Daniel Schreiber: Sure, sure. No. Sorry, I just hadn’t heard the beginning of the sentence. It’s a tough question, which we think about a lot and have a view on. So I’ll share our perspective. We think the answer is unequivocally yes. We think that there are structural advantages to being built by technology founders, in recent years in the age of AI and having architect the business from the get go that way. And incumbents in this sense are encumbered, they’re very, very smart. They know everything that you and I know, but they have objectively just a lot of legacy to deal with. In a couple of days time it will be the Berkshire Hathaway Annual General Meeting. This time last year on that stage, Ajit Jain, who runs insurance there, the Vice Chairman spoke about Geico, whom they own outright and said that Geico has 500 and then he corrected himself and said, actually, it’s over 600 different systems that don’t talk to one another.
Well, when you have that kind of legacy and Geico has the advantage of being a direct to consumer, other, you know, their competitors are even more encumbered because they’ve got 40,000 agents by way of distribution, and it is very hard for them without conflicted a channel strategy to really adopt a direct to consumer AI driven approach. But even if that weren’t the case, just when you aren’t built as a tech company, when you aren’t led by people who understand technology, when your systems were built in the 1980s on COBOL, and you can’t even hire engineers who know that programming language, and therefore instead of having a black box, you have a black hole where you have to continuously invest just to stay afloat. Those are genuinely difficult systems and problems to overcome.
I’m not saying that no incumbents will overcome them, and I’m sure they will all make as much use of AI as they can, but I do think that taken together that amounts to a structural disadvantage that will be difficult for them and advantageous to us. It’s something I can wax lyrical about for a while, but I hope that gives you some sense of how we think about this.
Andrew Kligerman: Yeah, yeah, yeah. Very helpful. And if I could just sneak one more in on the auto insurance. Could you specify roughly how much of the written premium now is in the auto line and a competitor in direct to consumer was talking about how they started to see a little competitive pressure at the end of the first quarter. Do you still feel with all your rate approvals and new rollouts, the ability to keep growing or do you see competition kind of getting a little tougher to compete?
Daniel Schreiber: Sure. So in a big picture sense auto is a smaller relative piece, but a substantial piece of the business around 15% or so of the current run rate IFP that’s made up of both paper mile, which is the majority of that three quarters or maybe a little bit more of that is paper mile. But the remainder is fixed price or more traditional priced. More importantly to note, I think is our auto product in terms of its understanding and integration of telematics is second to none. We monitor — we sort of capture data through telematics for nearly a 100%, excuse me, of our customers, our car customers, and for nearly a 100% of their travel of their mileage. And you multiply those two together and you get a very high number that is uncommon in the industry.
In fact, the largest incumbents track a very small percentage of their car customers through telematics and a very small number of the miles of those. So a fundamental difference there. I did see the comment that you noted in terms of increased competition. I took that to be a bit of a throw away about the coming quarter unique to maybe how the competitor views their numbers unfolding. So no, we don’t see any fundamental changes in the market or our opportunity for car.
Andrew Kligerman: Thanks very much.
Operator: Thank you. The next question is from Matt Smith with Halter Ferguson Financial. Your line is open.
Matt Smith: Hi and thanks and congrats on a strong quarter. I wanted to circle back to the sales and marketing and kind of customer growth spend question from earlier. I noticed there wasn’t any new information on the LTV to CAC kind of trends this quarter. So I wonder if you can just kind of lay the groundwork on what are you seeing on that kind of marginal dollar potential to spend and is there anything that is causing you to kind of flow since you do have the financing available under the [indiscernible]?
Tim Bixby: No. So I would term — look at our growth spend and our growth efficiency is all systems are go, so we’re following our plan of accelerating the spend and our growth rate that began to ramp up as planned and expected in January. When you just see the quarters numbers it’s a little harder to see, but January, February, March, April, consistent increase is ramping up to what we expect and we’ve communicated as a rough, almost a doubling of our growth spend year-on-year. In terms of the efficiency if we just look at Q1 for example versus the prior year quarter we did see an improvement, something on the order of 15% or so more efficient for each dollar in terms of the in-force premium acquired or the cost per dollar acquired.
So good progress. We think of LTV to CAC, which is obviously a very fairly common measure of well above three. In fact, over the course of last year we saw numbers that looked in edge from the high 3s and towards 4. That was when we were spending at a lower rate where things tend to get a bit more efficient. But even at this high rate we’re continuing to see strong LTV to CAC ratios well above 3. So things are tracking nicely and our full year spend supported and made from a cash perspective, much more efficient through our synthetic agents program is running full steam ahead. We’re financing about 80% of our spend since the beginning of the year. And things are right on track.
Matt Smith: Thanks, Tim, that’s really helpful context. And maybe just more philosophically, how do you think about the kind of trade-offs between the spend impact on your gap metrics and kind of current period profitability you mentioned earlier, wanting to get to EBITDA, adjusted EBITDA positive by next year but with the LTV to CAC rate, where is you could certainly argue for more spend, which would create kind of near term gap margin pressure. So how do you think philosophically around the trade off or the kind of near term impact of that increased spend potential versus the really attractive economics that you’re seeing on a customer cohort basis?
