SEC Filing | Root, Inc.

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root-20230930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2023

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from____________to____________

Commission File Number: 001-39658

ROOT, INC.

(Exact name of Registrant as specified in its charter)


Delaware						84-2717903
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification Number)
80 E. Rich Street, Suite 500 Columbus, Ohio						43215
(Address of principal executive offices)						(Zip Code)

(866) 980-9431

(Registrant’s telephone number, including area code)

N/A

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

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


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

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

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

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


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

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

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

As of October 27, 2023, the number of outstanding shares of the registrant’s Class A common stock, par value $0.0001 per share, was 9.6 million and the number of outstanding shares of the registrant’s Class B common stock, par value $0.0001 per share, was 5.0 million.

TABLE OF CONTENTS


		Page
Special Note Regarding Forward-Looking Statements

	Part I. Financial Information	1
Item 1.	Condensed Consolidated Balance Sheets - Unaudited	1
	Condensed Consolidated Statements of Operations and Comprehensive Loss - Unaudited	2
	Condensed Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity - Unaudited	3
	Condensed Consolidated Statements of Cash Flows - Unaudited	5
	Notes to Condensed Consolidated Financial Statements - Unaudited	6
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	23
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	42
Item 4.	Controls and Procedures	43

	Part II. Other Information	44
Item 1.	Legal Proceedings	44
Item 1A.	Risk Factors	45
Item 2.	Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities	46
Item 3.	Defaults Upon Senior Securities	47
Item 4.	Mine Safety Disclosures	48
Item 5.	Other Information	49
Item 6.	Exhibits	50
	Signatures	52

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

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

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

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

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

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

•our ability to drive a significant long-term competitive advantage through our partnership with Carvana and other partnerships;

•our ability to develop embedded products for our new embedded insurance partners;

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

•our ability to reduce operating losses and extend our capital runway;

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

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

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

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

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

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

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

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

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

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

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

•our lack of operating history and ability to attain profitability;

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

•future performance of the markets in which we operate;

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

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

•our ability to realize economies of scale;

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

•our ability to deliver a vertically integrated customer experience;

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

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

•our ability to develop an autonomous claims experience;

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

•our ability to meet risk-based capital requirements;

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

•our ability to expand domestically;

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

•the impact of litigation or other losses;

•the effect of increasing interest rates on our available cash and our ability to maintain compliance with our credit agreement;

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

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

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

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

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

Unless the context otherwise indicates, references in this report to the terms “Root,” “the Company,” “we,” “our” and “us” refer to Root, Inc. and its subsidiaries.

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

Part I. Financial Information

Item 1. Financial Statements


ROOT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS - UNAUDITED
	As of
	September 30,		December 31,
	2023		2022
	(in millions, except par value)
Assets
Investments:
Fixed maturities available-for-sale, at fair value (amortized cost: $171.1 and $134.2 at September 30, 2023 and December 31, 2022, respectively)	$	164.5	$	128.4
Short-term investments (amortized cost: $2.6 and $0.4 at September 30, 2023 and December 31, 2022, respectively)	2.6		0.4
Other investments	4.4		4.4
Total investments	171.5		133.2
Cash and cash equivalents	635.3		762.1
Restricted cash	1.0		1.0
Premiums receivable, net of allowance of $2.7 and $2.8 at September 30, 2023 and December 31, 2022, respectively	187.9		111.9
Reinsurance recoverable and receivable, net of allowance of $2.9 and $0.2 at September 30, 2023 and December 31, 2022, respectively	137.7		148.8
Prepaid reinsurance premiums	36.1		74.2
Other assets	70.7		81.7
Total assets	$	1,240.2	$	1,312.9
Liabilities, Redeemable Convertible Preferred Stock and Stockholders’ Equity
Liabilities:
Loss and loss adjustment expense reserves	$	256.5	$	287.4
Unearned premiums	218.9		136.5
Long-term debt and warrants	298.3		295.4
Reinsurance premiums payable	71.8		119.8
Accounts payable and accrued expenses	47.8		39.7

