What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2024-02-21 compared with 2023-02-22 · 293 added, 578 removed, 935 unchanged (48% of the section changed)

7 unchanged sentences

Notes to Consolidated Financial Statements

Condensed Combined Financial Information of Registrant

Valuation and Qualifying Accounts

Schedules other than those listed above are omitted for the reason that they are not required, are not applicable or that equivalent information has been included in the consolidated financial statements or notes thereto or elsewhere herein.

Schedules are omitted for the reason that they are not required, are not applicable or that equivalent information has been included in the consolidated financial statements or notes thereto or elsewhere herein.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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We have audited the accompanying consolidated balance sheets of Root, Inc.

and subsidiaries (the "Company") as of December 31, 2022 and 2021, the related consolidated statements of operations and comprehensive loss, redeemable convertible preferred stock and stockholders' equity, and cash flows, for each of the three years in the period ended December 31, 2022, and the related notes and the schedules listed in the Index at Item 8 (collectively referred to as the "financial statements").

and subsidiaries (the "Company") as of December 31, 2023 and 2022, the related consolidated statements of operations and comprehensive loss, redeemable convertible preferred stock and stockholders' equity, and cash flows, for each of the three years in the period ended December 31, 2023, and the related notes (collectively referred to as the "financial statements").

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 22, 2023, expressed an adverse opinion on the Company's internal control over financial reporting because of a material weakness.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 21, 2024, expressed an unqualified opinion on the Company's internal control over financial reporting.

Basis for Opinion

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Critical Audit Matter Description

As of December 31, 2022, loss and loss adjustment expense reserves were $ 287.4 million.

The Company’s loss and loss adjustment expense reserves are determined by the Company using actuarial methods, models, assumptions, and judgment to estimate the reserves required to cover the amount required to settle insured losses as of the financial statement date.

Loss and loss adjustment expense reserves are inherently uncertain as to timing and amount and the recorded loss and loss adjustment expense reserves may vary materially from the actual ultimate cost of claims, particularly related to those reserves where there is a longer time span between the incidence of a loss and the settlement of a claim.

Given the subjectivity in estimating the ultimate loss and loss adjustment expense reserves, due to input variables such as historical and statistical information, inflation, contract interpretation, weather catastrophe impacts, regulatory environment, and economic conditions, among other factors, auditing loss and loss adjustment expense reserves, particularly related to those reserves over a longer periods of time, involved an especially high degree of auditor judgment, including the need to involve our actuarial specialists.

Loss and loss adjustment expense reserves represents the liability established to cover the estimated ultimate cost to settled insured losses.

The Company’s estimation of the liability for loss and loss adjustment expense reserves is complex and includes subjective considerations and management’s judgement.

Loss and loss adjustment expense reserves are inherently uncertain.

Because actual experience can differ from key assumptions used in establishing reserves, there is potential for significant variation in the development of loss

reserves, particularly related to those reserves where there is a longer time span between the incidence of a loss and the settlement of a claim.

Given the subjectivity in estimating the ultimate loss and loss adjustment expense reserves, due to input variables such as historical and statistical information, inflation, contract interpretation, weather catastrophe impacts, regulatory environment, and economic conditions, among other factors, auditing loss and loss adjustment expense reserves, particularly related to those reserves with settlement over a longer period of time, involved an especially high degree of auditor judgment, including the need to involve our actuarial specialists.

How the Critical Audit Matter Was Addressed in the Audit

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• We tested the completeness and accuracy of the underlying key data inputs that served as the basis for the actuarial estimate.

• With the assistance of our actuarial specialists, we used the Company’s claims data to develop a range of independent estimates for the loss and loss adjustment expense reserves, particularly related to those over a longer period of time.

We used these independent estimates to assess the reasonableness of the Company’s reserves by comparing our estimates to the Company’s recorded loss and loss adjustment expense reserves.

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Short-term investments (amortized cost:

$ 0.4 and zero at December 31, 2022 and December 31, 2021, respectively)

$ 0.9 and $ 0.4 at December 31, 2023 and December 31, 2022, respectively)

Other investments 4.4 4.4

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Premiums receivable, net of allowance of $ 4.0 and $ 2.8 at December 31, 2023 and December 31, 2022, respectively

Reinsurance recoverable and receivable, net of allowance of $ 0.2 at December 31, 2022 and December 31, 2021

Reinsurance recoverable and receivable, net of allowance of $ 1.8 and $ 0.2 at December 31, 2023 and December 31, 2022, respectively

Prepaid reinsurance premiums 48.2 74.2

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Commitments and Contingencies (Note 13)

Redeemable convertible preferred stock, $ 0.0001 par value, 14.1 shares issued and outstanding at December 31, 2022 and December 31, 2021 (liquidation preference of $ 126.5 ) (Note 11)

Redeemable convertible preferred stock, $ 0.0001 par value, 14.1 shares issued and outstanding at December 31, 2023 and December 31, 2022 (redemption value of $ 126.5 ) (Note 11)

Stockholders’ equity:

Class A common stock, $ 0.0001 par value, 9.5 and 9.2 shares issued and outstanding at December 31, 2023 and December 31, 2022, respectively (Note 11)

Class B common stock, $ 0.0001 par value, 5.0 and 6.1 shares issued and outstanding at December 31, 2022 and December 31, 2021, respectively (Note 11) (1)

Class B convertible common stock, $ 0.0001 par value, 5.0 shares issued and outstanding at December 31, 2023 and December 31, 2022 (Note 11)

Additional paid-in capital 1,883.4 1,850.7

Accumulated other comprehensive (loss) income ( 5.8 ) 0.4

Accumulated other comprehensive loss ( 2.5 ) ( 5.8 )

Accumulated loss ( 1,715.2 ) ( 1,567.8 )

1 unchanged sentence

Total liabilities, redeemable convertible preferred stock and stockholders’ equity $ 1,347.7 $ 1,312.9

______________

(1) Reflects the 1-for-18 reverse stock split that became effective August 12, 2022.

Refer to Note 2, “Basis of Presentation and Summary of Significant Accounting Policies.”

See Notes to Consolidated Financial Statements

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Sales and marketing 49.3 48.0 270.2

Other insurance (benefit) expense ( 8.0 ) 5.0 ( 1.8 )

Other insurance expense (benefit) 47.6 ( 8.0 ) 5.0

Technology and development 44.8 55.5 65.5

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Net loss ( 147.4 ) ( 297.7 ) ( 521.1 )

Other comprehensive (loss) income:

Changes in net unrealized (losses) gains on investments ( 6.2 ) ( 5.2 ) 5.0

Other comprehensive income (loss):

Changes in net unrealized gains (losses) on investments 3.3 ( 6.2 ) ( 5.2 )

Comprehensive loss $ ( 144.1 ) $ ( 303.9 ) $ ( 526.3 )

1 unchanged sentence

basic and diluted (both Class A and B) $ ( 10.24 ) $ ( 21.11 ) $ ( 37.76 )

$ ( 21.11 ) $ ( 37.76 ) $ ( 86.43 )

Weighted-average common shares outstanding:

basic and diluted (both Class A and B) 14.4 14.1 13.8

14.1 13.8 4.2

______________

(1) Reflects the 1-for-18 reverse stock split that became effective August 12, 2022.

Refer to Note 2, “Basis of Presentation and Summary of Significant Accounting Policies.”

