Q1 2026 Root Inc Earnings Call

May 6, 2026

Operator 3: Ladies and gentlemen, greetings and welcome to Root, Inc. Q1 2026 Earnings Conference Call. At this time, all participants are in the listen only mode. A brief question and answer session will follow the formal presentation. If anyone requires operator assistance during the conference, please signal an operator by pressing star and 0 on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host for today, Matthew LaMalva, Head of IR and Corporate Development. Please go ahead.

Operator: Ladies and gentlemen, greetings and welcome to Root, Inc. Q1 2026 Earnings Conference Call. At this time, all participants are in the listen only mode. A brief question and answer session will follow the formal presentation. If anyone requires operator assistance during the conference, please signal an operator by pressing star and 0 on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host for today, Matthew LaMalva, Head of IR and Corporate Development. Please go ahead.

Speaker #1: A brief question-and-answer session will follow the formal presentation. If anyone requires operator assistance during the conference, please signal an operator by pressing star and zero on your telephone keypad.

Speaker #1: As a reminder, this conference is being recorded. It is now my pleasure to introduce your host for today, Matt LaMalva, Head of IR and Corporate Development.

Speaker #1: Please go ahead.

Speaker #2: Good afternoon, and thank you for joining us. Root is hosting this call to discuss its first quarter 2026 earnings results. Participating on today's call is Alex Timm, co-founder and chief executive officer, and Megan Binkley, chief financial officer.

Matthew LaMalva: Good afternoon, thank you for joining us. Root is hosting this call to discuss its Q1 2026 earnings results. Participating on today's call is Alex Timm, Co-founder and Chief Executive Officer, and Megan Binkley, Chief Financial Officer. Earlier today, Root issued a shareholder letter announcing its financial results. We'll focus today on how we're executing against our model and the progress we're delivering across the business. While today's discussion will reflect the shareholder letter, for more complete information about our financial performance, we also encourage you to read our Q1 2026 Form 10-Q, which was filed with the Securities and Exchange Commission today. Before we begin, I want to remind you that matters discussed on today's call will include forward-looking statements related to our operating performance, financial goals, and business outlook, which are based on management's current beliefs and assumptions.

Matt LaMalva: Good afternoon, thank you for joining us. Root is hosting this call to discuss its Q1 2026 earnings results. Participating on today's call is Alex Timm, Co-founder and Chief Executive Officer, and Megan Binkley, Chief Financial Officer. Earlier today, Root issued a shareholder letter announcing its financial results. We'll focus today on how we're executing against our model and the progress we're delivering across the business. While today's discussion will reflect the shareholder letter, for more complete information about our financial performance, we also encourage you to read our Q1 2026 Form 10-Q, which was filed with the Securities and Exchange Commission today. Before we begin, I want to remind you that matters discussed on today's call will include forward-looking statements related to our operating performance, financial goals, and business outlook, which are based on management's current beliefs and assumptions.

Speaker #2: Earlier today, Root issued a shareholder letter announcing its financial results. We'll focus today on how our executing against our model and the progress we're delivering across the business.

Speaker #2: While today's discussion will reflect the shareholder letter, for more complete information about our financial performance, we also encourage you to read our first quarter 2026 Form 10Q, which was filed with the Securities and Exchange Commission today.

Speaker #2: Before we begin, I want to remind you that matters discussed on today's call will include forward-looking statements related to our operating performance, financial goals, and business outlook.

Speaker #2: Which are based on management's current beliefs and assumptions. Please note that these forward-looking statements reflect our opinions as of the date of this call, and we are not obligated to revise this information as a result of new developments that may occur.

Matthew LaMalva: Please note that these forward-looking statements reflect our opinions as of the date of this call, we are not obligated to revise this information as a result of new developments that may occur. Forward-looking statements are subject to various risks, uncertainties, and other factors that could cause our actual results to differ materially from those expected and described today. For a more detailed description of our risk factors, please review our most recent Form 10-K, Form 10-Q, and shareholder letter. A replay of this conference call will be available on our website under the Investor Relations section. I would also like to remind you that during the call, we will discuss some non-GAAP measures while talking about Root's performance. You can find reconciliations of these historical measures to the nearest comparable GAAP measures in our financial disclosures, all of which are posted on our website at ir.joinroot.com.

Matt LaMalva: Please note that these forward-looking statements reflect our opinions as of the date of this call, we are not obligated to revise this information as a result of new developments that may occur. Forward-looking statements are subject to various risks, uncertainties, and other factors that could cause our actual results to differ materially from those expected and described today. For a more detailed description of our risk factors, please review our most recent Form 10-K, Form 10-Q, and shareholder letter. A replay of this conference call will be available on our website under the Investor Relations section. I would also like to remind you that during the call, we will discuss some non-GAAP measures while talking about Root's performance. You can find reconciliations of these historical measures to the nearest comparable GAAP measures in our financial disclosures, all of which are posted on our website at ir.joinroot.com.

Speaker #2: Forward-looking statements are subject to various risks, uncertainties, and other factors, that could cause our actual results to differ materially from those expected and described today.

Speaker #2: For a more detailed description of our risk factors, please review our most recent 10-K, 10Q, and shareholder letter. A replay of this conference call will be available on our website under the Investor Relations section.

Speaker #2: I would also like to remind you that during the call, we will discuss some non-GAAP measures while talking about Root's performance. You can find reconciliations of these historical measures to the nearest comparable GAAP measures in our financial disclosures.

Speaker #2: All of which are posted on our website at irjoinroot.com. I will now turn the call over to Alex.

Matthew LaMalva: I will now turn the call over to Alex.

Matt LaMalva: I will now turn the call over to Alex.

Speaker #3: Thanks, Matt. Good afternoon and thank you, everyone, for joining us. We kicked off 2026 with the most profitable quarter in the company's history. Generating an annualized ROE of $47%.

Alex Timm: Thanks, Matt. Good afternoon, and thank you, everyone, for joining us. We kicked off 2026 with the most profitable quarter in the company's history, generating an annualized ROE of 47%. The team has worked hard to deliver these fantastic results, and we're all grateful for their hard work. These results reflect a structurally stronger model driven by improvements in pricing, underwriting, and capital allocation. On growth, we grew policies in force over 9% in the quarter year over year, with gross premiums written of $389 million. Recall that last year's growth temporarily increased on news of impending tariffs, making year-over-year comparisons difficult. As a reminder, we continue to be focused on our five-part growth strategy. One, create the lowest prices for customers. Two, launch our product in every state. Three, expand into the independent agency channel. Four, scale our embedded insurance products.

Speaker #3: The team has worked hard to deliver these fantastic results and we're all grateful for their hard work. These results reflect a structurally stronger model, driven by improvements in pricing, underwriting, and capital allocation.

Speaker #3: On growth, we grew policies in force over 9% in the quarter year over year, with gross premiums written of $389 million. Recall that last year's growth temporarily increased on news of impending tariffs, making year over year comparisons difficult.

Speaker #3: As a reminder, we continue to be focused on our five-part growth strategy. One, create the lowest prices for customers. Two, launch our product in every state.

Speaker #3: Three, expand into the independent agency channel. Four, scale our embedded insurance products. And five, leverage our AI expertise to grow our automated marketing machine.

Alex Timm: Five, leverage our AI expertise to grow our automated marketing machine. Some highlights from Q1. On distribution, we're continuing to build a platform that is both diversified and scalable, which is very important to our long-term growth trajectory. Our overall partnerships grew new writings 30% year over year. On independent agents, we now partner with more than 15,000 agents across 5,000 agencies nationwide. In Q1, we launched our partnership with Freeway Insurance, the largest personal lines insurance distributor in the country. We're very excited by the prospects of continuing to scale in this channel, bringing products that are easier for agents and more affordable for customers to an over $100 billion market. As our models have continued to learn in this space, we were able to materially improve our pricing for this segment of our business in Q1 as well.

