Root, Inc.

Previous wording

To scale the business, we aim to drive new customer growth and optimize unit economics via our two distribution channels: direct and partnership. The direct channel efficiently drives volume from high-intent customers by reaching them where they are already shopping for insurance, such as search engines or select marketplaces they actively use. The data science model continuously seeks to optimize bidding strategies that fine tunes our prices to strike a balance between offering a competitive price and achieving target unit economics. The partnership channel provides differentiated access to high intent customers, primarily in the automotive, financial services, and independent agent sectors. We build upon or within the mobile and web customer experiences of distribution partners to reach a captive customer base with an embedded solution, which can even remove the need for the customer to ever visit a Root website to purchase and bind a policy.

Current wording

To scale the business, we aim to drive new customer growth and optimize unit economics via our two distribution channels: direct and partnership. The direct channel efficiently drives volume from high-intent customers by reaching them where they are already shopping for insurance, such as search engines or select marketplaces they actively use. The data science model continuously seeks to optimize bidding strategies that fine-tune our prices to strike a balance between offering a competitive price and achieving target unit economics. The partnership channel provides differentiated access to high intent customers, primarily in the automotive, financial services, and independent agent sectors. We build upon or within the mobile and web customer experiences of distribution partners to reach a captive customer base with an embedded solution, which can even remove the need for the customer to ever visit a Root website to purchase and bind a policy.

Previous wording

Claims operations remain a critical driver of our unit economics and long-term competitiveness. We continue to invest in automation, workflow optimization, and advanced analytical tools designed to improve accuracy, speed, and consistency in claims handling. Improvements to the claim process not only supports customer satisfaction but also reinforces the stability of loss ratios and improves long-term cost efficiency by reducing operating expenses.

Current wording

Claims operations remain a critical driver of our unit economics and long-term competitiveness. We continue to invest in automation, workflow optimization, and advanced analytical tools designed to improve accuracy, speed, and consistency in claims handling. Improvements to the claim process not only support customer satisfaction but also reinforces the stability of loss ratios and improves long-term cost efficiency by reducing operating expenses.

Previous wording

We define adjusted EBITDA, a non-GAAP financial measure, as net income excluding interest expense, income tax expense, depreciation and amortization, share-based compensation, warrant compensation expense, restructuring charges, legal fees and other items that do not reflect our ongoing operating performance. After these adjustments, the resulting calculation represents expenses directly attributable to our operating performance. We use adjusted EBITDA as an internal performance measure in the management of our operations because we believe it provides management and other users of our financial information useful insight into our results of operations and underlying business performance. Adjusted EBITDA should not be viewed as a substitute for net income calculated in accordance with GAAP, and other companies may define adjusted EBITDA differently.

Current wording

We define adjusted EBITDA, a non-GAAP financial measure, as net income excluding interest expense, income tax expense, depreciation and amortization, share-based compensation, loss on extinguishment of debt, warrant compensation expense, restructuring charges, certain legal fees and other items that do not reflect our ongoing operating performance. After these adjustments, the resulting calculation represents expenses directly attributable to our operating performance. We use adjusted EBITDA as an internal performance measure in the management of our operations because we believe it provides management and other users of our financial information useful insight into our results of operations and underlying business performance. Adjusted EBITDA should not be viewed as a substitute for net income calculated in accordance with GAAP, and other companies may define adjusted EBITDA differently.

Previous wording

Net investment income represents interest earned from our cash, cash equivalents, restricted cash and restricted cash equivalents, fixed maturities, and short-term investments less investment expenses. Investment expenses include costs associated with the management of our investment portfolio, including Personnel Costs. Net investment income also includes impairments related to low-income housing tax credits investments in limited liability entities to offset certain state premium taxes. These tax credits are recognized when utilized. Net investment income is directly correlated with the overall size of our cash and investment portfolio, market level of interest rates and changes in the fair value of our private equity investments. Net investment income will vary with the size and composition of our investment portfolio, market returns and the investment strategy.