Other liabilities	57.8		45.0
Total liabilities	951.1		923.8
Commitments and Contingencies (Note 11)
Redeemable convertible preferred stock, $0.0001 par value, 100.0 shares authorized, 14.1 shares issued and outstanding at September 30, 2023 and December 31, 2022 (liquidation preference of $126.5)	112.0		112.0
Stockholders’ equity:

Class A common stock, $0.0001 par value, 1,000.0 shares authorized, 9.5 and 9.2 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively	—		—
Class B common stock, $0.0001 par value, 269.0 shares authorized, 5.0 shares issued and outstanding at September 30, 2023 and December 31, 2022	—		—

Additional paid-in capital	1,874.9		1,850.7
Accumulated other comprehensive loss	(6.6)		(5.8)
Accumulated loss	(1,691.2)		(1,567.8)
Total stockholders’ equity	177.1		277.1
Total liabilities, redeemable convertible preferred stock and stockholders’ equity	$	1,240.2	$	1,312.9

See Notes to Condensed Consolidated Financial Statements - Unaudited


ROOT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS - UNAUDITED

	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
	(in millions, except per share data)
Revenues:
Net premiums earned	$	100.0	$	68.6	$	223.9	$	221.6
Net investment income	9.0		0.9		22.5		2.2
Net realized gains on investments	—		—		—		1.1
Fee income	6.2		3.8		13.2		13.1
Other income	0.1		0.4		0.6		1.5
Total revenues	115.3		73.7		260.2		239.5
Operating expenses:
Loss and loss adjustment expenses	85.8		80.9		208.6		273.3
Sales and marketing	13.1		8.1		22.8		44.8
Other insurance expense (benefit)	18.3		1.1		22.2		(5.7)
Technology and development	11.1		14.3		32.4		46.1
General and administrative	21.0		26.4		63.2		96.4
Total operating expenses	149.3		130.8		349.2		454.9
Operating loss	(34.0)		(57.1)		(89.0)		(215.4)
Interest expense	(11.8)		(9.3)		(34.4)		(24.0)
Loss before income tax expense	(45.8)		(66.4)		(123.4)		(239.4)
Income tax expense	—		—		—		—
Net loss	(45.8)		(66.4)		(123.4)		(239.4)
Other comprehensive loss:
Changes in net unrealized losses on investments	(0.7)		(2.3)		(0.8)		(7.3)
Comprehensive loss	$	(46.5)	$	(68.7)	$	(124.2)	$	(246.7)
Loss per common share: basic and diluted (both Class A and B)	$	(3.16)	$	(4.71)	$	(8.57)	$	(17.10)
Weighted-average common shares outstanding: basic and diluted (both Class A and B)	14.5		14.1		14.4		14.0

See Notes to Condensed Consolidated Financial Statements - Unaudited


ROOT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY - UNAUDITED

	Redeemable Convertible Preferred Stock			Class A and Class B Common Stock				Additional Paid-in Capital	Accumulated Other Comprehensive Loss		Accumulated Loss		Total Stockholders' Equity
	Shares	Amount		Class A Shares	Class B Shares	Amount
				(in millions)
Balance—June 30, 2023	14.1	$	112.0	9.4	5.0	$	—		$	1,865.7	$	(5.9)	$	(1,645.4)	$	214.4
Net loss	—	—		—	—	—			—		—		(45.8)		(45.8)
Other comprehensive loss	—	—		—	—	—			—		(0.7)		—		(0.7)

Common stock—option exercises and restricted stock units vesting, net of shares withheld for employee taxes	—	—		0.1	—	—			—		—		—		—

Common stock—share-based compensation expense	—	—		—	—	—			4.7		—		—		4.7
Warrant compensation expense	—	—		—	—	—			5.0		—		—		5.0
Warrant issuance costs	—	—		—	—	—			(0.5)		—		—		(0.5)
Balance—September 30, 2023	14.1	$	112.0	9.5	5.0	$	—		$	1,874.9	$	(6.6)	$	(1,691.2)	$	177.1

