Lemonade, Inc. Q1 FY2021 Earnings Call

Good day, and welcome to the Lemonade, Inc. First Quarter 2021 Earnings Conference Call. All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note, today's event is being recorded. I would now like to turn the conference over to Yael Wissner-Levy, Vice President of Communications. Please go ahead.

Good morning, and welcome to Lemonade's first quarter 2021 earnings call. My name is Yael Wissner-Levy and I am the VP of Communications at Lemonade. Joining me today, to discuss our results are, Daniel Schreiber, CEO and Co-Founder; Shai Wininger, President, COO and Co-Founder; and Tim Bixby, Lemonade's Chief Financial Officer. A letter to shareholders, covering the company's first quarter 2021 financial results, is available on our Investor Relations website, investor.lemonade.com. Before we begin, I would like to remind you that management's remarks on this call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those discussed in the Risk Factors section of our Form 10-K filed with the SEC on March 8, 2021 and our other filings with the SEC. Any forward-looking statements made on this call represent our views only as of today and we undertake no obligation to update them. We will be referring to certain non-GAAP financial measures on today's call, such as adjusted EBITDA and adjusted gross profit, which we believe may be important to investors to assess our operating performance. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures are included in our letter to shareholders. Our letter to shareholders also includes information about our key operating metrics, including a definition of each metric, why each is useful to investors and how we use each to monitor and manage our business. With that, I'll turn the call over to Daniel, who will begin with a few opening remarks. Daniel?

