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~~March 3031, ~~2024~~2025

☐ 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 other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification Number)
80 E. Rich Street, Suite 500 Columbus, Ohio						43215
(Address of principal executive offices)						(Zip Code)

(866) 980-9431

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Class A common stock, $0.0001 par value per share	ROOT	The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐ Accelerated filer ☒ Non-accelerated filer ☐ Smaller reporting company ☒☐ Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of ~~October~~April 2330, ~~2024~~2025, the number of outstanding shares of the registrant’s Class A common stock, par value $0.0001 per share, was ~~10.7~~12,093,450 ~~million~~ and the number of outstanding shares of the registrant’s Class B common stock, par value $0.0001 per share, was 43,272,033.~~4 million.~~

TABLE OF CONTENTS

		Page
Special Note Regarding Forward-Looking Statements		ii
	Part I. Financial Information	1
Item 1.	Financial Statements - Unaudited	1
	Condensed Consolidated Balance Sheets - Unaudited	1
	Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) - Unaudited	2
	Condensed Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity - Unaudited	3
	Condensed Consolidated Statements of Cash Flows - Unaudited	54
	Notes to Condensed Consolidated Financial Statements - Unaudited	65
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	2118
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	4034
Item 4.	Controls and Procedures	4135
	Part II. Other Information	4236
Item 1.	Legal Proceedings	4236
Item 1A.	Risk Factors	4337
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4438
Item 3.	Defaults Upon Senior Securities	4539
Item 4.	Mine Safety Disclosures	4640
Item 5.	Other Information	4741
Item 6.	Exhibits	4842
	Signatures	5044

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements about us and our industry that involve substantial risks and uncertainties. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q are forward-looking statements. In some cases, you can identify forward-looking statements because they contain words such as “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “path,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “will” or “would” or the negative of these words or other similar terms or expressions. These forward-looking statements include, but are not limited to, statements concerning the following:

•our ability to retain existing customers, acquire new customers and expand our customer reach;

•our expectations regarding our future financial performance, including total revenue, gross profit~~/(loss)~~, net income/ (loss), direct contribution, adjusted EBITDA, net loss and loss adjustment expense, or LAE, ratio, net expense ratio, net combined ratio, gross loss ratio, marketing costs and costs of customer acquisition, gross LAE ratio, gross expense ratio, gross combined ratio, operating expenses, quota share levels, changes in unencumbered cash balances and expansion of our new and renewal premium base;

•our ability to realize profits, acquire customers, retain customers, contract with additional partners to utilize the products, or achieve other benefits from our embedded insurance offering;

•our ability to expand our distribution channels through additional partnership relationships, digital media, independent agents and referrals;

•our ability to drive a significant long-term competitive advantage through our partnership with Carvana Group, LLC, or Carvana, and other partnerships, such as Hyundai Capital America and Experian;

•our ability to develop products for embedded insurance and other partners;

•the impact of supply chain disruptions, increasing inflation, a potential increase in tariffs or the implementation of new tariffs, a recession and/or disruptions to properly functioning financial and capital markets and interest rates on our business and financial condition;

•our ability to remain profitable and extend our capital runway;

•our goal to be licensed in all states in the United States, or U.S., and the timing of obtaining additional licenses and launching in new states;

•the accuracy and efficiency of our telematics and behavioral data, and our ability to gather and leverage existing and additional data;

•our ability to materially improve retention rates and our ability to realize benefits from retaining customers;

•our ability to underwrite risks accurately and charge profitable rates;

•our ability to maintain our business model and improve our capital and marketing efficiency;

•our ability to drive improved conversion and decrease the cost of customer acquisition;

•our ability to maintain and enhance our brand and reputation;

•our ability to effectively manage the growth of our business;

•our ability to raise additional capital efficiently or at all;

•our ability to improve our product offerings, introduce new products and expand into additional insurance lines;

•our ability to cross sell our products and attain greater value from each customer;

•our lack of operating history and ability to remain profitable;

•our ability to compete effectively with existing competitors and new market entrants in our industry;

•future performance of the markets in which we operate;

•our ability to operate a “capital-efficient” business and obtain and maintain desirable levels of reinsurance;

•the effect of further reductions in the utilization of reinsurance, which would result in retention of more premium and losses and could cause our capital requirements to increase;

•our ability to realize economies of scale;

•our ability to attract, motivate and retain key personnel, or hire personnel, and to offer competitive compensation and benefits;

•our ability to deliver a vertically integrated customer experience;

•our ability to develop products that utilize telematics to drive better customer satisfaction and retention;

•our ability to protect our intellectual property and any costs associated therewith;

•our ability to develop an autonomous claims experience;

•our ability to take rate action early and react to changing environments;

•our ability to meet risk-based capital requirements;

•our ability to realize ~~the~~ benefits ~~anticipated~~ from our Texas county mutual fronting arrangement;

•our ability to expand domestically;

•our ability to ~~stay~~comply ~~in compliance~~ with laws and regulations that currently apply or become applicable to our business;

•the impact of litigation or other losses;

•changes in laws or regulations, or changes in the interpretation of laws or regulations by a regulatory authority, specific to the use of artificial intelligence, telematics data and the consent to use telematics data, connected card data, and other sources of data;

•our ability to defend against cybersecurity threats and prevent, or recover from, a security ~~breach~~incident or other significant disruption of our technology systems or those of our partners and third-party service providers;

•the effect of interest rates on our available cash and our ability to maintain compliance with our ~~amended~~Amended ~~term~~Term ~~loan,~~Loan ~~including~~(as ~~performance~~defined ~~and liquidity covenants~~herein);

•our ability to maintain proper and effective internal control over financial reporting; and

•our ability to continue to meet The Nasdaq Stock Market listing standards; and

•the growth rates of the markets in which we compete.

You should not rely on forward-looking statements as predictions of future events. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties and other factors described under the heading “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained herein. The results, events and circumstances reflected in the forward-looking statements may not be achieved or occur, and actual results, events or circumstances could differ materially from those described in the forward-looking statements.

The forward-looking statements made in this Quarterly Report on Form 10-Q relate only to events as of the date on which the statements are made and we undertake no obligation to update them to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect new information or the occurrence of unanticipated events, except as required by law.

Unless the context otherwise indicates, references in this Quarterly Report on Form 10-Q to the terms “Root,” “the Company,” “we,” “our” and “us” refer to Root, Inc. and its subsidiaries.

We may announce material business and financial information to our investors using our investor relations website (ir.joinroot.com). We therefore encourage investors and others interested in Root to review the information that we make available on our website, in addition to following our filings with the Securities and Exchange Commission, or SEC, webcasts, press releases and conference calls.

iii

Part I. Financial Information

Item 1. Financial Statements - Unaudited

ROOT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS - UNAUDITED
	As of
	September 30,		December 31,
	March 31,		December 31,
	2024		2023
	2025		2024
	(in millions, except par value)
Assets
Investments:
Fixed maturities available-for-sale, at fair value (amortized cost: $264.1 and $168.4 at September 30, 2024 and December 31, 2023, respectively)	$	266.2	$	165.9
Fixed maturities available-for-sale, at fair value (amortized cost: $312.2 and $294.3 at March 31, 2025 and December 31, 2024, respectively)	$	312.9	$	292.0
Short-term investments (amortized cost: $8.6 and $0.9 at September 30, 2024 and December 31, 2023, respectively)	8.6		0.9
Short-term investments (amortized cost: $7.9 and $14.8 at March 31, 2025 and December 31, 2024, respectively)	7.9		14.8
Other investments	4.4		4.4
Total investments	~~279~~325.2		~~171~~311.2
Cash and cash equivalents	~~674~~609.84		~~678~~599.73
Restricted cash	1.01		1.0
Premiums receivable, net of allowance of $7.2 and $4.0 at September 30, 2024 and December 31, 2023, respectively	308.7		247.1
Premiums receivable, net of allowance of $7.2 and $9.8 at March 31, 2025 and December 31, 2024, respectively	360.7		305.3
Reinsurance recoverable and receivable, net of allowance of $1.8 at September 30, 2024 and December 31, 2023	160.6		125.3
Reinsurance recoverable and receivable, net of allowance of $0.2 and $0.1 at March 31, 2025 and December 31, 2024, respectively	157.8		150.6
Prepaid reinsurance premiums	3720.8		4825.21
Other assets	99110.85		76103.2
Total assets	$	1,~~561~~585.95	$	1,~~347~~495.7
Liabilities, Redeemable Convertible Preferred Stock and Stockholders’ Equity
Liabilities:
Loss and loss adjustment expense reserves	$	~~392~~418.45	$	~~284~~413.2
Unearned premiums	~~354~~420.43		~~283~~353.79
Long-term debt and warrants	300.9		299.0
Long-term debt	200.0		200.1
Reinsurance premiums payable	4629.29		5432.48
Accounts payable and accrued expenses	6453.04		6571.61
Other liabilities	~~110~~122.17		83108.19
Total liabilities	1,~~268~~244.08		1,~~070~~180.0
Commitments and Contingencies (Note 11)
Commitments and Contingencies
Redeemable convertible preferred stock, $0.0001 par value, 100.0 shares authorized, 14.1 shares issued and outstanding at September 30, 2024 and December 31, 2023 (redemption value of $126.5)	112.0		112.0
Redeemable convertible preferred stock, $0.0001 par value, 100.0 shares authorized, 14.1 shares issued and outstanding at March 31, 2025 and December 31, 2024 (redemption value of $126.5)	112.0		112.0
Stockholders’ equity:
Class A common stock, $0.0001 par value, 1,000.0 shares authorized, 10.6 and 9.5 shares issued and outstanding at September 30, 2024 and December 31, 2023, respectively	—		—
Class A common stock, $0.0001 par value, 1,000.0 shares authorized, 11.2 and 11.1 shares issued and outstanding at March 31, 2025 and December 31, 2024, respectively	—		—
Class B convertible common stock, $0.0001 par value, 269.0 shares authorized, 4.4 and 5.0 shares issued and outstanding at September 30, 2024 and December 31, 2023, respectively	—		—
Class B convertible common stock, $0.0001 par value, 269.0 shares authorized, 4.0 shares issued and outstanding at March 31, 2025 and December 31, 2024	—		—
Additional paid-in capital	1,~~883~~891.85		1,~~883~~887.49
Accumulated other comprehensive income (loss)	20.17		(2.53)
Accumulated loss	(1,~~704~~663.05)		(1,~~715~~681.29)
Total stockholders’ equity	~~181~~228.97		~~165~~203.7
Total liabilities, redeemable convertible preferred stock and stockholders’ equity	$	1,~~561~~585.95	$	1,~~347~~495.7

See Notes to Condensed Consolidated Financial Statements - Unaudited

ROOT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) - UNAUDITED
	Three Months Ended September 30,				Nine Months Ended September 30,
			Three Months Ended March 31,
	2024		2023		2024		2023
					2025		2024
	~~(in millions, except per share data)~~				(in millions, except per share data)
Revenues:
Net premiums earned	$	~~279.3~~	$	~~100.0~~	$	~~771~~321.23	$	~~223~~230.93
Net investment income	~~8.0~~		~~9.0~~		278.27		229.52
Fee income	~~17.1~~		~~6.2~~		4818.47		1314.27
Other income	~~1.3~~		~~0.1~~		3.0.7		0.67
Total revenues	~~305.7~~		~~115.3~~		~~849~~349.84		~~260~~254.29
Operating expenses:
Loss and loss adjustment expenses	~~184.5~~		~~85.8~~		~~541~~205.26		~~208~~166.64
Sales and marketing	~~34.0~~		~~13.1~~		9851.65		2230.84
Other insurance expense	~~22.4~~		~~18.3~~		7536.17		2224.26
Technology and development	~~12.9~~		~~11.1~~		3811.64		3211.40
General and administrative	~~17.5~~		~~21.0~~		5220.75		6317.21
Total operating expenses	~~271.3~~		~~149.3~~		~~806~~325.27		~~349~~249.25
Operating income (loss)	34.4		(34.0)		43.6		(89.0)
Operating income					23.7		5.4
Interest expense	~~(11.6)~~		~~(11.8)~~		(345.83)		(3411.46)
Income (loss) before income tax expense	~~22.8~~		~~(45.8)~~		818.84		(~~123~~6.42)
Income tax expense	—		—		—		—
Net income (loss)	~~22.8~~		~~(45.8)~~		818.84		(~~123~~6.42)
Net income attributable to participating securities	~~(1.1)~~		—		(0.59)		—
Net income (loss) attributable to common shareholders	~~21.7~~		~~(45.8)~~		817.35		(~~123~~6.42)
Other comprehensive income (loss):
Net income (loss)	~~22.8~~		~~(45.8)~~		818.84		(~~123~~6.42)
Changes in net unrealized gains (losses) on investments	~~5.5~~		~~(0.7)~~		43.60		(0.8)
Comprehensive income (loss)	$	~~28.3~~	$	~~(46.5)~~	$	1321.4	$	(~~124~~7.20)
Earnings (loss) per common share: (both Class A and B)
Basic	$	~~1.45~~	$	~~(3.16)~~	$	01.5615	$	(80.5742)
Diluted	$	~~1.35~~	$	~~(3.16)~~	$	01.5207	$	(80.5742)
Weighted-average common shares outstanding: (both Class A and B)
Basic	~~15.0~~		~~14.5~~		1415.82		14.46
Diluted	~~16.9~~		~~14.5~~		1617.82		14.46

See Notes to Condensed Consolidated Financial Statements - Unaudited

ROOT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY - UNAUDITED
	Redeemable Convertible Preferred Stock			Class A and Class B Convertible Common Stock				Additional Paid-in Capital	Accumulated Other Comprehensive (Loss) Income		Accumulated Loss		Total Stockholders' Equity
	Shares	Amount		Class A Shares	Class B Shares	Amount
				(in millions)
Balance—June 30, 2024	14.1	$	112.0	10.6	4.4	$	—		$	1,881.5	$	(3.4)	$	(1,726.8)	$	151.3
Balance—January 1, 2025	14.1	$	112.0	11.1	4.0	$	—		$	1,887.9	$	(2.3)	$	(1,681.9)	$	203.7
Net income	—	—		—	—	—			—		—		2218.84		2218.84
Other comprehensive income	—	—		—	—	—			—		53.50		—		53.50
Common stock—restricted stock units vesting, net of shares withheld for employee taxes	—	—		—	—	—			(2.0)		—		—		(2.0)
Common stock—option exercises and restricted stock units vesting, net of shares withheld for employee taxes	—	—		0.1	—	—			(2.8)		—		—		(2.8)
Common stock—share-based compensation expense	—	—		—	—	—			46.34		—		—		46.34
Balance—September 30, 2024	14.1	$	112.0	10.6	4.4	$	—		$	1,883.8	$	2.1	$	(1,704.0)	$	181.9
Balance—March 31, 2025	14.1	$	112.0	11.2	4.0	$	—		$	1,891.5	$	0.7	$	(1,663.5)	$	228.7
Balance—January 1, 2024	14.1	$	112.0	9.5	5.0	$	—		$	1,883.4	$	(2.5)	$	(1,715.2)	$	165.7
Net income	—	—		—	—	—			—		—		8.8		8.8
Net loss	—	—		—	—	—			—		—		(6.2)		(6.2)
Other comprehensive income	—	—		—	—	—			—		4.6		—		4.6
Other comprehensive loss	—	—		—	—	—			—		(0.8)		—		(0.8)
Conversion of Class B to Class A common stock	—	—		0.6	(0.6)	—			—		—		—		—
Common stock—restricted stock units vesting, net of shares withheld for employee taxes	—	—		0.1	—	—			—		—		—		—
Common stock—restricted stock units vesting, net of shares withheld for employee taxes	—	—		0.5	—	—			(15.7)		—		2.4		(13.3)
Common stock—share-based compensation expense	—	—		—	—	—			4.6		—		—		4.6
Common stock—share-based compensation expense	—	—		—	—	—			12.7		—		—		12.7
Warrant compensation expense	—	—		—	—	—			2.8		—		—		2.8
Warrant compensation expense	—	—		—	—	—			3.8		—		—		3.8
Warrant issuance costs	—	—		—	—	—			(0.4)		—		—		(0.4)
Balance—September 30, 2024	14.1	$	112.0	10.6	4.4	$	—		$	1,883.8	$	2.1	$	(1,704.0)	$	181.9
Balance—March 31, 2024	14.1	$	112.0	9.6	5.0	$	—		$	1,890.4	$	(3.3)	$	(1,721.4)	$	165.7

See Notes to Condensed Consolidated Financial Statements - Unaudited

ROOT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY - UNAUDITED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
	Redeemable Convertible Preferred Stock				Class A and Class B Convertible Common Stock				Additional Paid-in Capital	Accumulated Other Comprehensive Loss		Accumulated Loss		Total Stockholders' Equity
	Three Months Ended March 31,
	Shares		Amount		Class A Shares	Class B Shares	Amount
	2025		2024
	(in millions)				~~(in millions)~~
Balance—June 30, 2023	14.1		$	112.0	9.4	5.0	$	—		$	1,865.7	$	(5.9)	$	(1,645.4)	$	214.4
Cash flows from operating activities:
Net loss	—		—		—	—	—			—		—		(45.8)		(45.8)
Net income (loss)	$	18.4	$	(6.2)
Other comprehensive loss	—		—		—	—	—			—		(0.7)		—		(0.7)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Common stock—restricted stock units vesting, net of shares withheld for employee taxes	—		—		0.1	—	—			—		—		—		—
Share-based compensation	6.4		4.6
Common stock—share-based compensation expense	—		—		—	—	—			4.7		—		—		4.7
Warrant compensation expense	—		2.8
Warrant compensation expense	—		—		—	—	—			5.0		—		—		5.0
Depreciation and amortization	2.0		2.9
Warrant issuance costs	—		—		—	—	—			(0.5)		—		—		(0.5)
Bad debt expense	9.0		6.0
Balance—September 30, 2023	14.1		$	112.0	9.5	5.0	$	—		$	1,874.9	$	(6.6)	$	(1,691.2)	$	177.1
Changes in operating assets and liabilities:
Balance—January 1, 2023	14.1		$	112.0	9.2	5.0	$	—		$	1,850.7	$	(5.8)	$	(1,567.8)	$	277.1
Premiums receivable	(64.3)		(50.9)
Net loss	—		—		—	—	—			—		—		(123.4)		(123.4)
Reinsurance recoverable and receivable	(7.3)		(21.8)
Other comprehensive loss	—		—		—	—	—			—		(0.8)		—		(0.8)
Prepaid reinsurance premiums	4.3		(2.0)
Common stock—restricted stock units vesting, net of shares withheld for employee taxes	—		—		0.3	—	—			—		—		—		—
Other assets	(6.3)		(5.0)
Common stock—share-based compensation expense	—		—		—	—	—			12.4		—		—		12.4
Losses and loss adjustment expenses reserves	5.3		37.8
Warrant compensation expense	—		—		—	—	—			13.3		—		—		13.3
Unearned premiums	66.4		55.7
Warrant issuance costs	—		—		—	—	—			(1.5)		—		—		(1.5)
Reinsurance premiums payable	(2.9)		(0.3)
Balance—September 30, 2023	14.1		$	112.0	9.5	5.0	$	—		$	1,874.9	$	(6.6)	$	(1,691.2)	$	177.1
Accounts payable and accrued expenses	(18.0)		(24.7)
Other liabilities	13.8		15.6
Net cash provided by operating activities	26.8		14.5
Cash flows from investing activities:
Purchases of investments	(27.9)		(59.0)
Proceeds from maturities, calls and pay downs of investments	16.0		9.0
Sales of investments	0.1		—
Capitalization of internally developed software	(2.0)		(2.1)
Purchases of fixed assets	—		(0.2)
Net cash used in investing activities	(13.8)		(52.3)
Cash flows from financing activities:
Proceeds from exercise of stock options and restricted stock units	0.3		—
Taxes paid related to net share settlement of equity awards	(3.1)		(0.4)
Net cash used in financing activities	(2.8)		(0.4)
Net increase (decrease) in cash, cash equivalents and restricted cash	10.2		(38.2)
Cash, cash equivalents and restricted cash at beginning of period	600.3		679.7
Cash, cash equivalents and restricted cash at end of period	$	610.5	$	641.5

