[Special Note Regarding Forward-Looking Statements](index=3&type=section&id=SPECIAL%20NOTE%20REGARDING%20FORWARD-LOOKING%20STATEMENTS) [Forward-Looking Statements](index=3&type=section&id=Forward-Looking%20Statements) This section cautions readers about forward-looking statements concerning future performance and market conditions, noting inherent risks and uncertainties - The report contains forward-looking statements regarding **future financial performance**, **customer acquisition and retention**, **profitability**, **capital runway**, and **market competition**[10](index=10&type=chunk) - Readers should not rely on forward-looking statements as predictions of future events due to **inherent risks**, **uncertainties**, and a **rapidly changing environment**[11](index=11&type=chunk) [Part I. Financial Information](index=5&type=section&id=Part%20I.%20Financial%20Information) [Item 1. Financial Statements](index=5&type=section&id=Item%201.%20Financial%20Statements) This section presents Root, Inc.'s unaudited condensed consolidated financial statements, detailing financial position, performance, and cash movements [Condensed Consolidated Balance Sheets - Unaudited](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets%20-%20Unaudited) As of March 31, 2023, Root, Inc. reported decreases in total assets, liabilities, and stockholders' equity, driven by reduced cash and reinsurance recoverable | Metric | March 31, 2023 (in millions) | December 31, 2022 (in millions) | Change (in millions) | % Change | | :----------------------------------- | :----------------------------- | :------------------------------ | :------------------- | :--------- | | Total assets | $1,201.1 | $1,312.9 | $(111.8) | (8.5)% | | Total liabilities | $845.4 | $923.8 | $(78.4) | (8.5)% | | Loss and loss adjustment expense reserves | $259.6 | $287.4 | $(27.8) | (9.7)% | | Unearned premiums | $141.1 | $136.5 | $4.6 | 3.4% | | Long-term debt and warrants | $296.3 | $295.4 | $0.9 | 0.3% | | Cash and cash equivalents | $679.3 | $762.1 | $(82.8) | (10.9)% | | Total stockholders' equity | $243.7 | $277.1 | $(33.4) | (12.1)% | [Condensed Consolidated Statements of Operations and Comprehensive Loss - Unaudited](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Loss%20-%20Unaudited) For Q1 2023, Root, Inc. significantly reduced net and comprehensive loss, driven by decreased operating expenses, despite lower total revenues | Metric | Three Months Ended March 31, 2023 (in millions) | Three Months Ended March 31, 2022 (in millions) | Change (in millions) | % Change | | :------------------------------------------ | :-------------------------------------------- | :-------------------------------------------- | :------------------- | :--------- | | Total revenues | $70.1 | $85.4 | $(15.3) | (17.9)% | | Net premiums earned | $60.0 | $78.3 | $(18.3) | (23.4)% | | Net investment income | $6.7 | $0.6 | $6.1 | 1,016.7% | | Total operating expenses | $99.9 | $157.4 | $(57.5) | (36.5)% | | Loss and loss adjustment expenses | $63.3 | $96.7 | $(33.4) | (34.5)% | | Sales and marketing | $3.6 | $15.3 | $(11.7) | (76.5)% | | Net loss | $(40.9) | $(77.5) | $36.6 | (47.2)% | | Comprehensive loss | $(39.8) | $(81.2) | $41.4 | (51.0)% | | Loss per common share (basic and diluted) | $(2.88) | $(5.54) | $2.66 | (48.0)% | [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%27%20Equity%20-%20Unaudited) As of March 31, 2023, total stockholders' equity decreased to **$243.7 million** from **$277.1 million**, mainly due to a **net loss of $40.9 million** | Metric | January 1, 2023 (in millions) | March 31, 2023 (in millions) | Change (in millions) | | :------------------------------------ | :---------------------------- | :--------------------------- | :------------------- | | Total Stockholders' Equity | $277.1 | $243.7 | $(33.4) | | Net loss | N/A | $(40.9) | $(40.9) | | Other comprehensive gain | N/A | $1.1 | $1.1 | | Common stock—share-based compensation expense | N/A | $2.5 | $2.5 | | Warrant compensation expense | N/A | $4.4 | $4.4 | [Condensed Consolidated Statements of Cash Flows - Unaudited](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows%20-%20Unaudited) For Q1 2023, Root, Inc. experienced a **net decrease of $82.8 million** in cash, primarily due to increased cash used in operating activities | Metric | Three Months Ended March 31, 2023 (in millions) | Three Months Ended March 31, 2022 (in millions) | Change (in millions) | | :------------------------------------------ | :-------------------------------------------- | :-------------------------------------------- | :------------------- | | Net cash used in operating activities | $(83.7) | $(51.2) | $(32.5) | | Net cash provided by (used in) investing activities | $0.9 | $(6.3) | $7.2 | | Net cash provided by financing activities | $0.0 | $286.2 | $(286.2) | | Net (decrease) increase in cash, cash equivalents and restricted cash | $(82.8) | $228.7 | $(311.5) | | Cash, cash equivalents and restricted cash at end of period | $680.3 | $935.7 | $(255.4) | [Notes to Condensed Consolidated Financial Statements - Unaudited](index=9&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements%20-%20Unaudited) This section provides detailed disclosures for the condensed consolidated financial statements, covering business nature, accounting policies, investments, and key financial areas [Note 1. Nature of Business](index=9&type=section&id=1.