Company Overview - Root, Inc. is a technology company based in Columbus, Ohio, founded in 2015, and is the parent company of Root Insurance Company [3] - The company aims to revolutionize insurance through data science and technology, providing consumers with a personalized, easy, and fair experience [3] - The Root app has achieved over 13 million downloads and has collected more than 26 billion miles of driving data to inform its insurance offerings [3] Upcoming Event - Alex Timm, Co-Founder and CEO of Root, Inc., will participate in a virtual fireside chat at the TD Financial Services & Fintech Summit on June 7, 2024, at 2:30 p.m. ET [1] - Registration for the fireside chat will be available on Root's Investor Relations website, and a replay of the webcast will be accessible for a limited time after the presentation [2]

COLUMBUS, Ohio, May 30, 2024 (GLOBE NEWSWIRE) -- Root, Inc. (NASDAQ: ROOT), a leading technology company powering insurance solutions and the parent company of Root Insurance, is proud to have Marcus Armstrong, the 2023 NTT INDYCAR SERIES Rookie of the Year, representing Root at the Detroit Grand Prix race this weekend, May 31 - June 2. Root will be the primary partner for Armstrong's No. 11 Honda as he continues to make impressive moves on the track this season. Armstrong sported the Root Honda at the Chil ...

Company Overview - Root, Inc. currently holds a Momentum Style Score of B, indicating potential for strong performance in the momentum investing strategy [3][11] - The company has a Zacks Rank of 2 (Buy), suggesting it is positioned favorably in the market [4][11] Price Performance - Over the past week, Root's shares have increased by 13.45%, significantly outperforming the Zacks Insurance - Property and Casualty industry, which rose by 2.04% [6] - In a longer time frame, Root's shares have shown a monthly price change of 14.24%, compared to the industry's 3.88% [6] - Over the past quarter, Root's shares have surged by 607.84%, and over the last year, they have gained an impressive 1197.46%, while the S&P 500 has only moved 5.91% and 30.04% respectively [7] Trading Volume - Root's average 20-day trading volume is 638,025 shares, which serves as a useful indicator for assessing price movements and market interest [8] Earnings Outlook - In the past two months, one earnings estimate for Root has moved higher, while none have moved lower, resulting in an increase in the consensus estimate from -$7.87 to -$6.59 [10] - For the next fiscal year, one estimate has also moved upwards with no downward revisions during the same period [10]

Core Viewpoint - Root, Inc. (ROOT) is showing potential for a bullish trend as it has recently surpassed the 20-day moving average and reached a key support level, indicating a favorable technical outlook for short-term traders [1][3]. Technical Analysis - ROOT has recently moved above the 20-day moving average, which is a positive signal indicating a short-term bullish trend [1][2]. - The 20-day moving average smooths out price fluctuations and provides more reliable trend reversal signals compared to longer-term moving averages [1]. Performance Metrics - Over the last four weeks, ROOT's stock price has increased by 14.2%, suggesting a strong upward momentum [3]. - The company currently holds a Zacks Rank of 2 (Buy), indicating positive market sentiment [3]. Earnings Estimates - There has been one upward revision in earnings estimates for the current fiscal year, with no downward revisions, which supports the bullish outlook for ROOT [3][4]. - The consensus earnings estimate has also increased, further reinforcing investor confidence in the stock's potential for gains [3][4].

Root, Inc. (ROOT) has been one of the most searched-for stocks on Zacks.com lately. So, you might want to look at some of the facts that could shape the stock's performance in the near term. Over the past month, shares of this company have returned +14.2%, compared to the Zacks S&P 500 composite's +5% change. During this period, the Zacks Insurance - Property and Casualty industry, which Root falls in, has gained 2.8%. The key question now is: What could be the stock's future direction? While media releases ...

This small insurance company has shocked investors with its staggering growth.If you're looking for a stock that has absolutely crushed it, look no further than Root (ROOT -9.21%). Over the past year, the upstart insurance company has shot up over 1,250%.The company's surge began a few months ago, when it surprised investors with its stellar growth and impressive turnaround in profitability. Here's the story behind Root's most recent success and what investors should watch for from here.Root's ambitious aut ...