See Notes to Consolidated Financial Statements

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FOR THE YEARS ENDED DECEMBER 31, 2023, 2022 AND 2021

Redeemable Convertible Preferred Stock Class A and Class B Common Stock (1)

Treasury Stock (1)

Additional Paid-In Capital Accumulated Other Comprehensive Income (Loss) Accumulated Loss Total Stockholders' Equity (Deficit)

Redeemable Convertible Preferred Stock Class A and Class B Convertible Common Stock

Treasury Stock Additional Paid-In Capital Accumulated Other Comprehensive Income (Loss) Accumulated Loss Total Stockholders' Equity

Shares Amount Class A Shares Class B Shares Amount Shares Amount

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Net loss — — — — — — — — — ( 521.1 ) ( 521.1 )

Other comprehensive income — — — — — — — — 5.0 — 5.0

Tender offer and subsequent conversion (Note 12) 2.9 — — ( 0.2 ) — — — 25.1 — — 25.1

Conversion of redeemable convertible preferred stock to common stock from IPO ( 161.8 ) ( 560.4 ) — 9.0 — — — 560.4 — — 560.4

Common stock—issuance of shares from IPO and concurrent private placement, net of issuance costs — — 2.4 — — — — 1,098.1 — — 1,098.1

Conversion of Class B to Class A common stock — — 0.9 ( 0.9 ) — — — — — — —

Warrants exercise — — — 0.2 — — — 75.2 — — 75.2

Common stock—option exercises — — — 0.1 — — — 1.9 — — 1.9

Reclassification of early-exercised stock option to liabilities — — — — — — — 0.2 — — 0.2

Common stock—share-based compensation expense — — — — — — — 3.7 — — 3.7

Settlement of related party loan — — — — — — ( 0.7 ) 0.5 — — ( 0.2 )

Balance—December 31, 2020 — $ — 3.3 10.7 $ — 0.3 $ ( 0.8 ) $ 1,775.6 $ 5.6 $ ( 748.0 ) $ 1,032.4

Cumulative-effect of change in accounting principle (ASU 2016-13), net of tax — — — — — — — — — ( 1.0 ) ( 1.0 )

Balance at January 1, 2021 (as adjusted for change in accounting principle) — $ — 3.3 10.7 $ — 0.3 $ ( 0.8 ) $ 1,775.6 $ 5.6 $ ( 749.0 ) $ 1,031.4

Net loss — — — — — — — — — ( 521.1 ) ( 521.1 )

Other comprehensive loss — — — — — — — — ( 5.2 ) — ( 5.2 )

12 unchanged sentences

Common stock—option exercises and restricted stock units vesting, net of shares withheld for employee taxes — — 0.2 — — — — 0.4 — — 0.4

Reclassification of early-exercised stock option to liabilities — — — — — — — 0.2 — — 0.2

Reclassification of early-exercised stock option from liabilities

— — — — — — — 0.2 — — 0.2

Common stock—share-based compensation expense — — — — — — — 30.5 — — 30.5

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Balance—December 31, 2022 14.1 $ 112.0 9.2 5.0 $ — — $ — $ 1,850.7 $ ( 5.8 ) $ ( 1,567.8 ) $ 277.1

Net loss — — — — — — — — — ( 147.4 ) ( 147.4 )

Other comprehensive income — — — — — — — — 3.3 — 3.3

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

Reclassification of early-exercised stock option from liabilities

— — — — — — — 0.1 — — 0.1

(1) Reflects the 1-for-18 reverse stock split that became effective August 12, 2022.

Refer to Note 2, “Basis of Presentation and Summary of Significant Accounting Policies.”

Common stock—share-based compensation expense — — — — — — — 17.3 — — 17.3

Warrant compensation expense — — — — — — — 17.4 — — 17.4

Warrants issuance costs — — — — — — — ( 2.1 ) — — ( 2.1 )

Balance—December 31, 2023 14.1 $ 112.0 9.5 5.0 $ — — $ — $ 1,883.4 $ ( 2.5 ) $ ( 1,715.2 ) $ 165.7

See Notes to Consolidated Financial Statements

9 unchanged sentences

Warrant compensation expense 17.4 14.5 8.8

Tender offer — — 25.1

Depreciation and amortization 12.6 13.8 16.6

1 unchanged sentence

Loss on early extinguishment of debt — — 15.9

Warrants fair value adjustment — — 54.7

Paid-in-kind interest expense — — 10.6

5 unchanged sentences

Premiums receivable ( 147.7 ) 18.8 ( 39.7 )

Reinsurance recoverable 6.2 ( 30.4 ) ( 99.5 )

Reinsurance recoverable and receivable 21.9 6.2 ( 30.4 )

Prepaid reinsurance premiums 26.0 26.6 12.0

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Cash flows from financing activities:

Proceeds from exercise of stock options and restricted stock units, net of tax proceeds/(withholding)

Proceeds from issuance of common stock from IPO and concurrent private placements, net of issuance costs — — 1,098.1

Proceeds from exercise of stock options and restricted stock units, net of tax (withholding)/ proceeds

( 1.1 ) 0.3 3.2

Proceeds from issuance of preferred stock and related warrants — — 126.5

2 unchanged sentences

Repayments of long-term debt — — ( 199.5 )

Purchases of treasury stock — — ( 0.2 )

Net cash provided by (used in) financing activities 283.3 ( 80.3 ) 1,098.5

Net increase (decrease) in cash, cash equivalents and restricted cash 56.1 ( 406.8 ) 697.2

Net cash (used in) provided by financing activities ( 4.1 ) 283.3 ( 80.3 )

Net (decrease) increase in cash, cash equivalents and restricted cash ( 83.4 ) 56.1 ( 406.8 )

Cash, cash equivalents and restricted cash at beginning of year 763.1 707.0 1,113.8

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NATURE OF BUSINESS

is a holding company which, directly or indirectly, maintains 100 % ownership of each of its subsidiaries, including, among others, Root Insurance Company, an Ohio-domiciled insurance company;

Root Property & Casualty Insurance Company, a Delaware-domiciled insurance company;

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 a primarily 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.

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, or Root Property & Casualty, 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 apps.

We offer auto and renters insurance products underwritten by Root Insurance Company and Root Property & Casualty.

BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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Actual results could differ from those estimates.

Significant estimates reflected in our consolidated financial statements include, but are not limited to, reserves for loss and loss adjustment expense, or LAE, premium write-offs, fair value of warrants and valuation allowance for income taxes.

Revision of Previously Issued Financial Statements —During the fourth quarter of 2022, we identified immaterial errors in our first, second and third quarterly filings of 2022 in the recognition of prepaid marketing expense in other assets on our condensed consolidated balance sheets and the 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.

We recognized $ 10.2 million in general and administrative expenses related to the write-off of prepaid marketing expense and reclassifications of certain sales and marketing expenses during the year-ended December 31, 2022.

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 for the year ended December 31, 2022 and concluded the errors were not material to the unaudited interim financial statements for the periods ended March 31, 2022, June 30, 2022 and September 30, 2022.

Significant estimates reflected in our consolidated financial statements include, but are not limited to, reserves for loss and loss adjustment expense, or LAE, valuation allowance for income taxes and allowance for expected credit losses on premium receivables and reinsurance recoverables.

Reverse Stock Split — In August 2022, an authorized subcommittee of our board of directors approved a reverse stock split of our Class A and Class B common stock at a ratio of 1-for-18.

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No fractional shares were issued upon the reverse stock split.