Balance—January 1, 2023	14.1	$	112.0	9.2	5.0	$	—		$	1,850.7	$	(5.8)	$	(1,567.8)	$	277.1
Net loss	—	—		—	—	—			—		—		(123.4)		(123.4)
Other comprehensive loss	—	—		—	—	—			—		(0.8)		—		(0.8)


Common stock—option exercises and restricted stock units vesting, net of shares withheld for employee taxes	—	—		0.3	—	—			—		—		—		—

Common stock—share-based compensation expense	—	—		—	—	—			12.4		—		—		12.4
Warrant compensation expense	—	—		—	—	—			13.3		—		—		13.3
Warrant issuance costs	—	—		—	—	—			(1.5)		—		—		(1.5)

Balance—September 30, 2023	14.1	$	112.0	9.5	5.0	$	—		$	1,874.9	$	(6.6)	$	(1,691.2)	$	177.1


ROOT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY - UNAUDITED

	Redeemable Convertible Preferred Stock			Class A and Class B Common Stock				Additional Paid-in Capital	Accumulated Other Comprehensive (Loss) Income		Accumulated Loss		Total Stockholders' Equity
	Shares	Amount		Class A Shares	Class B Shares	Amount
				(in millions)
Balance—June 30, 2022	14.1	$	112.0	8.9	5.2	$	—		$	1,829.0	$	(4.6)	$	(1,443.1)	$	381.3
Net loss	—	—		—	—	—			—		—		(66.4)		(66.4)
Other comprehensive loss	—	—		—	—	—			—		(2.3)		—		(2.3)
Conversion of Class B to Class A	—	—		0.2	(0.2)	—			—		—		—		—
Common stock—share-based compensation expense	—	—		—	—	—			7.8		—		—		7.8
Warrant compensation expense	—	—		—	—	—			1.5		—		—		1.5
Warrant issuance costs	—	—		—	—	—			(0.1)		—		—		(0.1)
Balance—September 30, 2022	14.1	$	112.0	9.1	5.0	$	—		$	1,838.2	$	(6.9)	$	(1,509.5)	$	321.8

Balance—January 1, 2022	14.1	$	112.0	7.9	6.1	$	—		$	1,806.1	$	0.4	$	(1,270.1)	$	536.4
Net loss	—	—		—	—	—			—		—		(239.4)		(239.4)
Other comprehensive loss	—	—		—	—	—			—		(7.3)		—		(7.3)
Conversion of Class B to Class A	—	—		1.1	(1.1)	—			—		—		—		—
Common stock—option exercises and restricted stock units vesting, net of shares withheld for employee taxes	—	—		0.1	—	—			0.4		—		—		0.4
Reclassification of early-exercised stock options from liabilities	—	—		—	—	—			0.1		—		—		0.1
Common stock—share-based compensation expense	—	—		—	—	—			21.8		—		—		21.8
Warrant compensation expense	—	—		—	—	—			10.3		—		—		10.3
Warrant issuance costs	—	—		—	—	—			(1.1)		—		—		(1.1)
Term Loan warrants issued	—	—		—	—	—			0.6		—		—		0.6
Balance—September 30, 2022	14.1	$	112.0	9.1	5.0	$	—		$	1,838.2	$	(6.9)	$	(1,509.5)	$	321.8

See Notes to Condensed Consolidated Financial Statements - Unaudited


ROOT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
	Nine Months Ended September 30,
	2023		2022
	(in millions)
Cash flows from operating activities:
Net loss	$	(123.4)	$	(239.4)
Adjustments to reconcile net loss to net cash used in operating activities:
Share-based compensation	12.4		21.8
Warrant compensation expense	13.3		10.3
Depreciation and amortization	8.2		9.5
Bad debt expense	10.6		13.7


Net realized gains on investments	—		(1.1)
Gain on lease modification	(0.3)		(0.2)

Changes in operating assets and liabilities:
Premiums receivable	(83.9)		4.5
Reinsurance recoverable and receivable	8.5		19.0
Prepaid reinsurance premiums	38.1		14.6