Financial Data and Key Metrics Changes - In Q1 2024, the company reported a net loss of $6 million, an 85% improvement year-over-year [2] - The company achieved a positive quarterly operating income of $5 million and positive adjusted EBITDA of $15 million for the first time [2] - The gross combined ratio improved to 99.7%, marking the first time it was below 100% and a 23-point improvement year-over-year [62] Business Line Data and Key Metrics Changes - The partnership channel grew new writings by 68% year-over-year, indicating strong performance in this segment [57] - The Direct channel also experienced growth, although it is subject to fluctuations due to competitive dynamics and seasonality [58][60] - The company doubled gross written premiums and policies in-force year-over-year, reflecting robust growth across its business lines [54] Market Data and Key Metrics Changes - The gross accident period loss ratio was 61%, a 4-point improvement year-over-year, attributed to investments in data science and technology [3] - The company noted a favorable seasonality trend in Q1, benefiting from fewer miles driven in winter months and higher purchasing power due to tax refunds [3] Company Strategy and Development Direction - The company aims to leverage data science and technology to enhance pricing and underwriting models, which is central to its long-term growth strategy [55] - There is a focus on building differentiated access to customers through the partnership channel, which is seen as foundational for future growth [57] - The company plans to remain disciplined in its growth strategy, ensuring that marketing investments align with targeted unit economics [68] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the path towards GAAP profitability in the near term, despite expected softer growth in Q2 due to seasonality and competitive landscape changes [25][28] - The company anticipates a higher loss ratio in Q2 compared to Q1, driven by increased driving activity in spring and summer months [26] - Management remains focused on maintaining flexibility in capital structure and optimizing reinsurance strategies to protect against volatility [30][31] Other Important Information - The company incurred approximately $10.6 million in cash expenses related to tax liabilities from the vesting of employee equity awards, expected to impact the G&A line item [27][66] - The first quarter marked the third consecutive quarter of positive operating cash flow, indicating sustained momentum towards profitability [64] Q&A Session Summary Question: Impact of competition on partnership strategy - Management indicated that increased competition in the Direct channel incentivizes a more aggressive approach to building partnerships, which have shown consistent growth [8][10] Question: Changes in demographic mix due to growth - Management noted a subtle shift towards a preferred customer segment with slightly higher retention and credit quality as underwriting and pricing models are iterated [12] Question: Expectations for PIF growth - Management expressed satisfaction with year-to-date PIF growth but refrained from providing specific quarterly guidance, emphasizing a focus on long-term growth [13] Question: Growth in fee income - Management explained that the growth in fee income is a result of re-evaluating and introducing market-aligned fees, which has become a new normal for the company [16][17] Question: Retention rates and new business penalties - Management acknowledged the existence of a new business penalty where loss ratios on new business are typically higher, but expressed confidence in their current loss ratio management [84] Question: Outlook for second quarter premium growth - Management indicated that due to seasonality and competitive dynamics, gross written premiums are expected to decrease in Q2 compared to Q1, but year-over-year growth will remain strong [88]

Root, Inc. (ROOT) came out with a quarterly loss of $0.42 per share versus the Zacks Consensus Estimate of a loss of $2.51. This compares to loss of $2.88 per share a year ago. These figures are adjusted for non-recurring items.This quarterly report represents an earnings surprise of 83.27%. A quarter ago, it was expected that this company would post a loss of $2.49 per share when it actually produced a loss of $1.64, delivering a surprise of 34.14%.Over the last four quarters, the company has surpassed con ...

[Special Note Regarding Forward-Looking Statements](index=3&type=section&id=Special%20Note%20Regarding%20Forward-Looking%20Statements) This section cautions that forward-looking statements are subject to substantial risks and uncertainties, with no obligation to update them - Forward-looking statements involve **substantial risks and uncertainties**, identifiable by specific keywords[9](index=9&type=chunk) - Key areas covered by forward-looking statements include future financial performance, customer acquisition and retention, partnership benefits, and capital management[10](index=10&type=chunk) - The company operates in a competitive and rapidly changing environment, with new risks and uncertainties emerging over time[11](index=11&type=chunk) Part I. Financial Information [Item 1. Financial Statements - Unaudited](index=5&type=section&id=Item%201.