Root, Inc. Q1 FY2026 Earnings Call

Ladies and gentlemen, greetings, and welcome to the Root, Inc. Q1 2026 Earnings Conference Call. The operator provided instructions for participants. 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. Please go ahead.

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. 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 first quarter 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. 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. 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 10-K, 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. I will now turn the call over to Alex.

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 5-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; and five, leverage our AI expertise to grow our automated marketing machine. 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. 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 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. 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. 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. 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. 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. 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. Regardless of the cycle, we always invest in our technology and customer experiences that make Root special. And 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. 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 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. 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. We are well on our way to fulfilling our mission. I'll now pass the call over to Megan to talk about financial performance.

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 continue to diversify our business, growing our partnership and independent agent new writings by more than 30% year-over-year. 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. 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. 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 refinanced our $200 million debt facility with The Huntington National Bank on May 4, 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. 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 5 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 e-mail.

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?

Yes, 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 essentially 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 and are not good for the company. We learned this in finance classes—that we should optimize to build the largest discounted 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 and grow aggressively. That might, by the way, in that calendar period, reduce short-term earnings. Then you see when there are fewer 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's the best, most disciplined, patient way to manage our shareholders' capital. So there's really not an implicit trade-off in our business decisions between growth and profit.

Great. The second question is, which part of Root Advantage compounds the fastest over time, data, pricing models or distribution?

Well, the interesting thing is data, pricing models and distribution all actually have this nice mutually symbiotic relationship with one another. 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 get more data. That flywheel is something we started a while ago, and we've actually built a lot of technology to keep that flywheel going very, very fast. I think the part that probably compounds the fastest—and that may be the hardest to understand from the outside—is 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, understand the signal and deploy modern quantitative capabilities is really important. So I believe that compounds materially over time.

Next question is, how did Root become the profitable insurtech?

Focus. We picked one of the hardest and largest lines of business in the country. Then we picked one of the hardest problems: getting really, really good at pricing and underwriting it. If you want to be serious about disruption in personal lines insurance, you have to be serious about auto insurance because it's the number one product most consumers purchase; it's the largest line of business in the country. Price is the biggest thing that matters, and 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. That focus has allowed us to drive material earnings now because we have become experts at what I think is one of the most important problems for consumers in insurance.

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

Well, that's a great question. It's often difficult to understand the platforms and systems we are building truly in what I would call the guts of the company, whether that's pricing or claims. It's much easier to understand some consumer-facing features or marketing. It's very difficult to see and appreciate the value of a 10x platform in insurance—our data science platform, our telematics platform, our claims platform, and most importantly, the fact they're all a single platform integrated inside one company. That is incredibly difficult to see clearly from the outside, but from the inside that is our most valuable asset.

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

The operator provided further instructions for the question-and-answer session. Our first question comes from Tommy McJoynt with KBW.

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

Yes. Thanks, Tommy. First, I want to remind everybody we do not price to try to hit growth targets or to hit a calendar period loss ratio or combined ratio target. We price to optimize the lifetime value of the customer. That's how we always optimize our net present value. In the quarter, we did improve pricing. We actually improved the lifetime value 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. As we've improved segmentation, there has been a bit of a mix shift to some lower-premium segments that we've identified as really good risks. You can see that because although these average premiums decreased, our loss ratio was still rock solid, which is proof of the power of the model. Looking forward, you might see some mild decreases in average premiums continue as we continue to unlock more affordable insurance for a lot of our customers, but it shouldn't be anything massive or material.

Got it. And then switching over to your appetite for the direct channel. It seems that the sales and marketing expense in the first quarter 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?

Yes. I mean, first, we grew PIF 9% in the quarter, and our partnerships channel grew 30% year-over-year. That was despite a very difficult macro backdrop and challenging growth environment. We saw that environment intensify throughout the quarter, and so 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 one of the reasons you saw us be very profitable in the quarter. We think that's disciplined. We aren't expecting the macro environment to totally change quickly here. I think you can probably expect more of what you saw in Q1 for now. But long term, we've seen these cycles before. We know how to manage the cycles. Our technology can also respond very, very quickly if that cycle changes. So you should expect that if the competitive environment does change, we will change very aggressively and quickly into a growth position. We're continuing to appoint new independent agents, add partners to our platform, refine pricing, and expand nationwide. Those are long-term growth opportunities we pursue regardless of the macro backdrop.