See Notes to Condensed Consolidated Financial Statements - Unaudited

ROOT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
	Nine Months Ended September 30,
	2024		2023
	(in millions)
Cash flows from operating activities:
Net income (loss)	$	8.8	$	(123.4)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Share-based compensation	12.7		12.4
Warrant compensation expense	3.8		13.3
Depreciation and amortization	12.1		8.2
Bad debt expense	22.7		10.6
Gain on lease modification	—		(0.3)
Changes in operating assets and liabilities:
Premiums receivable	(84.3)		(83.9)
Reinsurance recoverable and receivable	(35.3)		8.5
Prepaid reinsurance premiums	10.4		38.1
Other assets	(23.1)		10.6
Losses and loss adjustment expenses reserves	108.2		(30.9)
Unearned premiums	70.7		82.4
Reinsurance premiums payable	(8.2)		(48.0)
Accounts payable and accrued expenses	(1.9)		9.6
Other liabilities	29.9		13.1
Net cash provided by (used in) operating activities	126.5		(79.7)
Cash flows from investing activities:
Purchases of investments	(147.7)		(61.7)
Proceeds from maturities, calls and pay downs of investments	40.5		22.3
Sales of investments	0.5		0.5
Capitalization of internally developed software	(7.0)		(7.1)
Purchases of fixed assets	(0.4)		(0.2)
Net cash used in investing activities	(114.1)		(46.2)
Cash flows from financing activities:
Taxes paid related to net share settlement of equity awards	(13.3)		(0.9)
Payment of preferred stock and related warrants issuance costs	(3.0)		—
Net cash used in financing activities	(16.3)		(0.9)
Net decrease in cash, cash equivalents and restricted cash	(3.9)		(126.8)
Cash, cash equivalents and restricted cash at beginning of period	679.7		763.1
Cash, cash equivalents and restricted cash at end of period	$	675.8	$	636.3

See Notes to Condensed Consolidated Financial Statements - Unaudited

ROOT, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

1.NATURE OF BUSINESS

Root, Inc. is a holding company which, directly or indirectly, maintains 100% ownership of each of its subsidiaries, including, among others, Root Insurance Company and Root Property & Casualty Insurance Company, or Root Property & Casualty, both Ohio-domiciled insurance companies, Root Florida Insurance Company, a Florida-domiciled insurance company, and Root Reinsurance Company, Ltd., a Cayman Islands-domiciled reinsurance company, together with Root, Inc., “we,” “us” or “our.”

We were formed in 2015 and began writing personal auto insurance in July 2016. We are a technology company operating primarily a direct-to-consumer model with the majority of our personal insurance customers acquired through partnerships and mobile apps. We offer auto and renters insurance products underwritten by Root Insurance Company and Root Property & Casualty Insurance Company.

2.BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation—In our opinion, all adjustments necessary for a fair presentation of the condensed consolidated financial statements have been included. All such adjustments are of a normal and recurring nature. These condensed consolidated financial statements are unaudited and, accordingly, should be read in conjunction with the consolidated financial statements and related notes included in the Annual Report on Form 10-K for the year ended December 31, ~~2023~~2024 filed with the Securities and Exchange Commission, or SEC, on February 2126, ~~2024~~2025.

Basis of Consolidation—The unaudited condensed consolidated financial statements include the accounts of Root, Inc. and its subsidiaries, all of which are wholly owned. These financial statements have been prepared in accordance with accounting principles generally accepted in the ~~United States~~U.S., or GAAP. All intercompany accounts and transactions have been eliminated.

Use of Estimates—The preparation of the unaudited condensed consolidated financial statements requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates reflected in our unaudited condensed consolidated financial statements include, but are not limited to, reserves for loss and loss adjustment expense, or LAE, valuation allowances ~~for~~on ~~income~~our ~~taxes~~deferred ~~and~~tax ~~allowance~~assets ~~for~~and ~~expected~~the ~~credit~~amount ~~losses~~of onreinsurance ~~premium~~recoverable ~~receivables~~ and receivable from reinsurance ~~recoverables~~contracts.

Legal and Other Contingencies—From time to time, we are party to litigation and legal proceedings relating to our business operations. WeWhile ~~consider~~the outcome of all legal actions ~~relating~~is tonot ~~claims~~presently ~~made~~determinable, inwe ~~the~~do ~~ordinary~~not ~~course~~believe ofthat ~~seeking~~we ~~indemnification~~are ~~for~~party ato ~~loss~~any ~~covered~~current byor ~~the~~pending ~~insurance~~legal ~~policy~~action inthat ~~establishing~~if ~~loss~~concluded ~~and~~adversely ~~LAE~~could ~~reserves.~~reasonably Inbe ~~the~~expected ~~ordinary~~to ~~course~~have ofa ~~business,~~material weadverse ~~also~~effect ~~face~~on ~~certain~~our ~~lawsuits~~financial ~~that~~condition ~~seek~~or ~~damages~~results ~~beyond~~of ~~policy~~operations ~~limits,~~and orcash ~~extra-contractual claims~~flow.

We ~~continually~~are ~~evaluate~~contingently ~~potential~~liable ~~liabilities and reserves~~ for litigation and other matters using the guidance issued in the Financial Accounting Standards Board, or FASB, Accounting Standards Codification, Topic 450, Contingencies. Under this guidance, we may only record reserves for a loss if as of the date the financial statements are issued or available to be issued, the likelihood of occurrence is deemed probable and we can reasonably estimate the amount of the loss. When disclosing litigation, claims or other matters where a material loss is judged to be reasonably possible, wefuture ~~will~~assessments ~~disclose~~under anregulatory ~~estimated~~requirements ~~range of loss or state that an estimate cannot be made. We consider each matter using this guidance and record reserves~~ for ~~losses~~insolvencies ~~as warranted by establishing a reserve in loss~~ and ~~loss~~impairments adjustment expense reserves for extra-contractual claims and other liabilities for class action, other non-claims related lawsuits and other matters in our condensed consolidated balance sheets. Any non-reinsurance related recoveries are recognized as other assets in our condensed consolidated balance sheets. We record amounts within loss and loss adjustment expenses for extra-contractual claims and general and administrative for class action and other non-claims related lawsuits in our condensed consolidated statements of ~~operations~~unaffiliated ~~and~~insurance ~~comprehensive income (loss)~~companies. For other recoveries, we record these amounts in the same account as the initial expense in our condensed consolidated statements of operations and comprehensive income (loss). Further details are discussed in Note 11, “Commitments and Contingencies.”

6Segment Information—We are a technology company that provides direct-to-consumer insurance products to customers. We operate as a single reporting segment that is managed on a consolidated basis. Our Chief Executive Officer is our chief operating decision maker, or CODM. The primary measure the CODM utilizes to manage operations, monitor budget versus actual results, and evaluate financial performance is net income (loss) as reported on the condensed consolidated statements of operations and comprehensive income (loss). This information is regularly provided to the CODM.

The CODM allocates resources based on consolidated expense and forecasted expense information. Significant expenses, which are presented on the condensed consolidated statements of operations and comprehensive income (loss), include loss and loss adjustment expense, sales and marketing, other insurance expense and technology and development. Other segment items include expenses that our CODM does not evaluate for purposes of making

operating decisions. These items include general and administrative, interest expense, and income tax expense, which can all be found on the condensed consolidated statements of operations and comprehensive income (loss). Assets provided to the CODM are consistent with those reported on the condensed consolidated balance sheets.

Cash, Cash Equivalents and Restricted Cash—The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the condensed consolidated balance sheets that sum to the total of the same such amount in the condensed consolidated statements of cash flows:

	As of
	September 30,		December 31,
	March 31,		December 31,
	2024		2023
	2025		2024
	(dollars in millions)
Cash and cash equivalents	$	~~674~~609.84	$	~~678~~599.73
Restricted cash	1.01		1.0
Total cash, cash equivalents and restricted cash shown in the condensed consolidated statements of cash flows	$	~~675~~610.85	$	~~679~~600.73

Deferred Policy Acquisition Costs—~~The~~Deferred ~~following~~policy ~~table~~acquisition ~~provides~~costs, anet ~~reconciliation~~ of ~~the~~accumulated ~~beginning~~amortization, ~~and~~was ~~ending~~$36.2 million ~~deferred~~and ~~policy~~$29.3 million ~~acquisition~~as ~~costs~~of March 31, ~~net~~2025 ofand ~~accumulated~~December 31, ~~amortization~~2024, ~~reported~~respectively. inWe ~~other~~amortized ~~assets~~deferred ~~within~~policy ~~the~~acquisition ~~condensed~~costs ~~consolidated~~of ~~balance~~$11.4 million ~~sheets~~and as$6.6 million offor ~~September~~the three months ended March 3031, ~~2024~~2025 and ~~2023:~~2024, respectively.

	2024		2023
	(dollars in millions)
Balance, January 1	$	18.0	$	6.7
Acquisition costs deferred	32.3		28.5
Amortization expense	(23.8)		(20.4)
Balance, September 30	$	26.5	$	14.8

~~Earnings (Loss) Per Share—Earnings (loss) per share, or EPS, results are a key indicator of the overall performance relative to each share of our outstanding common stock~~3. Basic earnings per share is calculated using the two-class method. Undistributed earnings are allocated to participating securities based on the extent to which each class may share in earnings as if all the earnings for the period have been distributed. Basic earnings per share is calculated by dividing net income attributable to common shareholders by the weighted-average number of common shares outstanding for the period. Common shares, when contingencies, such as vesting requirements, exist and have not been satisfied, are excluded from basic earnings per share. INVESTMENTS

The amortized cost and fair value of short-term investments and available-for-sale fixed maturity securities at March 31, 2025 and December 31, 2024 are as follows:

Our Class A and Class B common stock are entitled to the same liquidation and dividend rights and therefore earnings are allocated equally. Our redeemable convertible preferred stock and nonvested shares subject to repurchase are considered to be participating securities because they participate in dividends that are non-forfeitable and distributions with common stock.


	March 31, 2025
	Amortized Cost		Allowance for Expected Credit Losses		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
	(dollars in millions)
Fixed maturities:
U.S. Treasury securities	$	47.0	$	—	$	0.5	$	(0.1)	$	47.4
Municipal securities	22.8		—		0.1		(0.3)		22.6
Corporate debt securities	116.4		—		0.9		(0.6)		116.7
Asset-backed securities	126.0		—		0.7		(0.5)		126.2
Total fixed maturities	312.2		—		2.2		(1.5)		312.9
Short-term investments	7.9		—		—		—		7.9
Total	$	320.1	$	—	$	2.2	$	(1.5)	$	320.8

	December 31, 2024
	Amortized Cost		Allowance for Expected Credit Losses		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
	(dollars in millions)
Fixed maturities:
U.S. Treasury securities and agencies	$	46.5	$	—	$	—	$	(0.3)	$	46.2
Municipal securities	23.9		—		0.1		(0.5)		23.5
Corporate debt securities	106.6		—		0.3		(1.2)		105.7
Asset-backed securities	117.3		—		0.4		(1.1)		116.6
Total fixed maturities	294.3		—		0.8		(3.1)		292.0
Short-term investments	14.8		—		—		—		14.8
Total	$	309.1	$	—	$	0.8	$	(3.1)	$	306.8

Management ~~Diluted~~reviewed ~~EPS~~the available-for-sale ~~both~~securities ~~Class~~at Aeach ~~and~~balance ~~Class~~sheet Bdate ~~common~~to ~~stock~~consider ~~includes~~whether ~~all~~it ~~the~~was ~~components~~necessary ofto ~~basic~~recognize ~~EPS,~~a ~~plus~~credit ~~the~~loss ~~dilutive~~as ~~effect~~ of ~~common~~March 31, ~~stock~~2025 ~~equivalents~~and December 31, ~~but~~2024. ~~excludes~~We ~~those~~do ~~common~~not ~~stock~~intend ~~equivalents~~to ~~from~~sell the ~~calculation~~securities ofand ~~diluted~~it ~~EPS~~is ~~when~~not ~~the~~more ~~effect~~likely ofthan ~~inclusion,~~not ~~assessed~~that ~~individually,~~we ~~would~~will be ~~anti-dilutive.~~required ~~The~~to ~~dilutive~~sell ~~effect~~the ofsecurities ~~stock~~before ~~options,~~recovery. ~~nonvested~~Management ~~shares~~concluded ~~subject~~that tothe ~~repurchase,~~available-for-sale ~~restricted~~securities’ ~~stock~~unrealized ~~units,~~losses orwere ~~RSUs,~~due ~~performance~~to non-~~based~~credit ~~restricted~~related ~~stock~~factors ~~units~~and, ~~or PSUs~~therefore, ~~and~~there ~~warrants~~was ~~are~~no ~~calculated~~allowance ~~using~~for ~~the~~credit ~~treasury~~loss ~~stock~~as ~~method. The dilutive effect~~ of ~~redeemable~~March 31, ~~convertible~~2025 ~~preferred~~and ~~stock~~December 31, ~~is calculated using the if-converted method~~2024.

For periods in which we operate at a loss, the conversion of common stock equivalents would increase the denominator of the diluted earnings per share calculation and create a lower loss per share. Therefore, these common stock equivalents are considered antidilutive and diluted EPS is equal to basic EPS. Participating securities do not participate in losses and therefore losses are not allocated in the two-class method. Further details are discussed in Note 12, “Earnings (Loss) Per Share.”

~~Upcoming~~The ~~Accounting~~following ~~Pronouncements—In~~tables ~~November~~reflect ~~2023,~~ the ~~FASB~~gross ~~issued~~unrealized ~~Accounting~~losses ~~Standards~~and ~~Update,~~fair orvalue ~~ASU,~~of ~~No. 2023~~short-~~07,~~term ~~Segment~~investments ~~Reporting~~and ~~(Topic 280): Improvements to Reportable Segment Disclosures. This ASU looks to provide improvements to the segment disclosure by providing users with more decision~~available-~~useful~~for-sale ~~information~~fixed ~~about~~maturity ~~reportable segments in a public entity. The main provisions require a company to disclose~~securities, onaggregated ~~an annual and interim basis, significant expenses included within each reported measure of segment profit or loss, an amount for other segment items~~ by ~~reportable~~investment ~~segment,~~category ~~a description of its composition~~ and ~~the~~length ~~title and position~~ of ~~the~~time ~~Chief~~that ~~Operating~~individual ~~Decision~~securities ~~Maker,~~have orbeen ~~CODM, with an explanation of how the CODM uses the reported measure(s) of segment profit or loss~~ in ~~assessing segment performance and deciding to allocate resources. It also requires all annual disclosures about~~ a ~~reportable~~continuous ~~segments’~~unrealized ~~profit or~~ loss ~~and~~position ~~assets~~at ~~to be reported on an interim basis. Although we operate in only one reporting segment~~March 31, we2025 ~~are still required to provide all the disclosures required by this ASU~~ and ~~all~~December 31, ~~existing segment disclosures in Topic 280.~~ 2024:

This ASU is to be applied retrospectively to all prior periods presented in the financial statements with an effective date for all public entities for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. We will adopt this ASU in the fourth quarter of 2024 on a retrospective basis. We have currently identified the Chief Executive Officer as our CODM and net income (loss), as reported on the condensed consolidated statement of operations and comprehensive income (loss), as our reported measure of segment profit or loss. We are currently evaluating the other impacts of this ASU.


	March 31, 2025
	Less than 12 Months				12 Months or More				Total
	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
	(dollars in millions)
Fixed maturities:
U.S. Treasury securities	$	7.0	$	(0.1)	$	1.8	$	—	$	8.8	$	(0.1)
Municipal securities	2.6		—		8.9		(0.3)		11.5		(0.3)
Corporate debt securities	26.8		(0.2)		15.6		(0.4)		42.4		(0.6)
Asset-backed securities	21.5		(0.1)		8.7		(0.4)		30.2		(0.5)
Total fixed maturities	57.9		(0.4)		35.0		(1.1)		92.9		(1.5)
Short-term investments	7.9		—		—		—		7.9		—
Total	$	65.8	$	(0.4)	$	35.0	$	(1.1)	$	100.8	$	(1.5)

	December 31, 2024
	Less than 12 Months				12 Months or More				Total
	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
	(dollars in millions)
Fixed maturities:
U.S. Treasury securities and agencies	$	26.4	$	(0.3)	$	1.8	$	—	$	28.2	$	(0.3)
Municipal securities	7.1		(0.1)		10.4		(0.4)		17.5		(0.5)
Corporate debt securities	49.5		(0.6)		21.1		(0.6)		70.6		(1.2)
Asset backed securities	53.6		(0.6)		10.6		(0.5)		64.2		(1.1)
Total fixed maturities	136.6		(1.6)		43.9		(1.5)		180.5		(3.1)
Short-term investments	6.4		—		—		—		6.4		—
Total	$	143.0	$	(1.6)	$	43.9	$	(1.5)	$	186.9	$	(3.1)

InOther December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. This ASU looks to enhance the transparency and decision usefulness of income tax disclosures primarily related to the rate reconciliation and income taxes paid information. The main provisions to the rate reconciliation disclosure require public entities on an annual basis to: disclose specific categories in the rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold. The main provisions to the income taxes paid disclosure require that all entities disclose on an annual basis: the amount of income taxes paid disaggregated by federal, state and foreign taxes and the amount of income taxes paid disaggregated by individual jurisdictions in which income taxes paid meets a quantitative threshold. This ASU also requires all entities to disclose income (loss) from continuing operations before income tax expense (benefit) disaggregated between domestic and foreign and income tax expense (benefit) from continuing operations disaggregated by federal, state and foreign. Investments

~~This~~As ~~ASU~~of isMarch 31, to2025 beand ~~applied on a prospective basis with an effective date for all public entities for annual periods beginning after~~ December 15 31, 2024., ~~Early~~other ~~adoption~~investments isrelated ~~permitted.~~to ~~This~~our ~~ASU~~private ~~only~~equity ~~requires~~investments ~~additional~~were ~~disclosure,~~$4.4 ~~will~~million. ~~not~~There ~~have~~were anno ~~impact~~realized onor ~~our~~unrealized ~~results~~gains ofor ~~operations~~losses or ~~financial~~impairment ~~condition,~~losses ~~and~~recognized ison ~~not~~private ~~expected~~equity toinvestments ~~have~~for ~~a material impact on~~ the ~~Notes~~three tomonths ~~Condensed~~ended ~~Consolidated~~March 31, ~~Financial~~2025 ~~Statements~~and 2024.