Speaker #3: Some highlights from the quarter. On distribution, we're continuing to build a platform that is both diversified and scalable, which is very important to our long-term growth trajectory.

Speaker #3: Our overall partnerships grew new writings 30% year over year. On independent agents, we now partner with more than 15,000 agents across 5,000 agencies nationwide.

Speaker #3: In the first quarter, we launched our partnership with Freeway Insurance, the largest personal lines insurance distributor in the country. We're very excited by the prospects of continuing to scale in this channel, bringing products that are easier for agents and more affordable for customers to an over $100 billion market.

Speaker #3: As our models have continued to learn in this space, we were able to materially improve our pricing for this segment of our business in the first quarter as well.

Speaker #3: We also continue to scale our embedded insurance offering with Carvana now surpassing 200,000 policies sold. This channel allows us to present nearly frictionless insurance at the point of need, creating a great experience for customers.

Alex Timm: We also continue to scale our embedded insurance offering, with Carvana now surpassing 200,000 policies sold. This channel allows us to present nearly frictionless insurance at the point of need, creating a great experience for customers. This allows for the potential to create new pricing models distinct to each partner, leveraging their unique data, including connected vehicle data, which is critical to our long-term AV strategy. In direct, we saw a difficult growth environment that intensified throughout the quarter. These cycles are common in our industry, and we are well-positioned to manage them prudently, only deploying your capital when we see meaningful opportunities to exceed our hurdle rate. When conditions are attractive, we invest aggressively. When they are not, we remain disciplined and patient. This creates some fluctuations in our quarterly growth.

Speaker #3: In addition, this allows for the potential to create new pricing models distinct to each partner, leveraging their unique data including connected vehicle data, which is critical to our long-term AV strategy.

Speaker #3: Indirect, we saw a difficult growth environment that intensified throughout the quarter. These cycles are common in our industry, and we are well positioned to manage them prudently.

Speaker #3: Only deploying your capital when we see meaningful opportunities to exceed our hurdle rate. When conditions are attractive, we invest aggressively. When they are not, we remain disciplined and patient.

Speaker #3: This creates some fluctuations in our quarterly growth. But over the long term, we believe it creates much better outcomes for our shareholders. We believe a key source of value is our ability and willingness to act differently from the crowd, and maintain our long-term orientation.

Alex Timm: Over the long term, we believe it creates much better outcomes for our shareholders. We believe a key source of value is our ability and willingness to act differently from the crowd and maintain our long-term orientation. Regardless of the cycle, we always invest in our technology and customer experiences that makes Root special. Right now, we are living in one of the most exciting times in technology that we've seen in our lifetimes. Since our inception, our founding principles lie at the heart of AI. We were born out of the forces of mathematical invention, and now the advancements of this technology have perfectly situated our strategy for acceleration. We are actively working to build a completely automated insurance company that will be the first of its kind.

Speaker #3: Regardless of the cycle, we always invest in our technology and customer experiences that makes Root special. And right now, we are living in one of the most exciting times in technology that we've seen in our lifetimes.

Speaker #3: Since our inception, our founding principles lie at the heart of AI. We were born out of the forces of mathematical invention. And now, the advancements of this technology have perfectly situated our strategy for acceleration.

Speaker #3: We are actively working to build a completely automated insurance company that will be the first of its kind. This allows us to create a closed loop, tying customer acquisition, onboarding, pricing, underwriting, and claims together in one technical system.

Alex Timm: This allows us to create a closed loop tying customer acquisition, onboarding, pricing, underwriting, and claims together in one technical system. We believe this structural advantage will create meaningful operating leverage and, most importantly, allow us to price and manage risk at a fidelity never before seen. Insurance is fundamentally a prediction problem. AI is fundamentally an advancement in predictive sciences. We've built moats around this advantage. This future belongs to a technology company and requires loads of claims data, insurance licensing, and a complete insurance technology stack built entirely in-house. We have invested tremendously in these hard-won assets. This puts Root in the ideal position for the future. We're very excited by this future and what we can achieve. We are well on our way to fulfilling our mission. I'll now pass the call over to Megan to talk about financial performance.

Speaker #3: We believe this structural advantage will create meaningful operating leverage in, most importantly, allow us to price and manage risk at a fidelity never before seen.

Speaker #3: Insurance is fundamentally a prediction problem, and AI is fundamentally an advancement in predictive sciences. And we've built moats around this advantage. This future belongs to a technology company and requires loads of claims data, insurance licensing, and a complete insurance technology stack built entirely in-house.

Speaker #3: We have invested tremendously in these hard-won assets, and this puts Root in the ideal position for this future. We're very, very excited by this future and what we can achieve.

Speaker #3: We are well on our way to fulfilling our mission. I'll now pass the call over to Megan to talk about financial performance.

Speaker #2: Thanks, Alex. We delivered record net income of $36 million in the quarter, up $18 million year over year. Operating income was $41 million and adjusted EBITDA was $57 million.

Megan Binkley: Thanks, Alex. We delivered record net income of $36 million in the quarter, up $18 million year over year. Operating income was $41 million, and adjusted EBITDA was $57 million, increasing $17 million and $25 million year over year, respectively. We grew policies in force 9% on a year-over-year basis. We continued to diversify our business, growing our partnership and independent agent new writings by more than 30% year over year. Related to premiums, Q1 growth premiums written were $389 million, a moderation of 5% year over year. As Alex reiterated, this was largely driven by early 2025 tariff-related demand. Q1 growth premiums earned were $370 million, growth of 8% year over year. These results reflect continued improvement in our unit economics, driven by pricing, underwriting, and acquisition efficiency.

Speaker #2: Increasing $17 million and $25 million year over year respectively. We grew policies in force 9% on a year-over-year basis. We continued to diversify our business, growing our partnership and independent agent new writings by more than 30% year over year.

Speaker #2: Related to premiums, Q1 gross premiums written were $389 million. A moderation of 5% year over year. As Alex reiterated, this was largely driven by early 2025 tariff-related demand.

Speaker #2: Q1 gross premiums earned were $370 million. Growth of 8% year over year. These results reflect continued improvement in our unit economics driven by pricing, underwriting, and acquisition efficiency.

Speaker #2: Our record profitability reflects how we manage the business, including focusing on high-return growth and market expansion opportunities, maintaining flexibility across underwriting cycles, and continuing to invest in product and technology innovation.

Megan Binkley: Our record profitability reflects how we manage the business, including focusing on high return growth and market expansion opportunities, maintaining flexibility across underwriting cycles, and continuing to invest in product and technology innovation. On capital, I'm pleased to announce that we've refinanced our $200 million debt facility with The Huntington National Bank on 4 May, lowering our annual run rate interest expense by roughly $5 million. The new facility enhances our financial flexibility, allowing us to allocate capital more dynamically. Consistent with our strategy, we are investing in our technology, organic growth, partnerships, and shareholder returns. As part of this approach, our board of directors authorized a $75 million share repurchase program, reflecting both the strength of our capital position and our confidence in the intrinsic value of the business.

Speaker #2: On capital, I'm pleased to announce that we've refinanced our $200 million debt facility with the Huntington National Bank on May 4th. Lowering our annual run rate interest expense by roughly $5 million.

Speaker #2: The new facility enhances our financial flexibility, allowing us to allocate capital more dynamically. Consistent with our strategy, we are investing in our technology, organic growth, partnerships, and shareholder returns.