%20Financial%20Statements%20-%20Unaudited) This section presents Root, Inc.'s unaudited condensed consolidated financial statements, detailing financial position, performance, and cash flows [Condensed Consolidated Balance Sheets - Unaudited](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets%20-%20Unaudited) Total assets and liabilities increased, driven by investments and reserves, while stockholders' equity remained stable Condensed Consolidated Balance Sheet Highlights (in millions) | Metric | March 31, 2024 | December 31, 2023 | | :----------------------------------- | :------------- | :---------------- | | Total Assets | $1,432.3 | $1,347.7 | | Total Liabilities | $1,154.6 | $1,070.0 | | Redeemable Convertible Preferred Stock | $112.0 | $112.0 | | Total Stockholders' Equity | $165.7 | $165.7 | - Key asset increases include fixed maturities available-for-sale (**$207.3 million** from **$165.9 million**), premiums receivable (**$292.0 million** from **$247.1 million**), and reinsurance recoverable (**$147.1 million** from **$125.3 million**)[17](index=17&type=chunk) - Key liability increases include loss and loss adjustment expense reserves (**$322.0 million** from **$284.2 million**) and unearned premiums (**$339.4 million** from **$283.7 million**)[17](index=17&type=chunk) [Condensed Consolidated Statements of Operations and Comprehensive Loss - Unaudited](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Loss%20-%20Unaudited) Total revenues surged by 263.6% to $254.9 million, operating income turned positive, and net loss decreased by 84.8% Condensed Consolidated Statements of Operations Highlights (in millions, except per share data) | Metric | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | Change ($) | Change (%) | | :------------------------------------------ | :-------------------------------- | :-------------------------------- | :--------- | :--------- | | Total Revenues | $254.9 | $70.1 | +$184.8 | +263.6% | | Total Operating Expenses | $249.5 | $99.9 | +$149.6 | +149.7% | | Operating Income (Loss) | $5.4 | $(29.8) | +$35.2 | +118.1% | | Net Loss | $(6.2) | $(40.9) | +$34.7 | -84.8% | | Loss per common share: basic and diluted | $(0.42) | $(2.88) | +$2.46 | -85.4% | - Net premiums earned increased by **283.8%** to **$230.3 million**, from **$60.0 million** in the prior year[19](index=19&type=chunk)[117](index=117&type=chunk) - Fee income saw a substantial increase of **359.4%** to **$14.7 million**, from **$3.2 million** in the prior year[19](index=19&type=chunk)[117](index=117&type=chunk) [Condensed Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders' Equity - Unaudited](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Redeemable%20Convertible%20Preferred%20Stock%20and%20Stockholders'%20Equity%20-%20Unaudited) Stockholders' equity remained stable at $165.7 million, with net loss offset by increased paid-in capital from compensation expenses Stockholders' Equity Changes (in millions) | Metric | January 1, 2024 | March 31, 2024 | | :-------------------------------- | :-------------- | :------------- | | Total Stockholders' Equity | $165.7 | $165.7 | | Net Loss | N/A | $(6.2) | | Other Comprehensive Loss | N/A | $(0.8) | | Share-based compensation expense | N/A | $4.6 | | Warrant compensation expense | N/A | $2.8 | - Additional paid-in capital increased from **$1,883.4 million** to **$1,890.4 million**, primarily due to share-based and warrant compensation[20](index=20&type=chunk) - Accumulated loss increased from **$(1,715.2) million** to **$(1,721.4) million**, reflecting the net loss for the period[20](index=20&type=chunk) [Condensed Consolidated Statements of Cash Flows - Unaudited](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows%20-%20Unaudited) Operating cash flow turned positive at $14.5 million, while investing activities used $52.3 million, leading to a $38.2 million decrease in cash Cash Flow Summary (in millions) | Activity | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :--------------------------------------- | :-------------------------------- | :-------------------------------- | | Net cash provided by (used in) operating activities | $14.5 | $(83.7) | | Net cash (used in) provided by investing activities | $(52.3) | $0.9 | | Net cash used in financing activities | $(0.4) | $0.0 | | Net decrease in cash, cash equivalents and restricted cash | $(38.2) | $(82.8) | | Cash, cash equivalents and restricted cash at end of period | $641.5 | $680.3 | - Operating cash flow improved significantly due to a material reduction in net loss and an increase in loss and LAE reserves[150](index=150&type=chunk) - Investing cash flow shifted from positive to negative, primarily due to increased purchases of investments[151](index=151&type=chunk) [Notes to Condensed Consolidated Financial Statements - Unaudited](index=9&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements%20-%20Unaudited) This section provides detailed notes to the financial statements, covering business, accounting, investments, reserves, debt, and other key financial details [1. Nature of Business](index=9&type=section&id=1.