Current wording

Net investment income represents interest earned from our cash, cash equivalents, restricted cash and restricted cash equivalents, fixed maturities, and short-term investments less investment expenses. Investment expenses include costs associated with the management of our investment portfolio, including Personnel Costs. Net investment income also includes impairments related to low-income housing tax credits investments in limited liability entities to offset certain state premium taxes. These tax credits are recognized when utilized. In addition, net investment income includes impairment losses related to our private equity investments. Net investment income is directly correlated with the overall size of our cash and investment portfolio, market level of interest rates and changes in the fair value of our private equity investments. Net investment income will vary with the size and composition of our investment portfolio, market returns and the investment strategy.

Previous wording

We amortize a portion of our deferred policy acquisition costs including certain commissions related to our partnership channel, premium taxes, and report costs related to the successful acquisition of a policy. Tax credits are recognized when utilized. Other insurance expense is expensed as incurred, except for costs related to deferred policy acquisition costs that are capitalized and subsequently amortized over the same period in which the related premiums are earned. Warrant compensation expense is recognized on a pro-rata basis considering progress toward achieving milestones for policies originated through the Integrated Platform as defined under the Carvana commercial agreement.

Current wording

We amortize a portion of our deferred policy acquisition costs including certain commissions related to our partnership channel, premium taxes, and report costs related to the successful acquisition of a policy. Low income housing tax credits are recognized when utilized. Other insurance expense is recognized as incurred, except for costs related to deferred policy acquisition costs that are capitalized and subsequently amortized over the same period in which the related premiums are earned. Warrant compensation expense is recognized on a pro-rata basis considering progress toward achieving milestones for policies originated through the Integrated Platform as defined under the Carvana commercial agreement.

Previous wording

Our non-operating expenses consist of interest expense and income tax expense and are included below operating expenses.

Current wording

Our non-operating expenses consist of interest expense, loss on extinguishment of debt, and income tax expense and are included below operating expenses.

Previous wording

Net premiums earned increased primarily due to an increase in policies in force as a result of continued growth in our partnership channel and reduced cessions of gross premiums earned to reinsurers between periods, partially offset by a decrease in premiums per policy resulting from a shift in customer and state mix.

Current wording

Net premiums earned increased primarily due to reduced cessions of gross premiums earned to reinsurers between periods and an increase in policies in force as a result of continued growth in our partnership channel, partially offset by a decrease in premiums per policy resulting from a shift in customer and state mix.

Previous wording

During the three months ended March 31, 2026 and 2025, we ceded approximately 1.8% and 6.7% of our gross premiums earned, respectively. The change in cessions between periods was primarily driven by a strategic reduction of quota share reinsurance.

Current wording

During the three months ended June 30, 2026 and 2025, we ceded approximately 1.2% and 4.9% of our gross premiums earned, respectively. The change in cessions between periods was primarily driven by a strategic reduction of quota share reinsurance.

Previous wording

Gross accident period loss ratio increased to 58.8% for the three months ended March 31, 2026, from 54.5% for the same period in 2025. The change in the ratio was driven by higher loss costs as a result of increased severity per claim due to higher vehicle repair and medical costs and a shift in channel mix. This was partially offset by business tenure mix and favorable weather-related losses. We observed a mid-single digit increase in accident period severity per claim and a low-single-digit increase in claim frequency for the three months ended March 31, 2026 compared to the same period in 2025 across our bodily injury, collision, and property damage coverages.

Current wording

Gross accident period loss ratio increased to 61.6% for the three months ended June 30, 2026, from 57.4% for the same period in 2025. The change in the ratio was driven by higher loss costs as a result of increased severity per claim due to higher vehicle repair and medical costs and a shift in channel mix. This was partially offset by business tenure mix and favorable weather-related losses. We observed a mid-single digit increase in accident period severity per claim and a low-single-digit increase in claim frequency for the three months ended June 30, 2026 compared to the same period in 2025 across our bodily injury, collision, and property damage coverages.