Speaker #2: As part of this approach, our board of directors authorized a $75 million share repurchase program, reflecting both the strength of our capital position and our confidence in the intrinsic value of the business.

Speaker #2: Overall, the financial profile of the business continues to strengthen, and we are energized by the progress we've made. We remain focused on the long-term opportunities in front of us, supported by massive growth prospects across our five levers and advancements in our data science, technology, and distribution capabilities.

Megan Binkley: Overall, the financial profile of the business continues to strengthen, and we are energized by the progress we've made. We remain focused on the long-term opportunities in front of us, supported by massive growth prospects across our five levers and advancements in our data science, technology, and distribution capabilities. We will continue to stay nimble and believe we are well-positioned to continue strengthening profitability while maintaining flexibility to invest in growth. With that, to begin the Q&A session, I'll turn it back over to Matt and Alex to answer a few questions we've received through social media and our investor relations email.

Speaker #2: We will continue to stay nimble and believe we are well positioned to continue strengthening profitability while maintaining flexibility to invest in growth. With that, to begin the Q&A session, I'll turn it back over to Matt and Alex to answer a few questions we've received through social media and our investor relations email.

Speaker #3: Thanks, Megan. As we continue to engage more directly with our shareholders, we wanted to address a few of the most common themes we've seen this quarter.

Matthew LaMalva: Thanks, Megan. As we continue to engage more directly with our shareholders, we wanted to address a few of the most common themes we've seen this quarter. Alex, the first question is: What is Root's approach to the growth versus profitability trade-off?

Matt LaMalva: Thanks, Megan. As we continue to engage more directly with our shareholders, we wanted to address a few of the most common themes we've seen this quarter. Alex, the first question is: What is Root's approach to the growth versus profitability trade-off?

Speaker #3: Alex, the first question is, what is Root's approach to the growth versus profitability trade-off?

Speaker #4: Yeah, that's a great question. And it's actually unique at Root because we don't see those two things as trade-offs, actually. We think the best way to grow our company through cycles is to continue to invest growth dollars provided that we continue to exceed our cost of capital.

Alex Timm: Yeah, that's a great question. And it's actually unique at Root because we don't see those two things as trade-offs, actually. We think the best way to grow our company through cycles is to continue to invest growth dollars, provided that we continue to exceed our cost of capital. By doing that, we're basically, we're essentially directly solving for increasing the intrinsic value of the shares and of the company. You know, we don't have calendar period targets because, you know, if you try to optimize for growth in a calendar period at a certain profit constraint or anything like that, you actually run the risk of making decisions that actually destroy intrinsic value, that are not good for the company. You know, we didn't invent this.

Speaker #4: And by doing that, we're basically, essentially, directly solving for increasing the intrinsic value of the shares, and of the company. We don't have calendar period targets because if you try to optimize for growth in a calendar period at a certain profit constraint or anything like that, you actually run the risk of making decisions that destroy intrinsic value, that are not good for the company.

Speaker #4: And we didn't invent this. We learned this in college, in finance classes and things like that, that we should just optimize to continue to build the largest discounted future cash flow of the company.

Alex Timm: This is, you know, we learned this in college, in finance classes and things like that we should just optimize to continue to build the largest discounted cash flow, future cash flow of the company. What you see from us is when we have high returns and high opportunities in the market, we invest aggressively, we grow aggressively. That might, by the way, in that calendar period, reduce short-term earnings. You see when times, when there's not as many opportunities in the market, we're totally fine being patient with the capital, and you'll see us be very, very profitable. We think that that's just absolutely the best, most disciplined, patient way to manage our shareholders' capital.

Speaker #4: And so what you see from us is when we have high returns and high opportunities in the market, we invest aggressively. We grow aggressively.

Speaker #4: That might, by the way, in that calendar period, reduce short-term earnings. And then you see, when there are times when there aren't as many opportunities in the market, we're totally fine being patient with the capital.

Speaker #4: And you'll see us be very, very profitable. And we think that that's just absolutely the best, most disciplined, patient way to manage our shareholders' capital.

Alex Timm: Really there's really not an implicit trade-off in our business decisions between growth and profit.

Speaker #4: And really, so there's really not an implicit trade-off in our business decisions between growth and profit.

Alex Timm: Really there's really not an implicit trade-off in our business decisions between growth and profit.

Speaker #3: Great. The second question is, which part of Root's advantage compounds the fastest over time? Data, pricing models, or distribution?

Matthew LaMalva: Great. The second question is: Which part of Root's advantage compounds the fastest over time? Data, pricing models, or distribution?

Matt LaMalva: Great. The second question is: Which part of Root's advantage compounds the fastest over time? Data, pricing models, or distribution?

Speaker #4: Well, the interesting thing is data and pricing models and distribution all are actually have this nice mutually symbiotic relationship with one another. As you get more data, you get better at pricing.

Alex Timm: Well, you know, the interesting thing is data, pricing models, and distribution all actually have this nice, mutually symbiotic relationship with one another. You know, as you get more data, you get better at pricing. As you get better at pricing, your distribution grows. As your distribution grows, you then, you know, get more data. That flywheel is something we started a while ago, and we've actually built a lot of technology to continue that flywheel going very, very fast.

Speaker #4: As you get better at pricing, your distribution grows as your distribution goes. You then get more data. And that flywheel is something we started a while ago, and we've actually built a lot of technology to continue that flywheel going very, very fast.

Speaker #4: I think the part that probably compounds the fastest and that maybe is the hardest to understand from the outside is just how fast and to what magnitude our pricing can improve as our data science continues to advance because those algorithms are incredibly powerful.

Alex Timm: I think the part that probably compounds the fastest, and that maybe is the hardest to understand from the outside is just how fast and to what magnitude our pricing can improve as our data science continues to advance because those algorithms are incredibly powerful, and our ability to consistently retrain and understand the signal and deploy modern quantitative capabilities, that's really, really important. I believe that that compounds really materially over time.

Speaker #4: And our ability to consistently retrain and understand the signal and deploy modern quantitative capabilities, that's really, really important. And so I believe that that compounds really materially over time.

Speaker #3: Next question is, how did Root become the profitable insurtech?

Matthew LaMalva: Next question is how did Root become the profitable Insurtech?

Matt LaMalva: Next question is how did Root become the profitable Insurtech?

Alex Timm: Focus. We picked one of the hardest and largest though, lines of business in the country. We picked one of the hardest problems, which is getting really, really good at pricing and underwriting it. Now, why do we do that? Well, price, one, if you wanna be serious about disruption in personal lines insurance, you got to be serious about auto insurance because it's the number one product most consumers actually purchase. It's again, the largest line of business in the country. Two, the biggest thing that matters is price. That is fundamentally a data science game. It's not an easy problem to solve. But we stuck with it. By sticking with it, we got very good at it.

Speaker #4: Focus. We picked one of the hardest and largest, though, lines of business in the country. And then we picked one of the hardest problems, which is getting really, really good at pricing and underwriting it.

Speaker #4: Now, why do we do that? Well, one, if you want to be serious about disruption and personal lines of insurance, you got to be serious about auto insurance because it's the number one product most consumers actually purchase.

Speaker #4: It's, again, the largest line of business in the country. And then two, the biggest thing that matters is price. And that is fundamentally a data science game.

Speaker #4: And it's not an easy problem to solve. But we stuck with it. And by sticking with it, we got very good at it. And that focus has allowed us to drive material earnings now because, again, now we've become experts at what I think is probably one of the most important problems right now for consumers in insurance.

Alex Timm: That focus has allowed us to, you know, drive material earnings now, because again, now, we've become experts at what I think is probably one of the most important problems, right now for consumers in insurance.