Good morning. I'm happy to report on another quarter of strong advances along our key performance indicators. As compared to the first quarter of 2020, our top line, which is in force premium, grew 89% to $252 million, representing an accelerated rate of growth compared to the prior quarter. Premium per customer also increased at an accelerated rate to 25% year-on-year, as recent product launches continued to bolster our economics. Tim will elaborate on all our numbers shortly. During our last call, I spoke perhaps cryptically about a new product launch we are highly focused on internally and we've since unveiled that this mystery product is Lemonade Car. Perhaps that wasn't a huge surprise, but I still get asked, 'Why car insurance?' Well, when asked why he robs banks, the notorious bank robber Willie Sutton answered, 'Because that's where the money is.' I can say much the same about car insurance. The car insurance market is about $300 billion in the U.S. alone and that's about 70 times larger than the renters' insurance market and 80 times larger than the pet insurance market. It's also three times larger than the entire homeowners market. And given that Google trends show that searches for Lemonade Car insurance and Lemonade auto insurance outnumber searches for Lemonade home insurance, we believe we have a fighting chance of taking a sizable bite out of this enormous pie. Now, setting aside the massive new market that Lemonade Car opens up, it will also hopefully be a huge unlock of value for our existing businesses. For one, we believe that our homeowners' insurance customers today already spend about $1 billion on car insurance, but they've been unable to spend it at Lemonade, and our forthcoming launch will solve for that. For another, we've been selling homeowners insurance effectively with one hand tied behind our back since we can't bundle homeowners and car insurance in the way our competitors do. So Lemonade Car not only opens up a huge new market, but I do expect it to be a boost for our existing homeowners business as well. The next question I get asked is something like this: 'With such forbidding incumbents like GEICO and Progressive, who have truly achieved mastery over the direct-to-consumer auto insurance space, how can Lemonade conceivably compete?' Those companies are formidable, and they've been doing their thing since 1936 and 1937, respectively. Each has tens of billions of dollars in force premium and spends billions of dollars a year on advertising, and has done so for many years. That all adds up to real heft, and we have tremendous respect for these competitors, as we should. But strengths and weaknesses are two sides of the same coin, and all that legacy and bulk come at the expense of nimbleness. That may be a problem for them, since the car industry is going through a once-in-a-century dislocation, and that may favor the legacy-free. As a rule, when innovations are continuous or incremental, the benefits of these innovations accrue to incumbents. But when they are discontinuous or disruptive, they typically accrue to the benefit of disruptors or newcomers. The transformations in the mobility space are very much of the latter kind. Cars are moving from being mechanical platforms to being digital platforms, morphing from being dumb appliances into smart robots and from being isolated devices to being nodes on a network. Tesla is clearly showing the way. Yet while the majority of cars will take years to be as fully connected as a Tesla, their drivers already are. The smartphone every driver brings to their excursion has exquisitely sensitive sensors, allowing us to derive gravitational, magnetic, location, and directional measurements that we can map onto driving metrics such as how much a person drives, how aggressively, and whether on accident-prone roads or on relatively safe ones. Finally, and unlike data from connected cars, smartphone-based sensors also allow us to detect distracted driving, which is a highly predictive risk factor, and to track drivers across different cars they drive, instead of homing in just on a single car, regardless of the driver who's driving it. The upshot is that the data streams from cars and from their drivers allow us to graduate from pricing based on make and model, as has been done for generations, to pricing based on usage and behavior. This could be transformative for the car insurance industry. I like to think of the kind of precision underwriting that technology is enabling as akin to the revolution unleashed by the invention of the microscope. Before microscopes existed, everybody thought that a drop of blood was just a monolithic blob. After we had microscopes, we could see red blood cells and white blood cells, realizing that they are very unevenly distributed and of different sizes, performing different functions. The same could be true with these connected streams. Instead of pricing a large group of people as monolithic, connected devices and connected drivers allow us to do precision underwriting. This could truly be a game changer. It's not that these technologies are unavailable to companies like GEICO; rather, their adoption might threaten their sizable book of business and undermine their competitive advantage built up over many years. This may explain why GEICO resisted telematics for a long time and only reluctantly dipped their toe in the water not long ago. Warren Buffett addressed this in the recent Berkshire Hathaway Annual General Meeting, stating, 'GEICO clearly missed the bus and were late in terms of appreciating the value of telematics.' He added, 'Hopefully, they will see the light of day soon.' So why do many incumbents adopt these technologies half-heartedly? Often, when they do adopt them, they underweight their signals and rates. This is because new technologies have the ability to break up groups that have been treated as monolithic and price them based on their average performance. The technologies will reveal that about half of those groups are actually better risks than average, leading to lower rates and potential loss of premiums. Conversely, the other half may be worse risks than the average, which will require raising their rates, resulting in customer loss. This change may reset how car insurance can be structured, underwritten, and priced, benefiting players without a legacy business to protect and who have designed their business from the get-go for emerging realities. In a minute, I'll hand over to Shai. But before I do, I'd like to switch gears and address the Texas freeze, also known as Winter Storm Uri. This was the fierce winter storm that hit Texas and neighboring states in February, impacting millions and causing power outages, icy roads, frozen pipes, and sadly, great suffering. We received about an entire year's worth of claims in the first few days, providing an extreme stress test for both our operations and financials. The results should be reassuring to our team, customers, and investors. I'll start with the operations stress test. At the onset of Uri, our claims experience team activated our catastrophe operational process. Our people and technology rose to the occasion, resolving the majority of claims within one week of the storm's onset. As always, we put our customers first and are proud to have delivered a best-in-class experience to them during a serious time of need. Our Net Promoter Scores for claims interactions associated with the crisis were nearly 70, in line with our non-catastrophe experience and at a level I believe is unmatched in our industry. Turning to the financial stress test, all those claims from Uri and other catastrophes in the quarter added about 50 percentage points to our gross loss ratio. Yet, our EBITDA guidance for the year remains in line with analyst consensus prior to the storm. The explanation is straightforward. We have extensive reinsurance programs in place for just such eventualities, and they worked as promised. All told, the Texas freeze was by far the most severe catastrophe Lemonade has had to deal with, reflected in the sudden spike of our gross loss ratio. But that's pretty much the only place it shows. You might have expected that a year's worth of claims packed into a single week would crush our systems, overwhelm our teams, lead to a degradation in customer satisfaction, or at least make us restate our EBITDA guidance. It has not. This is a strong testament to the financial and operational resilience of Lemonade, and to the dedication of our tech teams and partnerships. And with that, let me hand over to Shai for some updates. Shai, over to you.