%20NATURE%20OF%20BUSINESS) Root, Inc. is a technology-driven holding company operating a direct-to-consumer model for personal auto and renters insurance via mobile apps and an embedded platform - Root, Inc. is a technology company operating a **direct-to-consumer model**, primarily acquiring customers through **mobile applications** and an **embedded platform**[27](index=27&type=chunk) - The company offers **auto and renters insurance products** underwritten by its subsidiaries, Root Insurance Company and Root Property & Casualty Insurance Company[27](index=27&type=chunk) [Note 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) This note outlines the basis for preparing unaudited consolidated financial statements, highlighting significant estimates and a revision of 2022 statements due to immaterial errors - The condensed consolidated financial statements are **unaudited**, prepared in accordance with **GAAP**, and include all **wholly-owned subsidiaries**[28](index=28&type=chunk)[29](index=29&type=chunk) - Management makes significant estimates, including **reserves for loss and LAE**, **allowance for expected credit losses on premium receivables**, and **valuation allowances for income taxes**[30](index=30&type=chunk) - Errors in 2022 quarterly financial statements related to **misappropriation of funds** by a senior marketing employee were identified and revised, but deemed **immaterial** to the interim statements[31](index=31&type=chunk)[32](index=32&type=chunk) - A **1-for-18 reverse stock split** of Class A and Class B common stock was approved in August 2022, retroactively adjusted in all historical per share data[35](index=35&type=chunk) [Note 3. Investments](index=12&type=section&id=3.%20INVESTMENTS) As of March 31, 2023, total investments decreased to **$130.9 million**, primarily in fixed maturities, with net investment income significantly increasing to **$6.7 million** for Q1 2023 | Metric | March 31, 2023 (in millions) | December 31, 2022 (in millions) | Change (in millions) | % Change | | :------------------------------------------ | :----------------------------- | :------------------------------ | :------------------- | :--------- | | Total investments | $130.9 | $133.2 | $(2.3) | (1.7)% | | Fixed maturities available-for-sale, at fair value | $126.4 | $128.4 | $(2.0) | (1.6)% | | Short-term investments | $0.1 | $0.4 | $(0.3) | (75.0)% | | Other investments | $4.4 | $4.4 | $0.0 | 0.0% | | Metric | Three Months Ended March 31, 2023 (in millions) | Three Months Ended March 31, 2022 (in millions) | Change (in millions) | % Change | | :------------------------------------------ | :-------------------------------------------- | :-------------------------------------------- | :------------------- | :--------- | | Net investment income | $6.7 | $0.6 | $6.1 | 1,016.7% | | Interest on deposits and cash equivalents | $5.9 | $0.2 | $5.7 | 2,850.0% | - Management concluded that **unrealized losses on available-for-sale securities** were due to **non-credit related factors**, with no allowance for credit loss recognized[38](index=38&type=chunk) - The majority of fixed maturities are rated **AAA (45.5% as of March 31, 2023)**, indicating high credit quality[43](index=43&type=chunk) [Note 4. Fair Value of Financial Instruments](index=16&type=section&id=4.%20FAIR%20VALUE%20OF%20FINANCIAL%20INSTRUMENTS) As of March 31, 2023, total assets at fair value were **$590.8 million**, primarily cash equivalents and fixed maturities, with long-term debt's fair value estimated at **$309.8 million** | Asset Category | March 31, 2023 (in millions) | December 31, 2022 (in millions) | | :------------------------------------ | :----------------------------- | :------------------------------ | | Total assets at fair value | $590.8 | $616.1 | | Cash equivalents (Level 1) | $464.3 | $487.3 | | Total fixed maturities (Level 2) | $119.1 | $119.2 | | Metric | March 31, 2023 (in millions) | December 31, 2022 (in millions) | | :------------------------------------ | :----------------------------- | :------------------------------ | | Long-term debt (carrying amount) | $296.3 | $295.4 | | Long-term debt (estimated fair value) | $309.8 | $309.7 | [Note 5. Loss and Loss Adjustment Expense Reserves](index=17&type=section&id=5.%20LOSS%20AND%20LOSS%20ADJUSTMENT%20EXPENSE%20RESERVES) Net loss and LAE reserves decreased to **$185.9 million** as of March 31, 2023, with prior accident year incurred losses increasing by **$1.4 million** due to higher vehicle repair costs | Metric | January 1, 2023 (in millions) | March 31, 2023 (in millions) | Change (in millions) | | :------------------------------------ | :---------------------------- | :--------------------------- | :------------------- | | Net loss and LAE reserves | $211.0 | $185.9 | $(25.1) | | Gross loss and LAE reserves | $287.4 | $259.6 | $(27.8) | - Incurred losses and LAE related to prior accident years increased by **$1.4 million** for Q1 2023, driven by higher vehicle repair costs and LAE on material damage claims[49](index=49&type=chunk) [Note 6. Reinsurance](index=18&type=section&id=6.