Letter to Shareholders: Q1 2025 [Overview & Key Highlights](index=2&type=section&id=Overview%20%26%20Key%20Highlights) Root achieved a profitable Q1 2025, accelerating policies-in-force growth with strong products, advanced underwriting, and disciplined expense management - Key achievements in Q1 2025 include a **24% increase in gross premiums written**, an **8-point improvement in the net loss and LAE ratio**, achieving a **96% net combined ratio**, and generating **$18 million in net income**[7](index=7&type=chunk) - The company announced new strategic partnerships with **Hyundai Capital America (HCA)** and **Experian®** to expand distribution[7](index=7&type=chunk)[14](index=14&type=chunk) - Root successfully reduced its cost of capital by lowering its debt facility interest rate by **25 basis points** due to strong business performance[32](index=32&type=chunk) [Growth](index=3&type=section&id=Growth) The company reported significant growth in gross premiums written and earned, driven by strong Direct and Partnership channel performance, with state expansion ongoing | Metric | Change (YoY Q1 2025) | | :--- | :--- | | Gross Premiums Written | +24% | | Gross Premiums Earned | +25% | | Gross Loss and LAE Ratio | -8 points (to 63%) | - The Partnership channel's new writings more than doubled year-over-year, with the partner roster expanding to over **20 total partners**[14](index=14&type=chunk) - New strategic partnerships were launched with **Hyundai Capital America (HCA)** and **Experian®**, offering Root's insurance through their platforms[14](index=14&type=chunk)[15](index=15&type=chunk)[17](index=17&type=chunk) - State expansion efforts are ongoing, with a product filing in **Michigan** and outstanding filings in **Washington, New Jersey, and Massachusetts**[19](index=19&type=chunk) [Pricing and Underwriting](index=5&type=section&id=Pricing%20and%20Underwriting) Root's underwriting performance remained strong in Q1, achieving a **58% gross accident period loss ratio** through proprietary technology and data science, enabling swift rate adjustments to macroeconomic changes - Achieved a **58% gross accident period loss ratio** in Q1 2025[24](index=24&type=chunk) - For the quarter, estimated accident period severity increased by **7%**, while frequency decreased by **5%**[24](index=24&type=chunk) - The company's technology allows it to quickly identify trends and seek regulatory approval for rate actions, a key advantage in an uncertain macroeconomic environment[26](index=26&type=chunk) [Financials](index=6&type=section&id=Financials) The company delivered a solid financial quarter with strong top-line growth and disciplined expense management, achieving **$18 million in net income**, a **96% net combined ratio**, and **$347 million in unencumbered capital** | Financial Metric | Q1 2025 | YoY Improvement | | :--- | :--- | :--- | | Net Income | $18 million | +$25 million | | Operating Income | $24 million | +$18 million | | Adjusted EBITDA | $32 million | +$17 million | | Net Combined Ratio | 96% | N/A | - The company's unencumbered capital stood at **$347 million** at the end of Q1, indicating a well-capitalized position for growth[33](index=33&type=chunk) - A performance-based step-down in the interest rate on the company's debt facility with BlackRock was realized, reducing the rate by **25 basis points**[32](index=32&type=chunk) [Looking Forward](index=7&type=section&id=Looking%20Forward) Root focuses on long-term growth via a unit-economic framework, expecting strong results at scale despite potential short-term profitability impacts, while noting Q1's seasonal favorability is not expected to persist - The company's strategy is grounded in a unit-economic framework over the customer's lifetime, which may impact short-term profitability but is expected to drive long-term value[34](index=34&type=chunk) - Management notes that Q1 is typically the strongest seasonal quarter for growth and underwriting, and this favorability is not expected to persist throughout 2025[34](index=34&type=chunk) Financial Statements & Supplemental Information [Condensed Consolidated Balance Sheets](index=15&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This statement presents the company's financial position as of March 31, 2025, with total assets increasing to **$1,585.5 million** from **$1,495.7 million** at year-end 2024 | Balance Sheet Item | March 31, 2025 (in millions) | December 31, 2024 (in millions) | | :--- | :--- | :--- | | Total Investments | $325.2 | $311.2 | | Cash and cash equivalents | $609.4 | $599.3 | | Total Assets | $1,585.5 | $1,495.7 | | Total Liabilities | $1,244.8 | $1,180.0 | | Total Stockholders' Equity | $228.7 | $203.7 | [Condensed Consolidated Statements of Operations](index=16&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) This statement details Q1 2025 revenues, expenses, and profitability, reporting a net income of **$18.4 million** (vs. **$6.2 million** loss in Q1 2024) and diluted EPS of **$1.07** (vs. **$0.42** loss) | Income Statement Item | Q1 2025 (in millions) | Q1 2024 (in millions) | | :--- | :--- | :--- | | Total Revenues | $349.4 | $254.9 | | Total Operating Expenses | $325.7 | $249.5 | | Operating Income | $23.7 | $5.4 | | Net Income (Loss) | $18.4 | $(6.2) | | Diluted EPS | $1.07 | $(0.42) | [Condensed Consolidated Statements of Cash Flows](index=17&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This statement details cash flows for Q1 2025, showing net cash provided by operating activities at **$26.8 million** (vs. **$14.5 million** in Q1 2024) and reduced investing cash usage | Cash Flow Item | Q1 2025 (in millions) | Q1 2024 (in millions) | | :--- | :--- | :--- | | Net cash provided by operating activities | $26.8 | $14.5 | | Net cash used in investing activities | $(13.8) | $(52.3) | | Net cash used in financing activities | $(2.8) | $(0.4) | | Net increase (decrease) in cash | $10.2 | $(38.2) | [Supplemental Financial Information and KPIs](index=18&type=section&id=Supplemental%20Financial%20Information%20and%20KPIs) This section provides quarterly KPIs, showing policies in force grew to **453,800**, gross premiums written reached **$410.8 million**, and the net combined ratio improved from **102.0%** to **95.6%** | Key Performance Indicator | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Policies in force | 453,800 | 401,255 | | Gross premiums written | $410.8M | $330.7M | | Net income (loss) | $18.4M | $(6.2)M | | Adjusted EBITDA | $31.9M | $15.1M | | Net combined ratio | 95.6% | 102.0% | [Reconciliation of Non-GAAP Measures](index=19&type=section&id=Reconciliation%20of%20Non-GAAP%20Measures) This section reconciles GAAP to non-GAAP measures, detailing adjustments from Total Revenue to Direct Contribution and Net Income (Loss) to Adjusted EBITDA for transparency Reconciliation to Direct Contribution (Q1 2025) | Item | Amount (in millions) | | :--- | :--- | | Total Revenue | $349.4 | | *Less: Various adjustments* | ... | | **Direct Contribution** | **$127.1** | Reconciliation to Adjusted EBITDA (Q1 2025) | Item | Amount (in millions) | | :--- | :--- | | Net Income | $18.4 | | Interest expense | $5.1 | | Depreciation and amortization | $2.0 | | Share-based compensation | $6.4 | | *Other adjustments* | ... | | **Adjusted EBITDA** | **$31.9** | Definitions and Disclosures [Non-GAAP Financial Measures](index=8&type=section&id=Non-GAAP%20Financial%20Measures) This section explains the use of non-GAAP measures like Direct Contribution and Adjusted EBITDA for performance monitoring, cautioning they supplement, not replace, GAAP results - The company uses non-GAAP measures like **Direct Contribution** and **Adjusted EBITDA** for internal performance monitoring, strategic planning, and incentive compensation[39](index=39&type=chunk) - Investors are cautioned that non-GAAP measures may not be comparable to those of other companies and should not be considered superior to GAAP results[37](index=37&type=chunk)[38](index=38&type=chunk) [Defined Terms & Glossary](index=9&type=section&id=Defined%20Terms%20%26%20Glossary) This section defines key terms, including non-GAAP measures like Direct Contribution and Adjusted EBITDA, capital terms, and details on Direct and Partnership distribution channels - **Direct Contribution** is defined as gross profit excluding certain items like net investment income and fixed expenses to measure the profitability of the policy portfolio before reinsurance[42](index=42&type=chunk) - **Adjusted EBITDA** is defined as net income (loss) adjusted for items like interest, taxes, depreciation, amortization, and share-based compensation to show results from ongoing operations[43](index=43&type=chunk) - Distribution channels are detailed, including **Direct** (Digital, Referral, Channel Media) and **Partnership** (Embedded, Agency)[46](index=46&type=chunk)[47](index=47&type=chunk) [Forward-Looking Statements](index=12&type=section&id=Forward-Looking%20Statements) This legal disclaimer warns that the letter contains forward-looking statements based on current expectations, which involve risks and uncertainties, and actual results could differ materially - The report contains forward-looking statements regarding future financial performance, customer growth, state expansion, and product development[50](index=50&type=chunk) - Potential risks that could cause actual results to differ include inflation, competition, regulatory changes, and the ability to raise capital[50](index=50&type=chunk)[51](index=51&type=chunk)[56](index=56&type=chunk) - The company assumes no obligation to update forward-looking statements[55](index=55&type=chunk)