Thank you, Daniel. Let me start with Lemonade Life. Last time we spoke, I mentioned that, unlike previous products, our term life insurance business will be launched gradually. We spent the first complete quarter post-launch ironing out the kinks by testing and improving the product to ensure it delivers on the Lemonade promise and provides a fantastic experience for our customers. We saw that we've made significant progress on this front, and have moved to focus on growing the term life business. On other fronts, we are happy with the rate at which our non-renters products are growing, with homeowners, pet, and life representing roughly half of our new business in the last quarter, up from roughly a third a year ago. This diversification is strategically important to us. Our systems have become increasingly sophisticated at optimizing budget allocation for each product to ensure maximum ROI. Seasonal and local fluctuations in demand are typical, and so when we see a decline in profitability or volume for product A, we divert dollars to product B to sustain efficient growth. We're separately seeing attractive cross-selling trends across our business. This is one of the reasons we're excited to share a new metric today: annual dollar retention or ADR. Our ADR has improved significantly in recent quarters, up to 81% in Q1 2021 from 70% a year ago. Existing Lemonade customers who are purchasing additional products are a major driver of this improvement, contributing seven percentage points in the current period. As we look ahead to our car launch, we see potential for meaningful acceleration in ADR as well. Lastly, I definitely share Daniel's excitement about Lemonade Car and wanted to share a sneak peek into how we are thinking about the product. You can expect everything you already love about Lemonade now for your car. A delightful conversation with our chatbot Maya will help you get the customized auto policy in minutes. It will be a beautifully designed experience that is easy and fast. Claims will be paid quickly and we will continue to support charities on behalf of our customers. We'll also have attractive pricing for environmentally friendly cars and EVs. This aligns with our core values as a B-Corp and public benefit corporation. We are committed to the public good and our products will reflect that. And with that, let me hand over to Tim for a bit more detail around our financial results and outlook. Tim?

Great, thanks, Shai. I'll provide more insight into our Q1 results as well as expectations for the second quarter and the full year of 2021, after which we'll take your questions. We had another strong quarter of growth, driven by the addition of new customers and a continued increase in premium per customer. In force premium grew 89% in Q1 compared to Q1 in the prior year, reaching $251.7 million. We believe this metric captures the full scope of our top-line growth before the impact of reinsurance and regardless of the timing of customer acquisition during the quarter. Premium per customer increased 25% year-on-year to $229 million. This increase resulted from enhanced value of policies over time, as well as a shift toward higher-value homeowner and pet policies. As in previous quarters, roughly two-thirds of the growth in premium per customer in Q1 was driven by this product mix shift, with the remaining one-third attributed to increased coverage levels and pricing. Gross earned premium in Q1 increased 84% year-on-year to $56.2 million, in line with the increase in in-force premium. Our gross loss ratio stood at 121% for Q1. This includes 50 percentage points associated with the Texas freeze and other catastrophes. In Q1 2020, our 72% gross loss ratio included two percentage points of this catastrophe impact. Excluding the CAT impact from both periods, our Q1 2021 loss ratio aligns with the prior year. Operating expenses, excluding losses and loss adjustment expenses, increased by 25% in Q1 compared to the previous year, with sales and marketing expenses growing by 52%, well below the pace of our premium growth. The prior year’s G&A expense line included a one-time non-cash expense of $12.2 million associated with the creation of the Lemonade Foundation. We continually added new team members across all areas of the company to support customer and premium growth, as well as current and future product launches, leading to increases in each of the other expense lines. Our global headcount grew just over 100% year-on-year to 661, with a greater growth rate in customer-facing departments and product development teams. Our net loss was $49 million in Q1, compared to $36.5 million reported in Q1 2020, with a notably larger customer and in-force premium base, while adjusted EBITDA loss was $41.3 million in Q1, compared to $22.4 million in the first quarter of 2020. Our total cash, cash equivalents, and investments ended the quarter at roughly $1.2 billion, reflecting primarily the net proceeds from our January follow-on offering of approximately $640 million, partially offset by cash used from operations of $40.3 million since year-end 2020. I will now outline our specific financial expectations for the second quarter and provide an updated full year of 2021. For the second quarter, we expect in-force premium at June 30 between $283 million and $288 million; gross earned premium between $63.5 million and $65 million; revenue between $26 million and $27 million; adjusted EBITDA loss of between $43 million and $40 million; stock-based compensation expense of approximately $13 million and capital expenditures of approximately $3 million. For the full year of 2021, we expect in-force premium at December 31, between $376 million and $382 million; gross earned premium between $279 million and $283 million; revenue between $117 million and $120 million; and adjusted EBITDA loss between $173 million and $163 million; stock-based compensation expense of approximately $50 million and capital expenditures of approximately $11 million. As a reminder, GAAP accounting rules exclude ceded premiums from GAAP revenue. Due to the change in our reinsurance structure effective last July 1st to a significant proportional reinsurance structure, year-over-year revenue and gross margin comparisons are not directly comparable. Consequently, we publish in-force premium and gross earned premium as useful metrics to analysts and investors, as both capture the overall growth trajectory of the business, before accounting for reinsurance impact. And with that, I will turn the call back over to Daniel, who will address some questions from our shareholders. Daniel?