There were no realized gains or losses on short-term investments, available-for-sale fixed maturities and other investments for the three months ended March 31, 2025 and 2024.

~~3.INVESTMENTS~~The following table sets forth the amortized cost and fair value of short-term investments and available-for-sale fixed maturity securities by contractual maturity at March 31, 2025:

	September 30, 2024
	March 31, 2025
	Amortized Cost		~~Allowance~~Fair ~~for Expected Credit Losses~~Value		~~Gross Unrealized Gains~~		~~Gross Unrealized Losses~~		~~Fair Value~~
	(dollars in millions)
Fixed maturities:
Due in one year or less	$	40.7	$	40.6
U.S. Treasury securities and agencies	$	33.7	$	—	$	0.6	$	—	$	34.3
Due after one year through five years	206.6		207.3
Municipal securities	23.4		—		0.3		(0.4)		23.3
Due five years through 10 years	35.1		35.4
Corporate debt securities	104.2		—		1.4		(0.6)		105.0
Due after 10 years	37.7		37.5
Residential mortgage-backed securities	20.7		—		0.3		(0.1)		20.9
Total	$	320.1	$	320.8
Commercial mortgage-backed securities	52.0		—		0.7		(0.4)		52.3
Other debt obligations	30.1		—		0.3		—		30.4
Total fixed maturities	264.1		—		3.6		(1.5)		266.2
Short-term investments	8.6		—		—		—		8.6
Total	$	272.7	$	—	$	3.6	$	(1.5)	$	274.8
	December 31, 2023
	Amortized Cost		Allowance for Expected Credit Losses		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
	(dollars in millions)
Fixed maturities:
U.S. Treasury securities and agencies	$	14.6	$	—	$	0.1	$	(0.1)	$	14.6
Municipal securities	24.8		—		0.1		(0.8)		24.1
Corporate debt securities	66.3		—		0.2		(1.3)		65.2
Residential mortgage-backed securities	12.0		—		0.1		(0.2)		11.9
Commercial mortgage-backed securities	30.4		—		0.1		(0.7)		29.8
Other debt obligations	20.3		—		0.1		(0.1)		20.3
Total fixed maturities	168.4		—		0.7		(3.2)		165.9
Short-term investments	0.9		—		—		—		0.9
Total	$	169.3	$	—	$	0.7	$	(3.2)	$	166.8

The following table sets forth the components of net investment income for the three months ended March 31, 2025 and 2024:

Management reviewed the available-for-sale securities at each balance sheet date to consider whether it was necessary to recognize a credit loss as of September 30, 2024 and December 31, 2023. We do not intend to sell the securities and it is not more likely than not that we will be required to sell the securities before recovery. Management concluded that the available-for-sale securities’ unrealized losses were due to non-credit related factors and, therefore, there was no allowance for credit loss as of September 30, 2024 and December 31, 2023.


	Three Months Ended March 31,
		2025		2024
		(dollars in millions)
Interest on fixed maturities and short-term investments		$	3.4	$	1.7
Interest on cash and cash equivalents		6.0		8.1

Total		9.4		9.8
Investment expense		(0.7)		(0.6)
Net investment income		$	8.7	$	9.2

The following tables summarize the credit ratings of short-term investments and available-for-sale fixed maturity securities at March 31, 2025 and December 31, 2024:


	March 31, 2025
	Amortized Cost		Fair Value		% of Total Fair Value
	(dollars in millions)
S&P Global rating or equivalent
AAA	$	78.2	$	78.3	24.4	%
AA+, AA, AA-, A-1+	143.4		143.9		44.9
A+, A, A-	77.3		77.5		24.2
BBB+, BBB, BBB-	21.2		21.1		6.5
Total	$	320.1	$	320.8	100.0	%


	December 31, 2024
	Amortized Cost		Fair Value		% of Total Fair Value
	(dollars in millions)
S&P Global rating or equivalent
AAA	$	75.2	$	74.8	24.4	%
AA+, AA, AA-, A-1+	146.0		145.0		47.3
A+, A, A-	67.8		67.1		21.9
BBB+, BBB, BBB-	20.1		19.9		6.4
Total	$	309.1	$	306.8	100.0	%

The following tables reflect the gross unrealized losses and fair value of short-term investments and available-for-sale fixed maturity securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at September 30, 2024 and December 31, 2023:

	September 30, 2024
	Less than 12 Months				12 Months or More				Total
	Fair Value		UnrealizedLoss		Fair Value		UnrealizedLoss		Fair Value		UnrealizedLoss
	(dollars in millions)
Fixed maturities:
U.S. Treasury securities and agencies	$	2.2	$	—	$	2.5	$	—	$	4.7	$	—
Municipal securities	0.1		—		11.2		(0.4)		11.3		(0.4)
Corporate debt securities	14.2		—		23.2		(0.6)		37.4		(0.6)
Residential mortgage-backed securities	1.6		—		1.7		(0.1)		3.3		(0.1)
Commercial mortgage-backed securities	6.2		—		8.8		(0.4)		15.0		(0.4)
Other debt obligations	0.9		—		2.3		—		3.2		—
Total fixed maturities	25.2		—		49.7		(1.5)		74.9		(1.5)
Short-term investments	1.0		—		—		—		1.0		—
Total	$	26.2	$	—	$	49.7	$	(1.5)	$	75.9	$	(1.5)
	December 31, 2023
	Less than 12 Months				12 Months or More				Total
	Fair Value		UnrealizedLoss		Fair Value		UnrealizedLoss		Fair Value		UnrealizedLoss
	(dollars in millions)
Fixed maturities:
U.S. Treasury securities and agencies	$	1.7	$	—	$	2.4	$	(0.1)	$	4.1	$	(0.1)
Municipal securities	3.1		—		15.1		(0.8)		18.2		(0.8)
Corporate debt securities	13.4		—		35.1		(1.3)		48.5		(1.3)
Residential mortgage-backed securities	4.1		—		1.9		(0.2)		6.0		(0.2)
Commercial mortgage-backed securities	9.1		(0.1)		13.4		(0.6)		22.5		(0.7)
Other debt obligations	4.4		—		4.4		(0.1)		8.8		(0.1)
Total fixed maturities	35.8		(0.1)		72.3		(3.1)		108.1		(3.2)
Short-term investments	0.3		—		—		—		0.3		—
Total	$	36.1	$	(0.1)	$	72.3	$	(3.1)	$	108.4	$	(3.2)

Other Investments

As of September 30, 2024 and December 31, 2023, other investments related to our private equity investments were $4.4 million. There were no realized or unrealized gains and losses or impairment losses recognized on private equity investments for the three and nine months ended September 30, 2024 and 2023.

There were no realized gains or losses on short-term investments, available-for-sale fixed maturities and other investments for the three and nine months ended September 30, 2024 and 2023.

The following table sets forth the amortized cost and fair value of short-term investments and available-for-sale fixed maturity securities by contractual maturity at September 30, 2024:

	September 30, 2024
	Amortized Cost		Fair Value
	(dollars in millions)
Due in one year or less	$	37.0	$	36.9
Due after one year through five years	174.2		175.8
Due five years through 10 years	30.2		30.8
Due after 10 years	31.3		31.3
Total	$	272.7	$	274.8

	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
	(dollars in millions)
Interest on bonds	$	2.6	$	1.4	$	6.6	$	3.3
Interest on deposits and cash equivalents	8.7		7.9		25.0		19.8
Total	11.3		9.3		31.6		23.1
Investment expense	(3.3)		(0.3)		(4.4)		(0.6)
Net investment income	$	8.0	$	9.0	$	27.2	$	22.5

	September 30, 2024
	Amortized Cost		Fair Value		% of TotalFair Value
	(dollars in millions)
S&P Global rating or equivalent
AAA	$	69.3	$	69.7	25.4	%
AA+, AA, AA-, A-1	114.5		115.7		42.1
A+, A, A-	69.5		69.9		25.4
BBB+, BBB, BBB-	19.4		19.5		7.1
Total	$	272.7	$	274.8	100.0	%

	December 31, 2023
	Amortized Cost		Fair Value		% of TotalFair Value
	(dollars in millions)
S&P Global rating or equivalent
AAA	$	53.0	$	52.1	31.2	%
AA+, AA, AA-, A-1	59.4		58.8		35.3
A+, A, A-	42.1		41.2		24.7
BBB+, BBB, BBB-	14.8		14.7		8.8
Total	$	169.3	$	166.8	100.0	%

4.FAIR VALUE OF FINANCIAL INSTRUMENTS

The following tables provide information about our financial assets measured and reported at fair value as of March 31, 2025 and December 31, 2024:

	September 30, 2024
	March 31, 2025
	Level 1		Level 2		Level 3		TotalFair Value
	(dollars in millions)
Assets
Fixed maturities:
U.S. Treasury securities and agencies	$	33.6	$	0.7	$	—	$	34.3
U.S. Treasury securities	$	47.4	$	—	$	—	$	47.4
Municipal securities	—		2322.36		—		2322.36
Corporate debt securities	—		~~105~~116.07		—		~~105~~116.07
Residential mortgage-backed securities	—		20.9		—		20.9
Asset-backed securities	—		126.2		—		126.2
Commercial mortgage-backed securities	—		52.3		—		52.3
Total fixed maturities	47.4		265.5		—		312.9
Other debt obligations	—		30.4		—		30.4
Short-term investments	7.9		—		—		7.9
Total fixed maturities	33.6		232.6		—		266.2
Cash equivalents	293.4		—		—		293.4
Short-term investments	8.4		0.2		—		8.6
Total assets at fair value	$	348.7	$	265.5	$	—	$	614.2
Cash equivalents	416.6		—		—		416.6
	December 31, 2024
Total assets at fair value	$	458.6	$	232.8	$	—	$	691.4
	December 31, 2023
	Level 1		Level 2		Level 3		TotalFair Value
	(dollars in millions)
Assets
Fixed maturities:
U.S. Treasury securities and agencies	$	1346.32	$	~~1.3~~—	$	—	$	1446.62
Municipal securities	—		2423.15		—		2423.15
Corporate debt securities	—		65105.27		—		65105.27
Residential mortgage-backed securities	—		11.9		—		11.9
Asset-backed securities	—		116.6		—		116.6
Commercial mortgage-backed securities	—		29.8		—		29.8
Total fixed maturities	46.2		245.8		—		292.0
Other debt obligations	—		20.3		—		20.3
Short-term investments	11.8		3.0		—		14.8
Total fixed maturities	13.3		152.6		—		165.9
Cash equivalents	342.4		—		—		342.4
Short-term investments	0.9		—		—		0.9
Total assets at fair value	$	400.4	$	248.8	$	—	$	649.2
Cash equivalents	439.6		—		—		439.6
Total assets at fair value	$	453.8	$	152.6	$	—	$	606.4

We estimate the fair value of all our different classes of Level 2 fixed maturities and short-term investments by using quoted prices from a combination of an independent pricing vendor or broker/dealer, pricing models, quoted prices of securities with similar characteristics or discounted cash flows. All significant inputs were observable in the active markets.

1210

Fair Value of Long-Term Debt

The carrying amount of long-term debt is recorded at the unpaid balance, net of discount and debt issuance costs. The fair value of outstanding long-term debt is classified within Level 2 of the fair value hierarchy. The fair value is based on a model referencing observable interest rates and spreads to project and discount cash flows to present value. As of March 31, 2025 and December 31, 2024, the carrying amounts and fair values of these financial instruments were as follows:

Carrying Amount as of September 30, 2024

Estimated Fair Value as of September 30, 2024

Carrying Amount as of December 31, 2023

Estimated Fair Value as of December 31, 2023

Carrying Amount as of March 31, 2025

Estimated Fair Value as of March 31, 2025

Carrying Amount as of December 31, 2024

Estimated Fair Value as of December 31, 2024

(dollars in millions)

Long-term debt

~~300~~200.90

~~307~~204.96

~~299~~200.01

~~305~~204.29

The carrying amounts of other short-term financial instruments approximates their fair value due to their short-term nature.

5.LOSS AND LOSS ADJUSTMENT EXPENSE RESERVES

The following provides a reconciliation of the beginning and ending reserve balances for loss and LAE, net of reinsurance:

	Nine Months Ended September 30,
	Three Months Ended March 31,
	2024		2023
	2025		2024
	(dollars in millions)
Gross loss and LAE reserves, January 1	$	~~284~~413.2	$	~~287~~284.42
Reinsurance recoverable on unpaid losses	(4348.80)		(7643.48)
Net loss and LAE reserves, January 1	~~240~~365.42		~~211~~240.04
Net incurred loss and LAE related to:
Current year	~~549~~218.17		~~209~~169.24
Prior years	(713.91)		(03.60)
Total incurred	~~541~~205.26		~~208~~166.64
Net paid loss and LAE related to:
Current year	~~293~~69.26		8752.41
Prior years	~~146~~123.38		~~117~~79.32
Total paid	~~439~~193.54		~~204~~131.73
Net loss and LAE reserves, September 30	342.1		214.9
Net loss and LAE reserves, March 31	377.4		275.5
Plus reinsurance recoverable on unpaid losses	5041.31		4146.65
Gross loss and LAE reserves, September 30	$	392.4	$	256.5
Gross loss and LAE reserves, March 31	$	418.5	$	322.0

Incurred losses and LAE attributable to prior accident years was a decrease of $713.91 million and $03.60 million for the ~~nine~~three months ended ~~September~~March 3031, ~~2024~~2025 and ~~2023~~2024, respectively. For the ~~nine~~three months ended ~~September~~March 3031, ~~2024~~2025, the development of incurred losses and LAE related to prior periods was primarily driven by lower-than-expected reported losses and LAE from accident year ~~2023~~2024 on both liability and physical damage coverages. For the ~~nine~~three months ended ~~September~~March 3031, ~~2023~~2024, the development of incurred losses and LAE related to prior periods was aprimarily ~~result~~driven ofby lower-than-expected reported losses onfrom ~~injury coverages, partially offset by losses on commutations of certain reinsurance agreements and higher-than-expected LAE in prior~~ accident ~~periods~~year 2023.

1311

6.REINSURANCE

The following table reflects amounts affecting the condensed consolidated statements of operations and comprehensive income (loss) for reinsurance for the three ~~and nine~~ months ended ~~September~~March 3031, ~~2024~~2025 and ~~2023~~2024:

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

2024

2023

2024

2023

2025

2024

~~(dollars in millions)~~

(dollars in millions)

Premiums written:

Direct

~~270.9~~

~~192.7~~

~~793~~337.97

~~444~~272.69

Assumed

~~60.8~~

~~31.5~~

~~176~~73.71

5957.38

Ceded

~~(27.1)~~

~~(22.3)~~

(~~118~~18.48)

(~~159~~46.47)

Net premiums written

~~304.6~~

~~201.9~~

~~852~~392.20

~~344~~284.50

Premiums earned:

Direct

~~258.6~~

~~141.6~~

~~739~~282.70

~~381~~228.94

Assumed

~~58.4~~

~~18.2~~

~~160~~62.34

3946.56

Ceded

~~(37.7)~~

~~(59.8)~~

(~~128~~23.81)

(~~197~~44.57)

Net premiums earned

~~279.3~~

~~100.0~~

~~771~~321.23

~~223~~230.93

Losses and LAE incurred:

Direct

~~168.2~~

~~106.8~~

~~504~~170.05

~~297~~162.12

Assumed

~~39.1~~

~~13.4~~

~~115~~45.75

2931.85

Ceded

~~(22.8)~~

~~(34.4)~~

(7810.54)

(~~118~~27.3)

Net losses and LAE incurred

~~184.5~~

~~85.8~~

~~541~~205.26

~~208~~166.64

In the event that all or any of the reinsuring companies might be unable to meet their obligations under existing reinsurance agreements, we would be liable to the policyholder for such defaulted amounts.

7.LONG-TERM DEBT

In ~~January~~October ~~2022~~2024, we entered into a $~~300~~200.0 million five-year term loan, or Amended Term Loan, with the principal amount due and payable upon maturity on ~~January~~October 2729, ~~2027~~2030. Interest is payable quarterly and determined on a floating interest rate ~~currently~~ calculated on the Secured Overnight Financing Rate, ~~or SOFR,~~ with a 1.0% floor, plus 9an applicable margin ranging from 5.025% to 6.00% based upon the debt-to-capital ratio payable quarterly. The Amended Term Loan can be repaid at ~~anytime~~any time through the maturity date ~~without~~as along ~~prepayment~~as ~~premium, provided that~~ we ~~give~~provide at least three business days’ written notice and a prepayment premium of 2.00% applicable between October 29, 2024 to October 28, 2025, 1.00% applicable between October 29, 2025 to October 25, 2026, and no prepayment premium thereafter.

The following summarizes the carrying value of long-term debt ~~and warrants~~ as of ~~September~~March 3031, ~~2024~~2025 and December 31, ~~2023~~2024:

	September 30, 2024		December 31, 2023
	March 31, 2025		December 31, 2024
	(dollars in millions)
Term Loan	$	300.0	$	300.0
Principal balance	$	200.0	$	200.0
Accrued interest payable	73.65		73.98
Unamortized discount and debt issuance costs and warrants	(6.7)		(8.9)
Unamortized discount and debt issuance costs	(3.5)		(3.7)
Total	$	~~300~~200.90	$	~~299~~200.01

~~In September 2024, we entered into the first amendment to the Term Loan, which among other things, provides greater flexibility for investments in future insurance subsidiaries.~~ 12

In October 2024, we entered into the second amendment to the Term Loan, or Amended Term Loan, which extinguished and modified portions of the Term Loan, including the interest rate, while also providing for new borrowings. For additional information refer to Note 14, “Subsequent Events.”