%20Nature%20of%20Business) Root, Inc. is a holding company operating a direct-to-consumer model for auto and renters insurance through mobile apps and subsidiaries - Root, Inc. is a technology company offering auto and renters insurance products[24](index=24&type=chunk) - The company primarily operates a direct-to-consumer model, acquiring most customers through mobile apps[24](index=24&type=chunk) - Subsidiaries include Ohio-domiciled insurance companies and a Cayman Islands-domiciled reinsurance company[24](index=24&type=chunk) [2. Basis of Presentation and Summary of Significant Accounting Policies](index=9&type=section&id=2.%20Basis%20of%20Presentation%20and%20Summary%20of%20Significant%20Accounting%20Policies) Financial statements are GAAP-compliant and rely on significant estimates for reserves and allowances, with new ASUs under evaluation - Financial statements are unaudited, GAAP-compliant, and consolidate wholly-owned subsidiaries[25](index=25&type=chunk)[26](index=26&type=chunk) - Significant estimates include reserves for loss and LAE, valuation allowances for income taxes, and allowances for expected credit losses on premium receivables and reinsurance recoverables[27](index=27&type=chunk) Deferred Policy Acquisition Costs (in millions) | Metric | 2024 | 2023 | | :------------------------- | :----- | :----- | | Balance, January 1 | $18.0 | $6.7 | | Acquisition costs deferred | $10.0 | $4.8 | | Amortization expense | $(6.6) | $(2.6) | | Balance, March 31 | $21.4 | $8.9 | [3. Investments](index=11&type=section&id=3.%20Investments) Total investments increased to $220.4 million, with net investment income rising to $9.2 million, driven by higher interest Total Investments (in millions) | Category | March 31, 2024 | December 31, 2023 | | :---------------- | :------------- | :---------------- | | Total investments | $220.4 | $171.2 | - Unrealized losses on available-for-sale securities were due to non-credit related factors, resulting in no allowance for credit loss[34](index=34&type=chunk) Net Investment Income (in millions) | Metric | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :---------------------- | :-------------------------------- | :-------------------------------- | | Net investment income | $9.2 | $6.7 | [4. Fair Value of Financial Instruments](index=15&type=section&id=4.%20Fair%20Value%20of%20Financial%20Instruments) Financial assets at fair value totaled $604.5 million, primarily Level 1 and 2, with long-term debt fair value at $304.8 million Total Assets at Fair Value (in millions) | Category | March 31, 2024 | December 31, 2023 | | :----------------------- | :------------- | :---------------- | | Total assets at fair value | $604.5 | $606.4 | - The fair value of long-term debt was **$304.8 million** as of March 31, 2024, compared to a carrying amount of **$299.3 million**[40](index=40&type=chunk) - Fair value measurements primarily utilize Level 1 (e.g., U.S. Treasury securities, cash equivalents) and Level 2 inputs (e.g., municipal, corporate, mortgage-backed securities)[39](index=39&type=chunk) [5. Loss and Loss Adjustment Expense Reserves](index=16&type=section&id=5.%20Loss%20and%20Loss%20Adjustment%20Expense%20Reserves) Net loss and LAE reserves increased to $275.5 million, driven by current year incurred losses and favorable prior year development Net Loss and LAE Reserves (in millions) | Metric | January 1, 2024 | March 31, 2024 | | :-------------------------- | :-------------- | :------------- | | Net loss and LAE reserves | $240.4 | $275.5 | - Net incurred loss and LAE for the current year was **$169.4 million** for the three months ended March 31, 2024[41](index=41&type=chunk) - Incurred losses and LAE attributable to prior accident years decreased by **$3.0 million** in Q1 2024, primarily due to lower-than-expected reported losses from accident year 2023[41](index=41&type=chunk) [6. Reinsurance](index=17&type=section&id=6.%20Reinsurance) Reinsurance utilization decreased, leading to a 338.3% increase in net premiums written and a 283.8% rise in net premiums earned Reinsurance Impact on Premiums and Losses (in millions) | Metric | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | Change ($) | Change (%) | | :------------------------ | :-------------------------------- | :-------------------------------- | :--------- | :--------- | | Gross premiums written | $330.7 | $134.7 | +$196.0 | +145.5% | | Ceded premiums written | $(46.7) | $(69.9) | +$23.2 | -33.2% | | Net premiums written | $284.0 | $64.8 | +$219.2 | +338.3% | | Gross premiums earned | $275.0 | $130.1 | +$144.9 | +111.4% | | Ceded premiums earned | $(44.7) | $(70.1) | +$25.4 | -36.2% | | Net premiums earned | $230.3 | $60.0 | +$170.3 | +283.8% | | Net losses and LAE incurred | $166.4 | $63.3 | +$103.1 | +162.9% | - The percentage of gross premiums earned ceded to reinsurers decreased significantly from **53.9%** in Q1 2023 to **16.3%** in Q1 2024[119](index=119&type=chunk) - This change was primarily driven by a strategic reduction of quota share reinsurance and commutations of certain reinsurance agreements in the second half of 2023[119](index=119&type=chunk) [7. Long-Term Debt](index=17&type=section&id=7.