Thanks, Tim. As we did last quarter, we invited our shareholders, regardless of the size of their holdings, to submit questions or to upvote questions, so we can be sure to address the issues that are most pressing for our community. Looking at the most upvoted questions this quarter, we see a few central themes. One was captured by Kayun about cars and specifically tie-ins with OEMs, particularly manufacturers of autonomous cars. Another from Niel is about growth and how we're planning to outpace our competitors. Our third most upvoted question came from Sanjay with an addendum from Aria regarding how AI is advancing and whether we would consider offering it as a service to others. Finally, I'd like to address a question from Dean about blockchain and decentralized insurance and whether that poses a long-term threat to Lemonade. Let me address these in turn. Regarding partnerships with car OEMs, I can definitely say that we recognize their power and I expect it to be a trend that will continue as OEMs like Tesla and others dip their toes into the insurance world. Cars, as I mentioned in my opening comments, are becoming interconnected platforms, which has significant implications for risk selection, pricing, and mitigation. At the same time, much of the connected car benefit for insurers is already available today through connected drivers. Every car even that 1973 hand-me-down from grandma is equipped with precise sensors capable of generating predictive insights continually streamed in real-time to an appropriately trained AI. All this technology is packed into the driver’s pocket, allowing us to truly leverage that from day one, without waiting for connected cars to become mainstream. Regarding compensation, the mobile phone does an amazing job of tracking risk factors, and it's a risk factor itself that is untrackable in other ways. Reportedly, one out of every four car accidents in the United States is caused by texting and driving, and driving distracted is six times riskier than driving while intoxicated. So while we're looking forward to utilizing the technology embedded in next-generation cars and potentially partnering with OEMs in time, we aren't waiting for these vehicles to become commonplace. We have a strong data stream from our customer base and will employ that from launch. To Niel's question about growth, as Tim summarized, we are experiencing not only strong growth but also accelerating growth. Given our young company and extraordinarily large market, especially with our entry into the car insurance space, I expect we will see many years of sustained rapid growth, something our competitors really struggle to maintain these days. As long as our unit economics remain solid, we will continue to invest in growth, as reflected by accelerated growth in in-force premium and net customer additions in Q1. We are also seeing accelerated growth in our premium per customer as we launch new products. Sanjay asked about our AI capabilities. Given our closed-loop feedback system, our AI improves with each customer interaction. As we broaden our product range, we also enrich our data, enhancing our AI engine's problem-solving capabilities. We currently have no concrete plans for an AI day, but some of our AI applications are fascinating. For example, we call it Watchtower—the eye in the sky. We use machine learning to analyze satellite signals to detect catastrophic events in real-time globally. This technology enables us to activate our CAT response protocols faster than likely any other insurer and deliver exceptional customer experiences while mitigating bad risk effectively. Another example is what we call The Sixth Sense, which helps us construct unique customer digital footprints through signals such as device ID and IP address to detect and cancel suspicious claims instantly. We have a robust use of satellite imagery and computer vision to analyze insured properties, which enhances our pricing and underwriting precision as well. Our customer support and claims management rely heavily on machine learning, automating many customer interactions and achieving high operational efficiency, with productivity rates significantly exceeding industry standards. The development of these tools is ingrained in our DNA from the start. To finalize, I will address Dean's question regarding the impact of blockchain on Lemonade. Both Shai and I, along with others in our team, maintain a strong interest in blockchain technologies and are moderately invested in cryptocurrencies with a focus on decentralized finance (DeFi). These paradigms present powerful opportunities, and there could be applications of blockchain in certain aspects of insurance. For instance, Nexus Mutual is doing noteworthy work in insuring smart contracts. However, I currently don't see how these technologies present a viable alternative or threat to our product offerings like homeowners, life, pet, and car insurance—areas where trust is paramount. Thus, the notion of trustless personal lines insurance, particularly with the current state of blockchain, is unlikely to improve upon our current model. Should advancements shift this perspective in the future, you can be sure we will be at the forefront of adopting and implementing them. And with that, I will return the call back to the operator for questions from our friends in the investment community. Thank you.