8.INCOME TAXES

The consolidated effective tax rate was zero for the three ~~and nine~~ months ended ~~September~~March 3031, ~~2024~~2025 and ~~2023~~2024. The difference between these rates and the U.S. federal income tax rate of 21% was primarily due to a full valuation allowance on our U.S. deferred tax assets.

As of ~~September~~March 3031, ~~2024~~2025 and December 31, ~~2023~~2024, we did not have any unrecognized tax benefits for uncertain tax positions and had no interest or penalties related to uncertain tax positions.

9.~~RESTRUCTURING~~SHARE-BASED ~~COSTS~~COMPENSATION

Beginning in 2022, we conducted strategic initiatives to reduce operating costs, improve efficiency, and increase focus on our strategic priorities. These initiatives resulted in restructuring actions that included a reduction in workforce levels, contract terminations, and, in certain instances, a reduction in office space. These restructuring actions include the following costs:

Employee costs—consist of severance, benefits, share-based compensation, and employee compensation expense dependent upon continuous employment for certain employees and related employee costs.

Real estate exit costs—consist of real estate exit costs primarily related to accelerated amortization of right-of-use assets, leasehold improvements and furniture and fixtures.

Other costs—primarily consist of contract termination costs incurred as part of our efforts to improve efficiency and reduce operating costs and accelerated expense for software that no longer has economic benefit.

As of September 30, 2024, we do not expect to incur any additional material expenditures in future periods related to restructuring actions that have occurred.

The following table displays restructuring costs recorded in general and administrative expenses on the condensed consolidated statements of operations and comprehensive income (loss):

	Three Months Ended September 30,				Nine Months Ended September 30,				Cumulative Incurred Through September 30, 2024
	2024		2023		2024		2023
	(dollars in millions)
Restructuring costs:
Employee costs	$	—	$	1.8	$	0.1	$	5.9	$	23.3
Real estate exit costs	—		—		—		—		2.1
Other costs	—		0.1		—		3.5		4.5
Total restructuring costs	$	—	$	1.9	$	0.1	$	9.4	$	29.9

The following table displays a rollforward of the accrual for restructuring costs recorded in accounts payable and accrued expenses on the condensed consolidated balance sheets:

	Employee costs
	(dollars in millions)
Restructuring activity:
Restructuring liability as of January 1, 2024	$	8.3
Expense incurred	0.1
Payments	(8.4)
Restructuring liability as of September 30, 2024	$	—

10.SHARE-BASED COMPENSATION

Warrants

In October 2021, we issued Carvana eight tranches of warrants, comprised of three tranches of “short-term warrants” and five tranches of “long-term warrants,” with the opportunity to purchase a maximum of 7.2 million shares of Class A common stock. The short-term and long-term warrants have expiration dates of September 1, 2025 and September 1, 2027, respectively. The following table provides other key terms of the warrants:

As of June 30, 2024, all of the short-term warrants have vested and all of the respective compensation cost has been recognized. While the short-term warrants are vested and outstanding, it is not a possible outcome for the long-term warrants to also vest, so they are considered not probable of vesting. We recognized warrant compensation expense related to these equity-classified warrants based on policies originating through the integrated automobile insurance solution for Carvana’s online buying platform. All of these warrants are out-of-the-money and therefore have no intrinsic value as of September 30, 2024.



Warrants	Exercise Price		Shares Issued (in millions)	Grant Date Fair Value per Share		Vesting Condition
Short-Term
Tranche 1	$	180.00	2.4	$	0.42	Completing the Integrated Platform
Tranche 2	$	198.00	3.2	$	0.37	50,000 policy originations
Tranche 3	$	216.00	1.6	$	0.18	75,000 policy originations
Total Short-Term			7.2

Long-Term
Tranche 1	$	180.00	1.4	$	0.42	100,000 policy originations
Tranche 2	$	225.00	1.5	$	0.35	200,000 policy originations
Tranche 3	$	270.00	1.5	$	0.24	300,000 policy originations
Tranche 4	$	405.00	1.5	$	0.09	400,000 policy originations
Tranche 5	$	540.00	1.3	$	0.04	500,000 policy originations
Total Long-Term			7.2

WeAs ~~recognized~~of ~~warrant~~March ~~compensation~~31, ~~expense~~2025, all of ~~zero~~the short-term warrants have vested and ~~$5.0~~all ~~million~~of ~~for~~the respective compensation cost has been recognized. While the ~~three~~short-term ~~months~~warrants ~~ended~~are ~~September 30~~vested and outstanding, ~~2024~~it ~~and~~is ~~2023~~not a possible outcome for the long-term warrants to also vest, ~~respectively.~~so Wethey ~~recognized~~are ~~warrant~~considered ~~compensation~~not ~~expense~~probable of $3vesting.8 ~~million~~If, however, the short-term warrants expire unexercised during 2025, and ~~$13.3~~at ~~million~~that ~~for~~time ~~the~~certain ~~nine~~long-term ~~months~~warrants ~~ended~~become ~~September 30~~probable of vesting, ~~2024~~we ~~and~~would ~~2023,~~recognize ~~respectively.~~a ~~Warrant~~cumulative ~~compensation~~warrant expense iscatch-up ~~recorded~~ in other insurance expense inconsidering the ~~condensed~~progress ~~consolidated~~toward ~~statements~~achieving ofthe ~~operations~~long-term ~~and~~warrant ~~comprehensive~~policy ~~income~~origination ~~(loss)~~milestones.

We recognized warrant compensation expense related to these equity-classified warrants based on policies originating through the integrated automobile insurance solution for Carvana’s online buying platform. All of these warrants are out-of-the-money and therefore have no intrinsic value as of March 31, 2025.

We recognized warrant compensation expense of zero and $2.8 million for the three months ended March 31, 2025 and 2024, respectively. Warrant compensation expense is recorded in other insurance expense in the condensed consolidated statements of operations and comprehensive income (loss).

Employee Share-Based Compensation

We maintain an equity incentive plan, or the Plan, for the issuance and grant of equity awards (restricted stock, service-based restricted stock units, ~~or RSUs,~~ performance-based restricted stock units, ormarket-based ~~PSUs~~restricted stock units, and incentive and nonqualified stock options) to our officers, directors, ~~employees~~ and ~~certain advisors~~employees. As of ~~September~~March 3031, ~~2024~~2025, we had 12.90 million common shares available for issuance under the Plan.

When these RSU and PSU awards vest, we fund the related payroll tax withholding and remittance obligations by either (i) withholding shares of our Class A common stock that would have otherwise been issued with respect to such awards and pay the relevant tax authorities in cash to satisfy such tax obligations or (ii) allowing holders of such awards to pay us an amount in cash, via a broker, sufficient to cover the applicable tax withholding obligations. We recognize the related tax withholding liability for employee taxes on the date of the event triggering the measurement and payment of the tax to the taxing authority, which is the vesting date. The obligation to satisfy the employee portion of tax withholding in the event of net share settlement is reflected as a reduction of additional paid-in capital in our condensed consolidated balance sheets.

The following table displays share-based compensation expense recorded in the condensed consolidated statements of operations and comprehensive income (loss):

	Three Months Ended September 30,				Nine Months Ended September 30,
			Three Months Ended March 31,
	2024		2023		2024		2023
					2025		2024
	~~(dollars in millions)~~				(dollars in millions)
Share-based compensation expense:
Loss and loss adjustment expenses	$	~~0.6~~	$	~~0.2~~	$	10.46	$	0.54
Sales and marketing	~~0.2~~		~~0.1~~		0.52		0.31
Other insurance expense	~~0.2~~		~~0.1~~		0.53		0.42
Technology and development	~~0.8~~		~~0.9~~		21.3		20.48
General and administrative	~~2.5~~		~~3.4~~		84.0		83.81
Total share-based compensation expense	$	~~4.3~~	$	~~4.7~~	$	126.74	$	~~12.~~4.6

16The unrecognized compensation cost and the remaining weighted-average period over which these costs are expected to be recognized for restricted stock units and unvested stock options as of March 31, 2025 is as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
			Service-based Restricted Stock Units		Performance-based Restricted Stock Units		Market-based Restricted Stock Units		Unvested Stock Options
	2024		2023		2024		2023
					(dollars in millions)
	(dollars in millions)
Unrecognized compensation costs					$	15.7	$	15.0	$	0.8	$	0.4
Share-based compensation expense:
Remaining weighted-average period cost is expected to be recognized (in years)					2.8		3.8		2.3		1.3
Restricted stock unit expense	$	4.0	$	4.4	$	11.6	$	11.4
Performance-based restricted stock unit expense	0.2		0.1		0.7		0.1
Stock option expense	0.1		0.2		0.4		0.9
Total share-based compensation expense	$	4.3	$	4.7	$	12.7	$	12.4

AsRestricted ofStock September 30, 2024, there was $0.6 million, $21.6 million, and $1.2 million of unrecognized compensation cost related to unvested stock options, RSUs, and PSUs, respectively. The remaining costs are expected to be recognized over a period of approximately two years for unvested stock options, and three years for RSUs and PSUs. Units

A summary of restricted stock units activity for the three months ended March 31, 2025 is as follows:

Restricted Stock Units and Performance-Based Restricted Stock Units


	Three Months Ended March 31, 2025
	Service-based Restricted Stock Units			Performance-based Restricted Stock Units			Market-based Restricted Stock Units
Restricted Stock Units	Number of Shares	Weighted-Average Grant Date Fair Value per Share		Number of Shares	Weighted-Average Grant Date Fair Value per Share		Number of Shares	Weighted-Average Grant Date Fair Value per Share
	(in millions, except per share amounts)
Unvested at January 1, 2025	1.0	$	25.89	0.2	$	75.55	0.4	$	5.71
Granted	—	99.01		—	—		—	—
Vested	(0.1)	20.62		—	—		—	—
Forfeited, expired or canceled	—	42.61		—	—		—	—
Unvested at March 31, 2025	0.9	$	26.87	0.2	$	75.55	0.4	$	5.71

	Nine Months Ended September 30, 2024
Restricted Stock Units and Performance-Based Restricted Stock Units	Number of Shares	Weighted-AverageGrant Date FairValue per Share		Aggregate Intrinsic Value
	(in millions, except per share amounts)
Nonvested at January 1, 2024	1.9	$	14.47	$	20.3
Granted	0.3	48.63
Vested	(0.7)	16.67		38.0
Forfeited, expired or canceled	(0.1)	17.11
Nonvested at September 30, 2024	1.4	$	19.56	$	54.7

Additional information pertaining to restricted stock units for the three months ended March 31, 2025 and 2024 is as follows:


	Three Months Ended March 31,
		2025		2024
		(dollars in millions)
Service-based restricted stock units:
Total grant date fair value of awards granted		$	0.8	$	0.1
Total grant date fair value of awards vested		2.2		3.8
Total intrinsic value of awards vested		8.7		1.1

Stock Options

A summary of option activity for the three months ended March 31, 2025 is as follows:

	Nine Months Ended September 30, 2024
	Three Months Ended March 31, 2025
Options	Number of Shares	Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Term (in Years)	Aggregate Intrinsic Value
	(in millions, except exercise price and term amounts)
Outstanding and exercisable at January 1, 2024	0.1	$	33.68	4.29	$	0.5
Outstanding and exercisable at January 1, 2025	0.1	$	34.13	3.15	$	6.7
Granted	—	—
Exercised	—	712.0523			~~123~~3.61
Forfeited, expired or canceled	—	82145.0062
Outstanding and exercisable at September 30, 2024	0.1	$	33.99	3.55	$	2.9
Outstanding and exercisable at March 31, 2025	0.1	$	32.61	2.77	$	10.6

1715

1110.~~COMMITMENTS~~EARNINGS ~~AND~~(LOSS) ~~CONTINGENCIES~~PER SHARE

~~From~~The ~~time~~following totable ~~time,~~displays ~~we are party to litigation and legal proceedings relating to our business operations. While~~ the ~~outcome~~computation of ~~all~~basic ~~legal~~and ~~actions~~diluted isearnings ~~not~~(loss) ~~presently~~per ~~determinable~~share, ~~except~~or ~~as disclosed below~~EPS, wefor doboth ~~not~~Class ~~believe~~A ~~that~~and weClass ~~are~~B ~~party~~common tostock ~~any~~for ~~current~~the orthree ~~pending~~months ~~legal~~ended ~~action~~March 31, ~~that~~2025 ~~if concluded adversely could reasonably be expected to have a material adverse effect on our financial condition or results of operations~~ and ~~cash flow.~~2024:

On March 19, 2021, a purported class action complaint was filed against the Company and certain of its current and former officers and directors in the U.S. District Court for the Southern District of Ohio (Case No. 2:21-cv-01197) on behalf of certain Root shareholders. The complaint alleged that defendants made false or misleading statements and omissions of purportedly material fact, in violation of Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5 thereunder, and of Sections 11 and 15 of the Securities Act in connection with and following the Company’s initial public offering. The complaint sought unspecified damages. The defendants’ motion to dismiss the claims set forth in the complaint was granted and the lawsuit was dismissed with prejudice on March 31, 2023, which dismissal was affirmed on April 29, 2024, by the United States Court of Appeals for the Sixth Circuit. The plaintiffs filed a petition for a writ of certiorari on August 28, 2024 with the United States Supreme Court, which defendants have opposed. The Company intends to continue to vigorously defend against the allegations. We cannot predict the outcome or estimate the likelihood or magnitude of our possible or potential loss contingency.


	Three Months Ended March 31,
		2025		2024
		(in millions, except per share amounts)
Numerator:
Net income (loss)		$	18.4	$	(6.2)
Less: Undistributed income allocated to participating securities		(0.9)		—
Net income (loss) attributable to common shareholders		$	17.5	$	(6.2)
Denominator:
Weighted-average common shares outstanding: basic (both Class A and B)		15.2		14.6
Effect of dilutive securities:
Redeemable convertible preferred stock		0.8		—
Service-based restricted stock units		0.8		—
Market-based restricted stock units		0.3		—

Stock options		0.1		—

Weighted-average common shares outstanding: diluted (both Class A and B)		17.2		14.6
Earnings (loss) per common share (both Class A and B):
Basic		$	1.15	$	(0.42)
Diluted		$	1.07	$	(0.42)

WeFor ~~are~~the ~~contingently~~three ~~liable~~months ~~for~~ended ~~possible~~March ~~future~~31, ~~assessments~~2024, ~~under~~we ~~regulatory~~operated ~~requirements~~at ~~for~~a ~~insolvencies~~loss and, ~~impairments~~therefore, the conversion of ~~unaffiliated~~common ~~insurance~~stock ~~companies~~equivalents would increase the denominator of the diluted EPS calculation and create a lower EPS. Therefore, these common stock equivalents are considered anti-dilutive and diluted EPS is equal to basic EPS.

12.EARNINGS (LOSS) PER SHARE

The following table displays the computation of basic and diluted EPS for both Class A and Class B common stock for the three and nine months ended September 30, 2024 and 2023:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
	(in millions, except per share amounts)
Numerator:
Net income (loss)	$	22.8	$	(45.8)	$	8.8	$	(123.4)
Less: Undistributed income allocated to participating securities	(1.1)		—		(0.5)		—
Net income (loss) attributable to common shareholders	21.7		(45.8)		8.3		(123.4)
Denominator:
Weighted-average common shares outstanding: basic (both Class A and B)	15.0		14.5		14.8		14.4
Effect of dilutive securities:
RSUs and PSUs	1.0		—		1.1		—
Redeemable convertible preferred stock	0.8		—		0.8		—
Stock options	0.1		—		0.1		—
Weighted-average common shares outstanding: diluted (both Class A and B)	16.9		14.5		16.8		14.4
Earnings (loss) per common share (both Class A and B):
Basic	$	1.45	$	(3.16)	$	0.56	$	(8.57)
Diluted	$	1.35	$	(3.16)	$	0.52	$	(8.57)

For the three and nine months ended September 30, 2023, we operated at a loss and therefore, the conversion of common stock equivalents would increase the denominator of the diluted EPS calculation and create a lower loss per share. Therefore, these common stock equivalents are considered anti-dilutive and diluted EPS is equal to basic EPS.

We excluded the following potentially dilutive common stock equivalents, presented based on amounts outstanding at each period end, from the computation of diluted EPS attributable to common shareholders for the periods indicated because including them would have had an anti-dilutive effect:

	Three Months Ended September 30,		Nine Months Ended September 30,
	Three Months Ended March 31,
	2024	2023	2024	2023
	2025	2024
	(in millions)
Options to purchase common stock	—	0.1	—	0.1
Stock options	—	0.1
Nonvested shares subject to repurchase	—	0.1	—	~~0.1~~
RSUs and PSUs	0.1	2.0	0.1	2.0
Service-based restricted stock units	—	1.4
Redeemable convertible preferred stock (as converted to common stock)	—	0.8	—	0.8
Market-based restricted stock units	—	0.4
Warrants to purchase common stock	7.7	7.7	7.7	7.7
Redeemable convertible preferred stock (as converted to common stock)	—	0.8
Total	7.8	10.7	7.8	10.7
Warrants to purchase common stock	7.5	7.7
Total	7.5	10.5

~~13.GEOGRAPHICAL BREAKDOWN OF GROSS PREMIUMS WRITTEN~~16

~~Gross~~11.GEOGRAPHICAL ~~premiums~~BREAKDOWN ~~written~~OF byGROSS ~~state~~PREMIUMS ~~is as follows for the three and nine months ended September 30, 2024 and 2023:~~WRITTEN

	Three Months Ended September 30,								Nine Months Ended September 30,
	2024				2023				2024				2023
	Amount		% of Total		Amount		% of Total		Amount		% of Total		Amount		% of Total
	(dollars in millions)
State:
Texas	$	63.6	19.2	%	$	36.8	16.4	%	$	186.9	19.3	%	$	80.1	15.9	%
Georgia	38.6		11.6		26.3		11.7		119.1		12.3		56.0		11.1
Florida	27.6		8.3		2.9		1.3		71.6		7.4		6.7		1.3
Colorado	19.3		5.8		15.3		6.8		54.8		5.6		37.8		7.5
Pennsylvania	19.1		5.8		12.1		5.4		54.4		5.6		29.0		5.8
South Carolina	14.5		4.4		11.8		5.3		46.1		4.7		28.6		5.7
Arizona	12.1		3.6		11.0		4.9		38.7		4.0		21.7		4.3
California	15.7		4.7		2.1		0.9		29.8		3.1		5.4		1.1
Ohio	9.0		2.7		8.4		3.7		29.1		3.0		16.9		3.4
Maryland	8.4		2.5		6.7		3.0		26.3		2.7		13.0		2.6
All others states	103.8		31.4		90.8		40.6		313.8		32.3		208.7		41.3
Total	$	331.7	100.0	%	$	224.2	100.0	%	$	970.6	100.0	%	$	503.9	100.0	%

Gross premiums written by state is as follows for the three months ended March 31, 2025 and 2024:


	Three Months Ended March 31,
		2025	2024
			Amount		% of Total		Amount		% of Total
			(dollars in millions)
State:
Texas			$	75.1	18.3	%	$	61.6	18.6	%
Georgia			46.5		11.3		39.4		11.9
Florida			31.1		7.6		15.6		4.7
California			25.7		6.3		4.7		1.4
Pennsylvania			23.7		5.8		17.5		5.3
Colorado			21.9		5.3		18.2		5.5
South Carolina			17.8		4.3		22.0		6.7
Arizona			13.6		3.3		13.9		4.2
Nevada			12.2		3.0		4.4		1.3
Ohio			10.3		2.5		11.5		3.5
All others states			132.9		32.3		121.9		36.9
Total			$	410.8	100.0	%	$	330.7	100.0	%

~~14.SUBSEQUENT EVENTS~~17

In October 2024, we entered into the Amended Term Loan that resulted in extinguishment of $237.1 million of the Term Loan, modification of $62.9 million of the Term Loan, and new borrowings of $137.1 million from new BlackRock funds. The resulting principal amount under the Amended Term Loan is $200.0 million and has a maturity date of October 29, 2030. Interest is variable and calculated quarterly between SOFR plus 5.25% and SOFR plus 6.00%, with a SOFR floor of 1.00%, based upon the debt-to-capital ratio payable quarterly, in cash.