Speaker #3: Great. And finally, which part of the company is most misunderstood by investors?

Matthew LaMalva: Great. Finally, which part of the company is most misunderstood by investors?

Matt LaMalva: Great. Finally, which part of the company is most misunderstood by investors?

Speaker #4: Well, that's a great question. We get it sometimes. I'd say it's always very difficult to understand the platforms that we are building and the systems that we are building.

Alex Timm: Well, that's a great question. We get it sometimes. you know, I'd say it's always very difficult to understand the platforms that we are building and the systems that we are building truly in like what I would say is like the guts of the company, you know, whether that's pricing or claims. it's much easier to understand some consumer-facing features. it's easier to understand marketing. it's very difficult to see and understand and appreciate the value of a 10x platform in insurance, whether that's our data science platform, or our telematics platform, or our claims platform, or most importantly, the fact they're all a single platform and integrated inside one company. That is incredibly difficult to sort of see clearly from the outside. From the inside, that is our most valuable asset.

Speaker #4: Truly, in what I would say is the guts of the company, whether that's pricing or claims. And so these aren't—it's much easier to understand some consumer-facing features.

Speaker #4: It's easier to understand marketing. It's very difficult to see and understand and appreciate the value of a 10X platform in insurance. Whether that's our data science platform, our telematics platform, or our claims platform, or most importantly, the fact they're all a single platform and integrated inside one company.

Speaker #4: That is incredibly difficult to sort of see clearly from the outside. But from the inside, that is our most valuable asset.

Speaker #3: Thanks, Alex. Operator will now open the line for questions.

Matthew LaMalva: Thanks, Alex. Operator, we'll now open the line for questions.

Matt LaMalva: Thanks, Alex. Operator, we'll now open the line for questions.

Speaker #5: Ladies and gentlemen, we will now begin the question-and-answer session. If you would like to ask a question, please press star and one on your telephone keypad.

Operator 3: Ladies and gentlemen, we will now begin the question and answer session. If you would like to ask a question, please press star and one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star and two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Ladies and gentlemen, we will wait for a moment while we poll for questions. Our first question comes from Tommy McJoynt with KBW. Please state your question.

Operator: Ladies and gentlemen, we will now begin the question and answer session. If you would like to ask a question, please press star and one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star and two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Ladies and gentlemen, we will wait for a moment while we poll for questions. Our first question comes from Tommy McJoynt with KBW. Please state your question.

Speaker #5: A confirmation tone will indicate your line is in the question queue. You may press star and two if you would like to remove your question from the queue.

Speaker #5: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Ladies and gentlemen, we will wait for a moment while we poll for questions.

Speaker #5: Our first question comes from Tommy McJoint with KBW. Please state your question.

Speaker #3: Hi. Good afternoon. The first question here is about what you guys are doing on the rate side and how you think about that competitively.

Tommy McJoynt: Hi, good afternoon. The first question here is about what you guys are doing on the rate side and how you think about that competitively. I think last quarter you had talked about the expectation that, you know, with rate, your average premium per policy might decrease a little bit in Q1 but then normalize after that for the rest of the year. Is that still the case? Can you just give us an update on how you view your rate adequacy across your book?

Speaker #3: I think last quarter, you had talked about the expectation that with rate, your average premium per policy might decrease a little bit in the first quarter, but then normalize after that for the rest of the year.

Speaker #3: Is that still the case? And can you just give us an update on how you view your rate adequacy across your book?

Speaker #6: Yeah. Thanks, Tommy. First, I want to just remind everybody we do not price to try to hit growth targets. We do not price to try to hit a calendar period loss ratio or combined ratio target.

Alex Timm: Yeah. Thanks, Tommy. You know, first, I wanna just remind everybody, we do not price to try to hit growth targets. We do not price to try to hit a calendar period loss ratio or combined ratio target. We price to optimize the lifetime value of the customer. And in doing that's how we always sort of optimize our net present value. You know, in the quarter, we did improve pricing. We actually improved the LTV of our customers and by roughly 15%. A lot of that was through some of the independent agency channel updates that we had, as well as with returning customers.

Speaker #6: We priced optimized lifetime value of the customer. And in doing that, that's how we always sort of optimize our net present value. In the quarter, we did improve pricing.

Speaker #6: We actually improved the LTV of our customers by roughly 15%. A lot of that was through some of the independent agency channel updates that we had, as well as with returning customers.

Alex Timm: You know, what I think you all have seen in our numbers is that as we've improved segmentation, there has been a bit of a mix shift to some lower premium segments that we've identified that are really good risks. You can see that because, you know, although these average premiums decreased, our loss ratio was still rock solid, which is really proof of the power of the model. You know, as we look forward, I think you might see, from some of those improvements in segmentation that we shipped this quarter, you might see some mild decreases in average premiums continue, as we continue to unlock more affordable insurance for a lot of our customers. It shouldn't be anything massive or material.

Speaker #6: What I think you all and have seen in our numbers is that as we've improved segmentation, there has been a bit of a mix shift to some lower premium segments that we've identified that are really good risks.

Speaker #6: And you can see that because, although these average premiums decreased, our loss ratio was still rock solid. Which is really proof of the power of the model.

Speaker #6: As we look forward, I think you might see, from some of those improvements in segmentation that we shipped this quarter, you might see some mild decreases in average premiums continue.

Speaker #6: As we continue to unlock more affordable insurance for a lot of our customers, but it shouldn't be anything massive or

Speaker #3: Got it. Thanks. And then switching over to your appetite for direct channel it seems that the sales and marketing expense in the first quarter was a bit less than we expected.

Tommy McJoynt: Got it. Thanks. Switching over to your appetite for direct channel, it seems that the sales and marketing expense in Q1 was a bit less than we expected, and it sounded like some of your commentary pointed to expectations for the challenging growth environment to persist for the remainder of the year. Do you have an expectation for how much you'd expect to spend on the direct marketing channel in the coming quarters as we think about modeling?

Speaker #3: And it sounded like some of your commentary pointed to expectations for the challenging growth environment to persist for the remainder of the year. Do you have an expectation for how much you'd expect to spend on a direct marketing channel in the coming quarters as we think about modeling?

Speaker #6: Yeah. I mean, first, we grew PIF 9% in the quarter. And our partnerships channel grew 30% year over year. And so that was actually despite what was a very difficult macro backdrop and challenging growth environment.

Alex Timm: First, we grew PIF 9% in the quarter, our partnerships channel grew 30% year-over-year. That was actually despite what was a very difficult macro backdrop and challenging growth environment. We saw that environment actually intensify throughout the quarter. We were fine being patient and not deploying as much capital as we would have otherwise, knowing that the returns probably weren't there. That's what also why you saw us be very profitable in the quarter, one of the reasons you saw us be very profitable in the quarter. We think that's really disciplined. We aren't expecting the macro environment to totally change quickly here.

Speaker #6: And we saw that environment actually intensify throughout the quarter. And so we were fine being patient and not deploying as much capital as we would have otherwise.

Speaker #6: Knowing that the returns probably weren't there. And so that's what also why you saw us be very profitable in the quarter. One of the reasons you saw us be very profitable in the quarter and we think that's really disciplined.

Speaker #6: And we aren't expecting the macro environment to totally change quickly here. And so I think you can probably expect more of what you saw in Q1 for now.

Alex Timm: You know, I think you can probably expect more of what you saw in Q1 for now. You know, long term, we've seen these cycles happen before. We know how to manage the cycles, and we think our technology can also respond very, very quickly if that cycle changes. You should expect if the competitive environment does change, for us to change very aggressively and quickly into a growth position. As well as, you know, we're continuing to appoint new independent agents. We're continuing to add partners to our platform. We're continuing to refine pricing, and we're continuing to expand nationwide. There's also some really nice long-term growth opportunities that we're pursuing regardless of the macro backdrop.