Thank you. We will now begin the question-and-answer session. Today's first question comes from Matt Carletti with JMP. Please go ahead.

Hey, thanks. Good morning. Daniel, I wanted to ask first about auto. You've discussed the flywheel at Lemonade and how your algorithms improve over time through more iterations. In the auto market, particularly telematics-oriented companies have taken years to refine their approaches—can you help reconcile these two concepts? How will Lemonade hit the ground running with your auto product? Will you conduct telematics in-house or utilize established vendors like CMT or True Motion?

Hi, Matt. Good morning. Thank you for that question. Several factors will interact here. While we are not disclosing too many details on how we plan to approach car insurance until we are prepared to launch, I want to indicate how we’re thinking. First, insurance companies have long recognized that signals from driving and drivers are powerful, but collecting external signals is equally valuable. Good customers for homeowners products also tend to be good customers for car insurance. Responsible people typically demonstrate their behavior across different aspects of their lives. With one million customers we are targeting who already have car insurance, we'll have substantial data even before we launch the new product. Moreover, some elements of telematics are public records, so we don’t have to start entirely from scratch. The structure of U.S. insurance allows us to analyze how various behaviors and telematics have been rated by other competitors. This data serves as a solid starting point, allowing us to avoid conjecture. However, the technology gathering the sensory data and the ratings from that data are secondary concerns. First and foremost, we leverage previously approved risk factors and their ratings that regulators have established for other insurers. I believe this starting point will place us in an excellent position as we refine our ratings with new data. Whether the data is gathered through proprietary technology or through our partners is secondary. Ultimately, we will use the most effective methods to gather this data while applying those risks to the pricing model we develop.

That's very helpful, thank you. One more question regarding Uri and the Texas NPS score of 70 on claims, which I find impressive. What's your plan moving forward with that? Should we anticipate a marketing campaign in Texas based on that performance, or have you noticed any word-of-mouth impacts or trends in new customer acquisitions post-storm?

We have had satisfied customers sharing their positive experiences through word of mouth. They tend to tweet about it; if you check our Twitter, you will find many people discussing their good experiences. We regularly see referrals from customers. While the Uri event is notable, our focus remains on delivering exceptional service continuously. I can't say if there will be a Uri-specific campaign; it might not be tasteful. Nevertheless, ensuring high customer satisfaction leads to long-term value for our company, and this is a formula we are committed to.

Our next question today comes from Michael Phillips with Morgan Stanley. Please go ahead.

Thanks, good morning, everyone, and congrats on the progress. I have a question regarding the impact of the product launches. You noted no change in guidance for in-force premiums, but how will this affect your underwriting margins? Will you see potential pressures from regulatory costs and necessary technology adjustments?

Yes, hey, Mike, it's Tim. A few thoughts here. We've factored most anticipated expenses from previous launches into our projections, including those related to car insurance. However, with car insurance, given its scale, we have a larger team focusing on it, and it's also longer-term. While we expect the launch to happen eventually, it won’t be in the immediate future. So, for this full year, we anticipate a majority of our expenses to be reflected in guidance. As we approach a launch date, we'll update our outlook for top-line growth. This approach has been consistent with our prior launches, whether that be life, pets, or our transition to homeowners. In terms of loss ratio, we're already aware that when introducing new products or entering new markets, there is typically a 'new business penalty.' Yet, we have structured our model to accommodate this. We already have significant diversity in our business; at this point, close to half of new clients stem from our broader offering, mitigating some of these launch impacts. We recognize car is unique but are optimistic about our ability to execute effectively.

Okay, Tim, but does that guidance on premium growth include your anticipated expenses from auto?

Yes, all of those expenses we expect to incur this year are layered into the guidance, reflecting the launch metrics.

Wonderful! Additionally, you mentioned in the letter new entry points for customers and exploring new channels—could you provide details on that?