%20REINSURANCE) For Q1 2023, gross premiums written decreased by **28.0%** to **$134.7 million**, and net premiums earned decreased by **23.4%** to **$60.0 million**, with **53.9%** of gross premiums ceded | Metric | Three Months Ended March 31, 2023 (in millions) | Three Months Ended March 31, 2022 (in millions) | Change (in millions) | % Change | | :------------------------------------------ | :-------------------------------------------- | :-------------------------------------------- | :------------------- | :--------- | | Gross premiums written | $134.7 | $187.2 | $(52.5) | (28.0)% | | Ceded premiums written | $(69.9) | $(102.4) | $32.5 | (31.7)% | | Net premiums written | $64.8 | $84.8 | $(20.0) | (23.6)% | | Gross premiums earned | $130.1 | $174.7 | $(44.6) | (25.5)% | | Ceded premiums earned | $(70.1) | $(96.4) | $26.3 | (27.3)% | | Net premiums earned | $60.0 | $78.3 | $(18.3) | (23.4)% | | Net losses and LAE incurred | $63.3 | $96.7 | $(33.4) | (34.5)% | - The company ceded **53.9% of gross premiums earned** in Q1 2023, a slight decrease from **55.2%** in Q1 2022, indicating a slightly larger retention of its book of business[128](index=128&type=chunk) [Note 7. Long-Term Debt](index=18&type=section&id=7.%20LONG-TERM%20DEBT) As of March 31, 2023, long-term debt was **$296.3 million**, primarily a **$300.0 million** five-year term loan with quarterly floating-rate interest | Metric | March 31, 2023 (in millions) | December 31, 2022 (in millions) | | :------------------------------------ | :----------------------------- | :------------------------------ | | Term Loan | $300.0 | $300.0 | | Accrued interest payable | $7.4 | $7.3 | | Unamortized discount, debt issuance costs and warrants | $(11.1) | $(11.9) | | Total Long-Term Debt | $296.3 | $295.4 | - The company has a **$300.0 million five-year term loan**, maturing on January 27, 2027, with interest calculated on **SOFR plus 9.0% and 0.26161% per annum**[51](index=51&type=chunk) [Note 8. Income Taxes](index=18&type=section&id=8.%20INCOME%20TAXES) The effective tax rate for Q1 2023 and 2022 was **zero** due to a full valuation allowance on U.S. deferred tax assets, with no unrecognized tax benefits - The effective tax rate was **zero** for Q1 2023 and Q1 2022 due to a **full valuation allowance on U.S. deferred tax assets**[52](index=52&type=chunk) - No unrecognized tax benefits for uncertain tax positions or related interest/penalties were reported as of March 31, 2023, and December 31, 2022[52](index=52&type=chunk) [Note 9. Restructuring Costs](index=19&type=section&id=9.%20RESTRUCTURING%20COSTS) In Q1 2023, Root, Inc. incurred **$5.6 million** in restructuring costs, down from **$7.8 million** in Q1 2022, as part of strategic initiatives to reduce operating costs | Restructuring Costs | Three Months Ended March 31, 2023 (in millions) | Three Months Ended March 31, 2022 (in millions) | Cumulative Incurred Through March 31, 2023 (in millions) | | :------------------------ | :-------------------------------------------- | :-------------------------------------------- | :------------------------------------------------------- | | Employee costs | $2.3 | $5.6 | $17.8 | | Real estate exit costs | $0.0 | $1.5 | $2.1 | | Other costs | $3.3 | $0.7 | $4.3 | | Total restructuring costs | $5.6 | $7.8 | $24.2 | - The company expects to incur approximately **$5.5 million in additional employee compensation expense** related to restructuring through Q4 2023, with a cash expenditure in January 2024[55](index=55&type=chunk) [Note 10. Share-Based Compensation](index=20&type=section&id=10.%20SHARE-BASED%20COMPENSATION) Total share-based compensation expense decreased to **$2.5 million** for Q1 2023, while warrant compensation expense was **$4.4 million**, recognized in other insurance expense | Expense Type | Three Months Ended March 31, 2023 (in millions) | Three Months Ended March 31, 2022 (in millions) | Change (in millions) | % Change | | :------------------------------------ | :-------------------------------------------- | :-------------------------------------------- | :------------------- | :--------- | | Total share-based compensation expense | $2.5 | $6.6 | $(4.1) | (62.1)% | | Restricted stock unit expense | $2.1 | $6.1 | $(4.0) | (65.6)% | | Stock option expense | $0.4 | $0.5 | $(0.1) | (20.0)% | | Warrant Compensation Expense | Three Months Ended March 31, 2023 (in millions) | Three Months Ended March 31, 2022 (in millions) | Change (in millions) | | :------------------------------------ | :-------------------------------------------- | :-------------------------------------------- | :------------------- | | Sales and marketing | $0.0 | $5.3 | $(5.3) | | Other insurance expense | $4.4 | $0.0 | $4.4 | | Total warrant compensation expense | $4.4 | $5.3 | $(0.9) | - As of March 31, 2023, **$16.7 million of unrecognized compensation cost** related to warrants is expected to be recognized over approximately two years[58](index=58&type=chunk) - Unrecognized compensation cost for unvested stock options and RSUs totaled **$1.7 million** and **$26.9 million**, respectively, expected to be recognized over three to four years[61](index=61&type=chunk) [Note 11. Commitments and Contingencies](index=22&type=section&id=11.