On August 15, 2022, our Class A common stock began trading on a split-adjusted basis on the Nasdaq Stock Market.

On August 15, 2022, our Class A common stock began trading on a split-adjusted basis on the Nasdaq Global Select Market.

In connection with the reverse stock split, there was no change to the shares authorized or in the par value per share of $ 0.0001 .

2 unchanged sentences

Accordingly, all historical per share data, number of shares outstanding and other common stock equivalents for the periods presented in the accompanying consolidated financial statements and notes thereto have been adjusted retroactively, where applicable, to reflect the reverse stock split.

COVID-19 —In March 2020, the World Health Organization declared COVID-19 to be a global pandemic.

The COVID-19 pandemic and governmental responses thereto have impacted and may further impact the broader economic environment, including creating or exacerbating supply chain disruptions and inflation and negatively impacting unemployment levels, economic growth, the proper functioning of financial and capital markets and interest rates.

As a result of certain factors related to the COVID-19 global pandemic, we continue to file in multiple states to establish rates that more closely follow the evolving loss cost trends.

As the COVID-19 pandemic continues, there is uncertainty around the severity and duration of the pandemic and the pandemic’s potential impact on our business and our financial performance.

Accordingly, we cannot predict the impact that it may have on our future results of operations and financial condition.

Legal Contingencies— From time to time, we are party to litigation and legal proceedings relating to our business operations.

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We continually evaluate potential liabilities and reserves for litigation using the guidance issued in Financial Accounting Standards Board, or FASB, Accounting Standards Codification, or ASC, Topic 450, Contingencies .

Under this guidance, we may only record reserves for a loss if as of the date the financial statements are issued or available to be issued, the likelihood of occurrence is deemed probable and we can reasonably estimate the amount of the loss.

When disclosing litigation or claims where a material loss is judged to be reasonably possible, we will disclose an estimated range of loss or state that an estimate cannot be made.

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Debt and Equity Issuance Costs —Debt and equity issuance costs, which primarily consist of advisor, legal, accounting, and other third-party fees directly related to issuing debt and equity instruments, are capitalized as other assets in our consolidated balance sheets as incurred.

We incurred such costs in connection with our investment agreement we entered into with Carvana Group, LLC, or Carvana, on August 21, 2021, or the Investment Agreement, and our $ 300.0 million five-year term loan maturing we entered on January 26, 2022, or the Term Loan.

We incurred such costs in connection with the investment agreement with Carvana Group, LLC, or Investment Agreement, that we entered into on August 21, 2021 and our $ 300.0 million five-year term loan, or Term Loan, that we entered into on January 26, 2022.

Upon close of the related transaction, these deferred issuance costs are generally offset against the related proceeds.

Debt issuance costs are subsequently amortized over the term of the financing agreement as interest expense on the consolidated statements of operations and comprehensive loss.

Indefinite-Lived Intangible Assets — In March 2022, we purchased the Root.com domain and recognized $ 1.3 million, including transaction costs, as of December 31, 2022 in other assets in our consolidated balance sheets.

We also had insurance licenses of $ 8.9 million, including transaction costs, as of December 31, 2022 and 2021 in other assets in our consolidated balance sheets.

Indefinite-Lived Intangible Assets —We had insurance licenses of $ 8.9 million, including transaction costs, as of December 31, 2023 and 2022 in other assets on the consolidated balance sheets.

We incur a minimal fee to renew each license.

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The evaluation requires the use of estimates and significant judgments and considers the weight of evidence and significance of all identified events and circumstances and most relevant drivers of fair value, both positive and negative, in determining whether it is more likely than not that the fair value of the indefinite-lived intangible asset is less than its carrying amount.

We had $ 1.3 million, including transaction costs, as of December 31, 2023 and 2022 related to the purchase of the Root.com domain in March 2022, in other assets on the consolidated balance sheets.

No impairment was recognized for 2023, 2022 or 2021 related to indefinite-lived intangible assets.

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The chief operating decision maker manages operations, allocates resources, and evaluates financial performance on a company-wide basis.

We operate in one reporting segment providing direct-to-consumer insurance products to customers.

We operate in one reporting segment providing insurance products to customers.

Statement of Cash Flows — The supplemental disclosures for cash and non-cash flows for the years ended December 31, 2023, 2022 and 2021 are as follows:

For the Years Ended December 31,

2023 2022 2021

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Leasehold improvements - non-cash — 0.9 1.5

Conversion of preferred stock to common stock - non-cash — — 560.4

Conversion of warrants to common stock - non-cash — — 75.0

Lease liabilities arising from obtaining right-of-use asset

Investment Agreement issuance costs - non-cash — — 9.1

Purchases of treasury stock - non-cash — — 0.5

Cash, Cash Equivalents and Restricted Cash —Cash consists of cash on deposit.

Cash equivalents are short-term, highly liquid investments that on average matures within three months from the date of origination and are principally stated at amortized cost, which approximates their fair value.

Cash equivalents are short-term, highly liquid investments that typically mature within three months from the date of origination or purchase and are principally stated at amortized cost, which approximates their fair value.

Restricted cash consists of amounts held by a financial institution to satisfy letter of credit requirements for certain property leases.

If checks are issued in excess of cash balances in individual bank accounts, a book overdraft shall be reclassified to accounts payable on the consolidated balance sheets.

When a check is issued whereby a disbursement account is used to write the check, but the account is not funded until the check is presented for payment this “negative cash” balance is included in cash and cash equivalents on the consolidated balance sheets, if the funding account has sufficient funds.

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

As of December 31,

(in millions)

3 unchanged sentences

$ 679.7 $ 763.1

Book Overdraft —If checks are issued in excess of the amount of cash on hand, a book overdraft shall be reclassified to accounts payable on the consolidated balance sheets.

When a check is issued whereby a disbursement account is used to write the check, but the account is not funded until the check is presented for payment this "negative cash" balance is included in cash and cash equivalents on the consolidated balance sheets, if the funding account has sufficient funds.

Investments —Investments in debt securities are classified as short-term and available-for-sale securities and are carried at fair value with any unrealized gains and losses, net of taxes, recorded as a component of accumulated other comprehensive income.

Investments —Investments in debt securities are classified as short-term and available-for-sale fixed maturity securities and are carried at fair value with any unrealized gains and losses, net of taxes, recorded as a component of accumulated other comprehensive income.

Management regularly reviews our securities for signs of impairment, an assessment requiring significant management judgment.

Beginning with our adoption of FASB Accounting Standard Update No.

2016-13, Financial Instruments—Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments as of January 1, 2021, the criteria that management considers are the financial condition of the issuer, including receipt of scheduled principal and interest cash flows, fair value of a security that has fallen below the amortized value, maturity dates, current economic conditions and intent to sell, including if it is more likely than not that we will be required to sell the security before recovery.

The criteria that management considers are the financial condition of the issuer, including receipt of scheduled principal and interest cash flows, fair value of a security that has fallen below the amortized value, maturity dates, current economic conditions and intent to sell, including if it is more likely than not that we will be required to sell the security before recovery.

We then assess whether the decline in value is due to non-credit related or credit related factors.

Non-credit related declines in market value are recorded as unrealized losses in accumulated other comprehensive income.

Non-credit related declines in fair value are recorded as unrealized losses in accumulated other comprehensive income.

If we determine that the decline is credit related, we establish an allowance for credit losses equal to the difference between the discounted cash flow model and the amortized value, which is recorded in net realized gains on investments in our consolidated statements of operations and comprehensive loss.