Previous wording

Gross premiums written decreased for the three months ended March 31, 2026 primarily due to a decline in new writings in our direct channel as a result of lower direct performance marketing spend. This was primarily driven by slower growth during the tax refund season in the current year, compared to the prior year, which benefited from a pull-forward of demand driven by concerns around tariff policy. This was partially offset by continued growth in new writings in our partnership channel compared to the same period in 2025. The increase in gross premiums earned was primarily due to greater policies in force compared to the same period in 2025.

Current wording

Gross premiums written decreased for the six months ended June 30, 2026, primarily due to a decline in new writings in our direct channel as a result of lower direct performance marketing spend. This was primarily driven by heightened competition in the marketing environment and slower growth during the tax refund season in 2026, compared to 2025, which benefited from a pull-forward of demand driven by concerns around tariff policy. This was partially offset by continued growth in new writings in our partnership channel compared to the same period in 2025. The increase in gross premiums earned was primarily due to greater policies in force, partially offset by a decrease in premiums per policy compared to the same period in 2025.

Previous wording

Loss and LAE increased due to additional losses incurred on increased gross premiums earned volume and reduced cessions of losses to reinsurers driven by a strategic reduction of quota share reinsurance for the three months ended March 31, 2026 compared to the same period in 2025. This volume-driven increase was partially offset by a reduction of loss and LAE reserves on prior periods due to lower than expected reported activity and the identification of additional subrogation opportunities resulting from model improvements.

Current wording

Loss and LAE increased due to additional losses incurred on increased gross premiums earned volume and reduced cessions of losses to reinsurers driven by a strategic reduction of quota share reinsurance for the six months ended June 30, 2026 compared to the same period in 2025. This volume-driven increase was partially offset by a reduction of loss and LAE reserves on prior periods due to lower than expected reported activity and the identification of additional subrogation opportunities resulting from model improvements.

Previous wording

Sales and marketing expense decreased due to lower acquisition expense driven by a $24.8 million decrease in direct performance marketing spend. This reduction reflects a continued disciplined deployment of spend to optimize efficiency, while maintaining returns in line with our estimated targets. It was also influenced by slower new writing growth during the tax refund season in the current year, compared to the prior year, which benefited from a pull-forward of demand driven by concerns around tariff policy

Current wording

Sales and marketing expense decreased due to lower acquisition expense driven by a $35.4 million decrease in direct performance marketing spend. This reduction reflects a continued disciplined deployment of spend to optimize efficiency in a heightened competitive marketing environment, while maintaining returns in line with our estimated targets. The decrease was also influenced by slower new writing growth during the tax refund season in 2026, compared to 2025, which benefited from a pull-forward of demand driven by concerns around tariff policy.

Previous wording

Other insurance expense increased primarily due to an increase in our acquisition expenses. This was driven by $8.9 million greater commissions paid, increased amortization of deferred policy acquisition costs of $2.5 million, and a $2.2 million increase in partnership expenses related to the continued growth in our partnership channel, including the build-out and appointment of independent agents. We also experienced a $4.6 million decrease in net ceding commission contra-expense as a result of a decline in ceded premiums written, largely attributable to a strategic reduction of quota share reinsurance. Fixed expenses increased primarily due to a $1.9 million increase in Carvana warrant expense related to our outstanding warrant structure with Carvana. Variable expenses increased primarily due to a $0.9 million increase in premium write-offs as a result of growth in earned premium.

Current wording

Other insurance expense increased primarily due to an increase in our acquisition expenses. This was driven by a $12.8 million increase in commissions paid, increased amortization of deferred policy acquisition costs of $5.3 million, and a $3.2 million increase in partnership expenses related to the continued growth in our partnership channel, including the build-out and appointment of independent agents. We also experienced a $8.8 million decrease in net ceding commission contra-expense as a result of a decline in ceded premiums written, largely attributable to a strategic reduction of quota share reinsurance. Fixed expenses increased primarily due to a $3.5 million increase in Carvana warrant expense related to our outstanding warrant structure with Carvana. Variable expenses decreased primarily due to a $1.7 million decrease in premium taxes as a result of less gross premiums written.