%20COMMITMENTS%20AND%20CONTINGENCIES) The company faces various legal proceedings, including class action lawsuits regarding vehicle total loss claims and an IPO-related shareholder derivative complaint, which it intends to defend vigorously - Root Insurance Company faces a class action in Louisiana for alleged **breach of contract** and **violation of state law** in settling vehicle total loss claims[65](index=65&type=chunk) - Another class action in Texas alleges failure to include **sales tax in total loss vehicle settlements**, violating the Texas Prompt Payment of Claims Act[66](index=66&type=chunk) - A shareholder derivative complaint and a class action lawsuit allege **false or misleading statements and omissions** related to the company's IPO[67](index=67&type=chunk)[68](index=68&type=chunk) - The company believes these claims are **without merit** and intends to defend them vigorously, but cannot predict the outcome or estimate the magnitude of potential loss contingencies[65](index=65&type=chunk)[66](index=66&type=chunk)[67](index=67&type=chunk)[68](index=68&type=chunk) [Note 12. Loss Per Share](index=23&type=section&id=12.%20LOSS%20PER%20SHARE) For Q1 2023, basic and diluted loss per common share was **$(2.88)**, a significant improvement from **$(5.54)** in Q1 2022, with **9.6 million** anti-dilutive equivalents excluded | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | Change | % Change | | :------------------------------------------ | :-------------------------------- | :-------------------------------- | :------- | :--------- | | Net loss (in millions) | $(40.9) | $(77.5) | $36.6 | (47.2)% | | Weighted-average common shares outstanding (in millions) | 14.2 | 14.0 | 0.2 | 1.4% | | Loss per common share: basic and diluted | $(2.88) | $(5.54) | $2.66 | (48.0)% | - Potentially dilutive common stock equivalents (options, nonvested shares, RSUs, preferred stock, warrants) totaling **9.6 million** as of March 31, 2023, were excluded from diluted EPS calculation due to their **anti-dilutive effect**[70](index=70&type=chunk) [Note 13. Geographical Breakdown of Gross Premiums Written](index=24&type=section&id=13.%20GEOGRAPHICAL%20BREAKDOWN%20OF%20GROSS%20PREMIUMS%20WRITTEN) For Q1 2023, total gross premiums written decreased to **$134.7 million**, with Texas remaining the largest market at **14.5%**, followed by Georgia and Colorado | State | Three Months Ended March 31, 2023 (Amount in millions) | % of Total (2023) | Three Months Ended March 31, 2022 (Amount in millions) | % of Total (2022) | | :---------------- | :--------------------------------------------- | :---------------- | :--------------------------------------------- | :---------------- | | Texas | $19.5 | 14.5% | $37.3 | 19.9% | | Georgia | $13.9 | 10.3% | $18.8 | 10.0% | | Colorado | $10.6 | 7.9% | $10.7 | 5.7% | | Pennsylvania | $9.3 | 6.9% | $10.0 | 5.3% | | Utah | $7.2 | 5.3% | $9.0 | 4.8% | | South Carolina | $6.2 | 4.6% | $7.1 | 3.8% | | Louisiana | $5.5 | 4.1% | $10.7 | 5.7% | | Arizona | $4.7 | 3.5% | $5.3 | 2.8% | | Oklahoma | $4.7 | 3.5% | $6.3 | 3.4% | | Nevada | $4.4 | 3.3% | $8.7 | 4.6% | | All others states | $48.7 | 36.1% | $63.3 | 34.0% | | Total | $134.7 | 100.0% | $187.2 | 100.0% | [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=25&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on financial condition and operational results, highlighting the tech-enabled insurance model, KPIs, and liquidity [Our Business](index=25&type=section&id=Our%20Business) Root is a tech-enabled insurance company revolutionizing personal insurance through a direct-to-consumer and embedded platform model, leveraging telematics for efficient risk segmentation - Root is a **tech-enabled insurance company** revolutionizing personal insurance with a pricing model based on fairness and a modern customer experience, primarily **direct-to-consumer** via mobile apps and an embedded platform[74](index=74&type=chunk) - The company's advantage stems from its ability to efficiently bind auto insurance policies by segmenting individual risk using **complex behavioral data** and **proprietary telematics**[75](index=75&type=chunk) - As the business scales and matures, Root expects **improved loss ratios**, **reduced marketing as a percentage of premium**, and **increased revenue per customer**[76](index=76&type=chunk)[77](index=77&type=chunk)[78](index=78&type=chunk) - Root employs a "**capital-efficient**" model utilizing high levels of reinsurance to support top-line growth, customer acquisition costs, and protection from outsized losses[81](index=81&type=chunk) [Recent Developments Affecting Comparability](index=26&type=section&id=Recent%20Developments%20Affecting%20Comparability) Macroeconomic factors like inflation, supply chain disruptions, and rising interest rates have increased claims severity and cost of capital, while the COVID-19 pandemic continues to pose uncertainties - Economic instability, inflation, and supply chain disruptions have led to **increased claims severity** due to higher used vehicle and replacement part values[84](index=84&type=chunk) - Rising interest rates and reduced equity values have **increased the cost of capital** and may limit the company's ability to raise additional capital[84](index=84&type=chunk) - The COVID-19 pandemic continues to create uncertainty regarding its severity, duration, and potential impact on