%20Long-Term%20Debt) The company holds a $300.0 million Term Loan maturing in 2027, with a carrying value of $299.3 million as of March 31, 2024 - The Term Loan is for **$300.0 million**, with a maturity date of January 27, 2027[43](index=43&type=chunk) - Interest is payable quarterly, calculated on SOFR (with a **1.0% floor**) plus **9.0%**[43](index=43&type=chunk) Long-Term Debt Carrying Value (in millions) | Metric | March 31, 2024 | December 31, 2023 | | :------------------------------------------ | :------------- | :---------------- | | Term Loan | $300.0 | $300.0 | | Accrued interest payable | $7.5 | $7.9 | | Unamortized discount and debt issuance costs and warrants | $(8.2) | $(8.9) | | Total | $299.3 | $299.0 | [8. Income Taxes](index=18&type=section&id=8.%20Income%20Taxes) The effective tax rate was 0% due to a full valuation allowance on U.S. deferred tax assets, with no unrecognized tax benefits - The consolidated effective tax rate was **0%** for both Q1 2024 and Q1 2023[45](index=45&type=chunk) - The zero tax rate is primarily due to a **full valuation allowance** on U.S. deferred tax assets[45](index=45&type=chunk) - No unrecognized tax benefits for uncertain tax positions or related interest/penalties were reported[45](index=45&type=chunk) [9. Restructuring Costs](index=18&type=section&id=9.%20Restructuring%20Costs) Restructuring costs were minimal at $0.1 million in Q1 2024, with the $8.3 million liability fully paid down Restructuring Costs (in millions) | Category | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | Cumulative Incurred Through March 31, 2024 | | :-------------------- | :-------------------------------- | :-------------------------------- | :--------------------------------------- | | Employee costs | $0.1 | $2.3 | $23.3 | | Real estate exit costs | — | — | $2.1 | | Other costs | — | $3.3 | $4.5 | | Total | $0.1 | $5.6 | $29.9 | - The restructuring liability of **$8.3 million** as of January 1, 2024, was fully paid by March 31, 2024[48](index=48&type=chunk) - No additional material expenditures related to restructuring actions are expected in future periods[48](index=48&type=chunk) [10. Share-Based Compensation](index=19&type=section&id=10.%20Share-Based%20Compensation) Warrant compensation expense was $2.8 million, while employee share-based compensation rose to $4.6 million, with $18.3 million unrecognized Warrant Compensation Expense (in millions) | Metric | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :-------------------------- | :-------------------------------- | :-------------------------------- | | Warrant compensation expense | $2.8 | $4.4 | - As of March 31, 2024, **$1.0 million** of unrecognized compensation cost related to warrants is expected to be recognized in Q2 2024[51](index=51&type=chunk) Total Share-Based Compensation Expense (in millions) | Metric | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Total share-based compensation expense | $4.6 | $2.5 | [11. Commitments and Contingencies](index=21&type=section&id=11.%20Commitments%20and%20Contingencies) The company faces ongoing legal proceedings, including class actions and derivative complaints, which it intends to defend vigorously - A purported class action in Texas alleging failure to include sales tax in total loss vehicle settlements was dismissed but is currently under appeal[59](index=59&type=chunk) - A shareholder derivative complaint in Delaware alleging false statements and breach of fiduciary duties is currently stayed[60](index=60&type=chunk) - A class action complaint in Ohio alleging false or misleading statements was dismissed with prejudice and affirmed on appeal[61](index=61&type=chunk) [12. Loss Per Share](index=22&type=section&id=12.%20Loss%20Per%20Share) Basic and diluted loss per share improved to $(0.42) from $(2.88), based on a net loss of $6.2 million Loss Per Common Share (in millions, except per share amounts) | Metric | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :------------------------------------------ | :-------------------------------- | :-------------------------------- | | Net loss | $(6.2) | $(40.9) | | Weighted-average common shares outstanding | 14.6 | 14.2 | | Loss per common share: basic and diluted | $(0.42) | $(2.88) | - Potentially dilutive common stock equivalents, totaling **10.5 million shares**, were excluded from diluted EPS calculation due to their anti-dilutive effect[64](index=64&type=chunk) [13. Geographical Breakdown of Gross Premiums Written](index=22&type=section&id=13.