Other assets	10.6		(2.0)
Losses and loss adjustment expenses reserves	(30.9)		(26.0)
Unearned premiums	82.4		(22.8)
Reinsurance premiums payable	(48.0)		8.8
Accounts payable and accrued expenses	9.6		17.5
Other liabilities	13.1		7.9
Net cash used in operating activities	(79.7)		(163.9)
Cash flows from investing activities:
Purchases of investments	(61.7)		(30.8)
Proceeds from maturities, call and pay downs of investments	22.3		26.7
Sales of investments	0.5		7.1
Capitalization of internally developed software	(7.1)		(7.4)
Purchases of fixed assets	(0.2)		—
Purchases of indefinite-lived intangible assets and transaction costs	—		(1.3)
Net cash used in investing activities	(46.2)		(5.7)
Cash flows from financing activities:
Proceeds from exercise of stock options and restricted stock units, net of tax (withholding)/proceeds	(0.9)		0.3


Proceeds from issuance of debt and related warrants, net of issuance costs	—		286.0
Payment of preferred stock and related warrants issuance costs	—		(3.0)


Net cash (used in) provided by financing activities	(0.9)		283.3
Net (decrease) increase in cash, cash equivalents and restricted cash	(126.8)		113.7
Cash, cash equivalents and restricted cash at beginning of period	763.1		707.0
Cash, cash equivalents and restricted cash at end of period	$	636.3	$	820.7

See Notes to Condensed Consolidated Financial Statements - Unaudited

ROOT, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

1.NATURE OF BUSINESS

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

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

2.BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation—In our opinion, all adjustments necessary for a fair presentation of the condensed consolidated financial statements have been included. All such adjustments are of a normal and recurring nature. These condensed consolidated financial statements are unaudited and, accordingly, should be read in conjunction with the consolidated financial statements and related notes included in the Annual Report on Form 10-K for the year ended December 31, 2022 filed with the Securities and Exchange Commission, or SEC, on February 22, 2023.

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

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

Revision of Previously Issued Financial Statements—During the fourth quarter of 2022, we identified errors in our first, second and third quarter financial statements for 2022 and revised the quarterly presentation of certain sales and marketing and general and administrative expenses on our condensed consolidated statements of operations and comprehensive loss related to the purported misappropriation of funds by a senior marketing employee. The errors did not impact periods prior to 2022.

In accordance with SEC Staff Accounting Bulletin, or SAB, No. 99, Materiality, and SAB No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements, we assessed the materiality of these errors on our financial statements and concluded the errors were not material to the unaudited interim financial statements for the three and nine months ended September 30, 2022.

The following tables present the effect of the revision on the condensed consolidated statements of operations and comprehensive loss for the three and nine months ended September 30, 2022, condensed consolidated statement of redeemable convertible preferred stock and stockholders’ equity and condensed consolidated statement of cash flows as of and for the nine months ended September 30, 2022.


	Three Months Ended September 30, 2022 (unaudited)		Nine Months Ended September 30, 2022 (unaudited)
	As reported		Adjustments		As Corrected		As reported		Adjustments		As Corrected







	(in millions, except per share amounts)
Condensed consolidated statements of operations and comprehensive loss:
Sales and marketing	$	5.7	$	2.4	$	8.1	$	45.8	$	(1.0)	$	44.8
General and administrative	26.4		—		26.4		86.3		10.1		96.4
Total operating expenses	128.4		2.4		130.8		445.8		9.1		454.9
Operating loss	(54.7)		(2.4)		(57.1)		(206.3)		(9.1)		(215.4)

Loss before income tax expense	(64.0)		(2.4)		(66.4)		(230.3)		(9.1)		(239.4)

Net loss	(64.0)		(2.4)		(66.4)		(230.3)		(9.1)		(239.4)
Comprehensive loss	$	(66.3)	$	(2.4)	$	(68.7)	$	(237.6)	$	(9.1)	$	(246.7)
Weighted-average common shares outstanding: basic and diluted (both Class A and B)	14.1				14.1		14.0				14.0
Loss per common share: basic and diluted (both Class A and B)	$	(4.54)			$	(4.71)	$	(16.45)			$	(17.10)