Speaker #6: But long-term, we've seen these cycles happen before. We know how to manage the cycles. And we think our technology can also respond very, very quickly if that cycle changes.

Speaker #6: And so you should expect if the competitive environment does change, for us to change very aggressively and quickly into a growth position. As well as, we're continuing to appoint new independent agents.

Speaker #6: We're continuing to add partners to our platform. We're continuing to refine pricing. And we're continuing to expand nationwide. So there's also some really nice long-term growth opportunities that we're pursuing regardless of the macro backdrop.

Speaker #7: Yeah. And Tommy, if I could just layer on in terms of expectations on spend. Just to reiterate what Alex mentioned. As it relates in particular to the direct channel, our focus is going to remain on meeting our return thresholds.

Megan Binkley: Yeah. Tommy, if I could just layer on in terms of expectations on spend. You know, just to reiterate what Alex mentioned, you know, as it relates in particular to the direct channel. You know, our focus is gonna remain on meeting our return thresholds and really leveraging our direct marketing machine to make quick and distinct decisions as the environment evolves. I mean, I think that that's a really significant differentiator for us. We'll continue to invest in direct marketing as long as, you know, we're meeting our return hurdles across our distribution channels. A couple of other things to note. You know, we continue to be very excited by our partnership and independent agent channels.

Speaker #7: And really leveraging our direct marketing machine to make quick and distinct decisions as the environment evolves. I mean, I think that that's a really significant differentiator for us.

Speaker #7: So we'll continue to invest in direct marketing as long as we're meeting our return hurdles across our distribution channels. A couple of other things to note.

Speaker #7: We continue to be very excited by our partnership and independent agent channels. You can expect that we'll continue to spend through the other insurance or other insurance expense line item as we continue to expand our partnerships and independent agent footprint.

Megan Binkley: You can expect that we'll continue to spend through the other insurance or other insurance expense line item as we continue to expand our partnerships and independent agent footprint. Also, we are continuing to invest in many of the direct R&D channels. You saw that from us in 2025. We'll continue to invest in many of these mid to upper funnel channels that we're not in today.

Speaker #7: And then also, we are continuing to invest in many of the direct R&D channels. You saw that from us in 2025. And we'll continue to invest in many of these mid to upper funnel channels that we're not in today.

Speaker #3: Thank you. Our next question comes from Andrew Anderson with Jeffrey's LLC. Please state your question.

Andrew Anderson: Thank you.

Tommy McJoynt: Thank you.

Operator 3: Our next question comes from Andrew Anderson with Jefferies LLC. Please state your question.

Operator: Our next question comes from Andrew Anderson with Jefferies LLC. Please state your question.

Speaker #8: Hey, good afternoon. Given commentary for a challenging growth environment and recognizing the 1Q comp was more challenging, how should we think about PIF growth trending relative to guidance you had given last quarter of full year PIF acceleration?

Andrew Anderson: Hey, good afternoon. Given commentary for a challenging growth environment and recognizing the Q1 comp was more challenging, just how should we think about PIF growth trending relative to guidance you had given last quarter of full year PIF acceleration?

Andrew Andersen: Hey, good afternoon. Given commentary for a challenging growth environment and recognizing the Q1 comp was more challenging, just how should we think about PIF growth trending relative to guidance you had given last quarter of full year PIF acceleration?

Speaker #6: Yeah. We're if the environment stays currently where it is, our expectations are probably something similar to what you saw in Q1. Again, we're really well positioned to pivot and to push direct growth if we see that as prudent in that quarter.

Alex Timm: Yeah, you know, we're, You know, if the environment stays, you know, currently where it is, you know, our expectations are probably something similar to what you saw in Q1. Again, we're really well-positioned to pivot and to push direct growth if we see that as prudent in that quarter. We have those other growth engines that are outside of direct, whether it's independent agents, partnerships, or it continuing to expand nationally.

Speaker #6: And we have those other growth engines that are outside of direct, whether it's independent agents, partnerships, or it continuing to expand nationally.

Speaker #3: Got it. And if PIF growth sees some moderation here, well, or premium growth sees some moderation, well, PIF does continue to expand. How do you think about the OPEX leverage specifically on GNA and tech spend?

Andrew Anderson: Got it. If PIF growth sees some moderation here while or premium growth sees some moderation while PIF does continue to expand, how do you think about the OpEx leverage specifically on G&A and tech spend, so not looking at the marketing and other expense line item?

Andrew Andersen: Got it. If PIF growth sees some moderation here while or premium growth sees some moderation while PIF does continue to expand, how do you think about the OpEx leverage specifically on G&A and tech spend, so not looking at the marketing and other expense line item?

Speaker #3: So not looking at the marketing and other expense. Line item.

Speaker #7: Yeah, Andrew, good question. As we think about OPEX leverage for the rest of the year, outside of our acquisition investments, we expect that will remain relatively stable as a percentage of gross earned premium.

Megan Binkley: Yeah, Andrew, good question. You know, as we think about OpEx leverage for the rest of the year, you know, outside of our acquisition investments, we expect that that will remain relatively stable as a percentage of gross earn premium. That's been around, you know, 10% to 11% of gross earn premium. Most of our fixed expense run through that tech and dev and G&A line item, and we expect that as a percentage of premium that that's gonna remain stable throughout the rest of the year.

Speaker #7: So that's been around 10 to 11 percent of gross earned premium. Most of our fixed expense runs through that tech and dev and G&A line item.

Speaker #7: And we expect that as a percentage of premium, that that's going to remain stable throughout the rest of the year.

Speaker #8: Thank you.

Andrew Anderson: Thank you.

Andrew Andersen: Thank you.

Speaker #3: Our next question comes from Andrew Kligeman with TD Securities. Please state your question.

Operator 3: Our next question comes from Andrew Kligman with TD Securities. Please state your question.

Operator: Our next question comes from Andrew Kligman with TD Securities. Please state your question.

Speaker #6: Yes. Thank you, and good evening. My first question is around the gross accident period loss ratio and the gross loss ratio. With gross accident being 58.8, the gross loss ratio at 54.5.

Andrew Kligman: Yes. Thank you, and good evening. My first question is around the gross accident period loss ratio and the gross loss ratio. With gross accident being 58.8, the gross loss ratio at 54.5. That's about 4.3 points of favorable development. I'm curious as to where you're seeing that from, what accident years. Any color you could share would be great on that.

Andrew Kligerman: Yes. Thank you, and good evening. My first question is around the gross accident period loss ratio and the gross loss ratio. With gross accident being 58.8, the gross loss ratio at 54.5. That's about 4.3 points of favorable development. I'm curious as to where you're seeing that from, what accident years. Any color you could share would be great on that.

Speaker #6: So that's about 4.3 points of favorable development. And I'm curious as to where you're seeing that from, what accident years. Any color you could share would be great on that.

Speaker #7: Hey, Andrew. I can add some color to that. So firstly, I'll just say our reserves have been very stable over the past few years.

Megan Binkley: Hey, Andrew, I can add some color to that. You know, firstly, I'll just say, you know, our reserves have been very stable over the past few years, you know. On a quarter-over-quarter basis over the last few years, we continue to have, you know, confidence in our loss reserve estimates. You know, the book overall is relatively short-tailed. And it is important to highlight that we perform a full month, a full reserve analysis on a monthly basis. You're not seeing a lag when we're recording reserves on a quarterly basis. It's all as of the current period.

Speaker #7: On a quarter-over-quarter basis over the last few years, we continue to have confidence in our loss reserve estimates. The book overall is relatively short-tailed.