Yes, 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 and leveraging our direct marketing machine to make quick, distinct decisions as the environment evolves. That is a significant differentiator for us. 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: 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 expense line item as we expand our partnerships and independent agent footprint. We are also continuing to invest in many 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.

Our next question comes from Andrew Andersen with Jefferies LLC.

Given commentary for a challenging growth environment and recognizing the 1Q 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?

Yes. If the environment stays where it is, our expectations are probably something similar to what you saw in Q1. Again, we're well positioned to pivot and to push direct growth if we see that as prudent in a given quarter. We also have other growth engines outside of direct—independent agents, partnerships, and continued national expansion.

Got it. And if PIF growth sees some moderation here while premium growth sees some moderation while PIF continues to expand, how do you think about the OpEx leverage, specifically on G&A and tech spend — not looking at the marketing and other expense line item?

Yes, 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. That's been around 10% to 11% of gross earned premium. Most of our fixed expense runs through that tech and development and G&A line item, and we expect that as a percentage of premium that's going to remain stable throughout the rest of the year.

Our next question comes from Andrew Kligerman with TD Securities.

My first question is around the gross accident period loss ratio and the gross loss ratio with gross accident being 58.8% and gross loss ratio at 54.5%. So 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, I can add some color to that. Firstly, our reserves have been very stable over the past few years. 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. We perform a full reserve analysis on a monthly basis, so you're not seeing a lag when we're reporting reserves on a quarterly basis—it's all as of the current period. More specifically, the prior period development we saw in Q1—around 2.5 points of that—was related to the 2025 accident year, and that was spread across most of our major coverages: bodily injury, collision, comprehensive and property damage. We also had an additional about 1.5 points of prior period favorable development related to additional subrogation opportunities that we identified through model enhancements in the quarter. So the combination of 2025 accident period development flowing through in Q1 of 2026, as well as a small amount of additional subrogation opportunities, bridges your gross accident period and your gross loss ratio in the quarter. Overall, our volatility has been minimal.

That's really terrific. As I think about it, even if I were to use the accident period loss ratio of 58.8%, Root targets 60% to 65% and you're looking toward a combined ratio in order to build a book, 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. 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. But given these metrics that we're seeing, why wouldn't you just lean in a little bit more?

Yes, I think that's a great question. When we make decisions about pricing or deploying capital, we're always looking at the value of a customer and optimizing that value, making sure we're not deploying capital at a rate lower than our cost of capital. We study incrementality, and we've instrumented this directly into our system. We're very good at predicting lifetime value of customers, retention, and how they will behave throughout their lifetime. We're also good at optimizing how we 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 money on the table or make the wrong decisions that way for investors in the long term. We stay committed to our framework and philosophy of optimizing the net present value of the business. Sometimes that leads to periods where we are very profitable and other periods where we grow very fast. Although that might fluctuate quarter-to-quarter, we believe that managing the business according to this principled economic approach builds a stronger business long term. This is enforced culturally and is embedded into our systems. You won't see us say, 'we could hit a higher combined ratio—let's go lower rates.' We just don't think that way.

Yes. And Andrew, if I could layer on too, 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 no exception. When we think about our loss ratio targets between 60% and 65%, we expect our accident period loss ratios to remain within that target as we go through the rest of the year, even with modest seasonal and macro pressures. As a reminder, Q4 loss ratios tend to have the highest seasonality impacts, largely driven by animal collisions. So we would expect Q4 typically at the top end of that 60% to 65% range, whereas in Q2 and Q3 the seasonal patterns are typically more in that 60% to 62% range.

Safer time for the animals, another good quarter for Root. Thank you.

Our next question comes from Elyse Greenspan with Wells Fargo.

I guess one question, following up on loss ratios a little bit: we're starting to think about higher gas prices and potential supply chain impact from what's going on in Iran. As you think about these factors, what are you thinking could potentially happen to frequency and severity from here? Are you assuming any impacts when you say you'll stay in that 60% to 65% range this year and the low end in the second and third quarters?