Previous wording

Technology and development expense increased primarily due to a $3.5 million increase in Personnel Costs, driven by increased headcount which reflects a continued investment in our product delivery teams and technology.

Current wording

Technology and development expense increased primarily due to a $5.3 million increase in Personnel Costs, driven by increased headcount which reflects a continued investment in our product delivery teams and technology.

Previous wording

Changes in net unrealized (losses) gains on investments decreased primarily due to an increase in market interest rates and widening credit spreads during the quarter as a result of geopolitical instability, which negatively impacted the fair value of fixed maturity securities.

Current wording

Changes in net unrealized (losses) gains on investments decreased to net unrealized losses primarily due to an increase in market interest rates and widening credit spreads during the period, influenced by broader macroeconomic and geopolitical uncertainties, which negatively impacted the fair value of fixed maturity securities.

Previous wording

The following table provides a reconciliation of total revenue to direct contribution for the three months ended March 31, 2026 and 2025:

Current wording

The following table provides a reconciliation of total revenue to direct contribution for the three and six months ended June 30, 2026 and 2025:

Previous wording

(1) Adjustments from other insurance expense consists of acquisition expenses, including report costs and commission expenses related to our partnership channel of $32.7 million and $19.7 million for the three months ended March 31, 2026 and March 31, 2025, respectively. Adjustments from other insurance expense also consists of fixed expenses, including warrant compensation expense related to policies originating through the Integrated Platform, Personnel Costs, Overhead, licenses, professional fees and other of $5.8 million and $2.5 million for the three months ended March 31, 2026 and March 31, 2025, respectively.

Current wording

(1) Adjustments from other insurance expense consists of acquisition expenses, including report costs and commission expenses related to our partnership channel of $32.0 million and $64.7 million for the three and six months ended June 30, 2026, respectively, and $25.0 million and $44.7 million for the three and six months ended June 30, 2025, respectively. Adjustments from other insurance expense also consists of fixed expenses, including warrant compensation expense related to policies originating through the Integrated Platform, Personnel Costs, Overhead, licenses, professional fees and other of $5.1 million and $10.9 million for the three and six months ended June 30, 2026, respectively, and $4.6 million and $7.1 million for the three and six months ended June 30, 2025, respectively.

Previous wording

The following table provides a reconciliation of net income to adjusted EBITDA for the three months ended March 31, 2026 and 2025:

Current wording

The following table provides a reconciliation of net income to adjusted EBITDA for the three and six months ended June 30, 2026 and 2025:

Previous wording

We are organized as a holding company, but our primary operations are conducted by three of our wholly-owned insurance subsidiaries, Root Insurance Company and Root Property & Casualty Insurance Company, both Ohio-domiciled insurance companies, and Root Florida Insurance Company, a Florida-domiciled insurance company. The payment of dividends by our insurance subsidiaries is subject to restrictions set forth in the insurance laws and regulations of the State of Ohio and the State of Florida. Our domestic insurance subsidiaries are not permitted to pay any dividends without approval of the applicable superintendent, commissioner and/or director. During the three months ended March 31, 2026, the Ohio Department of Insurance approved Root Insurance Company to distribute one extraordinary dividend. As a result, over that period, $5.0 million was distributed to Caret Holdings, Inc., its parent company.

Current wording

We are organized as a holding company, but our primary operations are conducted by three of our wholly-owned insurance subsidiaries, Root Insurance Company and Root Property & Casualty Insurance Company, both Ohio-domiciled insurance companies, and Root Florida Insurance Company, a Florida-domiciled insurance company. The payment of dividends by our insurance subsidiaries is subject to restrictions set forth in the insurance laws and regulations of the State of Ohio and the State of Florida. Our domestic insurance subsidiaries are not permitted to pay any dividends without approval of the applicable superintendent, commissioner and/or director. During the six months ended June 30, 2026, the Ohio Department of Insurance approved Root Insurance Company to pay two extraordinary dividends. As a result, over that period, $15.0 million was paid to Caret Holdings, Inc., its parent company.