This allowance may be subsequently adjusted for recoveries or further credit losses.

Prior to January 1, 2021, we were under an incurred loss model whereby we reviewed our securities for signs of other than temporary impairment.

The criteria were similar to those noted above, except we also considered the length of time a security was in an unrealized loss position.

When a debt security was determined to have an other than temporary impairment, the impairment charge was separated into an amount representing the credit loss, which would be recognized in earnings as a realized loss and the amount related to non-credit factors, which would be recognized in other comprehensive income.

Subsequent recoveries of other than temporary impairment were not recognized.

No such credit losses were recognized in 2022 and 2021, nor were there other than temporary impairments recognized in 2020.

No such credit losses were recognized in 2023, 2022 and 2021.

Other investments primarily consist of private equity investments without a readily determinable fair value.

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Level 3 - Financial assets and liabilities for which values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement.

Leases —On January 1, 2021, we adopted ASU No.

2016-02, Leases (Topic 842) which requires the recognition of right-of-use lease assets and lease liabilities by lessees for those leases classified as operating leases under previous GAAP.

We elected various practical expedients which include:

not applying the amended lease accounting guidance to comparative periods;

including the carry forward of our leases without reassessing whether any contracts are leases or contain leases, lease classification and initial direct costs;

and excluding leases with a term of 12 months or less from lease liability and right-of-use asset recognition.

We did not elect the hindsight practical expedient.

Our lease agreements contain lease components and non-lease components, both of which we have elected to account for as a single lease component for our real estate asset class.

Leases— We record leases in accordance with ASC Topic 842, Leases .

We recognized a right-of-use asset and liability on the consolidated balance sheets for all leases, except for leases covering a period of fewer than 12 months.

Operating lease expense for operating lease right-of-use assets is recognized on a straight-line basis over the lease term, which may include options to extend or terminate the lease when it is reasonably certain to do so and there is a significant economic incentive to exercise that option.

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A premium deficiency, as measured on a gross basis, is recorded when the sum of expected losses, LAE, unamortized acquisition costs and maintenance costs exceed the recorded unearned premium reserve and anticipated investment income.

A premium deficiency reserve is recognized as a reduction of deferred acquisition costs and, if necessary, by accruing an additional liability for the deficiency, with a corresponding charge to operations.

A premium deficiency reserve is recognized as a reduction of deferred policy acquisition costs and, if necessary, by accruing an additional liability for the deficiency, with a corresponding charge to operations.

We did not record a premium deficiency reserve in 2023, 2022 or 2021.

In August 2021, we commenced a fronting arrangement with an unaffiliated Texas county mutual insurance company, or the fronting carrier.

We route all of our new auto policies, and, over time, expect to route certain renewal auto policies, in Texas through the fronting carrier whereby we assume 100% of the related premium and losses on those policies.

We have a fronting arrangement with an unaffiliated Texas county mutual insurance company, or the fronting carrier.

We route all of our new auto policies in Texas through the fronting carrier whereby we assume 100% of the related premium and losses on those policies.

The fronting arrangement allows us to have greater rating and underwriting flexibility.

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Unearned premium is established to cover the unexpired portion of premiums assumed.

Unaffiliated premiums payable are amounts owed to the fronting carrier for premiums assumed and are recorded in other liabilities on the consolidated balance sheets.

Unaffiliated premiums payable was $ 60.5 million and $ 14.2 million as of December 31, 2023 and 2022, respectively.

Unaffiliated reinsurance premiums receivable are the amounts owed to us from the fronting carrier for reinsurance premiums and are recorded in reinsurance recoverable and receivable on the consolidated balance sheets.

Unaffiliated reinsurance premiums receivable was $ 59.2 million and $ 14.1 million as of December 31, 2023 and 2022, respectively.

Premiums receivable represents premiums written but not yet collected.

Generally, premiums are collected prior to providing risk coverage, minimizing our exposure to credit risk.

Due to a variety of factors, certain premiums billed may not be collected, for which we establish an allowance for doubtful accounts based primarily on an analysis of historical collection experience, adjusted for current economic conditions.

Due to a variety of factors, certain premiums billed may not be collected, for which we establish an allowance for expected credit losses based primarily on an analysis of historical collection experience, adjusted for current economic conditions.

Allowance for credit losses was $ 4.0 million and $ 2.8 million as of December 31, 2023 and 2022, respectively, on the consolidated balance sheets.

1 unchanged sentence

We recognized bad debt expense of $ 12.5 million, $ 17.4 million and $ 20.9 million for the years ended December 31, 2023, 2022 and 2021, respectively.

Fee Income —Fee income consists of the flat fee we charge to those policyholders who pay premiums on an installment basis.

The fee relates to the additional administrative costs associated with processing more frequent billings.

We recognize this fee income in the period in which we process each installment.

Other Income —Other income primarily comprises revenue earned from distributing website and app policy inquiry leads in geographies where we do not have a presence, recognized when we generate the lead;

commissions earned for homeowners policies placed with third-party insurance companies where we have no exposure to the insured risk, recognized on the effective date of the associated policy;

and sale of enterprise technology products to provide telematics-based data collection and trip tracking, recognized ratably as the service is performed.

Sales and Marketing —Sales and marketing expenses includes spend related to performance and embedded channels, channel media, advertising, branding, public relations, sponsorship, consumer insights and referral fees.

These expenses also include related employee costs including salaries, health benefits, bonuses, employee retirement plan related expenses and employee share-based compensation expense, or Personnel Costs, and overhead allocated based on headcount, or Overhead.

It also includes certain warrant compensation expense related to our embedded channel.

Fee Income —Fee income consists primarily of the flat fee we charge for installment payments which relates to the additional administrative costs associated with processing more frequent billings.

These fees are recognized in the period in which we process the installment.

We also charge policy fees which are typically nonrefundable fees that are intended to reimburse a portion of the costs incurred to underwrite the policy.

These fees are recognized

ratably over the policy coverage period.

Fee income also includes late payment fees that are collected from our policyholders.

These fees are recognized in the period in which we process the late payment.

Other Income —Other income is comprised of revenue earned from distributing website and app policy inquiry leads in geographies where we do not have a presence, recognized when we generate the lead;

and commissions earned for homeowners policies placed with third-party insurance companies where we have no exposure to the insured risk, recognized on the effective date of the associated policy.

Sales and Marketing —Sales and marketing includes expenses related to direct performance marketing, channel media, advertising, sponsorship, referral fees and partnership channel.

These expenses also include related salaries, health benefits, bonuses, employee retirement plan-related expenses and employee share-based compensation expense, or Personnel Costs, and overhead allocated based on headcount, or Overhead, related to our brand strategy, creative and business development activities and certain warrant compensation expense related to our embedded channel.

We incur sales and marketing expenses for all product offerings.

Sales and marketing costs are expensed as incurred.

Certain warrant compensation expense is recognized on a pro-rata basis considering progress toward completing the integrated automobile insurance solution for Carvana’s online car buying platform, or Integrated Platform, under the Carvana commercial agreement

Other Insurance (Benefit) Expense —Other insurance (benefit) expense includes underwriting expenses, credit card and policy processing expenses, premium write-offs, insurance license expenses, certain warrant compensation expense related to our embedded channel, and Personnel Costs and Overhead related to actuarial and certain data science activities.