Certainly! This reflects a consistent theme rather than a sudden shift. A key reason for our increased marketing efficiency—this quarter we attracted around 40% more dollars for every dollar invested—was this ongoing improvement in marketing effectiveness. We're constantly exploring and testing new channels. A significant indicator here is a reduced percentage of customers from our largest channels. We’ve seen this concentration decrease, moving from about 90% of our business through primary channels two years ago, to 80% last year, and now down to approximately 70%. We are actively engaged in all the spaces where our customers spend their time, whether that be online, social media, or platforms such as Google, Facebook, and YouTube. Our strategy includes testing new channels and fostering diversification, which I anticipate will continue.

Thanks; I appreciate the thorough responses!

Next, we have a question from Jason Helfstein with Oppenheimer. Please go ahead.

Thanks. First, I want to express our thoughts are with the team in Israel during this challenging time. I have two questions: First, Tim, you mentioned that you’re ramping up in marketing while seeing higher lifetime values—can you quantify how this compares to a year ago at the IPO? Would you like us to consider the retention metric you announced?

Sure! While ramping up involves increasing spending in absolute terms, we're also seeking increased efficiency. Balancing this involves promoting newer products and refining our matured offerings. We remain focused on attracting only profitable customers while supporting growth areas. In prior quarters, our marketing spend as a percentage of total sales has averaged 70-75%, continuing within that range reflects our strategic focus. This increase in absolute dollars needs to align with maintaining that efficiency. Regarding retention, we noted in the past how customer retention remained stable, which is encouraging. The bulk of our business comprises first-year customers, so retaining them over time reinforces our positive outlook.

Thank you! I appreciate it.

Next, we have Ralph Schackart with William Blair on the line. Please proceed.

Hi, good morning, and thank you for the question. I have two inquiries. To start, are you able to provide details on how much of the auto policy pricing will rely on third-party data sources? Additionally, how will you leverage connected data over time for your advantage versus established players?

Hi, Ralph! To address your second question first: the experiences that our customers associate with Lemonade will certainly carry into our car product. Expect hassle-free processes and streamlined claims, similar to our other offerings. I believe everyone who has awaited this car product will find it rewarding. To your data point, it's vital to distinguish between data and rating rules. Today, we do not possess the auto data that GEICO or Progressive have. However, we can access how they price auto insurance derivatives from regulators. This gives us the ability to develop a basis for pricing without initial customer data. We can start leveraging data from our existing customers and use that to refine our approach rapidly.

Thanks! That's really insightful. One final question: will the claims process for auto mirror the simplicity of your current offerings in terms of user submissions?

Absolutely! We fully intend for the claims process to be seamless and reflective of our existing offerings. Users can anticipate an easy claims process with the same efficiency and customer-centricity they’ve come to expect from Lemonade.

Thank you. Next, we have Tracy Benguigui with Barclays. Please proceed.

Thanks for the accompanying details. You mentioned the potential growth in homeowners insurance correlated with the auto launch—what’s your expectation on the normal CAT load moving forward given this shift?

I believe your question is two-fold. There may be pent-up demand within our customer base for more policy options and bundling. More products generally lead to higher value per customer and improved retention. Although CAR may impose some unique challenges, our model is structured to manage cost effectively. We are adamant that car insurance could elevate growth in homeowners based on adjustments in pricing models and policies that we adjust as required, so we will continue to monitor balance in that area.

Thanks; I don’t have further questions!

We have time for one last question from Arvind Ramnani with Piper Sandler. Please proceed.

Hi! Congratulations on a solid quarter. I'm curious about your go-to-market strategy for auto insurance. Will you focus on your current customers first or expand to new customers right away?

We are not ready to share detailed specifics on the strategy for auto insurance. However, prior launches have proven strong pent-up demand. As we have announced our intent to enter this product line, we’ve already opened the funnel for preliminary interest, allowing us to gauge customer acceptance. Our existing customer base presents an excellent initial market; likewise, new customer interest also demonstrates notable engagement during past product rollouts. We will share more insights as we approach a clearer launch date.

Thanks! Since we are uncertain about the regulatory process and your entry points, how many states will you target initially?

We haven't officially announced specifics yet. However, similar to prior launches, we look to have a broad launch while also needing to expedite our entry into the market. The number of states will be determined based on regulatory timelines—but expect a significant presence across our active markets.

Great, and does your guidance factor in any impacts from auto or is it primarily reflective of prior metrics?

Yes, the guidance factors in expenses from the auto rollout while also being conservative, reflecting only what we anticipate based on our current insights.

Thank you. This concludes our question-and-answer session for today’s conference call. Thank you for attending.