Core Insights - Root, Inc. (ROOT) is anticipated to show improvements in both revenue and earnings for Q1 2025, with revenue expected to reach $305 million, reflecting a 19.6% year-over-year growth [1] - The earnings consensus estimate is set at 45 cents per share, indicating a significant year-over-year increase of 207.1%, with a 36.4% upward revision in the past 30 days [2] Revenue and Earnings Estimates - The Zacks Consensus Estimate for ROOT's first-quarter revenues is $305 million, which is a 19.6% increase from the previous year [1] - The earnings estimate for the first quarter is 45 cents per share, which has seen a 36.4% increase in the last month, suggesting a 207.1% year-over-year growth [2][3] Factors Influencing Q1 Results - Expected drivers for revenue growth include higher net premiums earned, improved net investment income, and increased fee income [4] - The increase in policies in force and growth in partnership channels are likely to contribute positively to net premiums earned, with the estimate for first-quarter net investment income at $279 million [5] - The net investment income is projected to rise due to a higher average cash balance and a larger investment portfolio, although some offset may occur due to increased impairments [6] Underwriting and Expenses - Improved underwriting profitability is anticipated due to better pricing and prudent underwriting practices, although recent California wildfires may negatively impact results [7] - Total operating expenses are expected to rise due to higher loss adjustment expenses and increased costs in various operational areas [7]