the company's business and financial performance[86](index=86&type=chunk) [Comprehensive Reinsurance](index=27&type=section&id=Comprehensive%20Reinsurance) Root plans to continue using diversified reinsurance to strategically fuel growth and technology investment by optimizing capital requirements and responding to market changes - The company expects to continue using reinsurance to strategically fuel **growth and technology investment** by optimizing capital requirements[87](index=87&type=chunk) - A diversified reinsurance approach provides flexibility to respond to changes in **market conditions** or **business needs**[87](index=87&type=chunk) [Key Performance Indicators](index=27&type=section&id=Key%20Performance%20Indicators) Root uses various KPIs, including policies in force, premiums, gross profit, net loss, and ratios, to evaluate performance; Q1 2023 saw decreased policies but improved net loss and Adjusted EBITDA | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | Change | % Change | | :------------------------------------------ | :-------------------------------- | :-------------------------------- | :------- | :--------- | | Policies in force | 199,685 | 335,273 | (135,588) | (40.4)% | | Premiums per policy | $1,292 | $1,040 | $252 | 24.2% | | Premiums in force (in millions) | $516.0 | $697.4 | $(181.4) | (26.0)% | | Gross premiums written (in millions) | $134.7 | $187.2 | $(52.5) | (28.0)% | | Gross premiums earned (in millions) | $130.1 | $174.7 | $(44.6) | (25.5)% | | Gross profit/(loss) (in millions) | $5.5 | $(12.3) | $17.8 | 144.7% | | Net loss (in millions) | $(40.9) | $(77.5) | $36.6 | (47.2)% | | Direct contribution (in millions) | $18.6 | $6.4 | $12.2 | 190.6% | | Adjusted EBITDA (in millions) | $(11.3) | $(51.8) | $40.5 | (78.2)% | | Net loss and LAE ratio | 105.5% | 123.5% | (18.0) pp | (14.6)% | | Net expense ratio | 55.7% | 71.3% | (15.6) pp | (21.9)% | | Net combined ratio | 161.2% | 194.8% | (33.6) pp | (17.2)% | | Gross loss ratio | 71.5% | 84.1% | (12.6) pp | (15.0)% | | Gross LAE ratio | 11.2% | 9.1% | 2.1 pp | 23.1% | | Gross expense ratio | 40.3% | 42.4% | (2.1) pp | (5.0)% | | Gross combined ratio | 123.0% | 135.6% | (12.6) pp | (9.3)% | | Gross accident period loss ratio | 69.3% | 81.5% | (12.2) pp | (15.0)% | - **Policies in force decreased by 40.4% YoY**, while **premiums per policy increased by 24.2% YoY**, indicating a focus on higher-value policies[89](index=89&type=chunk) - **Gross profit/(loss) improved significantly** from a loss of **$12.3 million** to a profit of **$5.5 million**, and **Adjusted EBITDA improved** from a loss of **$51.8 million** to a loss of **$11.3 million**[89](index=89&type=chunk) [Components of Our Results of Operations](index=30&type=section&id=Components%20of%20Our%20Results%20of%20Operations) This section details Root's revenue streams and operating expenses, including net premiums, investment income, loss and LAE, and sales/marketing, anticipating short-term premium decreases but long-term growth - Revenue sources include **net premiums earned**, **net investment income**, **net realized gains on investments**, **fee income**, and **other income**[109](index=109&type=chunk) - Operating expenses comprise **loss and LAE**, **sales and marketing**, **other insurance expense**, **technology and development**, and **general and administrative expenses**[115](index=115&type=chunk) - Net premiums earned are expected to decrease in the short term due to lower policies in force, but growth is anticipated from **embedded products** and **greater premiums per policy**[110](index=110&type=chunk) - Sales and marketing expenses are expected to decrease as a percentage of revenue in the long term as the proportion of renewals increases[120](index=120&type=chunk) [Results of Operations](index=33&type=section&id=Results%20of%20Operations) For Q1 2023, Root reported a **net loss of $40.9 million**, a **47.2%** improvement, driven by a **36.5%** reduction in operating expenses, despite a **17.9%** revenue decrease | Metric | Three Months Ended March 31, 2023 (in millions) | Three Months Ended March 31, 2022 (in millions) | $ Change | % Change | | :------------------------------------------ | :-------------------------------------------- | :-------------------------------------------- | :------- | :--------- | | Total revenues | $70.1 | $85.4 | $(15.3) | (17.9)% | | Net premiums earned | $60.0 | $78.3 | $(18.3) | (23.4)% | | Net investment income | $6.7 | $0.6 | $6.1 | 1,016.7% | | Total operating expenses | $99.9 | $157.4 | $(57.5) | (36.5)% | | Loss and loss adjustment expenses | $63.3 | $96.7 | $(33.4) | (34.5)% | | Sales and marketing | $3.6 | $15.3 | $(11.7) | (76.5)% | | Technology and development | $10.2 | $13.9 | $(3.7) | (26.6)% | | General and administrative | $21.5 | $30.5 | $(9.0) | (29.5)% | | Net loss | $(40.9) | $(77.5) | $36.6 | (47.2)% | | Interest expense | $(11.1) | $(5.5) | $(5.6) | 101.8% | - The decrease in net premiums earned was primarily due to **lower policies in force**, partially offset by a **24.2% increase in premium per policy** from rate actions[127](index=127&type=chunk)[129](index=129&type=chunk) - Loss and LAE decreased by **34.5%** due to lower policies in force and better loss experience, with **gross accident period loss