In connection with the Amended Term Loan, during the fourth quarter of 2024 we expensed approximately $5.5 million of unamortized debt discount and issuance costs related to the extinguishment; and we incurred approximately $3.0 million of debt discount and issuance costs related to the new borrowings, most of which will be capitalized and amortized over the life of the Amended Term Loan.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and our audited consolidated financial statements and the related notes and the discussion under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the year ended December 31, ~~2023~~2024 filed with the Securities and Exchange Commission, or SEC, on February 2126, ~~2024~~2025, or the ~~2023~~2024 10-K. This discussion, particularly information with respect to our future results of operations or financial condition, business strategy and plans and objectives of management for future operations, includes forward-looking statements that involve risks and uncertainties as described under the heading “Special Note Regarding Forward-Looking Statements” in this Quarterly Report on Form 10-Q. You should review the disclosure under the heading “Risk Factors” in this Quarterly Report on Form 10-Q and in the ~~2023~~2024 10-K for a discussion of important factors that could cause our actual results to differ materially from those anticipated in these forward-looking statements.

Our Business

Root is a technology insurance company ~~revolutionizing~~founded ~~personal~~on ~~insurance~~the ~~with~~idea athat ~~pricing~~car ~~model~~insurance ~~based~~rates ~~upon~~should ~~fairness~~be ~~and~~based ~~a modern customer experience. We operate~~ primarily aon ~~direct-to-consumer~~driving ~~model~~behaviors, innot ~~which~~demographics. ~~currently~~We weare ~~acquire~~revolutionizing the ~~majority~~archaic ofcar ~~our~~insurance ~~customers~~industry ~~through~~using mobile ~~apps.~~technology Weand ~~are~~data ~~also~~science ~~focused~~to onoffer ~~expanding~~drivers ~~our partnership channel~~fair, ~~where~~personalized ~~we acquire customers using various means, including through embedded integrations~~rates.

We believe the Root advantage is derived from our unique ability to efficiently and effectively bind auto insurance policies quickly, through direct and partnership channels, aided by segmenting individual risk ~~based~~to onprice ~~complex~~better ~~behavioral~~drivers ~~data~~more ~~and proprietary telematics models~~fairly. Our customer experience is built for ease of use and a product offering made possible with our full-stack insurance structure. These are all uniquely integrated into a single cloud-based technology platform that captures the entire insurance value chain—from customer acquisition to underwriting to claims administration to ongoing customer engagement.

To scale the business, we aim to drive new customer growth and optimize unit economics by capitalizing on our two distribution channels: direct and partnership. InThe ~~both~~direct ~~channels~~channel weefficiently ~~seek~~drives tovolume ~~optimize~~for ~~unit~~high ~~economics.~~intent ~~Loss~~customers, ~~ratios~~meeting ~~for~~ customers in ~~their~~platforms ~~initial~~that ~~term~~they ~~are~~use ~~generally~~extensively ~~higher~~while ~~than~~actively inshopping ~~subsequent~~for ~~terms.~~insurance Assuch aas ~~young~~search ~~insurance~~engines ~~company,~~or ~~compared~~select tomarketplace ~~our~~platforms. ~~peers,~~The ~~our~~data ~~results~~science ~~are~~model ~~disproportionately~~seeks ~~weighted~~to ~~toward~~optimize ~~new~~bidding ~~customers.~~strategies Wethat ~~believe~~fine tunes our ~~data-~~prices ~~and~~to ~~technology-driven~~strike ~~approach~~a ~~allows~~balance ~~for~~between ~~rapid~~offering ~~response~~a tocompetitive ~~macroeconomic~~price ~~trends~~and ~~through~~achieving ~~quick,~~target ~~appropriate~~unit ~~rate actions~~economics. ~~Our~~The ~~ability~~partnership tochannel ~~continually~~provides ~~enhance~~differentiated ~~our~~access ~~underwriting~~to ~~and~~high ~~segmentation~~intent ~~capabilities~~customers, ~~has~~primarily ~~contributed~~in tothe ~~improvement~~automotive, infinancial ~~our~~services, ~~gross~~and ~~loss~~independent ~~ratios~~agent sectors. ~~Our~~We ~~marketing~~build ~~spend~~upon isor ~~grounded~~within inthe amobile ~~disciplined~~and ~~data-science~~web ~~approach,~~customer ~~targeting~~experiences ~~customers~~of ~~that~~distribution ~~align~~partners ~~with~~to ~~our~~reach ~~lifetime~~a ~~expected~~captive ~~returns.~~customer ~~Over~~base ~~time~~with wean ~~expect~~embedded tosolution, ~~build~~which acan ~~base~~even ofremove ~~recurring~~the ~~customers~~need ~~with~~for ~~more~~the ~~favorable~~customer ~~loss~~to ~~ratios,~~ever ~~resulting~~visit ina ~~the~~Root ~~following~~website ~~financial~~to ~~impacts:~~purchase and bind a policy.

~~•Improved~~We ~~loss~~use ~~ratio.~~technology ~~Through~~to ~~improvements~~drive inefficiency ~~our~~across ~~pricing~~all functions, including distribution, underwriting, policy administration and ~~segmentation~~claims wein ~~have~~particular. ~~seen~~We ~~improvement~~believe our data- and technology-driven approach to ~~our~~pricing ~~gross~~and ~~loss~~underwriting ~~ratios.~~allows ~~Renewal~~for ~~premiums,~~rapid ~~referring~~response to ~~premiums~~macroeconomic ~~from~~trends athrough ~~customer’s~~quick, ~~second~~appropriate ~~term~~rate actions aided by segmenting individual risk based on complex behavioral data and ~~beyond,~~proprietary ~~generally~~telematics ~~have~~models. ~~lower~~Through continued development of machine-learning loss ~~ratios~~models, aswhich ~~compared~~allow us to ~~new~~respond ~~premiums~~more quickly to changes in the ~~customer’s~~market, ~~first~~we ~~term.~~expect Asimprovement wein ~~grow~~pricing ~~our~~segmentation. ~~business~~We webelieve ~~anticipate,~~this ~~consistent~~allows ~~with~~us ~~industry~~to ~~norms,~~operate ~~that~~with a ~~greater~~cost-to-acquire ~~proportion~~and ofcost-to-serve ~~our~~advantage. ~~premiums~~We ~~will~~believe bethat ~~from~~through ~~customer~~prudent ~~renewals~~investment in and ~~drive~~diversification ~~down~~of ~~the~~our ~~loss~~distribution ~~ratio~~channels, ~~across~~including ~~our~~leveraging ~~portfolio.~~proprietary Wedata ~~also~~science ~~continue~~and totechnology ~~revise~~and ~~contracts~~a tofocus ~~tighten~~on ~~underwriting~~partnerships ~~and~~with ~~utilize~~automotive, ~~our~~financial ~~data-~~services, and ~~technology-driven~~independent ~~approach~~agents, towill ~~implement~~position ~~appropriate~~us ~~rate~~for ~~actions.~~sustainable, long-term and profitable growth.

~~•Reduced~~As ~~marketing~~a asfull-stack insurance company, we currently employ a ~~percentage~~“capital-efficient” model, which utilizes a variety of ~~premium~~reinsurance structures. ~~Certain~~These ~~recurring~~include ~~customer~~excess ~~premiums~~of ~~have~~loss noand ~~associated~~quota ~~customer~~share ~~acquisition~~reinsurance. ~~costs~~Excess ~~and~~of ~~minimal~~loss ~~underwriting~~provides ~~costs,~~us ~~driving~~with ~~profitability.~~volatility Asprotection weagainst ~~grow~~a ~~our~~portion ~~business~~of large individual losses or an aggregation of losses from catastrophes. Quota share provides, weamong ~~anticipate~~other advantages, ~~consistent~~regulatory ~~with~~surplus ~~industry~~relief ~~norms,~~for ~~that~~growing acompanies. ~~greater~~We ~~proportion~~primarily utilize reinsurance to mitigate impact of large losses or tail events. We continuously evaluate our ~~premiums~~utilization ~~will~~of bethird-party ~~from~~reinsurance ~~customer~~in ~~renewals~~order ~~with~~to ~~lower~~operate ~~associated~~a ~~acquisition~~capital-efficient ~~costs~~business model. As our gross loss ratio has stabilized, we

•Increased revenue per customer. Over time we expect to refine our fee schedules to be more consistent with industry norms. This, paired with targeted marketing, strengthened underwriting and pricing segmentation, will facilitate the opportunity to generate additional fee revenue per customer. 18

21strategically reduced the utilization of external quota share to balance the cost of reinsurance with capital efficiency. Over the long term, we expect to maintain the flexibility to modify our reinsurance program.

We use technology to drive efficiency across all functions, including distribution, underwriting, policy administration and claims in particular. We continue to develop machine learning loss models, which allow us to respond more quickly to changes in the market, improve pricing segmentation and take appropriate and timely rate actions. We believe this allows us to operate with a cost to acquire and cost to serve advantage. We efficiently acquire customers through multiple channels, including direct digital (performance), channel media, referrals, and partnership, including embedded, agency and affinity. Our evolving acquisition strategy includes utilizing our embedded insurance offering with current and future strategic partners. Our marketing costs have historically been well below industry averages, although in any given period, these costs can vary by acquisition strategy, channel mix, by state, seasonality or due to the competitive environment. Today, we acquire the vast majority of our customers through mobile apps. We believe that through prudent investment in and diversification of our marketing channels, including leveraging proprietary data science and technology and a focus on partnerships with our current and future strategic partners, will position us for more sustainable, long-term and profitable growth.

As a full-stack insurance company, we currently employ a “capital-efficient” model, which utilizes a variety of reinsurance structures. These include excess of loss and quota share reinsurance. Excess of loss provides us with volatility protection against a portion of large individual losses or an aggregation of losses from catastrophes. Quota share provides, among other advantages, regulatory surplus relief for growing companies. These reinsurance structures deliver three core objectives: (1) prioritize revenue and targeted profitable customer growth while maintaining regulatory capital requirements; (2) source efficient capital to support customer acquisition costs; and (3) mitigate impact of large losses or tail events. We expect to continuously evaluate our utilization of third-party reinsurance while scaling our business in order to operate a capital-efficient business model. As our gross loss ratios continue to improve and stabilize over the long term, we expect to maintain the flexibility to modify our reinsurance program.

Given the impact reinsurance has on our results of operations, we use certain gross basis key performance indicators to manage and measure our business operations and enhance investor understanding of our business model prior to reinsurance. We believe our long-term success will be apparent through the progression of our gross metrics. Results of operations on a gross basis alone may not be achievable under our regulatory landscape given our historical top-line growth and resulting capital requirements, which are relieved, in part, by obtaining reinsurance.

In addition to our gross basis metrics, management uses adjusted earnings before interest, tax, depreciation, amortization, or adjusted EBITDA, as an integral part of managing our business. We believe adjusted EBITDA provides investors with useful insight into our business because such measure eliminates the effects of certain charges that are not directly attributable to our underlying operating performance. For additional information, including definitions of these key metrics, see “—Key Performance Indicators” and for reconciliations of Direct Contribution and adjusted EBITDA to the most directly comparable generally accepted accounting principles in the United States, or GAAP, metric, see “—Non-GAAP Financial Measures.”

Recent Developments Affecting Comparability

General Macroeconomic Factors

Economic instability has led to acute inflationary pressures, supply chain disruptions, changes in interest rates and changes in equity markets. ~~There~~In isaddition, economic uncertainty has developed as a ~~risk~~result of dialogue and imposition of substantial tariffs and potential retaliatory tariffs. There remains uncertainty around the future of inflation, ~~remaining~~including as a result of new or increased tariffs; elevated levels of inflation for an extended period, ~~which~~ could cause claims and claim expenses to increase, impact the performance of our investment portfolio, increase nonpayment cancellations or have other adverse effects, including variability in the competitive environment. We have also seen an increase in vehicle repair and medical costs, which are affected by inflation. These cost increases have resulted in greater claims severity. We continue to file in multiple states to establish rates that more closely follow the evolving loss cost trends. Fluctuations in interest rates could impact our cost of capital and may limit our ability to raise additional capital.

Comprehensive Reinsurance

We have significantly reduced the utilization of reinsurance through a strategic reduction of external quota share. The changes to the reinsurance program aim to deliver improved economics ~~and capital efficiency~~. Our diversified approach to reinsurance allows us to optimize capital requirements while remaining flexible in response to changes in market conditions or changes specific to our own business. We may choose to amend, commute, and/or non-renew certain third-party reinsurance arrangements in the future, which may result in us retaining more or less of our business. To the extent we retain a larger share of our book of business, our capital requirements may increase.

Key Performance Indicators

We regularly review a number of metrics, including the following key performance indicators, to evaluate our business, measure our performance, identify trends in our business, prepare financial projections and make strategic decisions. We believe these non-GAAP and operational measures are useful in evaluating our performance, in addition to our financial results prepared in accordance with GAAP. See the section titled “—Non-GAAP Financial Measures” for additional information regarding our use of direct contribution and adjusted EBITDA and their reconciliations to the most directly comparable GAAP measures.

	Three Months Ended September 30,						Nine Months Ended September 30,
				Three Months Ended March 31,
	2024			2023			2024			2023
							2025			2024
	~~(dollars in millions, except premiums per policy)~~						(dollars in millions, except premiums per policy)
Policies in force	~~407,313~~			~~259,522~~			~~407~~453,~~313~~800			~~259~~401,~~522~~255
Premiums per policy	$	~~1,558~~		$	~~1,398~~		$	1,~~558~~614		$	1,~~398~~482
Premiums in force	$	~~1,269.2~~		$	~~725.6~~		$	1,~~269~~464.29		$	~~725~~1,189.63
Gross premiums written	$	~~331.7~~		$	~~224.2~~		$	~~970~~410.68		$	~~503~~330.97
Gross premiums earned	$	~~317.0~~		$	~~159.8~~		$	~~900~~344.04		$	~~421~~275.40
Gross profit	$	~~98.8~~		$	~~11.2~~		$	~~233~~107.51		$	2963.49
Net income (loss)	$	~~22.8~~		$	~~(45.8)~~		$	818.84		$	(~~123~~6.42)
Direct contribution	$	~~110.5~~		$	~~37.0~~		$	~~278~~127.21		$	8480.97
Adjusted EBITDA	$	~~41.6~~		$	~~(19.4)~~		$	6831.89		$	~~(42~~15.6)1
Net loss and LAE ratio	~~66.1~~		%	~~85.8~~		%	7064.20		%	9372.23		%
Net expense ratio	~~25.0~~		%	~~57.3~~		%	2831.16		%	5629.97		%
Net combined ratio	~~91.1~~		%	~~143.1~~		%	9895.36		%	~~150~~102.10		%
Gross loss ratio	~~57.1~~		%	~~65.6~~		%	5956.71		%	6760.46		%
Gross LAE ratio	~~8.3~~		%	~~9.6~~		%	96.27		%	109.29		%
Gross expense ratio	~~23.8~~		%	~~43.5~~		%	2731.2		%	4229.32		%
Gross combined ratio	~~89.2~~		%	~~118.7~~		%	9694.10		%	~~119~~99.97		%
Gross accident period loss ratio	~~58.4~~		%	~~62.8~~		%	6057.39		%	6458.52		%

Policies in Force

We define policies in force as the number of current and active auto insurance policyholders underwritten by us as of the period end date. We view policies in force as an important metric to assess our financial performance because policy growth and retention drives our revenue growth, expands brand awareness, deepens our market penetration, and generates additional data to continue to improve the functioning of our platform.

Premiums per Policy

We define premiums per policy as the ratio of gross premiums written on auto insurance policies in force at the end of the period divided by policies in force. We view premiums per policy as an important metric since the higher the premiums per policy, the greater the amount of earned premium we expect from each policy.

2320

Premiums in Force

We define premiums in force as premiums per policy multiplied by policies in force multiplied by two. We view premiums in force as an estimate of annualized run rate of gross premiums written as of a given period. Since our auto policies are six-month policies, we multiply this figure by two in order to determine an annualized amount of premiums in force. We view this as an important metric because it is an indicator of the size of our portfolio of policies as well as an indicator of expected earned premium over the coming 12 months. Premiums in force is not a forecast of future revenue nor is it a reliable indicator of revenue expected to be earned in any given period. We believe that our calculation of premiums in force is useful to investors and analysts because it captures the impact of fluctuations in customers and premiums per policy at the end of each reported period, without adjusting for known or projected policy updates, cancellations and non-renewals.

Gross Premiums Written

We define gross premiums written as the total amount of gross premium on policies that were bound during the period less the prorated impact of policy cancellations. Gross premiums written includes direct premiums and assumed premiums. We view gross premiums written as an important metric because it is the metric that most closely correlates with changes in gross premiums earned. We use gross premiums written, which excludes the impact of premiums ceded to reinsurers, to manage our business because we believe that it reflects the business volume and direct economic benefit generated by our customer acquisition activities, which along with our underlying underwriting and claims operations (gross loss ratio and gross LAE), are the key drivers of our future profit opportunities. Additionally, premiums ceded to reinsurers can change significantly based on the type and mix of reinsurance structures we use, and, as such, we have the optionality to fully retain the premiums from customers acquired in the future.