Speaker #7: And it is important to highlight that we do perform a full month, a full reserve analysis on a monthly basis. So you're not seeing a lag when we're recording reserves on a quarterly basis.

Speaker #7: It's all as of the current period. But to more specifically answer your question, the prior period development that we saw in Q1, around two and a half points of that was related to the accident year 2025.

Megan Binkley: To more specifically answer your question, the prior period development that we saw in Q1, around 2.5 points of that was related to the accident year 2025, and that was really spread across most of our major coverages. So bodily injury, collision, comp, and PD. We also had an additional about 1.5 points of prior period favorable development that was related to additional subrogation opportunities that we actually identified through model enhancements in the quarter. That, from a combination of 2025 accident periods flowing through in Q1 of 2026, as well as a small amount of additional subrogation opportunities, that's gonna really bridge your growth accident period and your growth loss ratio in the quarter.

Speaker #7: And that was really spread across most of our major coverages. So bodily injury, collision, comp, and PD. We also had an additional about 1.5 points of prior period favorable development that was related to additional subrogation opportunities that we actually identified through model enhancements in the quarter.

Speaker #7: And so that from a combination of 2025 accident periods flowing through in Q1 of 2026, as well as a small amount of additional subrogation opportunities, that's going to really bridge your gross accident period and your gross loss ratio in the quarter.

Speaker #7: But overall, I think our volatility has been minimal overall.

Megan Binkley: Overall, you know, I think our volatility has been minimal overall.

Andrew Kligman: That's really terrific. You know, as I think about it too, even if I were to use the accident period loss ratio of 58.8%, Root targets, I think 60% to 65%, and you're looking toward a combined ratio in order to just kind of build a book. You know, you're willing to go in that 60 to 65 zone. I would even think you might even go a little bit higher and hit a combined of about 99% or 100%. It's been really good. Is this a sign that maybe Root would want to lean in a little more?

Speaker #6: That's really terrific. And as I think about it too, even if I were to use the accident period loss ratio of 58.8, Root targets, I think, 60 to 65, and you're looking toward a combined ratio in order to just kind of build a book.

Andrew Kligerman: That's really terrific. You know, as I think about it too, even if I were to use the accident period loss ratio of 58.8%, Root targets, I think 60% to 65%, and you're looking toward a combined ratio in order to just kind of build a book. You know, you're willing to go in that 60 to 65 zone. I would even think you might even go a little bit higher and hit a combined of about 99% or 100%. It's been really good. Is this a sign that maybe Root would want to lean in a little more?

Speaker #6: You're willing to go in that 60 to 65 zone. I would even think you might even go a little bit higher and hit a combined of about 99 or 100.

Speaker #6: It's been really good. So is this a sign that maybe root would want to lean in a little more? I know the prior question you answered that PIF growth would remain the same.

Andrew Kligman: You know, I know the prior question you answered that PIF growth would remain the same, but given these metrics that we're seeing, why wouldn't you just lean in a little bit more?

Andrew Kligerman: You know, I know the prior question you answered that PIF growth would remain the same, but given these metrics that we're seeing, why wouldn't you just lean in a little bit more?

Speaker #6: But given these metrics that we're seeing, why wouldn't you just lean in a little bit more? Yeah. I think that's a great question. When we make decisions based on whether it's pricing, or deploying our capital, we're always looking at the value of a customer and optimizing that value.

Alex Timm: Yeah, I think that's a great question. You know, when we make decisions based on whether it's pricing or deploying our capital, we're always looking at the value of a customer and optimizing that value, making sure that we're not deploying capital at a rate that is lower than our cost of capital. We really study incrementality. That's why, by the way, we've instrumented this directly into our system, we are very good at predicting lifetime value of customers, retention of customers, how they will behave throughout their lifetime. We're very good then at optimizing how we actually achieve our target returns.

Speaker #6: And so making sure that we're not deploying capital at a rate that is lower than our cost of capital. And so we really study incrementality.

Speaker #6: And that's why, and by the way, we've instrumented this directly into our system. And so we are very good at predicting lifetime value of customers, retention of customers, how they will behave throughout their lifetime.

Speaker #6: And we're very good then at optimizing how we actually achieve our target returns. So we don't set our loss ratio targets based on trying to hit a calendar period combined ratio or loss ratio because you can leave a lot of money on the table or make the wrong business decisions that way.

Alex Timm: We don't set our loss ratio targets based on trying to hit a calendar period combined ratio or loss ratio, because you can leave a lot of money on the table or make the wrong business decisions that way, for investors in the long term. What we do is we stay very committed to our framework and our philosophy of making sure that we're constantly looking to optimize basically the net present value of the business. That's how we operate. Sometimes that leads to, you know, some periods, like you saw in Q1, where we are very, very profitable, and some periods where we grow very, very fast.

Speaker #6: For investors in the long term. And so what we do is we stay very committed to our framework and our philosophy of making sure that we're constantly looking to optimize basically the net present value of the business.

Speaker #6: And that's how we operate. And so sometimes that leads to some periods, like you saw in Q1, where we are very, very profitable. And some periods where we grow very, very fast.

Alex Timm: You know, although that might fluctuate quarter to quarter, what we believe is continuing to manage the business according to that really principled economic approach, and foundation and fundamentals, you end up building a much stronger business long term. This is enforced in culturally here. This is embedded directly into our system, so it's automated. These beliefs are automated at this point to a large degree in how we operate. That's really important for us. You won't see us say, "Well, we could hit a higher combined ratio, let's go lower rates." We just don't think that way.

Speaker #6: And although that might fluctuate quarter to quarter, what we believe is continuing to manage the business according to that really principled economic approach and foundation and fundamentals, you end up building a much stronger business long term.

Speaker #6: And this is enforced in culturally here. This is embedded directly into our system. So it's automated, these these beliefs are automated at this point to a large degree in how we operate.

Speaker #6: And so that's really important for us. And so you won't see us say, "Well, we could hit a higher combined ratio. Let's go lower rates." We just don't think that way.

Speaker #7: Yeah. And Andrew, if I could layer on too, and you've seen this from us historically as well, but there is a bit of seasonality favorability in the Q1 loss ratios.

Megan Binkley: Yeah. Andrew, if I could-

Andrew Kligman: Got it.

Andrew Kligerman: Got it.

Megan Binkley: could layer on too, you know, and you've seen this from us historically as well. But there is a bit of seasonality favorability in the Q1 loss ratio. Q1 typically is our lowest loss ratio from a seasonality perspective, and this quarter was certainly no exception to that trend. When we think about our loss ratio targets between 60 and 65, we do expect that our accident period loss ratios will remain within that target as we persist throughout the rest of the year, even with modest seasonal and macro pressures. As a reminder, you know, Q4 loss ratios tend to have the highest level of seasonality impacts, and that's largely driven by animal collisions.

Speaker #7: So, Q1 typically is our lowest loss ratio from a seasonality perspective, and this quarter was certainly no exception to that trend. When we think about our loss ratio targets between 60 and 65, we do expect that our accident period loss ratios will remain within that target as we persist throughout the rest of the year, even with modest seasonal and macro pressures.

Speaker #7: So as a reminder, Q4 loss ratios tend to have the highest level of seasonality impacts. And that's largely driven by animal collisions. And so we would expect that Q4 is typically at the top end of that 60 to 65 range.

Megan Binkley: We would expect that Q4 is typically at the top end of that 60 to 65 range, whereas in Q2 and in Q3, the seasonal patterns are typically more in that 60 to 62 range.

Speaker #7: Whereas in Q2 and Q3, the seasonal patterns are typically more in that 60 to 62 range.