ratios improving from 81.5% to 69.3%**[131](index=131&type=chunk)[132](index=132&type=chunk) - Sales and marketing expenses decreased by **76.5%**, largely due to a **$5.3 million decline in warrant compensation expense** and reduced content development costs[133](index=133&type=chunk) [Non-GAAP Financial Measures](index=35&type=section&id=Non-GAAP%20Financial%20Measures) This section reconciles non-GAAP measures, Direct Contribution and Adjusted EBITDA, used for performance evaluation; Direct Contribution increased to **$18.6 million**, and Adjusted EBITDA improved to a **$11.3 million** loss | Metric | Three Months Ended March 31, 2023 (in millions) | Three Months Ended March 31, 2022 (in millions) | Change (in millions) | % Change | | :------------------------------------ | :-------------------------------------------- | :-------------------------------------------- | :------------------- | :--------- | | Direct contribution | $18.6 | $6.4 | $12.2 | 190.6% | | Adjusted EBITDA | $(11.3) | $(51.8) | $40.5 | (78.2)% | - Management uses **Direct Contribution** and **Adjusted EBITDA** as integral parts of managing the business, providing useful insight into results of operations and underlying business performance, despite not being GAAP measures[141](index=141&type=chunk)[142](index=142&type=chunk) [Liquidity and Capital Resources](index=37&type=section&id=Liquidity%20and%20Capital%20Resources) Root's liquidity is financed through policy sales, stock/debt issuance, and investment sales; as of March 31, 2023, it had **$679.3 million** in cash, with sufficient resources despite regulatory and debt restrictions - As of March 31, 2023, Root had **$679.3 million in cash and cash equivalents**, with **$523.6 million** held outside regulated insurance entities, and **$126.5 million in marketable securities**[155](index=155&type=chunk)[156](index=156&type=chunk) - The company believes existing cash, equivalents, marketable securities, and cash flow from operations are sufficient for short-term and foreseeable future capital requirements[157](index=157&type=chunk) - Insurance subsidiaries are subject to **regulatory restrictions on dividends**, and the Term Loan includes covenants requiring at least **$200.0 million in unrestricted cash** and restricting dividend payments[151](index=151&type=chunk)[159](index=159&type=chunk)[187](index=187&type=chunk) - The company's insurance subsidiaries maintained **risk-based capital levels in excess of corrective action requirements** as of March 31, 2023[152](index=152&type=chunk) [Material Cash Requirements from Contractual and Other Obligations](index=39&type=section&id=Material%20Cash%20Requirements%20from%20Contractual%20and%20Other%20Obligations) No material changes to contractual and other obligations since the 2022 10-K, and the company believes it has sufficient resources and access to capital to meet its obligations - No material changes to contractual and other obligations since the 2022 10-K[164](index=164&type=chunk) - The company believes it has sufficient resources and access to additional debt and equity capital to meet its obligations[164](index=164&type=chunk) [Off-Balance Sheet Arrangements](index=39&type=section&id=Off-Balance%20Sheet%20Arrangements) The company has no off-balance sheet arrangements with a material current or future effect on its financial condition, results of operations, liquidity, or cash flows - The company has no off-balance sheet arrangements with a material current or future effect on its financial condition, results of operations, liquidity, or cash flows[165](index=165&type=chunk) [Critical Accounting Estimates](index=39&type=section&id=Critical%20Accounting%20Estimates) Critical accounting estimates include reserves for loss and LAE, premium write-offs, and deferred tax asset valuation allowance, with no material changes in Q1 2023 compared to the 2022 10-K - Critical accounting estimates include **reserves for loss and LAE**, **premium write-offs**, and **valuation allowance on deferred tax assets**[166](index=166&type=chunk) - No material changes to critical accounting estimates occurred during the three months ended March 31, 2023, compared to the 2022 10-K[167](index=167&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=41&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) No material changes to the company's quantitative and qualitative market risk disclosures have occurred since the 2022 10-K - No material changes in market risk disclosures from the 2022 10-K[168](index=168&type=chunk) [Item 4. Controls and Procedures](index=42&type=section&id=Item%204.%20Controls%20and%20Procedures) As of March 31, 2023, disclosure controls were ineffective due to a material weakness in internal control over financial reporting, stemming from inadequate hiring and vendor management, with remediation efforts underway - Disclosure controls and procedures were **not effective** as of March 31, 2023, due to a **material weakness in internal control over financial reporting**[170](index=170&type=chunk) - The material weakness was related to **inadequate hiring practices** for senior leadership and **ineffective control/monitoring activities** for third-party vendors, contributing to fraud by a former senior marketing employee[171](index=171&type=chunk) - Remediation efforts include **enhanced hiring practices**, **improved vendor management processes**, **clarified vendor payment controls**, and more stringent monitoring[172](index=172&type=chunk)[173](index=173&type=chunk)[174](index=174&type=chunk) - The material weakness will not be considered remediated until remedial controls operate for a sufficient period and are tested as effective[175](index=175&type=chunk) [Part II. Other Information](index=43&type=section&id=Part%20II.