Tim Bixby: Sure. So you, it sounds like you’ve been sitting in our growth marketing meetings where we debate this question in real time on a kind of a day in day out basis. And that is, I think you described the trade-off exactly right, which is on the one hand, all the business we’re acquiring and expect to acquire is profitable business. At some point as you increase growth spend that doesn’t go to infinity and efficiency starts to slow and you get to a point where you become less comfortable with that end — acquiring that end customer for the nth dollar spend. And so that’s really the frontier that we’re constantly pushing. We believe it’s important for the health of our business, the long-term health of our business, and our commitment to ourselves and to our shareholders that cash flow break even, profitability is not the only thing, but it’s a critical next step for the business.
We can do both at the same time. We’ve guided to a year where growth will accelerate from the low 20s to the high 20s by year end. Our goal and expectation is because of the strength of the unit economics that we’re seeing and the positive trends in both loss ratio which is part and parcel with getting additional rate. All of those train — all of those trends suggest that we’ll continue to be able to spend a bit more. And as that continues, I think we’ll see into next year and beyond our ability to continue to kind of push that envelope. Last thing I would note is one of the real benefits of being a multi-product company and a multi continent company is we have a lot of levers to pull to find that optimal mix of profitable business, high LTV to CAC and still keep us right on track for fundamental bottom line improvement that we and investors want to see.
Matt Smith: Thanks. And if I could just squeeze in one more quick one, the premium for customer increased sequentially was a little bit higher than I was expecting. Is there any notable trends that you’re seeing either on rate earnings or bundling or upsells anything that was driving that improvement?
Tim Bixby: It is really a bunch of small things. So, not one notable thing. The biggest change of course is that that ratio of drivers used to be more of a mix, used to be 50:50 or 60:40 between rate increases and product mix changes. Since now that’s almost entirely shifted to rate increases as expected, sort of as planned, we’re getting rate across products. And so you’re not seeing as notable a product mix shift as you saw maybe two years ago. So the bulk of it has been driven by rate. I expect that’ll continue not forever obviously, but for the next few quarters. And the underlying drivers are consistent and improving, so retention improving, multi-line customer rate, the number of percent of customers with multiple policies.
All of those are continuing to show improvement. But as Daniel noted early on, less than 5% of our customers have multiple policies. There’s no reason that can’t be a number that looks like 30 or 40 or 50 someday. And that’s the long-term goal.
Matt Smith: Thanks so much and congrats again on a really strong quarter.
Tim Bixby: Thank you.
Operator: Thank you. The next question is from Bob Huang with Morgan Stanley. Your line is open.
Bob Huang: Hey, good morning. Again, like a very strong quarter. Just one question on your guidance. You beat the quarter by the midpoint by about 7 million in revenue, by about 8 million in adjusted EBITDA against your prior guidance. But in your full 2024 guidance, you’re increasing your revenue guide by about 5.5 million, and by adjusted EBITDA you’re increasing by about 4.5 million. Feels like that increase is a little low. Just curious if there were any revenue and earnings pull forward, or what is the rationale behind the guidance when you beat the numbers by significantly more?
Tim Bixby: Yeah, great question. And there, there is a nuance that’s worth highlighting there that I think you’re hitting on quite cleverly I will say, which is in the first quarter we did see a positive impact on all the KPIs, a little bit ahead of our expectations and certainly ahead of the guidance. Revenue in particular can be impacted by reserve releases and reserve adjustments. And there’s a typical pattern in Q1 that was a little strengthened by the nature of our reinsurance agreements. So we had a reserve adjustment, it had a bit of an outsized benefit because of our variable commission that we have, our reinsurance agreement. That drove a little bit of the revenue performance in Q1. And because that’s not a typically sustainable or ongoing operating benefit that reserve adjustments happen, you know positive and negative quarter-to-quarter on occasion, we didn’t assume that that would replicate going forward.
It was not logical to assume that replicated. And so that accounts for the vast majority of that difference that you’re seeing in terms of the over performance in Q1 versus the guidance for the remainder of the year for revenue.
Bob Huang: Got it. Really appreciate that. Thank you for clearing that up. And that’s all my questions.
Operator: Thank you. The next question is from Tommy McJoynt from Stifel. Your line is open.
Tommy McJoynt: Hey guys, just a quick follow-up here. When we were talking about the catastrophe loss discussion, I wanted to ask, is there a threshold, like in terms of a dollar amount or a percentage amount that you guys use to define what falls into the catastrophe bucket versus the non-cat bucket?
Tim Bixby: Yeah, we use a standard NCS rating. So if it gets a cat number that becomes a cat. So we don’t have our own proprietary measure. We just use a standard measure out there in the market. Notable that it hasn’t changed. It’s a $25 million threshold that has not changed for a very long time. But it’s a standard measure and one that we have used.
Tommy McJoynt: Okay, thanks.
Operator: Thank you. We have no further questions, so I will hand back over to the management team to conclude.
Daniel Schreiber: Thanks so much. That wraps up our comments and thanks so much for joining, and we look forward to seeing you again next quarter.
Operator: Thank you. This concludes today’s call. Thank you for joining. You may now disconnect your lines.
