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Root, Inc. (ROOT)·Q1 2025 Earnings Summary

Executive Summary

  • Root delivered another profitable quarter with total revenue of $349.4M, diluted EPS of $1.07, and net income of $18.4M; EPS and revenue materially beat Wall Street consensus, driven by seasonal shopping/tax refund tailwinds, disciplined underwriting, and lower interest expense under the amended term loan .
  • Policies in force rose to 453,800 and gross premiums written climbed 24% YoY to $410.8M, while net combined ratio improved YoY to 95.6% despite heavier growth spend; gross accident-period loss ratio was 57.9% with severity up 7% and frequency down 5% .
  • Management highlighted diversification via partnerships (new writings more than doubled YoY) and continued state expansion (35 states; Michigan filing pending), while signaling Q1 seasonality will not persist and loss ratio will seasonally rise in Q2–Q3 toward the 60–65% long-term target .
  • Catalysts: sustained profitability streak (third consecutive quarter), strong beats vs consensus, partnership ramp (HCA, Experian), and demonstrated agility to address tariff/severity trends through rapid rate actions on a modern tech stack .

What Went Well and What Went Wrong

  • What Went Well
    • “We improved our gross premiums written by 24% from the first quarter of 2024 and generated net income of $18 million, operating income of $24 million and adjusted EBITDA of $32 million.”
    • Partnerships: “Quarterly new writings more than double year-over-year…expanded our partner roster to include over 20 total partners, launching 2 new strategic partnerships, one with Hyundai Capital America (HCA) and one with Experian, this quarter.”
    • Cost of capital: “Reduced our interest rate by 25 basis points” under performance-based step-downs in the amended BlackRock facility; highlights future opportunities to further lower cost of capital .
  • What Went Wrong
    • Heavier growth spend: Sales and marketing rose to $51.5M (from $30.4M) to capitalize on Q1 seasonality; management cautioned Q1’s tailwind will not persist and PIF is roughly flat quarter-to-date in Q2 .
    • Loss ratio seasonality: Expected higher loss ratios in Q2 (convective storms) and Q3 (hurricane season) with long‑term target of 60–65%, implying near-term margin normalization .
    • Mix/Severity: Estimated severity up 7% and frequency down 5% YoY; geographic/state mix shift and growth can pressure offsets, requiring pricing vigilance .

Financial Results

MetricQ3 2024Q4 2024Q1 2025
Total Revenues ($USD Millions)$305.7 $326.7 $349.4
Net Premiums Earned ($USD Millions)$279.3 $299.7 $321.3
Operating Income ($USD Millions)$34.4 $34.9 $23.7
Net Income ($USD Millions)$22.8 $22.1 $18.4
Diluted EPS ($USD)$1.35 $1.30 $1.07
Adjusted EBITDA ($USD Millions)$41.6 $43.1 $31.9
Net Combined Ratio (%)91.1% 91.5% 95.6%
Gross Combined Ratio (%)89.2% 90.6% 94.0%

Earnings vs Wall Street Consensus (S&P Global)

MetricQ1 2025 ConsensusQ1 2025 Actual
Primary EPS (Diluted) ($USD)0.47*1.07
Revenue ($USD Millions)306.8*349.4
EBITDA (SPGI standard) ($USD Millions)19.9*25.7*

Estimates marked with * are values retrieved from S&P Global.

KPIs and Underwriting

KPI / RatioQ3 2024Q4 2024Q1 2025
Policies in Force (units)407,313 414,862 453,800
Premiums per Policy ($USD)$1,558 $1,584 $1,614
Premiums in Force ($USD Millions)$1,269.2 $1,314.3 $1,464.9
Gross Premiums Written ($USD Millions)$331.7 $330.5 $410.8
Gross Premiums Earned ($USD Millions)$317.0 $331.0 $344.4
Direct Contribution ($USD Millions)$110.5 $115.8 $127.1
Gross Accident Period Loss Ratio (%)58.4% 61.4% 57.9%
Severity Δ YoY / Frequency Δ YoY+6% / −7% +2% / −2% +7% / −5%

Segment note: Root operates as a single reporting segment (personal auto; direct and partnership channels managed on a consolidated basis) .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Loss Ratio (gross/net behavior)Q2–Q3 2025Not quantified; long-term target reiterated historicallyExpect loss ratio to increase seasonally in Q2–Q3 to align with long‑term target of 60–65% Maintained long‑term target; near-term normalization
Policies in Force (PIF)Q2 2025 (quarter-to-date)Not quantifiedPIF roughly flat quarter-to-date, consistent with post-Q1 growth normalization New near-term color
Seasonality commentaryRemainder of 2025—Q1 seasonal favorability (tax refunds, shopping, lower miles) will not persist through 2025 New reminder
Interest expense rate (term loan)2025 run-rateStep-downs possible based on leverageFirst 25 bps step-down realized in Q1; future reductions possible with performance Improved