%20Other%20Information) [Item 1. Legal Proceedings](index=43&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in legal proceedings but does not expect any material adverse effect on its financial condition or results of operations, except as noted in Note 11 - The company is party to litigation, but does not expect any current or pending legal action to have a **material adverse effect** on its financial condition or results of operations, except as noted in Note 11[178](index=178&type=chunk) [Item 1A. Risk Factors](index=44&type=section&id=Item%201A.%20Risk%20Factors) No material changes to risk factors from the 2022 10-K; readers should consider these factors, as disclosure does not imply the risk has not already materialized - No material changes in risk factors from the 2022 10-K[180](index=180&type=chunk) - Readers should consider risk factors, understanding that disclosure does not imply the risk has not already materialized[180](index=180&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=45&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company has not purchased equity securities, has never paid cash dividends, and intends to retain earnings for business development, with future dividends subject to regulatory and debt restrictions - The company has never declared or paid cash dividends and intends to retain all funds for business development and expansion, with no anticipated cash dividends in the foreseeable future[183](index=183&type=chunk) - Dividend payments by regulated insurance subsidiaries are subject to restrictions from state insurance laws and regulations, requiring prior approval for extraordinary dividends[184](index=184&type=chunk)[185](index=185&type=chunk) - The Term Loan covenants restrict the company from declaring or making cash dividends or repurchasing common stock outside of specified limits[187](index=187&type=chunk) [Item 3. Defaults Upon Senior Securities](index=46&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This item is marked as "Not applicable," indicating no defaults upon senior securities - This section is not applicable, indicating no defaults upon senior securities[189](index=189&type=chunk) [Item 4. Mine Safety Disclosures](index=47&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is marked as "Not applicable," indicating no mine safety disclosures - This section is not applicable, indicating no mine safety disclosures[191](index=191&type=chunk) [Item 5. Other Information](index=48&type=section&id=Item%205.%20Other%20Information) This item is marked as "None," indicating no other information to disclose - This section is marked "None," indicating no other information to disclose[193](index=193&type=chunk) [Item 6. Exhibits](index=49&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the Quarterly Report on Form 10-Q, including organizational documents, warrant agreements, employment agreements, and certifications - The exhibits include **organizational documents** (Certificate of Incorporation, Bylaws), **warrant agreements** (Carvana), **executive employment and retention agreements**, and **certifications** (Principal Executive Officer, Principal Financial Officer)[196](index=196&type=chunk)

Root, Inc. (NASDAQ:ROOT) Q4 2022 Earnings Conference Call February 23, 2023 8:00 AM ET Company Participants Jodi Baker - Investor Relations Alex Timm - Co-Founder and Chief Executive Officer Rob Bateman - Chief Financial Officer Dan Rosenthal - Chief Revenue and Operating Officer Matt Bonakdarpour - Chief Technology Officer Frank Palmer - Chief Insurance Officer Conference Call Participants Josh Siegler - Cantor Fitzgerald Charlie Lederer - Citi Tommy McJoynt - KBW David Motemaden - Evercore ISI Weston Bloo ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2022 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from_____to_____ Commission file number 001-39658 ROOT, INC. (Exact name of Registrant as specified in its charter) (State or other jurisdiction of incorporation or orga ...

Root, Inc. (NASDAQ:ROOT) Q3 2022 Results Conference Call November 10, 2022 8:00 AM ET Company Participants Jodi Baker - Vice President and Corporate Secretary Alex Timm - Chief Executive Officer Rob Bateman - Chief Financial Officer Dan Rosenthal - Chief Operating Officer Matt Bonakdarpour - Chief Technology Officer Frank Palmer - Chief Insurance Officer Conference Call Participants Michael Phillips - Morgan Stanley Elyse Greenspan - Wells Fargo Yaron Kinar - Jefferies Matt Carletti - JMP Tracy Benguigui - ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2022 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from____________to____________ Commission File Number: 001-39658 ROOT, INC. (Exact name of Registrant as specified in its charter) Securities registered pursua ...