	As of September 30, 2022 (unaudited)
	As reported		Adjustments		As Corrected
	(in millions)
Condensed consolidated statement of redeemable convertible preferred stock and stockholders’ equity:
Accumulated loss	$	(1,500.4)	$	(9.1)	$	(1,509.5)
Total stockholders’ equity	$	330.9	$	(9.1)	$	321.8


	Nine Months Ended September 30, 2022 (unaudited)
	As reported		Adjustments		As Corrected
	(in millions)
Condensed consolidated statement of cash flows:
Net loss	$	(230.3)	$	(9.1)	$	(239.4)
Other assets	(11.1)		9.1		(2.0)
Net cash used in operating activities	$	(163.9)	$	—	$	(163.9)

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


	As of
	September 30,		December 31,
	2023		2022
	(dollars in millions)
Cash and cash equivalents	$	635.3	$	762.1
Restricted cash	1.0		1.0
Total cash, cash equivalents and restricted cash shown in the condensed consolidated statements of cash flows	$	636.3	$	763.1

Performance-Based Restricted Stock Units—During the third quarter of 2023, we granted 0.4 million performance-based restricted stock units, or PSUs, to certain key employees as part of our equity compensation plan. The PSUs are expected to vest over a derived service period of one to four-years and are dependent upon the fulfillment of both a service condition and the achievement of stock-price goals during the performance period, with the latter being classified as a market condition according to Accounting Standard Codification 718, Stock Compensation. The service condition with respect to the four tranches of PSUs will be met in installments on April 1, 2024, and each of the subsequent three anniversaries of that date, or Vesting Date Requirement, subject to the individual’s continued service through such dates. Stock price goals must be met on or after the respective tranche’s Vesting Date Requirement and are based on the average closing price per share of our Class A common stock over a consecutive 45 day trading period. Any tranche of PSUs with respect to which the stock price goal has not been met as of April 1, 2028 (the final day of the performance period) will be forfeited as of such date.

The PSU compensation expense is recognized based on the grant date fair value of the award, which was determined by simulating Root’s stock prices using a Monte Carlo simulation in a risk-neutral framework, assuming a Geometric Brownian Motion. The simulation is repeated 100,000 times, and the average of the discounted values for each tranche is the grant date fair value for that tranche. The median time to vest is the derived service period.

Employing a Monte Carlo simulation requires a range of inputs for each uncertain variable, and establishing linkage between the assumptions, if necessary. Inputs and assumptions used in our analysis included our stock price at grant date, exercise prices, the term of the PSUs, equity volatility, risk-free rate and dividend yield. Equity volatility was derived using a blended volatility assumption of 50% weight on Root’s historical volatility calculated from daily stock returns since IPO from the grant date and a 50% weight based on Root’s term matched simple average peer volatility as of the valuation date because our company-specific volatility is not sufficient by itself at the time of grant.

The expense is recognized via a graded vesting method over the derived service period. In the event that both the service condition and market condition are met earlier, expense would be accelerated. If the service condition is not achieved, previously recognized compensation cost for the associated tranche is reversed. In the event that the market conditions are never achieved before the expiration date, but the service condition is met, the respective compensation costs remain recognized.

3.INVESTMENTS

The amortized cost and fair value of short-term investments and available-for-sale fixed maturity securities at September 30, 2023 and December 31, 2022 are as follows:


	September 30, 2023
	Amortized Cost		Allowance for Expected Credit Losses		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
	(dollars in millions)
Fixed maturities:
U.S. Treasury securities and agencies	$	16.8	$	—	$	—	$	(0.4)	$	16.4
Municipal securities	25.6		—		—		(1.3)		24.3
Corporate debt securities	69.4		—		—		(2.9)		66.5
Residential mortgage-backed securities	12.3		—		—		(0.5)		11.8
Commercial mortgage-backed securities	31.0		—		—		(1.3)		29.7
Other debt obligations	16.0		—		—		(0.2)		15.8
Total fixed maturities	171.1		—		—		(6.6)		164.5
Short-term investments	2.6		—		—		—		2.6
Total	$	173.7	$	—	$	—	$	(6.6)	$	167.1