%20Geographical%20Breakdown%20of%20Gross%20Premiums%20Written) Gross premiums written increased by 145.5% to $330.7 million, with Texas, Georgia, and Florida showing significant growth Gross Premiums Written by State (in millions) | State | Three Months Ended March 31, 2024 (Amount) | Three Months Ended March 31, 2024 (% of Total) | Three Months Ended March 31, 2023 (Amount) | Three Months Ended March 31, 2023 (% of Total) | | :------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | | Texas | $61.6 | 18.6% | $19.5 | 14.5% | | Georgia | $39.4 | 11.9% | $13.9 | 10.3% | | South Carolina | $22.0 | 6.7% | $6.2 | 4.6% | | Colorado | $18.2 | 5.5% | $10.6 | 7.9% | | Pennsylvania | $17.5 | 5.3% | $9.3 | 6.9% | | Florida | $15.6 | 4.7% | $1.8 | 1.3% | | Arizona | $13.9 | 4.2% | $4.7 | 3.5% | | Ohio | $11.5 | 3.5% | $3.7 | 2.7% | | Maryland | $10.8 | 3.3% | $3.3 | 2.4% | | Utah | $8.8 | 2.7% | $7.2 | 5.3% | | All others states | $111.4 | 33.6% | $54.5 | 40.6% | | **Total** | **$330.7** | **100.0%** | **$134.7** | **100.0%** | - Total gross premiums written increased by **145.5%** year-over-year[65](index=65&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=23&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section discusses Root's financial condition and results, highlighting its technology-driven insurance model, strategic objectives, and capital efficiency [Our Business](index=23&type=section&id=Our%20Business) Root operates a direct-to-consumer and partnership model, leveraging telematics to segment risk and optimize unit economics for growth - Root is a technology insurance company focused on revolutionizing personal insurance with a pricing model based on fairness and a modern customer experience[67](index=67&type=chunk) - The company leverages proprietary telematics models and behavioral data to efficiently and effectively bind auto insurance policies and segment individual risk[68](index=68&type=chunk) - Key objectives include improving loss ratios, reducing marketing as a percentage of premium, and increasing revenue per customer, driven by a growing base of recurring customers with more favorable loss ratios[69](index=69&type=chunk)[70](index=70&type=chunk) [Recent Developments Affecting Comparability](index=24&type=section&id=Recent%20Developments%20Affecting%20Comparability) Macroeconomic factors increased claims severity, prompting rate increases and a strategic reduction in reinsurance utilization for capital efficiency - Economic instability, including inflation, is causing increased claims severity due to higher vehicle repair and medical costs[75](index=75&type=chunk) - The company is filing for rate increases in multiple states to align with evolving loss cost trends[75](index=75&type=chunk) - Root has strategically reduced its utilization of external quota share reinsurance to improve economics and capital efficiency, which may lead to higher capital requirements as more business is retained[77](index=77&type=chunk) [Key Performance Indicators](index=25&type=section&id=Key%20Performance%20Indicators) Key metrics show policies in force doubled, gross premiums written increased by 145.5%, and Adjusted EBITDA turned positive at $15.1 million Key Performance Indicators (in millions, except ratios and policies) | Metric | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | Change | | :-------------------------------- | :-------------------------------- | :-------------------------------- | :------- | | Policies in force | 401,255 | 199,685 | +101.9% | | Premiums per policy | $1,482 | $1,292 | +14.7% | | Premiums in force | $1,189.3 | $516.0 | +130.5% | | Gross premiums written | $330.7 | $134.7 | +145.5% | | Gross premiums earned | $275.0 | $130.1 | +111.4% | | Gross profit | $63.9 | $5.5 | +1061.8% | | Net loss | $(6.2) | $(40.9) | -84.8% | | Direct contribution | $80.7 | $18.6 | +333.9% | | Adjusted EBITDA | $15.1 | $(11.3) | N/A (positive swing) | | Net loss and LAE ratio | 72.3% | 105.5% | -33.2 ppt | | Net expense ratio | 29.7% | 55.7% | -26.0 ppt | | Net combined ratio | 102.0% | 161.2% | -59.2 ppt | | Gross loss ratio | 60.6% | 71.5% | -10.9 ppt | | Gross LAE ratio | 9.9% | 11.2% | -1.3 ppt | | Gross expense ratio | 29.2% | 40.3% | -11.1 ppt | | Gross combined ratio | 99.7% | 123.0% | -23.3 ppt | | Gross accident period loss ratio | 61.2% | 65.6% | -4.4 ppt | - The company achieved a **positive Adjusted EBITDA of $15.1 million** in Q1 2024, a significant improvement from a loss of **$11.3 million** in Q1 2023[79](index=79&type=chunk) - Net combined ratio improved significantly to **102.0%** (from **161.2%**), and gross combined ratio improved to **99.7%** (from **123.0%**), indicating substantial progress towards underwriting profitability[79](index=79&type=chunk)[93](index=93&type=chunk)[97](index=97&type=chunk) [Components of Our Results of Operations](index=28&type=section&id=Components%20of%20Our%20Results%20of%20Operations) This section details revenue sources and operating expense components, explaining their recognition and drivers for overall financial performance - Revenue is generated from net premiums earned (pro rata over policy period), net investment income (interest, unrealized gains/losses), fee income (installment, policy, late payment fees), and other income (lead distribution)[100](index=100&type=chunk)[101](index=101&type=chunk)[103](index=103&type=chunk)[104](index=104&type=chunk) - Operating expenses include loss and LAE (claims costs, adjustment expenses, net of reinsurance), sales and marketing (direct performance, channel media, advertising, partnership channel), other insurance expense (underwriting, commissions, premium taxes, processing, warrant compensation), technology and development (software, infrastructure, personnel), and general and administrative (professional services, corporate functions, depreciation, restructuring)[106](index=106&type=chunk)[109](index=109&type=chunk)[111](index=111&type=chunk)[113](index=113&type=chunk)[114](index=114&type=chunk) - The