Core Insights - Root Insurance released its 2025 Focused Driving Report, highlighting the dangers of distracted driving, which claims over 3,200 lives annually in the U.S. [1][2] - The report analyzed over 1.3 billion miles of driving data, revealing that U.S. drivers are distracted by their phones for nearly 11% of the time while driving [2][6] Geographic Differences - Oregon, Washington, and West Virginia are identified as the most focused states, while Louisiana, Mississippi, and Illinois are the most distracted [8] - Portland, Oregon, is the most focused metro area with a distraction rate of 8.74%, whereas New Orleans, Louisiana, is the most distracted at 15.20%, with drivers picking up their phones nearly 7 times more per 100 miles than those in Portland [8] Generational Insights - Gen Z drivers use their phones nearly twice as often (14.78%) compared to Baby Boomers (6.34%) while driving [8] Time of Day Analysis - The least distracted hour is 5:00 a.m. (7.16%), while the highest phone use occurs at 7:00 p.m. (11.65%) [8] Survey Insights - 86% of drivers reported texting while driving as the most common distraction, followed by social media use (77%) and handheld phone calls (75%) [8] - Nearly half (46%) of drivers admitted to a close call or accident due to distraction, with 60% changing their driving behavior afterward [8] - 72% of respondents indicated they would be less likely to use their phones while driving if their insurance rates reflected their focus behind the wheel [8] Company Overview - Root, Inc., founded in 2015, utilizes data science and technology to personalize car insurance, with over 15 million app downloads and more than 31 billion miles of driving data collected [9]

