for the customer experience.
This product provides attractive customer acquisition costs to high-retaining customers. We announced the partnership in August and got to work with our Carvana counterparts immediately. Through our shared commitment to build the very best technology, the quality and effectiveness of what we’ve been able to develop in less than six months has surpassed expectations on both sides. We are openly collaborating so we can rapidly iterate on the product.
Fast-follow improvements in the first version of the embedded product include a quote presented as part of the Carvana workflow, automated proof of insurance, pre-filled bind flow, and less than our average 47 seconds needed for the customer to obtain a “Carvana Insurance, Built with Root” policy. Additionally, Carvana’s reconditioning centers allow for full knowledge of the condition of the car before a quote is presented to a customer, driving more accuracy for us and less disruption to the customer.
While it’s early, and we’re adding new states to the embedded footprint each week, the metrics around attach rate, loss ratio, and retention look extremely positive. We expect that Carvana customers will represent a material percentage of our new writings in Q1 and continue to build throughout the year.
As we have driven product market fit, Carvana decided to increase our share of traffic. This shift took place months ahead of what was committed to in our initial agreement, reflecting both the success of the partnership and Carvana’s enthusiasm over the level of interest their customers have shown in our embedded offering. We expect to continue to improve customer adoption as we dramatically improve customer experience, learn more around what drives bind rates, and continue testing.
Path to profit Root is committed to building an enduring business for the long term. To achieve this, we have solidly prioritized our capital investments. We began implementing operating changes across the business early in Q3. We substantially reduced direct marketing spend in response to the elevated macro loss environment and customer acquisition cost in digital channels. During the Q4, we reduced our sales and marketing spend by 62% sequentially, in addition to the 40% sequential drop we experienced in the Q3. Our commitment to our path to profit did not stop at marketing spend.
This work underpinned the difficult decision we took in January to reduce our workforce by approximately 20%, resulting in run-rate expense savings of approximately $30 million annually. We expect to incur approximately $7 million in severance, benefits, and related costs related to the workforce reduction as well as approximately $2 million in real estate exit costs in Q1’22.
This was another prudent move for our business, given the deep focus on key strategic priorities. We will continue to take action to manage our capital consumption while investing in the areas of the business where we see the greatest potential: further developing our embedded product with Carvana, developing additional embedded product partnerships, strengthening our underwriting foundation, and continuing to utilize our technology to address long-standing inefficiency in the auto insurance industry. We are confident that the changes made and underway, combined with our unique ability to respond quickly to today’s insurance environment, will establish a solid path to profitability and secure our future success.
Looking ahead we continue to execute on the goals we set out during Q2’21. We are using our technology and customer knowledge to gain differentiated access to customers to acquire profitable business. We are improving our insurance operations, making extraordinary leaps forward in our partnership with Carvana, and prudently managing capital. In the face of an uncertain auto environment, we continue to expect gross written premium to reflect significant year-over-year declines in the first half of 2022 as we take active steps to take underwriting/ pricing actions to react to the loss cost environment, prepare to ramp up our Carvana partnership in the back half of the year, and materially reduce our operating loss.
We also continue to expect a meaningful improvement in full-year operating losses in 2022 as we prioritize expense management and reduce capital consumption. With further reduction in marketing costs and fixed expenses on a year-over-year basis, we expect approximately 25% operating loss improvement in the first half of 20221 . We are planning to host an investor day in September in New York, NY. This platform will give Root the opportunity to give a greater level of detail on future expectations for the business, including operating performance for the back half of the year. Letter to Shareholders: FY 2021 ____________________________________________________________________________________________________________ Before restructuring charge of $6-9 million We sit in a stronger position than we have at any other time in Root’s history. Our ability to quickly iterate and implement changes not only makes us stronger in the volatile environment we face today but is a core part of the infrastructure that makes Root built to last.
Our near-term goals are clear: continuing to capitalize on our technology advantage, strengthen our underwriting foundation, and building out our embedded product through our partnership with Carvana. The success of this focus can be measured in our top and bottom-line results in coming quarters and years ahead. We appreciate your continued support and look forward to what’s ahead for Root.
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