Speaker #6: Got it. Safer time for the animals, another good quarter for root. Thank you.

Andrew Kligman: Got it. Safer time for the animals, another good quarter for Root. Thank you.

Andrew Kligerman: Got it. Safer time for the animals, another good quarter for Root. Thank you.

Speaker #7: Thanks, Andrew.

Megan Binkley: Thanks, Andrew.

Alex Timm: Thanks, Andrew.

Speaker #1: Our next question comes from Elise Greenspan with Wells Fargo. Please state your question.

Operator 3: Our next question comes from Elyse Greenspan with Wells Fargo. Please state your question.

Operator: Our next question comes from Elyse Greenspan with Wells Fargo. Please state your question.

Speaker #8: Hi. Thanks. Good evening. I guess one question just following up on, I guess this goes back to loss ratios a little bit, right? We're starting to think about higher gas prices and then there are potentially could also be supply chains impact, right, from what's going on in Iran.

Elyse Greenspan: Hi. Thanks. Good evening. I guess 1 question just following up on, you know, I guess this goes back to loss ratios a little bit, right? You know, we're starting to, you know, think about higher gas prices, and then there potentially could also be supply chains impact right from, you know, what's going on in Iran. I was just wondering, as you guys think about these factors, you know, what are you thinking could potentially happen to frequency and severity from here? Are you assuming, you know, any impacts, you know, when you say you'll stay in, you know, kind of the 60% to 65% range this year and, you know, the low end, right, in Q2 and Q3?

Speaker #8: So I was just wondering as you guys think about these factors, what are you thinking could potentially happen to frequency and severity from here?

Speaker #8: And are you assuming any impacts when you say you'll stay in kind of the 60% to 65% range this year, and the low end, right, in the second and third quarters?

Speaker #6: Yeah. So that's a great question, Elise. Right now, we have not seen we have seen mileage slightly down. Not massively down. However, we have not seen frequency drop tremendously.

Alex Timm: Yeah. That's a great question, Elyse. You know, right now we have seen mileage slightly down, not massively down. We have not seen frequency drop tremendously. A lot of those miles are discretionary miles that consumers are driving that are generally low frequency miles in the first place. We certainly haven't seen that, you know, sort of impact the numbers immediately. It's the same thing with inflation. You know, we think that we are in a reasonable, you know, low single digit type trend environment right now. We're watching that every day. We're always measuring it.

Speaker #6: So a lot of those miles are discretionary miles that consumers are driving that are generally low frequency miles in the first place. And so we certainly haven't seen that sort of impact the numbers immediately.

Speaker #6: And it's the same thing with inflation. We think that we are in a reasonable low single-digit type trend environment right now. And we're watching that every day.

Speaker #6: We're always measuring it. We have a lot of cutting-edge claims models that look at that actually on a daily basis to try to predict exactly what we think is happening in the market so that we are very well positioned if trend does change to quickly take to quickly detect it.

Alex Timm: We have a lot of cutting edge claims models that look at that actually on a daily basis to try to predict exactly what we think is happening in the market so that we are very well positioned if trend does change, to quickly detect it, and then quickly take rate through a lot of our automated actuarial systems. You know, we're always looking at that data. You know, right now our expectation, when we talk about our loss ratio expectations, they do include our expectation of the macro as well.

Speaker #6: And then quickly take rate through a lot of our automated actuarial systems. And so we're always looking at that data. And so right now, our expectation and when we talk about our loss ratio expectations, they do include our expectation of the macro as well.

Speaker #8: Thanks. And then I know you guys highlighted, right, that the direct environment, right, the competition there got more difficult. During the quarter, as we just think about it seems like in the market today, right, most players at target margins and a lot less rate-taking if anything right, negative rates across the personal auto industry.

Elyse Greenspan: Thanks. Then, you know, I know you guys highlighted, right, that the direct environment, right, competition there got more difficult, you know, during the quarter. You know, as we just think about, you know, it seems like in the market today, right, most players at target margins and, you know, a lot less rate taking, if anything, right, negative rates across the personal auto industry. With that backdrop, I guess, would your assumption be, I guess, that competition on the direct side just continues to intensify from here when we think about, you know, the rest of 2026?

Speaker #8: As you guys with that backdrop, I guess, would your assumption be, I guess, that competition on the direct side just continues to intensify from here when we think about the rest of 2026?

Alex Timm: You know, it's certainly a macro pre-prediction, so take it for what it's worth. You know, we're not predicting that the soft market or that a lot of the irrationality of massively increasing marketing budgets with limited incremental growth, that that necessarily goes away at our competitors overnight. So, you know, we're always monitoring it. You never know when it's gonna change. But right now our base case is that, you know, it stays roughly where it is or maybe gets a little bit hotter as those margins stay where they are, until, you know, and maybe rates come down a little bit as well. That's what we're prepared for. Again, you know, we're not guessing 'cause we're measuring it every day. Thanks to our technology, we can actually just react to it every day.

Speaker #6: It's certainly a macro prediction. So take it for what it's worth. But we're not predicting that the soft market or that a lot of the irrationality of massively increasing marketing budgets with limited incremental growth, that that necessarily goes away at our competitors overnight.

Speaker #6: And so we're always monitoring it. You never know when it's going to change. But right now, our base case is that it stays roughly where it is or maybe gets a little bit hotter as those margins stay where they are.

Speaker #6: Until and maybe rates come down a little bit as well. And that's what we're prepared for. But again, we're not guessing because we're measuring it every day.

Speaker #6: And thanks to our technology, we can actually just react to it every day. And so we don't really guess a lot. We just measure it.

Alex Timm: We don't really guess a lot. We just measure it.

Speaker #8: And then you guys put in place, right, a 75 million repurchase program. Is the expectation that you guys will start buying back your shares, or is this just to give you flexibility at some point if you decide you want to?

Elyse Greenspan: You guys put in place, right, a $75 million repurchase program. Is the expectation that you guys will start buying back your shares, or is this just to give you flexibility at some point if you decide you want to?

Speaker #7: Thanks, Elise. It's a great question. And before I answer that question, I think I'd be remiss not to just highlight that we're incredibly pleased with the new debt structure with Huntington.

Megan Binkley: Thanks, Elyse. It's a great question. You know, before I answer that question, I think, you know, I'd be remiss not to just highlight that we're incredibly pleased with the new debt structure with Huntington. You know, Huntington's been a longstanding banking partner for us, and we're really thrilled to continue this partnership with them in this manner. The refinancing of that debt is beneficial in a couple of ways. One, we're unlocking significant interest expense savings for the company. Then two, you know, the new facility gives us the optionality as it relates to deploying capital or deploying excess capital. You hear Alex and I, you know, say it consistently, our objective here is really to maximize the long-term value of the company.

Speaker #7: Huntington's been a longstanding banking partner for us. And we're really thrilled to continue this partnership with them in this manner. The refinancing of that debt is beneficial in a couple of ways.

Speaker #7: One, we're unlocking significant interest expense savings for the company. And then two, the new facility gives us the optionality as it relates to deploying capital or deploying excess capital.

Speaker #7: So you hear Alex and I say it consistently. Our objective here is really to maximize the long-term value of the company. And we believe we can do that through disciplined and dynamic capital allocation based on relative return.

Megan Binkley: We believe we can do that through disciplined and dynamic capital allocation based on relative return. One thing I just want to reiterate is that, you know, we are continuing to invest in organic growth and continuing to invest in our technology and our product innovation in the business. These are really non-negotiables for us, and we're gonna continue investing here. You know, as it relates to the $75 million share repurchase authorizations, you know, a couple of things to really keep in mind. One, it comes down to the flexibility that we now have with our new debt facility. Secondly, you know, we have a really strong excess capital position.