Company Performance - ROOT Inc. shares have increased by 109.1% year to date, significantly outperforming the industry growth of 14%, the Finance sector's rise of 0.4%, and the S&P 500's decline of 6.4% [1] - Despite this growth, ROOT's stock is currently trading 16% lower than its 52-week high of $181.14 [1] - The company aims to become the largest and most profitable in the automobile and renters insurance industry [1] Competitive Landscape - Lemonade's shares have decreased by 19.5% year to date, while EverQuote's shares have increased by 16.2% [4] - Lemonade is focusing on acquiring profitable businesses and enhancing its car insurance segment, which it sees as a key growth driver [4][5] - EverQuote is positioned to benefit from the recovery of auto insurance demand and is expanding into new verticals [5][6] Financial Metrics - ROOT's return on equity (ROE) for the trailing 12 months is 16.3%, outperforming the industry average of 8.3% [18] - The return on invested capital (ROIC) for ROOT is 10.6%, also higher than the industry average of 6.4% [19] - ROOT's net margin has improved significantly, expanding by 15,350 basis points over the last three years [12] Growth Strategy - ROOT's growth strategy includes geographic expansion, diversification of distribution channels, and targeted investments in high-return opportunities [11] - The company has maintained a gross loss ratio below the long-term target range of 60-65%, allowing for selective rate reductions [14] - ROOT plans to refinance its debt facility with BlackRock in October 2024, which is expected to reduce interest expenses by 50% in 2025 [12] Analyst Sentiment - The consensus estimate for ROOT's earnings for 2025 and 2026 has increased by 63.1% and 35.4% respectively in the past 30 days, indicating positive investor sentiment [22] - The Zacks average price target for ROOT is $117.20 per share, suggesting a potential downside of 21.4% from the last closing price [9] Technological Focus - ROOT is enhancing operational efficiency through investments in pricing and underwriting technology, which has been a significant contributor to its growth [24] - The company is leveraging telematics and data-driven pricing models to accelerate growth in a technologically advancing industry [14]

Core Viewpoint - Root Insurance has experienced a significant share price increase of nearly 26% over the past week, driven by a substantial analyst price target raise [1] Group 1: Analyst Recommendations - Keefe, Bruyette & Woods' analyst Tommy McJoynt raised the fair value assessment for Root to $150 per share from a previous target of $90, maintaining an outperform recommendation [2] - The adjustment in price target was made ahead of Root's first-quarter earnings release, indicating strong confidence in the company's performance [3] Group 2: Growth Potential - The analyst views Root as a top pick in the insurance tech sector, anticipating that it could exceed consensus estimates for 2025 to 2027 [3] - There is optimism regarding Root's ability to grow its policies-in-force, with partnerships in the auto industry, such as with Carvana, identified as key growth drivers [4] Group 3: Historical Performance - Root has a history of surpassing analyst estimates, having posted a surprise net profit in 2024, which adds to its appeal as a potential buy [5]

Core Insights - InsurTech companies like ROOT Inc. and Lemonade are facing challenges such as lowered interest rates, increased competition, inflation, and higher repair costs, while also striving for profitability amidst regulatory scrutiny [1][2] ROOT Inc. Overview - ROOT focuses on auto insurance, employing telematics and data-driven pricing models, with a growth strategy centered on geographic expansion and increased distribution channels [3] - The company is expanding across automotive, financial services, and agent sub-channels, which is driving growth in new writings [4] - ROOT expects to refinance its debt facility with Blackrock in October 2024, potentially lowering interest expenses by 50% in 2025, and has shown improvement in its net margin over time [5] - The net margin has improved by 15,350 basis points over the last three years, marking 2024 as the first year of profitability, although high debt levels pose a financial risk [6] Lemonade Overview - Lemonade's growth strategy includes acquiring profitable businesses and focusing on car insurance, which it sees as a major growth engine [7] - The company aims for a tenfold business growth, targeting a 28% increase in in-force premium by 2025, and plans to achieve positive EBITDA by 2026 and net profit by 2027 [8] - Lemonade is exposed to catastrophe losses but has implemented strategic initiatives to manage this risk, contributing to improvements in its gross loss ratio [9][10] Financial Estimates - The Zacks Consensus Estimate for ROOT's 2025 revenues indicates a year-over-year decrease of 89.6%, while EPS is expected to increase by 5.1% [11] - For Lemonade, the 2025 revenue and EPS estimates imply a year-over-year increase of 1.1% and 24.8%, respectively [12] Valuation Metrics - ROOT is trading at a price-to-book multiple of 8.86X, significantly above its five-year median of 0.92X, while Lemonade's price-to-book multiple is at 3.2X, also above its median of 1.77X [13] Conclusion - ROOT aims to be the largest and most profitable company in the industry, leveraging technology for operational efficiency and growth [16] - Lemonade's focus on growth and technology is promising, but it has yet to achieve profitability, with ROOT outperforming in return on equity [17] - Over the past year, ROOT shares have surged by 77.8%, while Lemonade shares have gained 55.6%, indicating that ROOT is currently a more attractive investment option [18]