Other insurance (benefit) expense also includes amortization of deferred acquisition costs like certain commissions, premium taxes and report costs related to the successful acquisition of a policy.

Other insurance (benefit) expense is expensed as incurred, except for costs related to deferred acquisition costs that are capitalized and subsequently amortized over the same period in which the related premiums are earned.

Certain warrant compensation expense is recognized on a pro-rata basis considering progress toward completing the integrated automobile insurance solution for Carvana Group, LLC’s, or Carvana’s, online car buying platform, or Integrated Platform, under the Carvana commercial agreement.

Other Insurance Expense (Benefit) —Other insurance expense (benefit) includes underwriting expenses, commission expenses related to our partnership channel, premium taxes, credit card and policy processing expenses, premium write-offs, insurance license expenses, certain warrant compensation expense related to our embedded channel, and Personnel Costs and Overhead related to actuarial and certain data science activities.

We amortize a portion of our deferred policy acquisition costs including certain commissions related to our partnership channel, premium taxes and report costs related to the successful acquisition of a policy.

Other insurance expense (benefit) is expensed as incurred, except for costs related to deferred policy acquisition costs that are capitalized and subsequently amortized over the same period in which the related premiums are earned.

Certain warrant compensation expense is recognized on a pro-rata basis for policies originated from the Integrated Platform towards milestones as defined under the Carvana commercial agreement.

These expenses are also recognized net of ceding commissions earned from our quota share reinsurance agreements.

The ceding commission provides for reimbursement of both direct and other periodic acquisition costs, including certain underwriting and marketing costs, and is presented as a reduction of other insurance (benefit) expense.

Technology and development —Technology and development expense consists of software development costs related to our mobile app and homegrown information technology systems;

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and depreciation expense for computers, furniture and other fixed assets;

and restructuring costs associated with the involuntary workforce reductions.

Restructuring costs include severance, benefits, share-based compensation, employee compensation expense, dependent upon continuous employment for certain employees, and related employee costs, or Employee costs, real estate exit costs and software costs.

and restructuring costs which include employee costs, real estate exit costs and other costs.

General and administrative expenses are expensed as incurred.

Policy Acquisition Costs —Acquisition costs consist primarily of premium taxes, certain marketing costs and underwriting expenses, and certain commissions, net of ceding commissions, related to the successful acquisition of new or renewal business.

Deferred Policy Acquisition Costs —Acquisition costs consist primarily of premium taxes, certain marketing costs and underwriting expenses, and commission expenses related to our partnership channel, net of ceding commissions, related to the successful acquisition of new or renewal business.

They are deferred and amortized over the same period in which the related premiums are earned.

Ceding commissions relating to reinsurance agreements are recorded as a reimbursement for both deferrable and non-deferrable acquisition costs.

The portion of the ceding commission that is equal to the pro rata share of acquisition costs based on quota share percentage is recorded as an offset to the gross deferred acquisition costs.

The portion of the ceding commission that is equal to the pro rata share of acquisition costs based on quota share percentage is recorded as an offset to the gross deferred policy acquisition costs.

Any portion of the ceding commission that exceeds the acquisition costs of the business ceded is recorded as excess ceding commission, a deferred liability, and amortized over the same period in which the related premiums are earned.

Deferred acquisition costs, net of accumulated amortization, was $ 6.7 million and $ 2.8 million as of December 31, 2022 and 2021, respectively.

We amortized deferred acquisition costs of $ 22.5 million, $ 26.4 million and $ 17.1 million for the years ended December 31, 2022, 2021 and 2020, respectively.

Loss and Loss Adjustment Expense and Reserves —Loss and LAE reserves include an amount determined using adjuster determined case-base estimates for reported claims and actuarial determined unpaid claim estimates using past experience and historical emergence patterns for unreported losses and LAE.

Deferred policy acquisition costs, net of

accumulated amortization, was $ 18.0 million and $ 6.7 million as of December 31, 2023 and 2022, respectively.

We amortized deferred policy acquisition costs of $ 35.1 million, $ 22.5 million and $ 26.4 million for the years ended December 31, 2023, 2022 and 2021, respectively.

Loss and Loss Adjustment Expense and Reserves —Loss and LAE include the costs incurred for claims, payments made and estimated future payments to be made to or on behalf of our policyholders, including expenses needed to adjust or settle claims, net of amounts ceded to reinsurers.

Loss and LAE reserves include an amount determined using adjuster determined case-base estimates for reported claims and actuarial determined unpaid claim estimates using past experience and historical emergence patterns for unreported losses and LAE.

These reserves are a liability established to cover the estimated ultimate cost to settle insured losses.

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Our loss and LAE reserves are recorded gross of reinsurance and net of amounts expected to be received from salvage (the amount recovered from a total loss claims expense) and subrogation (the right to recover payments from third parties).

Loss and LAE is recorded net of amounts ceded to reinsurers.

We enter into reinsurance contracts to limit our exposure to potential losses as well as to provide additional capacity for growth.

These expenses are a function of the size and term of the insurance policies we write and the loss experience associated with the underlying risks.

Loss and LAE are recorded net of amounts ceded to reinsurers.

We enter into reinsurance contracts to limit our exposure to potential losses as well as to provide additional capacity to write more business.

Loss and LAE are a function of the size and term of the insurance policies we write and the loss experience associated with the underlying risks.

This includes an allowance for credit losses based on the probability of default and expected loss given default of a reinsurer.

Loss and LAE may be paid out over a period of years.

Various other expenses incurred during claims processing are allocated to LAE.

These amounts include claims Personnel Costs, software expense, internally developed software amortization, and Overhead.

These amounts include claims Personnel Costs, vendor expenses, software expense, internally developed software amortization, and Overhead.

Reinsurance —In the ordinary course of business, we cede and retrocede a portion of our business written and assumed, respectively, to reinsurers to limit the maximum net loss potential arising from large risks and catastrophes.

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Although the ceding of reinsurance does not discharge us from our primary liability to the policyholder, the insurance company that assumes the coverage assumes the related liability.

Over time, our strategy continues to evolve and we may choose to amend, commute, and/or non-renew certain third-party reinsurance agreements, which may result in us retaining more of our business in the future.

Amounts recoverable from and payable to reinsurers are estimated in a manner consistent with the claim liability associated with the reinsured business.

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Premiums ceded to other companies have been reported as a reduction of premiums earned and are recognized over the remaining policy period based on the reinsurance protection provided.

Amounts applicable to reinsurance ceded for unearned premium reserves are reported as a prepaid reinsurance premiums asset in the accompanying consolidated balance sheets and as reduction of unearned premiums in Note 6, “Reinsurance.” Ceding commissions received in connection with reinsurance ceded have been accounted for as a reduction of other insurance (benefit) expense in the consolidated statements of operations and comprehensive loss.

Some of our reinsurance agreements provide for adjustment of commissions or amount of coverage based on loss experience.

Amounts applicable to reinsurance ceded for unearned premium reserves are reported as a prepaid reinsurance premiums asset in the accompanying consolidated balance sheets and as reduction of unearned premiums in Note 6, “Reinsurance.” Ceding commissions received in connection with reinsurance ceded have been accounted for as a reduction of other insurance expense (benefit) in the consolidated statements of operations and comprehensive loss.

Some of our reinsurance agreements provide for adjustment of amount of coverage based on loss experience.

We recognize the asset or liability arising from these adjustable features in the period the adjustment occurs, which is calculated based on experience to date under the agreement.