Previous wording

Our wholly-owned, Cayman Islands-based reinsurance subsidiary, Root Reinsurance Company, Ltd., or Root Re, maintains a Class B(iii) insurer license under Cayman Islands Monetary Authority, or CIMA. At March 31, 2026, Root Re was subject to compliance with certain capital levels and a net premiums earned to capital ratio up to 15:1, which we maintained as of March 31, 2026. The capital ratio can fluctuate at Root Re’s election, subject to regulatory approval. Root Re’s primary sources of funds are assumed insurance premiums, net investment income and capital contributions from the holding company. These funds are primarily used to pay claims and operating expenses and to purchase investments. Root Re must notify CIMA before it can pay any dividend to the holding company. During the three months ended March 31, 2026, Root Re paid a dividend of $8.0 million to Caret Holdings, Inc.

Current wording

Our wholly-owned, Cayman Islands-based reinsurance subsidiary, Root Reinsurance Company, Ltd., or Root Re, maintains a Class B(iii) insurer license under the Cayman Islands Monetary Authority, or CIMA. At June 30, 2026, Root Re was subject to compliance with certain capital levels and a net premiums earned to capital ratio up to 15:1, which we maintained as of June 30, 2026. The capital ratio can fluctuate at Root Re’s election, subject to regulatory approval. Root Re’s primary sources of funds are assumed insurance premiums, net investment income and capital contributions from the holding company. These funds are primarily used to pay claims and operating expenses and to purchase investments. Root Re must notify CIMA before it can pay any dividend to the holding company. During the six months ended June 30, 2026, Root Re paid dividends of $30.0 million to Caret Holdings, Inc.

Previous wording

In May 2026, we prepaid the Amended Term Loan in full. We entered into a senior secured term loan with a principal balance of $200.0 million and a maturity date of May 2029. The senior secured term loan requires principal payments equal to 1.0% of the original principal amount in each of the first two years following the closing date and 5.0% in the third year, with the unpaid balance due at maturity. Interest is variable and calculated between SOFR plus 3.0% and SOFR plus 3.75%, based upon the debt-to-capital ratio payable quarterly in cash.

Current wording

In May 2026, we prepaid our six-year Amended Term Loan in the aggregate principal amount of $200.0 million in full. The prepayment resulted in a loss on extinguishment of debt of $4.9 million, primarily related to accelerated amortization of debt discount and issuance costs and a prepayment premium. We entered into a senior secured term loan with a principal balance of $200.0 million and a maturity date of May 2029. We are required to make quarterly principal payments starting September 30, 2026 equal to approximately 0.25% of the original principal amount in each of the first two years following the closing date and 1.25% quarterly in the third year, with the unpaid balance due at maturity. Interest is variable and calculated between SOFR plus 3.0% and SOFR plus 3.75% and is payable quarterly in cash. The SOFR margin is based upon the debt-to-capital ratio which is calculated on the last day of each quarter beginning on September 30, 2026 as discussed further in Note 7, “Long-Term Debt,” in the Notes to the Condensed Consolidated Financial Statements - Unaudited.

Previous wording

In May 2026, we announced that our board of directors approved a share repurchase authorization of up to $75.0 million of Class A common stock. We may utilize various methods to effect repurchases, which could include open market purchases, privately negotiated transactions, block purchases, accelerated share repurchase agreements or a combination of methods, including pursuant to trading plans adopted under Rule 10b5-1 under the Securities Exchange Act of 1934. The Repurchase Program does not have a set expiration date and may be modified, suspended, or discontinued at any time at the discretion of our board of directors. The timing and amount of any repurchases under the Repurchase Program will depend upon several factors, including market and business factors.

Current wording

In May 2026, we announced that our board of directors approved a share repurchase authorization of up to $75.0 million of Class A common stock, or Repurchase Program. We may utilize various methods to effect repurchases, which could include open market purchases, privately negotiated transactions, block purchases, accelerated share repurchase agreements or a combination of methods, including pursuant to trading plans adopted under Rule 10b5-1 under the Exchange Act. The Repurchase Program does not have a set expiration date and may be modified, suspended, or discontinued at any time at the discretion of our board of directors. The timing and amount of any repurchases under the Repurchase Program will depend upon several factors, including market and business factors.

