Root(US:ROOT)2025-05-07 20:07Part I. Financial Information Item 1. Financial Statements - Unaudited Unaudited Q1 2025 financials show a net income of $18.4 million, a significant turnaround driven by increased premiums and improved underwriting Condensed Consolidated Balance Sheets Total assets grew to $1,585.5 million by March 31, 2025, driven by premiums receivable and investments, with stockholders' equity improving to $228.7 million Condensed Consolidated Balance Sheet Highlights (in millions) | Account | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Assets | | | | Total investments | $325.2 | $311.2 | | Cash and cash equivalents | $609.4 | $599.3 | | Premiums receivable, net | $360.7 | $305.3 | | Total assets | $1,585.5 | $1,495.7 | | Liabilities & Equity | | | | Loss and loss adjustment expense reserves | $418.5 | $413.2 | | Unearned premiums | $420.3 | $353.9 | | Total liabilities | $1,244.8 | $1,180.0 | | Total stockholders' equity | $228.7 | $203.7 | Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) Q1 2025 saw Root Inc. achieve profitability with a net income of $18.4 million, driven by a 39.5% increase in net premiums earned and higher total revenues Q1 2025 vs Q1 2024 Statement of Operations (in millions, except per share data) | Metric | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Net premiums earned | $321.3 | $230.3 | | 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 Net cash from operating activities increased to $26.8 million in Q1 2025, while net cash used in investing activities significantly decreased, leading to a positive net cash increase Cash Flow Summary (in millions) | Activity | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | 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) | Notes to Condensed Consolidated Financial Statements Notes detail the investment portfolio, favorable loss reserve development, reduced reinsurance use, and geographical premium breakdown, with Texas as the largest state - The company operates as a single reporting segment, providing direct-to-consumer insurance products29 - The investment portfolio totaled $320.8 million at fair value by March 31, 2025, with the vast majority rated A- or higher3438 - Prior year loss and LAE reserves developed favorably, decreasing by $13.1 million in Q1 2025, primarily due to lower-than-expected reported losses from accident year 202442 - The company strategically reduced its use of reinsurance, with ceded premiums written decreasing to $18.8 million in Q1 2025 from $46.7 million in Q1 202443 - As of March 31, 2025, all short-term warrants issued to Carvana have vested, with no warrant compensation expense recognized in the quarter, compared to $2.8 million in Q1 20244749 Top 5 States by Gross Premiums Written (Q1 2025) | State | Amount (in millions) | % of Total | | :--- | :--- | :--- | | Texas | $75.1 | 18.3% | | Georgia | $46.5 | 11.3% | | Florida | $31.1 | 7.6% | | California | $25.7 | 6.3% | | Pennsylvania | $23.7 | 5.8% | Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes strong Q1 2025 performance to policy growth, rate actions, and improved underwriting, achieving a 95.6% net combined ratio and solid liquidity Key Performance Indicators Key operational and financial metrics for Q1 2025 show strong growth, with policies in force reaching 453,800 and the Net Combined Ratio improving to 95.6% Key Performance Indicators Comparison (in millions, except where noted) | Metric | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Policies in force | 453,800 | 401,255 | | Gross premiums written | $410.8 | $330.7 | | Net income (loss) | $18.4 | ($6.2) | | Direct contribution | $127.1 | $80.7 | | Adjusted EBITDA | $31.9 | $15.1 | | Net combined ratio | 95.6% | 102.0% | | Gross accident period loss ratio | 57.9% | 58.2% | Results of Operations Q1 2025 total revenues increased 37.1% to $349.4 million, driven by higher net premiums earned and reduced reinsurance cessions, despite increased sales and marketing expenses - Net premiums earned increased by $91.0 million (39.5%) due to growth in policies, higher premiums per policy, and reduced reinsurance cessions105106 - Gross premiums written grew 24.2% due to increased direct performance marketing spend and growth in the partnership channel108 - The gross accident period loss ratio improved slightly to 57.9% from 58.2%, as rate actions offset increased claims severity110 - Sales and marketing expense increased by $21.1 million, primarily from a $19.5 million increase in direct performance marketing spend to drive growth111 Non-GAAP Financial Measures Direct Contribution increased to $127.1 million and Adjusted EBITDA more than doubled to $31.9 million in Q1 2025, reflecting improved profitability and underwriting results Reconciliation of Net Income (Loss) to Adjusted EBITDA (in millions) | | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Net income (loss) | $18.4 | ($6.2) | | Adjustments | $13.5 | $21.3 | | Adjusted EBITDA | $31.9 | $15.1 | Reconciliation of Total Revenue to Direct Contribution (in millions) | | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Gross profit | $107.1 | $63.9 | | Adjustments | $20.0 | $16.8 | | Direct contribution | $127.1 | $80.7 | Liquidity and Capital Resources The company maintains a strong liquidity position with $609.4 million in cash and equivalents, sufficient for at least 12 months, subject to regulatory and loan covenants - As of March 31, 2025, the company held $609.4 million in cash and cash equivalents and $320.8 million in marketable securities128 - The company's insurance subsidiaries are subject to regulatory capital requirements and dividend payment restrictions by state insurance departments124125 - The company's debt covenants require cash and cash equivalents held in entities other than insurance subsidiaries to be at least $50.0 million133 Quantitative and Qualitative Disclosures About Market Risk No material changes have occurred in the quantitative and qualitative market risk disclosures since the 2024 Annual Report on Form 10-K - There have been no material changes in market risk disclosures from the 2024 10-K142 Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2025, with no material changes to internal control over financial reporting - Management concluded that disclosure controls and procedures were effective as of March 31, 2025143 - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, internal controls144 Part II. Other Information Legal Proceedings The company is not party to any current or pending legal actions expected to have a material adverse effect on its financial condition or operations - The company is not party to any legal proceedings expected to have a material adverse effect on its financials147 Risk Factors No material changes in risk factors have occurred since the 2024 Annual Report on Form 10-K filing - No material changes in risk factors have occurred since the 2024 10-K filing149 Unregistered Sales of Equity Securities and Use of Proceeds The company has never paid cash dividends and intends to retain earnings, with future payments restricted by regulatory and loan covenants - The company has never paid cash dividends and does not anticipate paying any in the foreseeable future151 - Dividend payments from insurance subsidiaries require regulatory approval for extraordinary amounts and are restricted by the Amended Term Loan covenants153155 Other Information In March 2025, two board members and the Chief Administrative Officer entered into Rule 10b5-1 trading plans for potential Class A common stock sales - Board members Beth Birnbaum and Julie Szudarek, and CAO Jonathan Allison, entered into 10b5-1 trading plans in March 2025158159