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To recognize this risk of credit loss, we have established an allowance for credit losses based on the probability of default and the expected loss given default as influenced by factors such as the reinsurer’s credit rating and average life of our reinsurance recoverables.

Allowance for credit losses was $ 0.2 million as of December 31, 2022 and 2021, respectively.

Income Taxes —For the 2022 tax year, Root, Inc.

will file a consolidated federal income tax return with Caret Holdings, Inc., Root Insurance Company, Root Property & Casualty, Root Lone Star Insurance Agency, Inc, and Root Reinsurance Company, Ltd.

Allowance for credit losses was $ 1.8 million and $ 0.2 million as of December 31, 2023 and 2022, respectively.

Income Taxes —For the 2023 tax year, we will file a consolidated federal income tax return with Caret Holdings, Inc., Root Insurance Company, Root Property & Casualty, Root Lone Star Insurance Agency, Inc.

and Root Reinsurance Company, Ltd.

The consolidated return also includes Root Insurance Agency, LLC, Root Enterprise, LLC and Root Scout, LLC, which are disregarded entities under Caret Holdings, Inc.

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As of December 31, 2023 and 2022, we did not have any unrecognized tax benefits for uncertain tax positions and had no accrued interest or penalties related to uncertain tax positions.

The Inflation Reduction Act, or IRA, of 2022 was enacted on August 16, 2022.

The IRA introduces a new corporate alternative minimum tax, or CAMT, which generally imposes a 15% minimum tax on the adjusted financial statement income, or AFSI, of large corporations whose three year average annual AFSI exceeds $1.0 billion, or applicable corporations, applies for tax years beginning after December 31, 2022.

For the year ended December 31, 2023, we nor our subsidiaries had a three year average annual AFSI exceeding $1.0 billion.

As such, we are not an applicable corporation nor subject to CAMT as of December 31, 2023.

Internally Developed Software —We review our software development activity and capitalize costs during the application development phase under ASC 350-40, Internal-Use Software.

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The capitalized cost and accumulated amortization of internally developed software in other assets in our consolidated balance sheets at December 31, 2023 and 2022 are as follows:

As of December 31,

(dollars in millions)

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The capitalized cost and accumulated depreciation of fixed assets in other assets in our consolidated balance sheets at December 31, 2023 and 2022 are as follows:

As of December 31,

(dollars in millions)

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Fixed assets, net $ 2.8 $ 5.5

Employee Share-Based Compensation —We award share-based compensation, including stock options with only a service condition, stock options with service and performance conditions, restricted stock units, or RSUs, and restricted stock, to our officers, directors, employees, and certain advisors through approval from the Compensation Committee of the board of directors.

Employee Share-Based Compensation —We award share-based compensation, including stock options, restricted stock units, or RSUs, performance-based restricted stock units, or PSUs, and restricted stock, to our officers, directors, employees, and certain advisors through approval from the Compensation Committee of the board of directors.

Share-based compensation expense is recognized based on the grant date fair value of the awards, which is determined using the Black-Scholes Merton, or BSM, option-pricing model.

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In the event of an involuntary termination that results in the cancellation of an award, the remaining unrecognized compensation cost for the entire award is recognized in the period of cancellation.

If the award is cancelled and concurrently replaced upon termination, it follows modification accounting, typically as a Type III improbable-to-probable modification whereby it is effectively treated as a forfeiture and new grant as of the date of termination.

Stock options with only a service condition generally vest over four years - 25 % cliff vests after one year and approximately 2 % vests each month over three years thereafter.

Stock options with service and performance conditions generally vest ratably over a four-year period assuming achievement of the performance conditions.

The compensation expense associated with nonvested stock options that have performance conditions is dependent on our periodic assessment of the probability of the performance conditions being achieved.

If deemed probable, we recognize compensation expense on a straight-line basis over the requisite service period.

If a performance condition is no longer probable of achievement, any previously recognized compensation expense is reversed and no subsequent compensation expense is recognized until achievement is once again probable, at which point a cumulative catch-up is recognized.

RSUs generally vest over four years - 25 % cliff vests after one year and approximately 2 % vests each month over three years thereafter.

If the award is cancelled and concurrently replaced upon termination, it follows modification accounting, typically as a

Type III improbable-to-probable modification whereby it is effectively treated as a forfeiture and new grant as of the date of termination.

Stock options generally vest over four years — 25 % cliff vests after one year and approximately 2 % vests each month over three years thereafter.

RSUs generally vest over two or four years .

For our awards vesting over two years , 50 % cliff vests after one year and the remainder vest in equal quarterly installments over the following year.

For our awards vesting over four years , 25 % cliff vests after one year and the remainder vest in equal quarterly installments over three years thereafter.

Certain other RSUs vest in accordance with one of the following patterns:

over four years - 25 % cliff vests after one year and in equal increments quarterly over three years thereafter, over four years in equal quarterly increments, or fully cliff vest after one year .

over four years , 25 % cliff vests after one year and approximately 2 % vests each month over three years thereafter, or fully vest after one year .

We generally recognize share-based compensation expense ratably over the respective vesting period.

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 ASC 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 to 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.

Warrant Compensation —In October 2021, we closed the Investment Agreement with Carvana that included the issuance of 14.1 million shares of redeemable convertible preferred stock designated as the Series A Convertible Preferred Stock and the issuance of eight tranches of warrants to purchase shares of the Company’s Class A common stock.

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We considered the features of the warrants and the interdependency of exercise decisions between the Short-Term Warrants and the Long-Term Warrants in using the Monte Carlo simulation in order to determine the optimum exercise decision.

The optimum exercise decision was made by choosing the option which would give the highest aggregate expected value to the holder in each of the 100,000 simulated paths.

The optimum exercise decision was made by choosing the option which would give the

highest aggregate expected value to the holder in each of the 100,000 simulated paths.

The payoff of each path is then calculated based on the simulated equity and discounted back to time zero using the applicable risk-free rates.

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In determining the classification as equity, we followed guidance issued within FASB ASC 480, Distinguishing Liabilities from Equity, and FASB ASC 815, Derivatives and Hedging.

In determining the classification as equity, we followed guidance issued within ASC 480, Distinguishing Liabilities from Equity, and ASC 815, Derivatives and Hedging.

For additional information refer to Note 12, “Share-Based Compensation.”

Net Loss Per Share —Net loss per share, or EPS, results are a key indicator of the overall performance relative to each share of our outstanding common stock.

Basic EPS share for both Class A and Class B common stock is computed by dividing net loss attributable to common stockholders by the weighted-average number of common shares vested and outstanding during the period.

Basic EPS for both Class A and Class B common stock is computed by dividing net loss attributable to common stockholders by the weighted-average number of common shares vested and outstanding during the period.

In addition to common shares outstanding, the computation of basic EPS includes instruments for which the holder is deemed to have the present rights to share in current period earnings (loss) with common stockholders.

Accordingly, the warrants issued in connection with our $ 100.0 million term loan entered on November 25, 2019, or Term Loan B, were included in the 2020 weighted-average number of common shares outstanding because they had an insignificant exercise price of $ 0.0001 per share and were therefore considered outstanding common shares for computation of basic EPS.

Diluted EPS for both Class A and Class B common stock includes all the components of basic EPS, plus the dilutive effect of common stock equivalents, but excludes those common stock equivalents from the calculation of diluted EPS when the effect of inclusion, assessed individually, would be anti-dilutive.