Previous wording

As of March 31, 2026, we had $597.2 million in cash and cash equivalents, of which $311.6 million was held outside of regulated insurance entities. We also had $467.1 million in marketable securities.

Current wording

As of June 30, 2026, we had $509.6 million in cash and cash equivalents, of which $239.5 million was held outside of regulated insurance entities. We also had restricted cash and cash equivalents of $65.2 million and $517.1 million in marketable securities.

Previous wording

Through March 31, 2026, our debt covenants required cash and cash equivalents held in entities other than our insurance subsidiaries to be at least $50.0 million. Upon execution of the senior secured term loan, we will be required to maintain cash and cash equivalents with the lender equal to 25% of the outstanding principal balance of the senior secured term loan.

Current wording

Our debt covenants require us to maintain cash and cash equivalents held with the lender to be at least 25% of the outstanding principal balance of the senior secured term loan. As of June 30, 2026, we maintained $50.0 million of restricted cash and cash equivalents with the lender.

Previous wording

Net cash provided by operating activities for the three months ended March 31, 2026 was $9.3 million compared to $26.8 million for the three months ended March 31, 2025. The decrease in cash provided by operating activities was due to changes in premiums not yet earned and loss and LAE reserves due to greater growth in policies in force in the three months ended March 31, 2025, compared to the same period in 2026. This was partially offset by the timing of premium receipts and higher net income between the periods.

Current wording

Net cash provided by operating activities for the six months ended June 30, 2026 was $66.8 million compared to $78.8 million for the six months ended June 30, 2025. The decrease in cash provided by operating activities was due to changes in premiums not yet earned, loss and LAE reserves and premiums owed to the fronting carrier due to greater growth in policies in force in the six months ended June 30, 2025, compared to the same period in 2026. This was partially offset by the timing of premium and reinsurance receipts and higher net income between the periods.

Previous wording

Net cash used in investing activities for the three months ended March 31, 2026 was $86.6 million compared to $13.8 million for the three months ended March 31, 2025. The increase in cash used in investing activities was primarily due to using available cash to purchase investment grade marketable securities.

Current wording

Net cash used in investing activities for the six months ended June 30, 2026 was $146.3 million compared to $17.6 million for the six months ended June 30, 2025. The increase in cash used in investing activities was primarily due to net purchases of investment grade marketable securities associated with liquidity management and capital requirements for our insurance operations.

Previous wording

There have been no material changes to our contractual and other obligations from those described in our 2025 10-K, except for the prepayment of the Amended Term Loan and issuance of a senior secured term loan as discussed in “Note 13, Subsequent Events,” in the Notes to Condensed Consolidated Financial Statements - Unaudited. We believe we have sufficient resources, and access to additional debt and equity capital, to adequately meet our obligations as they come due.

Current wording

There have been no material changes to our contractual and other obligations from those described in our 2025 10-K, except for the prepayment of the Amended Term Loan and incurrence of debt under the senior secured term loan as discussed further in Note 7, “Long-Term Debt,” in the Notes to Condensed Consolidated Financial Statements - Unaudited. We believe we have sufficient resources, and access to additional debt and equity capital, to adequately meet our obligations as they come due.

Previous wording

Our critical accounting estimates are described under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Estimates,” in our 2025 10-K and under the heading “Notes to Condensed Consolidated Financial Statements - Unaudited” appearing in this Quarterly Report on Form 10-Q. During the three months ended March 31, 2026, there were no material changes to our critical accounting estimates from those discussed in our 2025 10-K.

Current wording

Our critical accounting estimates are described under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Estimates,” in our 2025 10-K and under the heading “Notes to Condensed Consolidated Financial Statements - Unaudited” appearing in this Quarterly Report on Form 10-Q. During the six months ended June 30, 2026, there were no material changes to our critical accounting estimates from those discussed in our 2025 10-K.