Gross Premiums Earned

We define gross premiums earned as the amount of gross premium that was earned during the period. Premiums are earned over the period in which insurance protection is provided, which is typically six months. Gross premiums earned includes direct premiums and assumed premiums. We view gross premiums earned as an important metric as it allows us to evaluate our premium levels prior to the impacts of reinsurance. It is the primary driver of our consolidated GAAP revenues. As with gross premiums written, we use gross premiums earned, which excludes the impact of premiums ceded to reinsurers to manage our business, because we believe that it reflects the business volume and direct economic benefit generated by our customer acquisition activities, which along with our underlying underwriting and claims operations (gross loss ratio and gross LAE), are the key drivers of our future profit opportunities.

Gross Profit

We define gross profit as total revenue minus net loss and LAE and other insurance expense. We view gross profit as an important metric because we believe it is informative of the financial performance of our core insurance business.

Direct Contribution

We define direct contribution, a non-GAAP financial measure, as gross profit excluding net investment income, ~~report~~acquisition costs, which include report costs and refunds related to these expenses and commission expenses related to our partnership channel, and fixed expenses, which include certain warrant compensation expense related to policies originating through the integrated automobile insurance solution for Carvana’s online buying platform, overhead allocated based on headcount, or Overhead, and salaries, health benefits, bonuses, employee retirement plan-related expenses and employee share-based compensation expense, or Personnel Costs, licenses, professional fees and other expenses. Further impacts related to reinsurance are excluded, these consist of ceded premiums earned, ceded loss and LAE, and net ceding commission and other. Net ceding commission and other is comprised of ceding commission received in connection with reinsurance ceded, partially offset by amortization of excess ceding commission, and other impacts of reinsurance ceded, which are included in other insurance expense. After these adjustments, the resulting calculation is inclusive of only those gross variable costs of revenue incurred on the successful acquisition of business. We view direct contribution as an important metric because we believe it measures progress towards the profitability of our total policy portfolio prior to the impact of reinsurance.

successful acquisition of business. We view direct contribution as an important metric because we believe it measures profitability of our total policy portfolio prior to the impact of reinsurance.

See the section titled “—Non-GAAP Financial Measures” for a reconciliation of total revenue to direct contribution.

Adjusted EBITDA

We define adjusted EBITDA, a non-GAAP financial measure, as net income (loss) 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 (loss) calculated in accordance with GAAP, and other companies may define adjusted EBITDA differently.

See the section titled “—Non-GAAP Financial Measures” for a reconciliation of net income (loss) to adjusted EBITDA.

Net Loss and LAE Ratio

We define net loss and LAE ratio, expressed as a percentage, as the ratio of net loss and LAE to net premiums earned. We view net loss and LAE ratio as an important metric because it allows us to evaluate loss trends as a percentage of net premiums and believe it is useful for investors to evaluate those separately from other operating expenses.

Net Expense Ratio

We define net expense ratio, expressed as a percentage, as the ratio of all operating expenses less loss and LAE and less fee income to net premiums earned. We view net expense ratio as important because it allows us to analyze our expense and acquisition trends, net of fee income, and allows investors to evaluate these expenses exclusive of our loss and LAE.

Net Combined Ratio

We define net combined ratio, expressed as a percentage, as the sum of net loss and LAE ratio and net expense ratio. We view net combined ratio as important because it allows us to analyze our underwriting result trends and is a key indicator of overall profitability and health of the overall business. We believe it is useful to investors to evaluate these components separately and in the aggregate when reviewing our underwriting performance. A net combined ratio under 100% indicates an underwriting profit, while a net combined ratio greater than 100% indicates an underwriting loss.

Gross Loss Ratio

We define gross loss ratio, expressed as a percentage, as the ratio of gross losses to gross premiums earned. Gross loss ratio excludes LAE. We view gross loss ratio as an important metric because it allows us to evaluate incurred losses and LAE separately prior to the impact of reinsurance.

Gross LAE Ratio

We define gross LAE ratio, expressed as a percentage, as the ratio of gross LAE to gross premiums earned. We view gross LAE ratio as an important metric because it allows us to evaluate incurred losses and LAE separately prior to the impact of reinsurance.

Gross Expense Ratio

We define gross expense ratio, expressed as a percentage, as the ratio of gross operating expenses less loss and LAE and less fee income to gross premiums earned. We view gross expense ratio as important because it allows us to analyze the underlying expense base of the business and establish expense targets, prior to the impact of reinsurance. We believe gross expense ratio is useful for investors to further evaluate business health and performance, prior to the impact of reinsurance.

Gross Combined Ratio

We define gross combined ratio, expressed as a percentage, as the sum of the gross loss ratio, gross LAE ratio and gross expense ratio. We view gross combined ratio as important because it allows us to evaluate financial performance and establish targets that we believe more closely reflect the underlying performance and profitability of the business prior to reinsurance. Further, we believe it is useful for investors to evaluate these components separately and in the aggregate when reviewing our gross underwriting performance. A gross combined ratio under 100% indicates an underwriting profit while a gross combined ratio greater than 100% indicates an underwriting loss, prior to the impact of reinsurance.

Gross Accident Period Loss Ratio

Gross accident period loss ratio, expressed as a percentage, represents all losses and claims expected to arise from insured events that occurred during the applicable period regardless of when they are reported and finally settled divided by gross premiums earned for the same period. Changes to our loss reserves are the primary driver of the difference between our gross accident period loss ratio and gross loss ratio. We believe that gross accident period loss ratio is useful in evaluating expected losses prior to the impact of reinsurance.

Components of Our Results of Operations

Revenue

We generate revenue from net premiums earned, net investment income, fee income and other income.

Net Premiums Earned

Premiums written are deferred and earned pro rata over the policy period. Net premiums earned represents the earned portion of our gross premiums written, less the earned portion that is ceded to third-party reinsurers under our reinsurance agreements.

Net Investment Income

Net investment income represents interest earned from our cash and cash equivalents, ~~and~~ fixed ~~maturity~~maturities, and short-term investments less investment expenses. 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.

Net investment income will vary with the size and composition of our investment portfolio, market returns and the investment strategy.

Fee Income

Fee income consists primarily of the flat fee we charge for installment payments which relates to the additional administrative costs associated with processing more frequent billings. These fees are recognized in the period in which we process the installment. We also charge policy fees, which are typically nonrefundable fees that are intended to reimburse a portion of the costs incurred to underwrite the policy. These fees are recognized ratably over the policy coverage period. Fee income also includes late payment fees that are collected from our policyholders. These fees are recognized in the period in which we process the late payment.

Other Income

Other income is primarily comprised of revenue earned from distributing website and mobile application policy inquiry leads in geographies where we do not have a presence, recognized when we generate the lead.

Operating Expenses

Our operating expenses consist of loss and LAE, sales and marketing, other insurance expense, technology and development, and general and administrative expenses.

Loss and Loss Adjustment Expenses

Loss and LAE include the costs incurred for claims, payments made and estimated future payments to be made to or on behalf of our policyholders, including expenses needed to adjust or settle claims, net of amounts ceded to reinsurers. Loss and LAE include an amount determined using adjuster determined case-base estimates for reported claims and actuarial determined unpaid claim estimates using past experience and historical emergence patterns for unreported losses and LAE. These reserves are a liability established to cover the estimated ultimate cost to settle insured losses. The unpaid loss estimates consider loss trends, mix of business, and other risk factors impacting claims settlement. The method used to estimate unpaid LAE liability is based on claims transaction data, including the relative cost of adjusting and settling a range of claim types from express material damage claims to more complex injury cases.

Loss and LAE are net of amounts ceded to reinsurers. We enter into reinsurance contracts to limit our exposure to potential losses as well as to provide additional capacity to write more business. These expenses are a function of the size and term of the insurance policies we write and the loss experience associated with the underlying risks. This includes an allowance for credit losses based on the probability of default and expected loss given default of a reinsurer. Loss and LAE may be paid out over a period of years.

Various other expenses incurred during claims processing are considered LAE. These amounts include Personnel Costs for claims-related employees; vendor expenses; software expense; internally developed software amortization; and Overhead.

Sales and Marketing

Sales and marketing includes both acquisition and fixed expenses. ~~related~~We toview direct performance marketing, experimental marketing, channel media, advertising, ~~sponsorship,~~and referral fees ~~and~~as ~~the~~acquisition ~~partnership channel~~expenses. ~~These~~We ~~expenses~~view ~~also~~sponsorship, ~~include related~~ Personnel Costs and Overhead related to our brand strategy, creative and business development activities, and certain data science activities as fixed costs. We incur sales and marketing expenses for all product offerings. Sales and marketing are expensed as incurred.

We plan to continue investing in and diversifying our marketing channels to attract and acquire new customers, increase our brand awareness, and expand our product offerings within certain markets. We expect that our sales and marketing will vary based upon the competitive environment and other investments in acquisition. Over the long-term, ~~our~~we ~~sales~~expect ~~and~~it ~~marketing~~ will decrease as a percentage of revenue as the proportion of renewals to our total business increases.

Other Insurance Expense

Other insurance expense includes expenses primarily related to insurance and underwriting ~~expenses~~operations of the business, and ~~any~~is comprised of acquisition, variable and fixed expenses. We view report costs and refunds related to these expenses, and commission expenses related to our partnership channel, ~~premium~~as ~~taxes~~acquisition ~~which~~costs. ~~includes~~We ~~low~~view ~~income housing tax credits to offset certain state~~ premium taxes, credit card and policy processing expenses, and premium write-offs, as variable costs. We view insurance license expenses, certain warrant compensation expense related to policies originating through the integrated automobile insurance solution for Carvana’s online buying platform, ~~and~~or ~~Personnel~~Integrated ~~Costs~~Platform, ~~and~~low-income ~~Overhead~~housing ~~related~~tax tocredits ~~actuarial~~which ~~and~~offset certain ~~data~~state ~~science activities. We amortize a portion of our deferred policy acquisition costs including certain commissions related to our partnership channel,~~ premium taxes, ~~and~~Personnel ~~report~~Costs ~~costs~~and ~~related~~Overhead ~~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~~actuarial ~~policy acquisition costs that are capitalized~~ and ~~subsequently~~certain ~~amortized~~data ~~over~~science ~~the~~activities same period in which the related premiums are earned. Certain warrant compensation expense is recognized on a pro-rata basis considering progress toward achieving milestones for policies originated through the Integrated Platform as ~~defined~~fixed ~~under the Carvana commercial agreement~~costs.

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. Certain 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.

These expenses are recognized net of ceding commissions earned from our quota share reinsurance agreements. The ceding commission provides for reimbursement of both direct and other periodic acquisition costs, including certain underwriting and marketing costs, and is presented as a reduction of other insurance expense.

Technology and Development

Technology and development ~~expense~~are ~~consists~~fixed expenses that consist of software development costs related to our mobile app and homegrown information technology systems; third-party services related to infrastructure support; Personnel Costs and Overhead for engineering, product, technology, and certain data science activities; and amortization of internally developed software. Technology and development is expensed as incurred, except for development and testing costs related to internally developed software that are capitalized and subsequently amortized over the expected useful life. Over time, we expect technology and development to decrease as a percentage of revenue.

General and Administrative

General and administrative are fixed expenses that primarily relate to external professional service expenses; Personnel Costs and Overhead for corporate functions; and depreciation expense for computers, furniture and other fixed assets; and restructuring costs which include employee costs, real estate exit costs and other costs. General and administrative expenses are expensed as incurred. We expect general and administrative expenses to decrease as a percentage of total revenue over time.

Non-Operating Expenses

Interest Expense

Interest expense is not an operating expense; therefore, we include these expenses below operating expenses. Interest expense primarily relates to interest incurred on our long-term debt, certain fees that are expensed as incurred and amortization of discount and debt issuance costs. In addition, changes in the fair value of warrant liabilities that are associated with our long-term debt are recorded as interest expense.

2825

Results of Operations

Comparison of the Three Months Ended ~~September~~March 3031, ~~2024~~2025 and ~~2023~~2024

The following table presents our results of operations for the periods indicated:

	Three Months Ended September 30,
	Three Months Ended March 31,
	2024		2023		$ Change		% Change
	2025		2024		$ Change		% Change
	(dollars in millions)
Revenues:
Net premiums earned	$	~~279~~321.3	$	~~100~~230.03	$	~~179~~91.30	~~179~~39.35	%
Net investment income	8.07		9.02		(1.0.5)		(115.14)	%
Fee income	1718.17		614.27		104.90		~~175~~27.82	%
Other income	10.37		0.17		~~1.2~~—		~~1,200.0~~—	%
Total revenues	~~305~~349.74		~~115~~254.39		~~190~~94.45		~~165~~37.1	%
Operating expenses:
Loss and loss adjustment expenses	~~184~~205.56		85166.84		9839.72		~~115~~23.06	%
Sales and marketing	3451.05		1330.14		2021.91		~~159~~69.54	%
Other insurance expense	2236.47		1824.36		412.1		2249.42	%
Technology and development	1211.94		11.10		10.84		163.26	%
General and administrative	1720.5		2117.01		(3.5)4		~~(16~~19.7)9	%
Total operating expenses	~~271~~325.37		~~149~~249.35		~~122~~76.02		8130.75	%
Operating income (loss)	34.4		(34.0)		68.4		201.2	%
Operating income	23.7		5.4		18.3		338.9	%
Interest expense	(115.63)		(11.86)		06.23		(154.73)	%
Income (loss) before income tax expense	2218.84		(456.82)		6824.6		~~149~~396.8	%
Income tax expense	—		—		—		—	%
Net income (loss)	2218.84		(456.82)		6824.6		~~149~~396.8	%
Other comprehensive income (loss):
Changes in net unrealized gains (losses) on investments	53.50		(0.78)		63.28		~~885~~475.70	%
Comprehensive income (loss)	$	2821.34	$	(467.50)	$	7428.84	~~160~~405.97	%

Revenue

Net Premiums Earned

Net premiums earned increased ~~$179.3 million, or 179.3%, to $279.3 million for the three months ended September 30, 2024 compared to the same period in 2023. The increase was~~ primarily due to an increase in policies in force as a result of increased direct performance marketing spend, continued growth in our partnership channel, reduced cessions of gross premiums earned to reinsurers between periods and greater ~~premium~~premiums per policy resulting from rate actions and a shift in customer mix.

During the three months ended ~~September 30~~March 31, ~~2024~~2025 and ~~2023~~2024, we ceded approximately 116.97% and 3716.43% of our gross premiums earned, respectively. The change in cessions between periods was primarily driven by a strategic reduction of quota share reinsurance ~~and commutations of certain reinsurance agreements as previously discussed in the second half of 2023~~.

2926

The following table presents gross premiums written, ceded premiums written, net premiums written, gross premiums earned, ceded premiums earned and net premiums earned for the three months ended ~~September 30~~March 31, ~~2024~~2025 and ~~2023~~2024:

	Three Months Ended September 30,
	Three Months Ended March 31,
	2024		2023		$ Change		% Change
	2025		2024		$ Change		% Change
	(dollars in millions)
Gross premiums written	$	~~331~~410.78	$	~~224~~330.27	$	~~107~~80.51	4724.92	%
Ceded premiums written	(2718.18)		(2246.37)		(427.8)9		21(59.57)	%
Net premiums written	~~304~~392.60		~~201~~284.90		~~102~~108.70		5038.90	%
Gross premiums earned	~~317~~344.04		~~159~~275.80		~~157~~69.24		9825.42	%
Ceded premiums earned	(3723.71)		(5944.87)		2221.16		(3748.03)	%
Net premiums earned	$	~~279~~321.3	$	~~100~~230.03	$	~~179~~91.30	~~179~~39.35	%

Gross premiums written increased for the three months ended ~~September~~March 3031, ~~2024~~2025 primarily due to growth in new writings as a result of increased direct performance marketing spend and continued growth in our partnership channel compared to the same period in ~~2023~~2024. The increase in gross premiums earned was primarily due to greater policies in force and an 118.49% increase in ~~premium~~premiums per policy primarily attributable to rate actions and a shift in customer mix.

Net Investment Income

Net investment income decreased $1.0 million, or 11.1%, to $8.0 million for the three months ended September 30, 2024 compared to the same period in 2023. The decrease was primarily due to a $2.9 million impairment related to low income housing tax credits that were utilized in the period. This was partially offset by a $1.6 million increase in higher interest and dividends received primarily due to a larger investment portfolio.

Fee Income

Fee income increased $10.9 million, or 175.8%, to $17.1 million for the three months ended September 30, 2024 compared to the same period in 2023. The increase was primarily driven by a $6.9 million increase in policy fees due to increased policies in force. We also experienced a $3.3 million increase in installment fees attributable to an increase in collected fees, as a result of increased gross written premium.

Operating Expenses

Loss and Loss Adjustment Expenses

Loss and LAE increased ~~$98.7 million, or 115.0%, to $184.5 million for the three months ended September 30, 2024 compared to the same period in 2023. The increase was primarily~~ 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 ~~September~~March 3031, ~~2024~~2025 compared to the same period in ~~2023~~2024. 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.

Gross accident period loss ~~ratios~~ratio decreased to 5857.49% for the three months ended ~~September~~March 3031, ~~2024~~2025, from 6258.82% for the same period in ~~2023~~2024. The change in the ~~ratios~~ratio was driven by growth in average premium per policy primarily attributable to rate actions. This was partially offset by ~~business~~geographic ~~tenure~~ mix shift and higher loss costs as a result of increased severity per claim due to higher vehicle repair and medical costs. We estimated a 67% increase in severity per claim and a 75% decrease in claim frequency for the three months ended ~~September~~March 3031, ~~2024~~2025 compared to the same period in ~~2023~~2024 across our bodily injury, collision, and property damage coverages. The claim frequency estimates are tenure mix adjusted.

Sales and Marketing

Sales and marketing expense increased ~~$20.9~~due ~~million,~~to orgreater ~~159.5%,~~acquisition toexpense ~~$34.0~~as ~~million~~we ~~for~~invested ~~the~~in ~~three~~growing ~~months~~our ~~ended~~business ~~September~~to ~~30,~~drive ~~2024~~accretive ~~compared~~growth toand ~~the~~deeper ~~same~~market ~~period~~penetration in ~~2023.~~the ~~The~~states ~~increase~~in ~~was~~which ~~primarily~~we ~~due~~operate. toThis resulted in a $1719.75 million increase in direct performance marketing spend ~~to drive accretive growth and deeper market penetration in the states in which we operate~~. We also experienced a $21.41 million increase in experimental marketing spend as part of our efforts to diversify our distribution channels.

