Letter to Shareholders: Q1 2025 Overview & Key Highlights 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 income7 - The company announced new strategic partnerships with Hyundai Capital America (HCA) and Experian® to expand distribution714 - Root successfully reduced its cost of capital by lowering its debt facility interest rate by 25 basis points due to strong business performance32 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 partners14 - New strategic partnerships were launched with Hyundai Capital America (HCA) and Experian®, offering Root's insurance through their platforms141517 - State expansion efforts are ongoing, with a product filing in Michigan and outstanding filings in Washington, New Jersey, and Massachusetts19 Pricing and Underwriting 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 202524 - For the quarter, estimated accident period severity increased by 7%, while frequency decreased by 5%24 - The company's technology allows it to quickly identify trends and seek regulatory approval for rate actions, a key advantage in an uncertain macroeconomic environment26 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 growth33 - 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 points32 Looking Forward 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 value34 - Management notes that Q1 is typically the strongest seasonal quarter for growth and underwriting, and this favorability is not expected to persist throughout 202534 Financial Statements & Supplemental Information Condensed Consolidated Balance Sheets 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 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 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 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 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 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 compensation39 - Investors are cautioned that non-GAAP measures may not be comparable to those of other companies and should not be considered superior to GAAP results3738 Defined Terms & Glossary 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 reinsurance42 - 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 operations43 - Distribution channels are detailed, including Direct (Digital, Referral, Channel Media) and Partnership (Embedded, Agency)4647 Forward-Looking Statements 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 development50 - Potential risks that could cause actual results to differ include inflation, competition, regulatory changes, and the ability to raise capital505156 - The company assumes no obligation to update forward-looking statements55
Root(ROOT) - 2025 Q1 - Quarterly Results