Core Points - Root, Inc. plans to host a conference call on May 7, 2025, at 5:00 p.m. Eastern Time to discuss its financial results for Q1 2025 and provide updates on company operations [1][2] - The financial results will be released on the Investor Relations section of the company's website after the market closes on the same day [1] Company Overview - Root, Inc., founded in 2015 and based in Columbus, Ohio, is the parent company of Root Insurance Company, focusing on revolutionizing insurance through data science and technology [3] - The Root app has over 15 million downloads and has collected nearly 31 billion miles of driving data to enhance its insurance offerings [3]

Core Insights - Root, Inc. and Hyundai Capital America (HCA) have formed a strategic partnership aimed at enhancing customer experiences in the auto finance and insurance sectors [1][2][4] - The collaboration will leverage HCA's auto finance leadership and Root's mobile technology expertise to create tailored, technology-driven insurance solutions [2][3] Company Overview - Root, Inc. is a technology company focused on revolutionizing insurance through data science, with over 15 million app downloads and more than 30 billion miles of driving data collected [6] - Hyundai Capital America is a major player in the U.S. auto finance market, serving over 2.7 million customers and more than 1,800 dealers [5] Partnership Goals - The partnership aims to deliver data-driven, competitive insurance rates to HCA customers, enhancing the overall vehicle ownership experience [3][4] - Both companies share a vision of utilizing technology and data to redefine car insurance and improve customer satisfaction [4]

Core Viewpoint - Momentum investing focuses on following a stock's recent price trends, aiming to buy high and sell higher, with the expectation that established trends will continue [1][2]. Company Analysis: Root, Inc. (ROOT) - Root, Inc. currently holds a Momentum Style Score of A, indicating strong momentum characteristics [3]. - The company has a Zacks Rank of 1 (Strong Buy), suggesting a favorable outlook based on historical performance metrics [4]. - Over the past week, ROOT shares increased by 5.62%, while the Zacks Insurance - Property and Casualty industry remained flat [6]. - In a longer timeframe, ROOT's shares have risen by 53.08% over the past month, significantly outperforming the industry's 5.47% [6]. - Over the last quarter, ROOT shares surged by 108.17%, and over the past year, they increased by 169.65%, contrasting with the S&P 500's performance of -5.11% and 11.13%, respectively [7]. - The average 20-day trading volume for ROOT is 966,045 shares, indicating a bullish trend as the stock is rising with above-average volume [8]. Earnings Outlook - Recent earnings estimate revisions for ROOT show one upward revision for the full year, raising the consensus estimate from -$0.81 to -$0.29 over the past 60 days [10]. - For the next fiscal year, there has been one upward revision with no downward revisions, indicating positive sentiment regarding future earnings [10]. Conclusion - Given the strong momentum indicators and positive earnings outlook, ROOT is positioned as a promising investment opportunity, meriting attention from investors seeking growth [12].

Shares of ROOT Inc. (ROOT) have skyrocketed 145% year to date, outperforming the industry’s 13% growth, the Finance sector’s rise of 2.5% and the S&P 500 composite’s decline of 4.1%.ROOT shares are trading near the high end of $181.14 of its 52-week range.With a market capitalization of more than $2.7 billion, ROOT provides automobile and renters insurance products. It envisions being the largest and most profitable company in the industry.ROOT Outperforms Industry, Sector & S&P 500 YTD Image Source: Zacks ...