Other Insurance Expense

Other insurance expense increased ~~$4.1~~primarily ~~million,~~due ~~or 22.4%,~~ to ~~$22.4 million for the three months ended September 30, 2024 compared to the same period in 2023. The increase was primarily driven by~~ a $5.~~9 million increase in premium write-offs as a result of greater policies in force. We also experienced a $5.~~7 million decrease in net ceding commission contra-expense as a result of a decline in ceded premiums written, largely attributable to a continued strategic reduction of quota share reinsurance. inOur ~~the~~acquisition ~~second~~expenses ~~half~~increased ofprimarily ~~2023.~~due Into ~~addition, we experienced a~~ $4.07 million ~~increase~~ in ~~commission~~greater ~~expenses~~commissions paid related to the continued growth in our partnership channel, including amortization of deferred policy acquisition costs. ~~and~~We aalso ~~$4.0~~saw ~~million~~an increase in ~~premium~~variable ~~taxes~~expenses, ~~primarily~~including ~~attributable~~a to$3.0 anmillion increase in ~~gross~~premium ~~premiums~~write-offs ~~earned.~~and ~~We also experienced~~ a $1.5 million increase in ~~policy~~premium ~~processing~~taxes, ~~fees~~ as a result of ~~greater~~growth ~~premiums~~of our earned ~~during~~premium ~~the~~and ~~period.~~policies ~~This~~in ~~was partially offset by a $6~~force.7 ~~million~~Fixed ~~sales~~expenses ~~tax~~primarily ~~refund~~decreased ~~related~~due to ~~multiple prior years and a~~ $52.08 million ~~decrease~~of in Carvana warrant expense. ~~All~~recognized ~~short-term~~in ~~warrant~~the ~~expense~~first ~~has~~quarter ~~been~~of ~~recognized~~2024, as ~~a result of~~ all short-term ~~warrants~~warrant ~~fully~~expense ~~vesting.~~has Inbeen ~~addition,~~recognized weupon ~~experienced a $3~~vesting.3 million decrease in premium taxes related to low income housing tax credit utilization in the period and a $3.2 million decrease in report costs primarily driven by enhanced efficiency and reduced costs for reports related to new business.

~~Other Comprehensive Income (Loss)~~27

~~Changes~~Non-Operating ~~in Net Unrealized Gains (Losses) on Investments~~Expenses

~~Changes~~Interest inExpense net unrealized gains (losses) on investments increased $6.2 million, or 885.7%, to net unrealized gains of $5.5 million for the three months ended September 30, 2024 compared to the same period in 2023. The increase is primarily attributable to changes in the interest rate environment.

31Interest expense decreased primarily due to a $5.7 million decrease in debt interest expense as a result of reduced principal and a more favorable interest rate in connection with the Amended Term Loan.

~~Comparison of the Nine Months Ended September 30, 2024 and 2023~~28

The following table presents our results of operations for the periods indicated:

	Nine Months Ended September 30,
	2024		2023		$ Change		% Change
	(dollars in millions)
Revenues:
Net premiums earned	$	771.2	$	223.9	$	547.3	244.4	%
Net investment income	27.2		22.5		4.7		20.9	%
Fee income	48.4		13.2		35.2		266.7	%
Other income	3.0		0.6		2.4		400.0	%
Total revenues	849.8		260.2		589.6		226.6	%
Operating expenses:
Loss and loss adjustment expenses	541.2		208.6		332.6		159.4	%
Sales and marketing	98.6		22.8		75.8		332.5	%
Other insurance expense	75.1		22.2		52.9		238.3	%
Technology and development	38.6		32.4		6.2		19.1	%
General and administrative	52.7		63.2		(10.5)		(16.6)	%
Total operating expenses	806.2		349.2		457.0		130.9	%
Operating income (loss)	43.6		(89.0)		132.6		149.0	%
Interest expense	(34.8)		(34.4)		(0.4)		1.2	%
Income (loss) before income tax expense	8.8		(123.4)		132.2		107.1	%
Income tax expense	—		—		—		—	%
Net income (loss)	8.8		(123.4)		132.2		107.1	%
Other comprehensive income (loss):
Changes in net unrealized gains (losses) on investments	4.6		(0.8)		5.4		675.0	%
Comprehensive income (loss)	$	13.4	$	(124.2)	$	137.6	110.8	%

Revenue

Net Premiums Earned

Net premiums earned increased $547.3 million, or 244.4%, to $771.2 million for the nine months ended September 30, 2024 compared to the same period in 2023. The increase was primarily due to an increase in policies in force as a result of increased direct performance marketing spend, reduced cessions of gross premiums earned to reinsurers between periods and greater premium per policy resulting from rate actions.

During the nine months ended September 30, 2024 and 2023, we ceded approximately 14.3% and 46.9% of our gross premiums earned, respectively. The change in cessions between periods was primarily driven by a strategic reduction of quota share reinsurance and commutations of certain reinsurance agreements as previously discussed in the second half of 2023.

	Nine Months Ended September 30,
	2024		2023		$ Change		% Change
	(dollars in millions)
Gross premiums written	$	970.6	$	503.9	$	466.7	92.6	%
Ceded premiums written	(118.4)		(159.4)		41.0		(25.7)	%
Net premiums written	852.2		344.5		507.7		147.4	%
Gross premiums earned	900.0		421.4		478.6		113.6	%
Ceded premiums earned	(128.8)		(197.5)		68.7		(34.8)	%
Net premiums earned	$	771.2	$	223.9	$	547.3	244.4	%

Gross premiums written increased for the nine months ended September 30, 2024 primarily due to growth in new writings as a result of increased direct performance marketing spend compared to the same period in 2023. The increase in gross premiums earned was primarily due to greater policies in force and an 11.4% increase in premium per policy primarily attributable to rate actions.

Net Investment Income

Net investment income increased $4.7 million, or 20.9%, to $27.2 million for the nine months ended September 30, 2024 compared to the same period in 2023. This was primarily driven by a $7.1 million increase in interest and dividends received primarily due to a higher average cash balance and a larger investment portfolio. This was partially offset by a $3.1 million impairment related to low income housing tax credits that were utilized in the period.

Fee Income

Fee income increased $35.2 million, or 266.7%, to $48.4 million for the nine months ended September 30, 2024 compared to the same period in 2023. The increase was primarily driven by a $20.2 million increase in policy fees due to increased policies in force. We also experienced a $13.0 million increase in installment fees attributable to an increase in collected fees, as a result of increased gross written premium.

Operating Expenses

Loss and Loss Adjustment Expenses

Loss and LAE increased $332.6 million, or 159.4%, to $541.2 million for the nine months ended September 30, 2024 compared to the same period in 2023. The increase was primarily due to additional losses incurred on increased gross premiums earned volume and reduced cessions of losses to reinsurers for the nine months ended September 30, 2024 compared to the same period in 2023.

Gross accident period loss ratios decreased to 60.3% for the nine months ended September 30, 2024, from 64.5% for the same period in 2023. The change in the ratios was driven by growth in average premium per policy primarily attributable to rate actions. This was partially offset by business tenure mix and higher loss costs as a result of increased severity per claim due to higher vehicle repair and medical costs. We estimated a 6% increase in severity per claim and a 3% decrease in claim frequency for the nine months ended September 30, 2024 compared to the same period in 2023 across our bodily injury, collision, and property damage coverages. The claim frequency estimates are tenure mix adjusted.

Sales and Marketing

Sales and marketing expense increased $75.8 million, or 332.5%, to $98.6 million for the nine months ended September 30, 2024 compared to the same period in 2023. The increase was primarily due to a $69.4 million increase in direct performance marketing spend to drive accretive growth and deeper market penetration in the states in which we operate. We also experienced a $5.2 million increase in experimental marketing spend as part of our efforts to diversify our distribution channels.

Other Insurance Expense

Other insurance expense increased $52.9 million, or 238.3%, to $75.1 million for the nine months ended September 30, 2024 compared to the same period in 2023. The increase was primarily driven by a $21.0 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 in the second half of 2023. We also experienced a $14.8 million increase in premium write-offs as a result of greater policies in force. Commission expenses increased $11.1 million related to the continued growth in our partnership channel including amortization of deferred policy acquisition costs. Premium taxes increased $10.6 million primarily attributable to an increase in gross premiums earned. In addition, we experienced a $5.0 million increase in report costs due to an increase in customer applications and new writings growth and a $4.9 million increase in policy processing fees as a result of greater premium earned during the period. This was partially offset by a $9.5 million decrease in Carvana warrant expense. All short-term warrant expense has been recognized, as a result of all short-term warrants fully vesting. We also recorded a $6.7 million sales tax refund related to multiple prior years. In addition, we experienced a $3.5 million decrease in premium taxes related to low income housing tax credit utilization in the period.

Technology and Development

Technology and development increased $6.2 million, or 19.1%, to $38.6 million for the nine months ended September 30, 2024 compared to the same period in 2023. The increase was primarily driven by a $2.5 million increase in Personnel Costs. We also experienced a $2.0 million increase in amortization primarily driven by accelerated amortization of internally developed software and a $1.8 million increase in software development expense as we continue to invest in developing and improving our technology platforms and infrastructure.

General and Administrative

General and administrative decreased $10.5 million, or 16.6%, to $52.7 million for the nine months ended September 30, 2024 compared to the same period in 2023. The decrease was primarily driven by a $9.5 million decrease in legal and professional fees.

Non-GAAP Financial Measures

The non-GAAP financial measures below have not been calculated in accordance with GAAP and should be considered in addition to results prepared in accordance with GAAP and should not be considered as a substitute for, or superior to, GAAP results. In addition, direct contribution and adjusted EBITDA should not be construed as indicators of our operating performance, liquidity or cash flows generated by operating, investing and financing activities, as there may be significant factors or trends that they fail to address. We caution investors that non-GAAP financial information, by its nature, departs from traditional accounting conventions. Therefore, its use can make it difficult to compare our current results with our results from other reporting periods and with the results of other companies.

Our management uses these non-GAAP financial measures, in conjunction with GAAP financial measures, as an integral part of managing our business and to, among other things: (1) monitor and evaluate the performance of our business operations and financial performance; (2) facilitate internal comparisons of the historical operating performance of our business operations; (3) facilitate external comparisons of the results of our overall business to the historical operating performance of other companies that may have different capital structures and debt levels; (4) review and assess the performance of our management team, including when determining incentive compensation; (5) analyze and evaluate financial and strategic planning decisions regarding future operating investments; and (6) plan for and prepare future annual operating budgets and determine appropriate levels of operating investments.

Direct Contribution

For the definition of direct contribution and why management believes this measure provides useful information to investors, see “—Key Performance Indicators.”

The following table provides a reconciliation of total revenue to direct contribution for the three ~~and nine~~ months ended ~~September~~March 3031, ~~2024~~2025 and ~~2023~~2024:

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

2024

2023

2024

2023

2025

2024

~~(dollars in millions)~~

(dollars in millions)

Total revenue

~~305.7~~

~~115.3~~

~~849~~349.84

~~260~~254.29

Loss and loss adjustment expenses

~~(184.5)~~

~~(85.8)~~

(~~541~~205.26)

(~~208~~166.64)

Other insurance expense

~~(22.4)~~

~~(18.3)~~

(7536.17)

(2224.26)

Gross profit

~~98.8~~

~~11.2~~

~~233~~107.51

2963.49

Net investment income

~~(8.0)~~

~~(9.0)~~

(278.27)

(229.52)

Adjustments from other insurance expense(1)

~~11.6~~

~~21.7~~

5122.02

4920.68

Ceded premiums earned

~~37.7~~

~~59.8~~

~~128~~23.81

~~197~~44.57

Ceded loss and loss adjustment expenses

~~(22.8)~~

~~(34.4)~~

(7810.54)

(~~118~~27.3)

Net ceding commission and other(2)

~~(6.8)~~

~~(12.3)~~

(296.42)

(5012.82)

Direct contribution

~~110.5~~

~~37.0~~

~~278~~127.21

8480.97

______________

(1) Adjustments from other insurance expense ~~includes~~consists ~~report~~of acquisition costs, including report costs and refunds related to these expenses and commission expenses related to our partnership channel of $19.7 million and $15.6 million for the three months ended March 31, 2025 and 2024, respectively. Fixed expenses, including certain warrant compensation expense related to policies originating through the integrated automobile insurance solution for Carvana’s online buying platform, Personnel Costs, Overhead, licenses, professional fees and other of $2.5 million and $5.2 million for the three months ended March 31, 2025 and 2024, respectively.

(2) Net ceding commission and other is comprised of ceding commissions received in connection with reinsurance ceded, partially offset by amortization of excess ceding commission and other impacts of reinsurance ceded.

3529

Adjusted EBITDA

For the definition of adjusted EBITDA and why management believes this measure provides useful information to investors, see “—Key Performance Indicators.”

The following table provides a reconciliation of net income (loss) to adjusted EBITDA for the three ~~and nine~~ months ended ~~September~~March 3031, ~~2024~~2025 and ~~2023~~2024:

	Three Months Ended September 30,				Nine Months Ended September 30,
			Three Months Ended March 31,
	2024		2023		2024		2023
					2025		2024
	~~(dollars in millions)~~				(dollars in millions)
Net income (loss)	$	~~22.8~~	$	~~(45.8)~~	$	818.84	$	(~~123~~6.42)
Adjustments:
Interest expense	~~10.9~~		~~11.1~~		325.61		3210.29
Income tax expense	—		—		—		—
Depreciation and amortization	~~5.2~~		~~2.7~~		112.90		82.08
Share-based compensation	~~4.3~~		~~4.7~~		126.74		124.06
Warrant compensation expense	—		~~5.0~~		~~3.8~~—		132.38
Restructuring costs(1)	—		~~1.9~~		~~0.1~~—		90.41
Write-offs and other(2)	(1.6)		1.0		(1.1)		5.9
Other(2)					—		0.1
Adjusted EBITDA	$	~~41.6~~	$	~~(19.4)~~	$	6831.89	$	~~(42~~15.6)1

______________

(1) Restructuring costs consist of employee costs, real estate exit costs and other. This includes share-based compensation of zero for the three and nine months ended September 30, 2024 and zero and $0.4 million for the three and nine months ended September 30, 2023, respectively. This also includes depreciation and amortization of zero and $0.21 million for the three ~~and nine~~ months ended ~~September~~March 3031, ~~2024~~2025 and ~~2023~~2024, respectively. ~~For further information on restructuring costs, see Note 9, “Restructuring Costs,” in the Notes to Condensed Consolidated Financial Statements.~~

(2) ~~Write-offs~~Other ~~and other~~ primarily reflects legal costs and other items that do not reflect our ongoing operating performance. Legal and other fees related to the 2022 misappropriation of funds by a former senior marketing employee of zero and $0.51 million for the three ~~and nine~~ months ended ~~September~~March 3031, ~~2024,~~2025 ~~respectively,~~ and ~~$1.0 million and $3.4 million for the three and nine months ended September 30~~2024, ~~2023,~~ respectively.

Liquidity and Capital Resources

General

Since inception, we have financed operations primarily through sales of insurance policies and the net proceeds we have received from our issuance of stock and debt and from sales of investments. Cash generated from operations is highly dependent on being able to efficiently acquire and maintain customers while pricing our insurance products appropriately. We are continuously evaluating alternatives for efficiently funding our ongoing operations and reducing our cost of capital. We expect, from time to time, to engage in a variety of financing transactions for such purposes, including the issuance of stock and debt.

Certain events may impact our liquidity such as the economic instability resulting in acute inflationary pressures, supply chain disruptions, changes in interest rates, new or increased tariffs, changes in equity markets and our utilization of reinsurance. There isremains auncertainty ~~risk~~around the future of inflation; ~~remaining~~ elevated levels of inflation for an extended period, ~~which~~ could cause claims and claim expenses to increase, impact the performance of our investment portfolio or have other adverse effects. ~~Fluctuations~~Conditions in the capital and credit markets, including instability and uncertainty, as well as broader economic factors such as the imposition of substantial tariffs and potential retaliatory tariffs, can also influence the returns, liquidity, valuation, and types of our investments. Additionally, fluctuations in interest rates could impact our cost of capital and may limit our ability to raise additional capital. We utilize reinsurance arrangements to grow our business in a capital-efficient manner and mitigate risk. Over time, our strategy continues to evolve and we may choose to amend, commute, and/or non-renew certain third-party reinsurance agreements, which may result in us retaining more or less of our business in the future. To the extent we retain a larger share of our book of business, our capital requirements may increase.

3630

Regulatory Considerations

We are organized as a holding company, but our primary operations are conducted by ~~two~~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. Toand ~~date,~~the ~~our~~State ~~insurance~~of ~~subsidiaries~~Florida. ~~have~~Our ~~not~~domestic ~~paid~~insurance ~~any~~subsidiaries ~~dividends~~are ~~and, as of September 30, 2024, they were~~ not permitted to pay any dividends without approval of the applicable superintendent, commissioner and/or director.

If our insurance subsidiaries’ business grows, the amount of capital we are required to maintain to satisfy our risk-based capital requirements may increase significantly. To comply with these regulations, we may be required to maintain capital in the insurance subsidiaries that we would otherwise invest in our growth and operations. As of ~~September~~March 3031, ~~2024~~2025, our insurance subsidiaries maintained a risk-based capital level that is in excess of an amount that would require any corrective actions on our part.

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 ~~September~~March 3031, ~~2024~~2025, Root Re was subject to compliance with certain capital levels and a net premiums earned to capital ratio of 15:1, which we maintained as of ~~September~~March 3031, ~~2024~~2025. The capital ratio can fluctuate at Root Re’s election, subject to regulatory approval. Root Re’s primary sources of funds are capital contributions from the holding company, assumed insurance premiums and net investment income. 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, 2025, Root Re distributed a dividend of $25.0 million to Caret Holdings, Inc., its parent company.

Financing Arrangements

OnIn ~~January~~October 262024, ~~2022,~~ we ~~closed~~entered oninto a $~~300~~200.0 million five-year term loan, or Amended Term Loan., ~~The~~with ~~maturity~~the ofprincipal ~~the~~amount ~~Term~~due ~~Loan~~and ispayable ~~January~~upon 27maturity on October 29, ~~2027~~2030. Interest is payable quarterly and is determined on a floating interest rate calculated on the Secured Overnight Financing Rate, ~~or SOFR,~~ with a 1.0% floor, plus 9an applicable margin ranging from 5.025% to 6.00% based upon the debt-to-capital ratio payable quarterly.

In October 2024, we entered into the second amendment to the Term Loan, or Amended Term Loan, that resulted in extinguishment of $237.1 million of the Term Loan, modification of $62.9 million of the Term Loan, and new borrowings of $137.1 million from new BlackRock funds. The resulting principal amount under the Amended Term Loan is $200.0 million and has a maturity date of October 29, 2030. Interest is variable and calculated quarterly between SOFR plus 5.25% and SOFR plus 6.00%, with a SOFR floor of 1.00%, based upon the debt-to-capital ratio payable quarterly, in cash.