Speaker #7: So one thing I just want to reiterate is that we are continuing to invest in organic growth and continuing to invest in our technology and our product innovation in the business.

Speaker #7: These are really non-negotiables for us. And we're going to continue investing here. As it relates to the 75 million dollar share repurchase authorizations, a couple of things to really keep in mind.

Speaker #7: One, it comes down to the flexibility that we now have with our new debt facility. Secondly, we have a really strong excess capital position.

Speaker #7: And then third, we've got confidence in the long-term opportunities in the business. And we now have the flexibility to repurchase our stock when we believe that it's trading at a discount relative to our intrinsic value.

Megan Binkley: Third, we've got confidence in the long-term opportunities in the business, and we now have the flexibility to repurchase our stock when we believe that it's trading at a discount relative to our intrinsic value. We believe this is a great and an indirect way to return capital to shareholders. In terms of, you know, the mechanisms that we'll use, like many of our investments will be opportunistic in our approach to share repurchases. Again, I just want to reiterate that we're gonna continue to invest in the business at the same time that we plan to deploy capital for share repurchases. We've got confidence that we can do both, and we've got the flexibility now under our new capital stack.

Speaker #7: And we believe this is a great and indirect way to return capital to shareholders. So in terms of the mechanisms that we'll use like many of our investments, we'll be opportunistic.

Speaker #7: And our approach to share repurchases—and again, I just want to reiterate that we're going to continue to invest in the business. At the same time that we plan to deploy capital for share repurchases, we've got confidence that we can do both.

Speaker #7: And we've got the flexibility now under our new capital stack.

Speaker #8: Thank you.

Elyse Greenspan: Thank you.

Operator 3: Our next question comes from Brian Meredith with UBS. Please state your question.

Operator: Our next question comes from Brian Meredith with UBS. Please state your question.

Speaker #9: Our next question comes from Brian Meredith with UBS. Please state your question.

Speaker #10: Hi. Thank you, and good evening. This is actually Leandro on behalf of Brian. My question is related to the investment space. If I remember correctly, last quarter, you said that we would eventually see that income lower in full year 2026.

Leandro: Hi. Thank you, and good evening. This is actually Leandro on behalf of Brian. My question is related to the investment space. If I remember correctly, last quarter, you said that we would eventually see the net income lower in 2026 full year, but this quarter was actually pretty strong at $36 million. My question is there any implied acceleration in investment pace going forward, related to new channels, technology and R&D?

Leandro Leite: Hi. Thank you, and good evening. This is actually Leandro on behalf of Brian. My question is related to the investment space. If I remember correctly, last quarter, you said that we would eventually see the net income lower in 2026 full year, but this quarter was actually pretty strong at $36 million. My question is there any implied acceleration in investment pace going forward, related to new channels, technology and R&D?

Speaker #10: But this quarter was actually pretty strong at 36 million. So my question is, is there any implied acceleration in investment pace going forward related to new channels, technology, and R&D?

Speaker #7: Yeah. Great question. Just to start off, I mean, and you mentioned this in your question, but given the record net income that we posted in Q1, as we sit here today, we do expect to deliver more net income in 2026 than we did in 2025.

Megan Binkley: Yeah, great question. You know, just to start off, I mean, and you mentioned this in your question, given the record net income that we posted in Q1, you know, as we sit here today, we do expect to deliver more net income in 2026 than we did in 2025. That really just comes down to, you know, the strength of our model and our agility and opportunity to move quickly as it relates to direct marketing investment. With the intensity that we've seen in the competitive environment, you know, you did see us scale back on direct marketing expense in March, which we believe is, you know, the right decision for the business long term.

Speaker #7: And that really just comes down to the strength of our model and our agility and opportunity to move quickly as it relates to direct marketing investment.

Speaker #7: So with the intensity that we've seen in the competitive environment, you did see us scale back on direct marketing expense. And in March, which we believe is the right decision for the business long-term.

Speaker #7: So we're going to continue to be opportunistic in terms of how much investment we deploy throughout the remainder of the year. So really, the way I'd think about acquisition expense is it's really variable and based on the returns that we see in the direct.

Megan Binkley: We're going to continue to be opportunistic in terms of, you know, how much investment we deploy throughout the remainder of the year. Really the way I think about, you know, acquisition expense is it's really variable and based on the returns that we see in the direct. We are going to continue to invest in R&D direct marketing, and we're really excited to continue growing our partnership and independent agent channels. You will expect to see other insurance expense increase throughout the back half of the year. Earlier I mentioned some of the seasonality trends on loss ratio. Again, keep in mind, Q1 is our strongest loss ratio quarter from a seasonality perspective.

Speaker #7: But we are going to continue to invest in R&D, direct marketing, and we're really excited to continue growing our partnership and independent agent channel.

Speaker #7: So you will expect to see other insurance expense increase throughout the back half of the year. And then earlier, I mentioned some of the seasonality trends on loss ratio.

Speaker #7: So again, keep in mind Q1 is our strongest loss ratio quarter from a seasonality perspective. We do expect that loss ratio will increase mildly throughout the rest of the year.

Megan Binkley: We do expect that loss ratios will increase mildly throughout the rest of the year but still remain within our long-term target of 60 to 65. You know all that to say, you know, if the environment persists, we definitely expect that 2026 net income will be stronger than what you saw in 2025.

Speaker #7: But still remain within our long-term target of 60 to 65. So all that to say, if the environment persists, we definitely expect that 2026 net income will be stronger than what you saw in 2025.

Speaker #10: That's helpful. Thank you. And my follow-up question is actually related to the sales and marketing expense line. So this quarter was lower, year over year, and also quarter over quarter.

Leandro: That's helpful. Thank you. My follow-up question is actually related to the sales and marketing expense line. This quarter was lower year-over-year and also quarter-over-quarter. I think you kind of responded that, but how should we think about sales and marketing going forward, I guess more back-ended loaded?

Leandro Leite: That's helpful. Thank you. My follow-up question is actually related to the sales and marketing expense line. This quarter was lower year-over-year and also quarter-over-quarter. I think you kind of responded that, but how should we think about sales and marketing going forward, I guess more back-ended loaded?

Speaker #10: I think you kind of responded to that. But how should we think about sales and marketing going forward? I guess more back-ended, loaded?

Speaker #7: Yeah. So as we think about sales and marketing, it really comes down to the competitive environment. And as I mentioned, we're going to remain very opportunistic in that channel.

Megan Binkley: Yeah. As we think about sales and marketing, it really comes down to the competitive environment. You know, as I mentioned, we're gonna remain very opportunistic in that channel. We're only gonna spend to the extent that we're hitting our return targets. You know, if the environment is irrational, then you're gonna see us be patient and not lean into to spend in a given quarter.

Speaker #7: We're only going to spend to the extent that we're hitting our return targets. So if the environment is irrational, then you're going to see us be patient and not lean into spend in a given quarter.

Speaker #9: Does that answer your question, Brian?

Operator 3: Does that answer your question, Brian?

Operator: Does that answer your question, Brian?

Speaker #10: Yes. Thank you.

Leandro: Yes. Thank you.

Leandro Leite: Yes. Thank you.

Speaker #9: Ladies and gentlemen, that was the last question for today. The conference call of Root, Inc. has now concluded. Thank you for your participation. You may now disconnect your lines.

Operator 3: Ladies and gentlemen, that was the last question for today. The conference call of Root, Inc. has now concluded. Thank you for your participation. You may now disconnect your lines.

Operator: Ladies and gentlemen, that was the last question for today. The conference call of Root, Inc. has now concluded. Thank you for your participation. You may now disconnect your lines.