company expects sales and marketing, technology and development, and general and administrative expenses to decrease as a percentage of revenue over time[110](index=110&type=chunk)[113](index=113&type=chunk)[114](index=114&type=chunk) [Non-Operating Expenses](index=30&type=section&id=Non-Operating%20Expenses) Interest expense, primarily related to long-term debt and warrant liabilities, is classified as a non-operating expense - Interest expense is categorized as a non-operating expense[115](index=115&type=chunk) - It includes interest on long-term debt, fees, amortization of debt issuance costs, and changes in the fair value of warrant liabilities[115](index=115&type=chunk) [Results of Operations](index=31&type=section&id=Results%20of%20Operations) Total revenues increased by 263.6% to $254.9 million, operating income turned positive, and net loss decreased by 84.8% Revenue and Expense Changes (in millions) | Metric | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | $ Change | % Change | | :-------------------------------- | :-------------------------------- | :-------------------------------- | :------- | :------- | | Total Revenues | $254.9 | $70.1 | +$184.8 | +263.6% | | Net Premiums Earned | $230.3 | $60.0 | +$170.3 | +283.8% | | Fee Income | $14.7 | $3.2 | +$11.5 | +359.4% | | Total Operating Expenses | $249.5 | $99.9 | +$149.6 | +149.7% | | Loss and LAE | $166.4 | $63.3 | +$103.1 | +162.9% | | Sales and Marketing | $30.4 | $3.6 | +$26.8 | +744.4% | | Other Insurance Expense | $24.6 | $1.3 | +$23.3 | +1792.3% | | General and Administrative | $17.1 | $21.5 | $(4.4) | (20.5)% | | Operating Income (Loss) | $5.4 | $(29.8) | +$35.2 | +118.1% | | Net Loss | $(6.2) | $(40.9) | +$34.7 | (84.8)% | - Net premiums earned increased primarily due to reduced cessions of gross premiums earned to reinsurers (**16.3%** in Q1 2024 vs. **53.9%** in Q1 2023) and an increase in policies in force[118](index=118&type=chunk)[119](index=119&type=chunk) - Gross accident period loss ratios improved to **61.2%** in Q1 2024 from **65.6%** in Q1 2023, driven by rate actions, partially offset by business tenure mix and higher loss costs[123](index=123&type=chunk) [Non-GAAP Financial Measures](index=33&type=section&id=Non-GAAP%20Financial%20Measures) Reconciliations for Direct Contribution and Adjusted EBITDA show significant improvements, with Adjusted EBITDA turning positive at $15.1 million Direct Contribution Reconciliation (in millions) | Metric | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Total revenue | $254.9 | $70.1 | | Gross profit | $63.9 | $5.5 | | Direct contribution | $80.7 | $18.6 | Adjusted EBITDA Reconciliation (in millions) | Metric | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Net loss | $(6.2) | $(40.9) | | Adjusted EBITDA | $15.1 | $(11.3) | - Adjusted EBITDA improved significantly, turning positive in Q1 2024, indicating better underlying operating performance after excluding non-cash and non-recurring items[133](index=133&type=chunk) [Liquidity and Capital Resources](index=35&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintains strong liquidity with $640.5 million in cash and equivalents, meeting regulatory and debt covenant requirements Liquidity Position (as of March 31, 2024, in millions) | Metric | Amount | | :------------------------------------------------ | :----- | | Cash and cash equivalents | $640.5 | | Cash held outside regulated insurance entities | $482.6 | | Marketable securities | $216.0 | - The company believes its existing cash, cash equivalents, marketable securities, and cash flow from operations are sufficient to support short-term and foreseeable future working capital and capital expenditure requirements[143](index=143&type=chunk) - Debt covenants require maintaining at least **$150.0 million** in cash and cash equivalents held outside of regulated insurance entities, a condition met by issuing over **62,500 Carvana embedded policies** and achieving a direct contribution to gross premiums earned ratio greater than **12%**[148](index=148&type=chunk) [Material Cash Requirements from Contractual and Other Obligations](index=38&type=section&id=Material%20Cash%20Requirements%20from%20Contractual%20and%20Other%20Obligations) No material changes to contractual obligations, with sufficient resources to meet future requirements - No material changes to contractual and other obligations since the 2023 10-K[153](index=153&type=chunk) - The company believes it has sufficient resources and access to additional debt and equity capital to meet its obligations[153](index=153&type=chunk) [Off-Balance Sheet Arrangements](index=38&type=section&id=Off-Balance%20Sheet%20Arrangements) The company has no material off-balance sheet arrangements affecting its financial condition or liquidity - The company has no material off-balance sheet arrangements[154](index=154&type=chunk) [Critical Accounting Estimates](index=38&type=section&id=Critical%20Accounting%20Estimates) Critical accounting estimates include reserves and allowances, with no material changes reported in Q1 2024 - Key accounting estimates include reserves for loss and LAE, valuation allowances on deferred tax assets, premium write-offs, and allowances for expected credit losses[155](index=155&type=chunk) - There were no material changes to the critical accounting estimates during Q1 2024 compared to the 2023 10-K[156](index=156&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=39&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) No material changes to market risk disclosures from the 2023 10-K were reported - No material changes to market risk disclosures since the 2023 10-K[158](index=158&type=chunk) [Item 4. Controls and Procedures](index=40&type=section&id=Item%204.