Liquidity

As of ~~September~~March 3031, ~~2024~~2025, we had $~~674~~609.84 million in cash and cash equivalents, of which $~~439~~347.23 million was held outside of regulated insurance entities. We also had $~~274~~320.8 million in marketable securities.

Our cash and cash equivalents primarily consist of bank deposits and money market funds. Our marketable securities primarily consist of U.S. Treasury securities and agencies, municipal securities, corporate debt securities, ~~residential~~ and ~~commercial mortgage~~asset-backed securities~~, and other debt obligations~~.

We believe that our existing cash and cash equivalents, marketable securities and cash flow from operations will be sufficient to support short-term working capital and capital expenditure requirements for at least the next 12 months and for the foreseeable future thereafter.

Our long-term capital requirements depend on many factors, including our insurance premium growth rate, rate adequacy, level of marketing spend, renewal activity, the timing and the amount of cash received from customers, the performance of our products, including the success of our partnership channel, loss cost trends, the timing and extent of spending to support development efforts, the introduction of new and enhanced products, the continuing market adoption of offerings on our platform, operating costs, and the ongoing uncertainty in global markets.

3731

Tax withholding obligations arise upon vesting of shares of service-based restricted stock units, or RSUs, and performance-based restricted stock units, and these obligations must be satisfied at the time they arise through cash payments remitted to the relevant tax authorities. To the extent we satisfy our tax withholding obligations with respect to these equity compensation awards by withholding shares and remitting cash to the relevant tax authorities, the amount of cash payments due for taxes upon the vesting of such equity compensation awards is dependent on the price of our Class A common stock on the applicable vesting dates and could be substantial. Future obligations could have a negative impact on our liquidity and ability to use funds for operational purposes.

~~During~~For illustrative purposes, assuming a stock price of $128.60 per share (the ~~fourth~~closing ~~quarter~~price of ~~2024,~~our weshares ~~expect~~of toClass ~~receive~~A acommon ~~sales~~stock ~~tax~~on ~~refund,~~the ~~including~~The ~~interest,~~Nasdaq ofStock ~~$7.5~~Market ~~million~~on ~~related~~April to1, ~~multiple~~2025), ~~prior~~we ~~years.~~estimate ~~The~~that ~~sales~~our tax ~~refund~~withholding ~~was~~obligations ~~primarily~~on ~~recorded~~account asof aremaining ~~contra-expense~~vesting inevents ~~other~~for ~~insurance~~the ~~expense~~second, onthird and fourth quarter of 2025 and the ~~condensed~~first ~~consolidated~~quarter ~~statements~~of 2026 of ~~operations~~approximately $16.7 million, $4.5 million, $3.8 million and ~~comprehensive~~$4.5 ~~income~~million, ~~(loss)~~respectively.

~~Through~~Our ~~September 30, 2024, our~~ debt covenants required cash and cash equivalents held in entities other than our insurance subsidiaries to be at least $~~150~~50.0 million. We had to continue to satisfy the direct contribution to gross premiums earned ratio requirement of greater than 12% at the end of each fiscal quarter in order to maintain the threshold of $150.0 million. If we did not satisfy these requirements, the threshold would have returned to $200.0 million.

Under the Amended Term Loan, our debt covenants require cash and cash equivalents held in entities other than our insurance subsidiaries to be at least $50.0 million.

Through prudent deployment of capital we believe we have sufficient resources, and access to additional debt and equity capital, to adequately meet our obligations as they come due.

Cash Flows

The following table summarizes our cash flow data for the periods presented:

	Nine Months Ended September 30,
	Three Months Ended March 31,
	2024		2023
	2025		2024
	(in millions)
Net cash provided by (used in) operating activities	$	126.5	$	(79.7)
Net cash provided by operating activities	$	26.8	$	14.5
Net cash used in investing activities	(~~114~~13.18)		(4652.23)
Net cash used in financing activities	(162.38)		(0.94)

Net cash provided by operating activities for the ~~nine~~three months ended ~~September~~March 3031, ~~2024~~2025 was $~~126~~26.58 million compared to $7914.75 million ~~of net cash used in operating activities~~ for the ~~nine~~three months ended ~~September~~March 3031, ~~2023~~2024. The increase in cash provided by operating activities was due to anhigher ~~increase~~net inincome ~~the~~between ~~loss and LAE reserves for~~ the ~~nine~~periods, ~~months~~timing ~~ended~~of ~~September~~reinsurance ~~30,~~receipts ~~2024~~and ~~reflecting the~~ growth in ~~policies~~premiums innot ~~force,~~yet ~~higher net income between the periods and timing of reinsurance payments~~earned. This was partially offset by ~~timing~~a ofchange ~~reinsurance~~in ~~receipts~~loss ~~during~~and ~~the~~LAE ~~nine~~reserves ~~months~~due ~~ended September 30, 2024 compared~~ to ~~the~~growth ~~same~~in ~~period~~policies in ~~2023~~force and ~~the~~timing ~~impact~~ of ~~commuting~~premium ~~certain agreements with reinsurers in the second half of 2023~~receipts.

Net cash used in investing activities for the ~~nine~~three months ended ~~September~~March 3031, ~~2024~~2025 was $~~114~~13.18 million compared to $4652.23 million ~~of net cash used in investing activities~~ for the ~~nine~~three months ended ~~September~~March 3031, ~~2023~~2024. The ~~increase~~decrease in cash used in investing activities was primarily due to lower purchases of investments ~~which~~and ~~was~~higher ~~partially offset by~~ proceeds from maturities, calls and pay downs of investments for the three months ended March 31, 2025 compared to the same period in 2024.

Net cash used in financing activities for the ~~nine~~three months ended ~~September~~March 3031, ~~2024~~2025 was $162.38 million compared to $0.94 million ~~of net cash used in financing activity~~ for the ~~nine~~three months ended ~~September~~March 3031, ~~2023~~2024. The increase in cash used in financing activities was primarily due to tax withholding obligations arising from the vesting of shares of RSUs ~~and PSUs~~ during the ~~nine~~three months ended ~~September~~March 3031, ~~2024~~2025.

Material Cash Requirements from Contractual and Other Obligations

There have been no material changes to our contractual and other obligations from those described in our ~~2023~~2024 10-K. We believe we have sufficient resources, and access to additional debt and equity capital, to adequately meet our obligations as they come due.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on our financial condition, results of operations, liquidity or cash flows.

Critical Accounting Estimates

Our financial statements are prepared in accordance with GAAP. The preparation of the condensed consolidated financial statements in conformity with GAAP requires our management to make a number of estimates and assumptions relating to the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the period. We evaluate our significant estimates on an ongoing basis, including, but not limited to, estimates related to reserves for loss and LAE, valuation allowance on our deferred tax assets, and ~~allowance~~the ~~for~~amount ~~expected~~of ~~credit~~reinsurance ~~losses~~recoverable onand ~~premium~~receivable ~~receivables~~from ~~and~~ reinsurance ~~recoverables~~contracts. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates.

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 ~~2023~~2024 10-K and the Notes to Condensed Consolidated Financial Statements appearing elsewhere in this Quarterly Report on Form 10-Q. During the ~~nine~~three months ended ~~September~~March 3031, ~~2024~~2025, there were no material changes to our critical accounting estimates from those discussed in our ~~2023~~2024 10-K.

3933

Item 3. Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes in the quantitative and qualitative market risk disclosures included in the ~~2023~~2024 10-K.

4034

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our principal executive officer and principal financial officer, evaluated, as of the end of the period covered by this Quarterly Report on Form 10-Q, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on that evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of ~~September~~March 3031, ~~2024~~2025.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended ~~September~~March 3031, ~~2024~~2025 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Limitations on Effectiveness of Controls and Procedures

Our management, including our principal executive officer and principal financial officer, do not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the controls. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Due to inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

4135

Part II. Other Information

Item 1. Legal Proceedings

From time to time, we are party to litigation and legal proceedings relating to our business operations. While the outcome of all legal actions is not presently determinable, ~~except as noted in Note 11, “Commitments and Contingencies,” in the Notes to Condensed Consolidated Financial Statements,~~ we do not believe that we are party to any current or pending legal action that could reasonably be expected to have a material adverse effect on our financial condition or results of operations and cash flows.

4236

Item 1A. Risk Factors

There have been no material changes in our risk factors from those disclosed in the ~~2023~~2024 10-K. In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the risk factors discussed in Part I, Item 1A. “Risk Factors,” in the ~~2023~~2024 10-K. You should not interpret the disclosure of any risk factor to imply the risk has not already materialized.

4337

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchases of Equity Securities

None.

Dividend Policy

We have never declared or paid cash dividends on our stock. We currently intend to retain all available funds and future earnings to fund the development and expansion of our business, and we do not anticipate paying any cash dividends in the foreseeable future. Any future determination regarding the declaration and payment of dividends, if any, will be at the discretion of our board of directors and will depend on then-existing conditions, including our financial condition, operating results, contractual restrictions, capital requirements, business prospects and other factors our board of directors may deem relevant.

Dividend, Repurchase and Working Capital Restrictions

We are a holding company that transacts a majority of its business through operating subsidiaries. Our regulated insurance subsidiaries are subject to restrictions on the dividends they may pay, which could impact our ability to pay dividends to stockholders in the future.

The payment of any extraordinary dividend by one of our regulated insurance subsidiaries requires the prior approval of the superintendent of the supervisory Department of Insurance, or DOI. “Extraordinary dividend” is defined under the Ohio Revised Code as: (i) any dividend or distribution of cash or other property whose fair market value, together with that of other dividends or distributions made within the preceding 12 months, exceeds the greater of (a) 10% of an insurer’s policyholder surplus as of December 31 of the preceding year, or (b) an insurer’s net income for the 12-month period ending December 31 of the preceding year or (ii) any dividend or distribution paid by an insurer from a source other than earned surplus. AsNeither ~~of December 31, 2023, neither~~ Root Insurance Company nor Root Property & Casualty Insurance Company ~~were~~are permitted to pay any dividends to us without approval of the superintendent of the supervisory DOI. See the section titled “Risk Factors — Risks Related to Our Business — Failure to maintain our risk-based capital at the required levels could adversely affect our ability to maintain regulatory authority to conduct our business,” included in the ~~2023~~2024 10-K.

In addition, insurance regulators have broad powers to prevent a reduction of statutory surplus to inadequate levels, and there is no assurance that dividends of the maximum amount calculated under any applicable formula would be permitted. The Ohio DOI may, in the future, adopt statutory provisions more restrictive than those currently in effect.

Further, the Amended Term Loan includes covenants that require us to maintain certain levels of liquidity and restrict us from declaring or making cash dividend or other distributions and from repurchasing our common stock outside of the ordinary course of business or in excess of certain specified limits during the term of the Amended Term Loan.

4438

Item 3. Defaults Upon Senior Securities

Not applicable.

4539

Item 4. Mine Safety Disclosures

Not applicable.

4640

Item 5. Other Information

~~Second~~On ~~Term~~March ~~Loan~~5, ~~Amendment~~2025, Beth Birnbaum, a member of the Company’s Board of Directors, entered into a trading plan intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) under the Exchange Act (a “10b5-1 Plan”). Ms. Birnbaum’s 10b5-1 Plan provides for the potential sale of up to 2,853 shares of Class A common stock and terminates no later than June 5, 2026.

AsOn ~~described~~March in6, ~~Note 7~~2025, ~~“Long-Term~~Julie ~~Debt~~Szudarek,” ~~above,~~a onmember ~~September~~of ~~17, 2024,~~ the Company’s Board of Directors, entered into ~~the~~a ~~First~~10b5-1 ~~Term~~Plan. ~~Loan~~Ms. ~~Amendment~~Szudarek’s to10b5-1 ~~the~~Plan ~~Term~~provides ~~Loan,~~for ~~which,~~the ~~among~~potential ~~other~~sale ~~things,~~of ~~provide~~up ~~for~~to ~~greater~~8,291 ~~flexibility~~shares ~~for~~of ~~investments~~Class inA ~~future~~common ~~U.S.~~stock ~~Insurance~~and ~~Subsidiaries~~terminates ~~(as~~no ~~defined~~later inthan ~~the~~June ~~Amended~~5, ~~Term Loan)~~2026.

AsOn ~~described~~March ~~in Note~~ 14, ~~“Subsequent Events~~2025,” ~~above,~~Jonathan ~~on October 29~~Allison, ~~2024,~~ the Company’s Chief Administrative Officer, entered into a 10b5-1 Plan. Mr. Allison’s 10b5-1 Plan provides for the ~~Second~~potential ~~Term~~sale ~~Loan~~of ~~Amendment,~~up ~~which~~to 23,835 ~~among~~shares ~~other~~of ~~things:~~Class A common stock and terminates no later than June 16, 2026.

~~1.reduced the size of the Term Loan from $300.0 million to $200.0 million;~~41

2.extended the maturity date of the Term Loan from January 27, 2027 to October 29, 2030;

3.reduced the applicable margin of the term loan from 9.00% to a rate ranging from 5.25% to 6.00%, depending on the applicable Debt to Capital Ratio (as defined in the Amended Term Loan);

4.reinstated a prepayment premium of 2.00% during the period from and after October 29, 2024 to but not including October 29, 2025, 1.00% during the period from and after October 29, 2025 to but not including October 29, 2026, and no prepayment premium thereafter;

5.added a Direct Contribution to Gross Earned Premium Ratio (as defined in the Amended Term Loan) financial covenant;

6.reduced the minimum liquidity covenant from $150.0 million to $50.0 million as set forth in the Amended Term Loan and the heading “Liquidity” in Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations herein; and

7.increased the minimum Regulated Subsidiary Equity (as defined in the Amended Term Loan) covenant from $100.0 million to $125.0 million.

In connection with the Second Term Loan Amendment, on October 29, 2024, the Company also entered into (i) amendments (the “Tranche 1 Warrant Amendments”) to the Tranche 1 Warrants (as defined in the Form 8-K of the Company dated January 26, 2022) to set an expiration date as of January 26, 2027 and (ii) an amended and restated Board Observation Side Letter (the “Amended and Restated Observer Letter”), which amends and restates the Observer Letter (as defined in the Form 8-K of the Company dated January 26, 2022) to change the BlackRock lender entities that are party thereto.

The foregoing description of the First Term Loan Amendment, the Second Term Loan Amendment, the Tranche 1 Warrant Amendments and the Amended and Restated Observer Letter does not purport to be complete and is qualified in its entirety by reference to the full text of the First Term Loan Amendment, the Second Term Loan Amendment, the form of Tranche 1 Warrant Amendments and the Amended and Restated Observer Letter which are filed as Exhibits 10.1, 10.2, 4.5, and 10.3 respectively, to this Form 10-Q and are incorporated herein by reference.

Rule 10b5-1 Trading Arrangements

None of the Company’s directors or officers (as defined in Rule 16a-1(f) under the Exchange Act) adopted, modified, or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement (as each term is defined in Item 408 of Regulation S-K) during the Company’s fiscal quarter ended September 30, 2024.

Item 6. Exhibits.

(a)Exhibits.

Incorporation by Reference

ExhibitNumber

Description of Exhibit

Form

SEC File Number

Exhibit

Filing Date

Filed Herewith

3.1

Amended and Restated Certificate of Incorporation of Root, Inc.

8-K

001-39658

3.1

October 30, 2020

3.2

Certificate of Amendment to Amended and Restated Certificate of Incorporation of Root, Inc.

8-K

001-39658

3.1

August 15, 2022

3.3

Amended and Restated Bylaws of Root, Inc.

10-K

001-39658

3.3

February 22, 2023

3.4

Certificate of Designations of Series A Preferred Stock, filed with the Delaware Secretary of State on October 1, 2021

8-K

001-39658

3.1

October 1, 2021

4.1

Form of Class A common stock certificate of the Registrant.

S-1/A

333-249332

4.1

October 20, 2020

4.2

Common Stock Purchase Warrants, dated as of October 1, 2021, by and between Root, Inc. and Carvana Group, LLC

8-K

001-39658

4.1

October 1, 2021

4.3

Form of Common Stock Purchase Warrant (Tranche 1), dated January 26, 2022

8-K

001-39658

4.1

January 27, 2022

4.4

First Amendment to Form of Common Stock Purchase Warrant (Tranche 21), dated October 29, 2024

810-KQ

001-39658

4.25

~~January~~October 2730, ~~2022~~2024

4.5

First Amendment to Form of Common Stock Purchase Warrant (Tranche 1), dated October 29, 2024

10.1#

Root, Inc. Non-Employee Director Compensation Policy

10.1

First Amendment to Term Loan Agreement, dated September 17, 2024, by and among the Company, Caret Holdings, Inc., as borrower, the loan parties party thereto and Acquiom Agency Services LLC, as the administrative agent for the lenders party thereto

10.2#

Form of Root, Inc. Non-Employee Director Compensation Policy

10.2**

Second Amendment to Term Loan Agreement, dated October 29, 2024, by and among the Company, Caret Holdings, Inc., as borrower, the loan parties party thereto and Acquiom Agency Services LLC, as the administrative agent for the lenders party thereto

10.3#

2025 Short-Term Incentive Plan

10.3

Amended and restated Board Observation Side Letter

31.1

Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2

Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1*

Certification of Principal Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS

Inline XBRL Instance Document

101.SCH

Inline XBRL Taxonomy Extension Schema Document

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

Inline XBRL Taxonomy Extension Label Linkbase Document

4842

32.1*

Certification of Principal Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS

Inline XBRL Instance Document

101.SCH

Inline XBRL Taxonomy Extension Schema Document

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase Document

104

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

# Indicates management contract or compensatory plan.

* The certifications furnished in Exhibit 32.1 hereto are deemed to accompany this Quarterly Report on Form 10-Q and will not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, except to the extent that the registrant specifically incorporates them by reference.

**Schedules and exhibits to this Exhibit omitted pursuant to Regulation S-K Item 601(a)(5) and (b)(10). The Company agrees to furnish supplementally a copy of any omitted schedule or exhibit to the SEC upon request.43

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Root, Inc.

Date: October 30, 2024

By:

/s/ Alexander Timm

Date: May 7, 2025

By:

/s/ Alexander Timm

Alexander Timm

Chief Executive Officer and Director

(Principal Executive Officer)

Date: October 30, 2024

By:

/s/ Megan Binkley

Date: May 7, 2025

By:

/s/ Megan Binkley

Megan Binkley

Chief Financial Officer

(Principal Financial Officer)

Date: October 30, 2024

By:

/s/ Ryan Forish

Date: May 7, 2025

By:

/s/ Ryan Forish

Ryan Forish

Chief Accounting Officer

(Principal Accounting Officer)

5044

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