Notable dilutive securities relevant to our operations are stock options, performance stock options, nonvested shares subject to repurchase, restricted stock units, warrants and redeemable convertible preferred stock.

Notable dilutive securities relevant to our operations are stock options, nonvested shares subject to repurchase, restricted stock units, performance-based restricted stock units, warrants and redeemable convertible preferred stock.

We have operated at a loss for the years ended December 31, 2023, 2022 and 2021.

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Recently Adopted Accounting Pronouncements — There were no accounting standards adopted in 2023 that had a material impact in our consolidated financial statements.

Recently Issued Financial Accounting Standards Not Yet Adopted —We assess the adoption impacts of recently issued accounting standards by the FASB in our consolidated financial statements as well as material updates to previous assessments, if any from our 2021 Form 10-K.

There were no accounting standards issued in 2022 that are expected to have a material impact in our consolidated financial statements.

Recently Issued Financial Accounting Standards Not Yet Adopted — In November 2023, the FASB issued Accounting Standards Update, or ASU, No.

2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures .

This ASU looks to provide improvements to the segment disclosure by providing users with more decision-useful information about reportable segments in a public entity.

The main provisions require a company to disclose, on an annual and interim basis, significant expenses included within each reported measure of segment profit or loss, an amount for other segment items by reportable segment and a description of its composition.

It also requires all annual disclosures about a reportable segments’ profit or loss and assets to be reported on an interim basis.

Although we operate in only one reporting segment, we are still required to provide all the disclosures required by this ASU and all existing segment disclosures in Topic 280.

The ASU is to be applied retrospectively to all prior periods presented in the financial statements with an effective date for all public entities for fiscal years beginning after December 15, 2023, and interim periods within

fiscal years beginning after December 15, 2024.

Early adoption is permitted.

We are currently evaluating the impact of this ASU.

In December 2023, the FASB issues ASU No.

2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures .

This ASU looks to enhance the transparency and decision usefulness of income tax disclosures primarily related to the rate reconciliation and income taxes paid information.

The main provisions to the rate reconciliation disclosure require public entities on an annual basis to:

disclose specific categories in the rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold.

The main provisions to the income taxes paid disclosure require that all entities disclose on an annual basis:

the amount of income taxes paid disaggregated by federal, state and foreign taxes and the amount of income taxes paid disaggregated by individual jurisdictions in which income taxes paid meets a quantitative threshold.

This ASU also requires all entities to disclose:

income (loss) from continuing operations before income tax expense (benefit) disaggregated between domestic and foreign and income tax expense (benefit) from continuing operations disaggregated by federal, state and foreign.

This ASU is to be applied on a prospective basis with an effective date for all public entities for annual periods beginning after December 15, 2024.

Early adoption is permitted.

We are currently evaluating the impact of this ASU.

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

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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 December 31, 2022 and 2021.

Management reviewed the available-for-sale fixed maturity securities at each balance sheet date to consider whether it was necessary to recognize a credit loss as of December 31, 2023 and 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 December 31, 2022 and 2021.

Management concluded that the available-for-sale fixed maturity securities’ unrealized losses were due to non-credit related factors and, therefore, there was no allowance for credit loss as of December 31, 2023 and 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 December 31, 2023 and 2022:

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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 December 31, 2022 and 2021, other investments related to our private equity investments were $ 4.4 million and $ 4.7 million, respectively.

We recognized $ 1.2 million and zero of realized gains in December 31, 2022 and 2021, respectively.

We recorded the sale of one of our private equity investments within net realized gains on investments in our consolidated statements of operations and comprehensive loss for the year ended December 31, 2022.

As of December 31, 2023 and 2022, other investments related to our private equity investments were $ 4.4 million.

We recognized zero , $ 1.2 million and zero of realized gains in December 31, 2023, 2022 and 2021, respectively.

We recorded the sale of one of our private equity investments within net realized gains on investments in our consolidated statements of operations and comprehensive loss.

There were no impairment losses recognized on private equity investments for the years ended December 31, 2023, 2022 and 2021.

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 consolidated statements of operations and comprehensive loss for the years ended December 31, 2023, 2022 and 2021:

For the Years Ended December 31,

2023 2022 2021

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The following table sets forth the components of net investment income for the years ended December 31, 2023, 2022 and 2021:

For the Years Ended December 31,

2023 2022 2021

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Pursuant to certain regulatory requirements, we are required to hold assets on deposit with various state insurance departments for the benefit of policyholders.

These special deposits are included in fixed maturities available-for-sale on the consolidated balance sheets.

These special deposits are included in available-for-sale fixed maturity securities on the consolidated balance sheets.

As of December 31, 2023 and 2022, these required deposits had an amortized cost of $ 9.5 million and $ 11.7 million, respectively, and fair value of $ 9.4 million and $ 11.3 million, respectively.

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Total fixed maturities 9.2 119.2 — 128.4

Short-term investments — 0.4 — 0.4

Cash equivalents 487.3 — — 487.3

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Private Equity Investments Measured at Fair Value on a Non-Recurring Basis

Private equity investments that have been remeasured during the period due to an observable event or impairment are classified within Level 3 in the fair value hierarchy because we estimate the value based on valuation methods which may include a combination of the observable transaction price at the transaction date and other unobservable inputs including volatility, rights, and obligations of the investments we hold.

unobservable inputs including volatility, rights, and obligations of the investments we hold.

See Note 3, “Investments,” for further information on our private equity investments.

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Gross loss and LAE reserves, December 31 $ 284.2 $ 287.4 $ 320.2

Incurred losses and LAE attributable to prior accident years was an increase of $ 2.9 million, a decrease of $ 13.6 million and an increase of $ 20.9 million during 2022, 2021 and 2020, respectively.

Incurred losses and LAE attributable to prior accident years was a decrease of $ 7.0 million, an increase of $ 2.9 million and a decrease of $ 13.6 million during 2023, 2022 and 2021, respectively.

The decrease to incurred losses for prior accident years in 2023 of $ 7.0 million was primarily driven by lower-than-expected reported losses from accident year 2022 related to liability and physical damage coverages.

The increase to incurred losses for prior accident years in 2022 of $ 2.9 million was primarily driven by higher-than-expected reported losses from accident year 2021 material damage claims due to higher replacement parts cost and growth in used car values.

The decrease to incurred losses for prior accident years in 2021 of approximately $ 13.6 million was primarily due to lower-than-expected reported losses on bodily injury claims, and higher than expected subrogation and salvage recoveries from accident year 2020 material damage claims.

The increase to incurred losses for prior accident years in 2020 of approximately $ 20.9 million was primarily due to higher than estimated reported losses for bodily injury claims, as well as higher loss emergence on collision claims from prior accident years due to a slower cycle time for reported claims.

The year ended December 31, 2020 also included development of incurred losses related to accident years 2019 and prior as a result of a change in estimate.

The adjustments recorded in the year ended December 31, 2020 were necessary in order to effectuate management’s best estimate for determining the estimated ultimate cost of settling claims using our knowledge and experience about past and current events and developments.