%20Controls%20and%20Procedures) Disclosure controls and procedures were effective, with no material changes in internal control over financial reporting during the quarter - Disclosure controls and procedures were effective at the reasonable assurance level as of March 31, 2024[160](index=160&type=chunk) - No material changes in internal control over financial reporting occurred during the quarter ended March 31, 2024[161](index=161&type=chunk) - The company acknowledges the inherent limitations of control systems, which provide reasonable, not absolute, assurance against errors and fraud[162](index=162&type=chunk) Part II. Other Information [Item 1. Legal Proceedings](index=41&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in various legal proceedings, none expected to materially adversely affect financial condition or cash flows - The company is party to litigation and legal proceedings relating to its business operations, as noted in Note 11[165](index=165&type=chunk) - No current or pending legal action is reasonably expected to have a material adverse effect on the company's financial condition or results of operations and cash flows[165](index=165&type=chunk) [Item 1A. Risk Factors](index=42&type=section&id=Item%201A.%20Risk%20Factors) No material changes to the company's risk factors from those disclosed in the 2023 10-K were reported - No material changes to the company's risk factors from those disclosed in the 2023 10-K[167](index=167&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=43&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company has not purchased equity securities, does not pay dividends, and retains funds for business development, subject to restrictions - The company has not made any issuer purchases of equity securities[169](index=169&type=chunk) - The company has never declared or paid cash dividends and intends to retain all available funds for business development and expansion[170](index=170&type=chunk) - Dividend payments are restricted by insurance regulatory laws (Ohio Revised Code) and covenants in the Term Loan agreement[171](index=171&type=chunk)[172](index=172&type=chunk)[174](index=174&type=chunk) [Item 3. Defaults Upon Senior Securities](index=44&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This item is not applicable, indicating no defaults upon senior securities - This item is not applicable, indicating no defaults upon senior securities[176](index=176&type=chunk) [Item 4. Mine Safety Disclosures](index=45&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable, indicating no mine safety disclosures - This item is not applicable, indicating no mine safety disclosures[178](index=178&type=chunk) [Item 5. Other Information](index=46&type=section&id=Item%205.%20Other%20Information) No Rule 10b5-1 or non-Rule 10b5-1 trading arrangements were adopted, modified, or terminated by directors or officers in Q1 2024 - No Rule 10b5-1 or non-Rule 10b5-1 trading arrangements were adopted, modified, or terminated by directors or officers in Q1 2024[180](index=180&type=chunk) [Item 6. Exhibits](index=47&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with Form 10-Q, including organizational documents, warrants, and officer certifications - The exhibits include organizational documents (Amended and Restated Certificate of Incorporation, Bylaws) and common stock purchase warrants[182](index=182&type=chunk) - Certifications from the Principal Executive Officer (31.1) and Principal Financial Officer (31.2, 32.1) are included[182](index=182&type=chunk) - Inline XBRL Instance Document, Taxonomy Extension Schema Document, Calculation Linkbase Document, Definition Linkbase Document, Label Linkbase Document, and Presentation Linkbase Document are provided[182](index=182&type=chunk) [Signatures](index=48&type=section&id=Signatures) The report was signed on April 30, 2024, by the Chief Executive Officer, Chief Financial Officer, and Chief Accounting Officer - The report was signed on April 30, 2024, by the Chief Executive Officer, Chief Financial Officer, and Chief Accounting Officer[186](index=186&type=chunk)

Q1 2024 Shareholder Letter Dear Shareholders We're pleased to share that our strong momentum continued in the first quarter of 2024, delivering operating income for the first time in the company's history while materially growing our business. The vision we had when we started Root was to fundamentally transform insurance using technology and data science. In doing so, we believed we would create more accurate pricing while giving consumers more transparency and control over their financial lives, and ultim ...