Earnings Call Themes & Trends

TopicPrevious Mentions (Q3 2024, Q4 2024)Current Period (Q1 2025)Trend
Partnerships growthNew writings +131% YoY; pipeline expansion; agency integrations New writings more than doubled YoY; added HCA and Experian; 20+ partners Uptrend, broadening mix
Reinsurance/retentionCession rate down; strategic reduction of quota share Lower cessions vs prior; retained more profitable underwriting; net combined ratio 95.6% Retention rising, economics improving
Cost of capitalRefinanced term loan; ~50% run-rate interest expense reduction 25 bps rate step-down realized under performance triggers Improving, more flexibility
Tariffs/macro severityMacro watch; rate agility emphasized Expected low-to-mid single-digit loss ratio impact; ability to take rates swiftly Manageable; nimble pricing response
State expansion34 states; expansion ongoing 35 states; Michigan filed; Washington/NJ/MA pending Expanding footprint

Management Commentary

  • CEO: “We improved our gross premiums written by 24% from the first quarter of 2024 and generated net income of $18 million, operating income of $24 million and adjusted EBITDA of $32 million… seasonal favorability [tax refunds, shopping, lower miles] enabled strong performance, which we do not expect to persist in the rest of 2025.”
  • CFO: “We achieved a net combined ratio of 96% in the quarter… Our unencumbered capital was $347 million… reduced our interest rate by 25 basis points… opportunities to further reduce our cost of capital as the business continues to perform.”
  • CEO on tariffs and pricing agility: “We can react swiftly and appropriately through rate actions… automation in underwriting allowed us to be ahead of competitors in taking rates… we believe we have room to absorb tariffs in current form.”

Q&A Highlights

  • Mix and growth spend cadence: Partnership share dipped sequentially due to unusually strong direct channel seasonality; expect partnership mix to increase through year; growth spend typically peaks in Q1 given tax season demand .
  • State expansion ramp: Conservative launch/pricing with 6–12 month ramp as data accrues; adjust pricing quickly as confidence improves; recent strong growth in CA/FL highlighted .
  • Tariffs impact: Low-to-mid single-digit loss ratio impact expected; Root’s loss ratios currently below targets, providing buffer; will take rate if needed .
  • Profitability outlook: Loss ratios typically higher in Q2/Q3 due to storms/hurricanes; long-term target 60–65% reiterated; management avoids extrapolating a single quarter .

Estimates Context

  • Q1 2025 was a clear beat: EPS $1.07 vs $0.47 consensus; revenue $349.4M vs $306.8M consensus; EBITDA (SPGI standard) $25.7M vs $19.9M consensus. Drivers were seasonality, disciplined underwriting (gross accident-period loss ratio 57.9%), and interest expense reduction under the amended facility .
  • Near-term estimate revisions: Expect upward revisions to revenue and EPS following outsized beat, tempered by explicit guidance that Q1 seasonality will fade and loss ratios will normalize higher in Q2–Q3; partnership contribution should rise as HCA/Experian ramp .

Estimates marked with * are values retrieved from S&P Global.

Key Takeaways for Investors

  • Sustained profitability with three consecutive profitable quarters, rising retention/retention economics, and improving capital efficiency; however, margins should seasonally normalize in Q2–Q3 (60–65% loss ratio target) .
  • Strong beat vs consensus on both EPS and revenue in Q1, aided by tax-season shopping and lower miles; expect partnership mix to tick up through the year as direct seasonality fades .
  • Partnerships are a central growth lever (HCA, Experian) with 20+ partners; embedded and agency channels broaden access and should provide more durable growth vs purely direct .
  • Pricing agility and tech stack remain strategic differentiators to address severity/tariff pressures amid macro uncertainty; management indicates room to absorb current tariff impacts and willingness to take rate .
  • Capital position is strong (unencumbered capital ~$347M), with interest cost step-downs already realized and potential for further reductions, supporting reinvestment in growth/funnel R&D .
  • Watch trajectory of PIF (flat quarter-to-date in Q2) and geographical mix (e.g., CA/FL) as state expansion ramps; monitor severity trends and weather seasonality in Q2–Q3 .
  • Actionable: Expect near-term estimate revisions upward but incorporate seasonality and loss ratio normalization; catalysts include additional partnership launches, state approvals (e.g., Michigan), and further interest expense step-downs .
Notes:
- Non-GAAP measures (Direct Contribution, Adjusted EBITDA) are defined and reconciled in filings **[1788882_0001628280-25-023144_q12025shareholderletter.htm:3]** **[1788882_0001628280-25-023144_q12025shareholderletter.htm:11]** **[1788882_0001628280-25-023144_q12025shareholderletter.htm:12]** **[1788882_0001628280-25-023151_root-20250331.htm:28]** **[1788882_0001628280-25-023151_root-20250331.htm:29]**.
- Estimates marked with * are values retrieved from S&P Global.