	December 31, 2022
	Amortized Cost		Allowance for Expected Credit Losses		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
	(dollars in millions)
Fixed maturities:
U.S. Treasury securities and agencies	$	11.3	$	—	$	—	$	(0.3)	$	11.0
Municipal securities	21.4		—		—		(1.2)		20.2
Corporate debt securities	60.5		—		—		(2.7)		57.8
Residential mortgage-backed securities	5.5		—		—		(0.3)		5.2
Commercial mortgage-backed securities	24.4		—		—		(1.2)		23.2
Other debt obligations	11.1		—		0.1		(0.2)		11.0
Total fixed maturities	134.2		—		0.1		(5.9)		128.4
Short-term investments	0.4		—		—		—		0.4
Total	$	134.6	$	—	$	0.1	$	(5.9)	$	128.8

Management reviewed the available-for-sale securities at each balance sheet date to consider whether it was necessary to recognize a credit loss as of September 30, 2023 and December 31, 2022. We do not intend to sell the investments and it is not more likely than not that we will be required to sell the security before recovery. Management concluded that the available-for-sale securities’ unrealized losses were due to non-credit related factors and, therefore, there was no allowance for credit loss as of September 30, 2023 and December 31, 2022.

The following tables reflect the gross unrealized losses and fair value of short-term investments and available-for-sale fixed maturity securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at September 30, 2023 and December 31, 2022:


	September 30, 2023
	Less than 12 Months				12 Months or More				Total
	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
	(dollars in millions)
Fixed maturities:
U.S. Treasury securities and agencies	$	10.2	$	(0.2)	$	6.2	$	(0.2)	$	16.4	$	(0.4)
Municipal securities	7.9		(0.2)		15.7		(1.1)		23.6		(1.3)
Corporate debt securities	27.1		(0.8)		39.3		(2.1)		66.4		(2.9)
Residential mortgage-backed securities	8.5		(0.2)		2.7		(0.3)		11.2		(0.5)
Commercial mortgage-backed securities	13.5		(0.4)		15.8		(0.9)		29.3		(1.3)
Other debt obligations	9.5		(0.1)		3.8		(0.1)		13.3		(0.2)
Total fixed maturities	76.7		(1.9)		83.5		(4.7)		160.2		(6.6)
Short-term investments	1.1		—		—		—		1.1		—
Total	$	77.8	$	(1.9)	$	83.5	$	(4.7)	$	161.3	$	(6.6)

	December 31, 2022
	Less than 12 Months				12 Months or More				Total
	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
	(dollars in millions)
Fixed maturities:
U.S. Treasury securities and agencies	$	6.9	$	(0.1)	$	4.1	$	(0.2)	$	11.0	$	(0.3)
Municipal securities	11.5		(0.5)		8.2		(0.7)		19.7		(1.2)
Corporate debt securities	45.3		(1.6)		11.5		(1.1)		56.8		(2.7)
Residential mortgage-backed securities	2.2		—		1.9		(0.3)		4.1		(0.3)
Commercial mortgage-backed securities	18.3		(0.8)		4.6		(0.4)		22.9		(1.2)
Other debt obligations	6.8		(0.2)		—		—		6.8		(0.2)
Total fixed maturities	91.0		(3.2)		30.3		(2.7)		121.3		(5.9)
Short-term investments	0.1		—		—		—		0.1		—
Total	$	91.1	$	(3.2)	$	30.3	$	(2.7)	$	121.4	$	(5.9)

Other Investments

As of September 30, 2023 and December 31, 2022, other investments related to our private equity investments were $4.4 million. There were no realized gains or losses for the three and nine months ended September 30, 2023. We recognized zero and $1.2 million of realized gains for the three and nine months ended September 30, 2022, respectively. We recorded the gain on sale of our private equity investments within net realized gains on investments in our condensed consolidated statements of operations and comprehensive loss. There were no unrealized gains and losses or impairment losses recognized on private equity investments for the three and nine months ended September 30, 2023 and 2022.

