Root, Inc. Class A Common Stock 2026 Q2 Earnings Call

Please go ahead. Good afternoon and thank you for joining us.

Root is hosting this call to discuss its second 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 second 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 we talk 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. I'm happy to report that in the second quarter, Root continued to deliver strong performance while investing in long-term growth. Net income increased 15% year-over-year to $25 million, generating approximately a 31% annualized return on equity. Revenue increased 2% year-over-year to $389 million, and Policies in Force increased 6% year-over-year, ending the quarter at 484,000 policies. These results demonstrate the strength of our technology and data science capabilities we have built over the past decade. When we founded Root, our core belief was simple: insurance would ultimately be won through superior pricing and automation. Long before artificial intelligence became a mainstream conversation, we built the company around machine learning, quantitative science, and a modern technology platform designed to automate insurance from end to end.

Today, the pace of AI is rapidly expanding what's possible. It has the potential to reshape nearly every part of insurance, from customer acquisition and underwriting to regulatory filings and claims handling and customer service. The advancement of AI has reinforced our conviction in technology and automation. Moreover, we believe it strengthens Root's competitive position when paired with our proprietary data, our modern infrastructure, and our operating experience as a regulated insurance carrier. Root's data assets, including over 37 billion miles of driving data and more than 900,000 filed claims, are not generic datasets. They are generated from customer behavior, underwriting decisions, and claims outcomes. In order to build insurance-specific AI models, massive amounts of insurance data is a prerequisite. We've spent the last decade building these proprietary datasets. The combination of this data and world-class technology is very difficult to replicate.

Many large incumbents have scale and data, but continue to modernize decades-old technology stacks. While many newer technology companies have modern software capabilities, but lack the regulatory infrastructure, claims experience, underwriting history, and capital foundation required to operate as an insurance carrier at scale. We are building an insurance company for the AI era, one where pricing, underwriting, claims, customer interaction, software development, and capital allocation become increasingly intelligent and automated. We believe the insurance industry is entering a generational technology paradigm shift and that Root is uniquely positioned to lead. Turning to growth, the competitive environment in direct remained challenging in the second quarter as carriers increased marketing spend while lowering prices. When these cycles occur, we continue to remain disciplined. We intend to pursue growth only when it meets our target returns.

While that decision can constrain near-term growth, we believe it is the right one for building long-term shareholder value through cycles. Over the medium term, we expect geographic expansion, continued growth through independent agents, and expanding partnerships to provide durable growth drivers. We recently launched New Jersey, bringing Root to 37 states and covering over 80% of the addressable population. Geographic expansion remains a critical component of our long-term growth strategy, and we are progressing toward a national footprint by the end of 2027. We also announced our partnership with insurance shopping platform Jerry, further expanding Root's presence across high-intent digital marketplaces and demonstrating our ability to embed Root's technology and insurance experiences inside partner ecosystems.

Customers are buying insurance in more ways than ever before. Root has positioned itself across many of these channels: direct, comparison marketplaces, embedded partnerships at the point of vehicle sale, independent agents, and increasingly, AI-enabled customer experiences. Over the long term, we believe the best growth strategy is to build the best insurance product in the world, and that begins with pricing. Pricing and underwriting remain a foundation of everything we do. Technology is at the heart of who we are and has always been fundamental to how we create value. We built the company on the belief that a modern, fully integrated technology stack, combined with proprietary data and continuously improving predictive models, would allow us to price risk more accurately and operate more efficiently than traditional carriers. Our second quarter results demonstrate the strength of that foundation.

We delivered a 92.1% net combined ratio, reflecting the continued profitability and underwriting discipline of the business. At the same time, we continue to invest in what comes next. We expect to launch our newest predictive pricing model later this year. Early results from research and development are highly encouraging. We continue to see meaningful gains as more underwriting, pricing, and behavioral data enter our system and strengthen our models. The opportunity ahead is not simply to develop a better model. It is to create an increasingly intelligent, automated insurance company, one that learns faster, prices more precisely, and delivers better customer experiences at a lower cost. That is the company we have always been building. AI only increases the potential of the foundation that we have created. We are excited about the future and the opportunity in front of us.

We are expanding our national footprint, deepening our distribution capabilities, advancing our pricing algorithms, and building the technology platform we believe will define the next decade of insurance. I'll now pass the call over to Megan to talk about our financial performance.

Thanks, Alex. We delivered another quarter of strong financial performance while continuing to invest in the long-term opportunities that Alex just discussed. In the second quarter, revenue increased 2% year-over-year to $389 million. Gross written premium declined 2% year-over-year to $340 million, while gross earned premium declined 1% to $368 million. Policies in force increased 6% year-over-year to 484,000. These results reflect our continued discipline in a competitive direct market, where we are prioritizing profitable growth. We saw a sequential decline in direct policies in force, primarily reflecting the normal runoff of our first quarter tax season cohort. This was paired with a more competitive acquisition environment that moderated the pace of new business growth in direct during the quarter.

Importantly, our new business mix continues to evolve. Partnership and independent agent channels represented approximately 51% of new writings during the quarter, compared to approximately 44% a year ago. We believe these channels provide attractive long-term opportunities to diversify our sources of growth while leveraging the investments we have made in technology and embedded distribution. Our underwriting performance remained strong. Net combined ratio improved 3 percentage points year-over-year to a 92% net combined ratio. The improvement was driven primarily by continued expense discipline, with our net expense ratio improving to 26%, while our net loss and LAE ratio remained broadly consistent with the prior year at 66%. During the quarter, we also enhanced the efficiency of our balance sheet. We successfully refinanced our existing $200 million debt facility into a new term loan led by The Huntington National Bank.