So that's a great question, Elyse. Right now, we have seen mileage slightly down, not massively down. However, we have not seen frequency drop tremendously. A lot of those miles are discretionary miles that consumers drive that are generally low-frequency miles. We haven't seen that impact the numbers immediately. Regarding inflation, we think we are in a reasonable low single-digit trend environment right now, and we're watching that every day. We have cutting-edge claims models that look at this on a daily basis to try to predict exactly what's happening in the market, so we are well positioned if trends change to quickly detect them and quickly take rate through our automated actuarial systems. We're always looking at that data. Right now, our expectations, and when we talk about our loss ratio expectations, they do include our expectation of the macro as well.

And then I know you highlighted that the direct environment got more difficult during the quarter. As we think about the market today, most players are at target margins and there's a lot less rate taking—if anything negative rates across personal auto. With that backdrop, would your assumption be that competition on the direct side continues to intensify for the rest of 2026?

It's certainly a macro prediction, so take it for what it's worth. But we're not predicting that the soft market or a lot of the irrationality—massively increasing marketing budgets with limited incremental growth—goes away at competitors overnight. We're always monitoring it. You never know when it's going to change. Our base case is that it stays roughly where it is or maybe gets a little bit hotter as margins stay where they are and maybe rates come down. We're prepared for that. But we don't guess a lot; we measure everything every day. Thanks to our technology, we can react to it daily.

You put in place a $75 million repurchase program. Is the expectation that you will start buying back shares, or is this just to give you flexibility if you decide you want to?

Thanks, Elyse. Great question. First, I'd highlight we're pleased with the new debt structure with Huntington. Huntington has been a long-standing banking partner and we're thrilled to continue the partnership. The refinancing is beneficial in a couple of ways: one, we're unlocking significant interest expense savings; and two, the new facility gives us optionality in deploying excess capital. As Alex and I say consistently, our objective is to maximize the long-term value of the company through disciplined and dynamic capital allocation based on relative returns. We'll continue to invest in organic growth, technology and product innovation—these are non-negotiables. Regarding the $75 million share repurchase authorization: one, it comes down to the flexibility we have with the new debt facility; two, we have a strong excess capital position; and three, we have confidence in the long-term opportunities in the business. We now have flexibility to repurchase our stock when we believe it's trading at a discount relative to intrinsic value. We believe this is a great and indirect way to return capital to shareholders. In terms of mechanisms, we'll be opportunistic in our approach to share repurchases. Again, we'll continue to invest in the business while also deploying capital for share repurchases. We believe we can do both given our new capital stack.

Our next question comes from Brian Meredith with UBS.

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 net income lower in 2026 full year, but this quarter was pretty strong at $36 million. So my question is, is there any implied acceleration in investment base going forward related to new channels, technology and R&D?

Yes, great question. Given the record net income we posted in Q1, as we sit here today we do expect to deliver more net income in 2026 than we did in 2025. That comes down to the strength of our model and our agility and opportunity to move quickly as it relates to direct marketing investment. With the intensity we've seen in the competitive environment, you did see us scale back on direct marketing expense in March, which we believe is the right decision for the business long term. We'll continue to be opportunistic in how much investment we deploy throughout the rest of the year. Acquisition expense is variable and based on the returns we see in direct. We will continue investing in R&D and direct marketing, and we're excited to continue growing our partnership and independent agent channels. Expect other insurance expense to increase throughout the back half of the year. Also, keep in mind seasonality—Q1 is our strongest loss ratio quarter. We expect loss ratios to increase mildly throughout the rest of the year but remain within our long-term target of 60% to 65%. So if the environment persists, we expect 2026 net income will be stronger than 2025.

That's helpful. My follow-up is related to the sales and marketing expense line. This quarter it was lower year-over-year and quarter-over-quarter. How should we think about sales and marketing going forward—more back-end loaded?

As we think about sales and marketing, it really comes down to the competitive environment. We'll remain opportunistic in that channel. We're only going to spend to the extent that we're hitting our return targets. If the environment is irrational, you'll see us be patient and not lean into spend in a given quarter.

Does that answer your question, Brian?

Yes. Thank you.

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.