The following table reflects the gross and net realized gains and losses on short-term investments, available-for-sale fixed maturities and other investments that have been included in the condensed consolidated statements of operations and comprehensive loss for the three and nine months ended September 30, 2023 and 2022:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
	(dollars in millions)
Realized gains on investments	$	—	$	—	$	—	$	1.2
Realized losses on investments	—		—		—		(0.1)
Net realized gains on investments	$	—	$	—	$	—	$	1.1

The following table sets forth the amortized cost and fair value of short-term investments and available-for-sale fixed maturity securities by contractual maturity at September 30, 2023:


	September 30, 2023
	Amortized Cost		Fair Value
	(dollars in millions)
Due in one year or less	$	33.3	$	32.8
Due after one year through five years	102.3		98.1
Due five years through 10 years	21.4		20.4
Due after 10 years	16.7		15.8
Total	$	173.7	$	167.1

The following table sets forth the components of net investment income for the three and nine months ended September 30, 2023 and 2022:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
	(dollars in millions)
Interest on bonds	$	1.4	$	0.6	$	3.3	$	1.7
Interest on deposits and cash equivalents	7.9		0.6		19.8		1.2

Total	9.3		1.2		23.1		2.9
Investment expense	(0.3)		(0.3)		(0.6)		(0.7)
Net investment income	$	9.0	$	0.9	$	22.5	$	2.2

The following tables summarize the credit ratings of short-term investments and available-for-sale fixed maturity securities at September 30, 2023 and December 31, 2022:


	September 30, 2023
	Amortized Cost		Fair Value		% of Total Fair Value
	(dollars in millions)
S&P Global rating or equivalent
AAA	$	51.2	$	49.3	29.5	%
AA+, AA, AA-, A-1	62.4		60.2		36.0
A+, A, A-	46.3		44.2		26.5
BBB+, BBB, BBB-	13.8		13.4		8.0
Total	$	173.7	$	167.1	100.0	%


	December 31, 2022
	Amortized Cost		Fair Value		% of Total Fair Value
	(dollars in millions)
S&P Global rating or equivalent
AAA	$	62.5	$	59.9	46.5	%
AA+, AA, AA-, A-1	19.9		19.1		14.8
A+, A, A-	38.4		36.5		28.3
BBB+, BBB, BBB-	13.8		13.3		10.4
Total	$	134.6	$	128.8	100.0	%

4.FAIR VALUE OF FINANCIAL INSTRUMENTS

The following tables provide information about our financial assets measured and reported at fair value as of September 30, 2023 and December 31, 2022:


	September 30, 2023
	Level 1		Level 2		Level 3		Total Fair Value
	(dollars in millions)
Assets
Fixed maturities:
U.S. Treasury securities and agencies	$	15.4	$	1.0	$	—	$	16.4
Municipal securities	—		24.3		—		24.3
Corporate debt securities	—		66.5		—		66.5
Residential mortgage-backed securities	—		11.8		—		11.8
Commercial mortgage-backed securities	—		29.7		—		29.7
Other debt obligations	—		15.8		—		15.8
Total fixed maturities	15.4		149.1		—		164.5
Short-term investments	2.4		0.2		—		2.6
Cash equivalents	363.6		—		—		363.6
Total assets at fair value	$	381.4	$	149.3	$	—	$	530.7




	December 31, 2022
	Level 1		Level 2		Level 3		Total Fair Value
	(dollars in millions)
Assets
Fixed maturities:
U.S. Treasury securities and agencies	$	9.2	$	1.8	$	—	$	11.0
Municipal securities	—		20.2		—		20.2
Corporate debt securities	—		57.8		—		57.8
Residential mortgage-backed securities	—		5.2		—		5.2
Commercial mortgage-backed securities	—		23.2		—		23.2
Other debt obligations	—