Financial Data and Key Metrics Changes - Gross written premium declined 21% year-over-year to $140 million, while gross earned premium decreased 6% year-over-year to $171 million, reflecting higher rates and stricter underwriting [15][16] - Operating loss was $81 million, a 53% improvement over the prior year, and adjusted EBITDA improved by 59% [18] - Operating cash consumption dropped over 54% compared to the first half of 2021, with $696 million of unencumbered capital at the end of Q2 [18][19] Business Line Data and Key Metrics Changes - The gross accident period loss ratio improved by five points to 85% compared to the same quarter in 2021, driven by proactive rate changes and a higher weight of renewal premium [16][17] - New business writings decreased significantly, with renewals making up 75% of gross earned premium this quarter [15] Market Data and Key Metrics Changes - The company has implemented 35 rate filings with an average increase of 28% across 23 states, tightening underwriting rules to reduce premium leakage [10] - The focus on the embedded channel is primarily through the exclusive partnership with Carvana, which is expected to drive growth in that segment [12] Company Strategy and Development Direction - The company is focused on strengthening its underwriting foundation and conserving capital while leveraging technology to build out its embedded product offerings [21] - Continued investment in technology is aimed at enhancing competitive advantage and improving pricing models [11][13] Management's Comments on Operating Environment and Future Outlook - Management expects significant year-over-year declines in gross written premium in the second half of 2022, but anticipates meaningful improvement in operating losses [20] - The company is navigating a challenging environment with inflation and supply chain issues, but proactive measures are expected to yield positive financial results [10][19] Other Important Information - The company has launched a digital agency to service customers not suited for its primary insurance offerings, which is seen as a capital-light revenue stream [12] - Management is refining models and processes to enhance pricing accuracy and speed up model development [13] Q&A Session Summary Question: Outlook for premium and policy decline in the back half of the year - Management expects the back half of the year to resemble Q2, with a year-over-year decline above 25% in both gross written premium and operating loss [24] Question: Expectations for severity and frequency trends - Severity is expected to remain elevated at 6%, while frequency is at 1%, with management anticipating slower trends in the second half of the year [25][26] Question: Marketing spend outlook - The focus remains on profitability, with expectations for muted marketing spend through the rest of the year [27] Question: Clarification on gross accident period loss ratio - Management noted that while rates have been increased, many have not yet earned in, impacting the loss ratio [31][35] Question: Carvana's contribution to new business - Management clarified that Carvana's new business volume is about a third, with excitement about the potential for growth in that channel [36][38] Question: Other potential revenue sources - The company is exploring additional partnerships and expanding its digital agency offering, which is expected to contribute to long-term revenue [40][42] Question: Loss ratios for new versus renewal business - Management indicated that new business loss ratios are expected to be leading indicators due to the timing of rate changes [56] Question: Cash flow trends and future expectations - Management expects cash burn to improve in the second half of the year as efforts to strengthen the business continue [63] Question: Adverse development in reserves - A small unfavorable development in reserves was noted, primarily due to an uptick in severity, but management remains confident in their reserve adequacy [64]

Q2 2022 Shareholder Letter Letter to Shareholders: Q2 2022 ____________________________________________________________________________________________________________ Key quarterly metrics: $142.3 $177.1 Gross written premium ($M) Gross earned premium ($M) $151.9 $180.7 $170.8 $140.1 2Q 2020 2Q 2021 2Q 2022 2Q 2020 2Q 2021 2Q 2022 Gross accident period loss ratio Gross LAE ratio 65.2% 89.9% 85.2% 8.5% 10.6% 9.9% 2Q 2020 2Q 2021 2Q 2022 2Q 2020 2Q 2021 2Q 2022 $8.8 $22.0 Gross profit ($M) Direct contributio ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q For the transition period from____________to____________ Commission File Number: 001-39658 ROOT, INC. (Exact name of Registrant as specified in its charter) Delaware 84-2717903 (State or other jurisdiction of incorporation or organization) 80 E. Rich Street, Suite 500 Columbus, Ohio (Address of principal executive offices) (Zip Code) (I.R.S. Employer Identification Number) 43215 (866) 980-9431 (Registrant's telephone number, i ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2022 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from____________to____________ Commission File Number: 001-39658 ROOT, INC. (Exact name of Registrant as specified in its charter) Delaware 84-2717903 (State or ot ...

Q1 2022 Shareholder Letter Letter to Shareholders: Q1 2022 1Q 2020 1Q 2021 1Q 2022 1Q 2020 1Q 2021 1Q 2022 1Q 2021 1Q 2020 1Q 2021 1Q 2022 1Q 2020 1Q 2022 Key quarterly metrics: Gross written premium ($M) | --- | --- | --- | --- | --- | --- | |--------|--------|--------|--------|--------|--------| | | | | $143.9 | $160.2 | $174.7 | | $164.2 | $202.5 | $187.2 | | | | Gross earned premium ($M) Gross accident period loss ratio Gross LAE ratio | --- | --- | --- | --- | --- | --- | |-------|-------|-------|----- ...