The following table shows incurred and paid losses and allocated loss adjustment expenses, or ALAE, development by accident year for private passenger auto in aggregate, cumulative claim frequency is defined as the number of reported claims at the claim level which includes reported claims that do not result in a liability:

The following table shows incurred and paid losses and allocated loss adjustment expenses, or ALAE, development by accident year for private passenger auto and renters in aggregate, cumulative claim frequency is defined as the number of reported claims at the claim level which includes reported claims that do not result in a liability:

Incurred Losses and ALAE—Net of Reinsurance

Accident Year 2017 (unaudited) 2018 (unaudited) 2019 (unaudited) 2020 (unaudited) 2021

(unaudited) 2022 IBNR Reported Claims (1)

(unaudited) 2022 (unaudited) 2023 IBNR Reported Claims (1)

(dollars in millions)

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2022 296.0 288.4 16.0 118,731

2023 291.2 102.4 82,578

Total $ 1,571.5 $ 129.3 579,345

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(unaudited) 2022

(unaudited) 2023

(dollars in millions)

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2021 179.4 294.6 332.3

2022 175.3 248.3

Total 1,349.0

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Direct $ 253.4 $ 269.3 $ 313.2

30.8 18.1 7.0

Ceded ( 43.8 ) ( 76.4 ) ( 79.5 )

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Direct $ 674.6 $ 556.8 $ 725.9

108.5 43.2 16.7

Ceded ( 209.9 ) ( 331.2 ) ( 397.3 )

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70.9 42.0 7.3

( 235.9 ) ( 357.7 ) ( 409.3 )

Net premiums earned $ 399.9 $ 285.9 $ 310.3

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Net losses and LAE incurred $ 331.3 $ 351.0 $ 392.3

During 2023, we commuted certain agreements with our reinsurers which resulted in $ 0.7 million of loss and loss adjustment expenses and a $ 4.6 million expense of other insurance expense (benefit), respectively, on the consolidated statements of operations and comprehensive loss.

A portion of the loss and loss adjustment expenses is related to an allowance for credit losses of $ 1.7 million, that was established due to a commutation with one of our reinsurers as of December 31, 2023.

Additionally, in connection with the commutation of certain agreements with reinsurers during 2023, we received cash and cash equivalents and released collateral balances held of $ 27.1 million, reinsurance recoverable

and receivable decreased by $ 35.1 million, prepaid reinsurance premiums were reduced by $ 34.6 million and reinsurance premiums payable decreased by $ 37.3 million.

If our reinsurance was cancelled at December 31, 2023 and 2022, the maximum amount of return ceded commissions due with the return of unearned premiums would have been $ 12.3 million and $ 19.0 million, respectively.

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In January 2022, we entered into the Term Loan, with the full principal amount due and payable upon maturity on January 27, 2027.

Interest is payable quarterly and is determined on a floating interest rate currently calculated on the Secured Overnight Financing Rate, or SOFR, with a 1.0 % floor, plus 9.0 %, plus 0.26161 % per annum.

Interest is payable quarterly and is determined on a floating interest rate currently calculated on the Secured Overnight Financing Rate, or SOFR, with a 1.0 % floor, plus 9.0 %.

As part of the loan agreement, we issued warrants to the lender to purchase approximately 0.3 million shares of our Class A common stock at a strike price of $ 162.00 per share.

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As of December 31, 2023, the fair value of these 1.0 % warrants was immaterial to our consolidated financial statements.

On November 8, 2021, we extinguished Term Loan B for $ 120.9 million, consisting of $ 100.0 million principal balance and $ 20.9 million of accrued interest, including paid-in-kind interest, and fees.

We also amortized the remaining unamortized discount and debt and warrant issuance costs, all of which resulted in a loss on early extinguishment of debt of $ 15.9 million that was recognized in our consolidated statements of operations and comprehensive loss for the year ended December 31, 2021

In October 2021, upon maturity of our $ 100 million term loan, or Term Loan A, we repaid the outstanding principal balance of $ 98.8 million and accrued interest and fees of $ 0.2 million.

We had no letters of credit outstanding or amounts drawn against the revolving loan on the date of the termination.

The following summarizes the carrying value of long-term debt and warrants as of December 31, 2023 and 2022:

(dollars in millions)

$ 300.0 $ 300.0

Accrued interest payable

Unamortized discount and debt issuance costs and warrants

( 8.9 ) ( 11.9 )

Total $ 299.0 $ 295.4

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The following table summarizes supplemental balance sheets information related to leases at December 31, 2023 and 2022:

Operating leases:

(dollars in millions)

Operating lease right-of-use liabilities $ 10.5 $ 14.1

Operating leases:

Operating lease liabilities

Operating lease right-of-use assets $ 3.5 $ 4.3

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The components of lease costs for the years ended December 31, 2023, 2022 and 2021 are as follows:

Years Ended December 31,

Lease cost components:

For the Years Ended December 31,

2023 2022 2021

(dollars in millions)

Lease cost components:

Operating lease costs (1)

$ 1.8 $ 2.1 $ 5.0

(1) Variable lease expense and short-term lease expense recognized during the years ended December 31, 2022 and 2021 were not material.

______________

(1) Variable lease expense and short-term lease expense recognized during the years ended December 31, 2023, 2022, and 2021 were immaterial.

Supplemental cash flow information for the years ended December 31, 2023, 2022 and 2021 are as follows:

For the Years Ended December 31,

2023 2022 2021

(dollars in millions)

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The operating lease assets and liabilities were remeasured at the modification date, resulting in an increase of $ 1.4 million as of December 31, 2022.

During evaluation of our office space needs in 2021, we determined our Easton facility in Columbus, Ohio had no future economic benefit, so we determined the cease-use date occurred in December 2021.

Accordingly, we accelerated the amortization of the remaining right-of-use asset and recognized $ 2.0 million of lease expense within general and administrative expenses in our consolidated statements of operations and comprehensive loss for the year ended December 31, 2021.

We also sublease certain office space, resulting in sublease income.

Sublease income and the related assets and cash flows are not material to our consolidated financial statements as of and for the years ended December 31, 2022 and 2021.

Sublease income and the related assets and cash flows are not material to our consolidated financial statements as of and for the years ended December 31,

2023, 2022 and 2021.

Sublease income is recognized as a reduction to operating lease expense in our consolidated statements of operations and comprehensive loss.

The weighted average remaining lease term and weighted average operating lease discount rate, for the years ended December 31, 2022 and 2021 are as follows:

The weighted average remaining lease term and weighted average operating lease discount rate, as of December 31, 2023 and 2022 are as follows:

Weighted average of remaining operating lease term (years) 3.8 4.6

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Total lease liabilities $ 8.2

We had no income tax expense (benefit) for the years ended December 31, 2022, 2021 and 2020:

The following table displays income tax expense (benefit) for the years ended December 31, 2023, 2022 and 2021:

For the Years Ended December 31,

2023 2022 2021

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Valuation allowance on deferred tax assets 34.9 ( 23.7 ) 65.8 ( 22.1 ) 116.7 ( 22.4 )

Warrants fair value adjustment — — — — 11.5 ( 3.2 )

Share-based compensation 5.5 ( 3.7 ) 4.9 ( 1.6 ) ( 3.3 ) 0.6

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Unearned premium reserves 10.0 2.7

Nondeductible accruals 0.4 0.5

Deferred rent 1.5 2.0

Research and development credits 0.9 0.9

Disallowed interest carryforward 19.4 16.5

Bad debt expense 0.7 1.2

Excess ceding commission 2.8 2.2

Deferred compensation 7.3 6.1

Stock and warrant compensation 10.2 9.5

Unrealized losses 1.4 —

Other 6.0 7.8

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Deferred tax liabilities:

Internally developed software 2.0 2.7

Research and experimental expenditures

Fixed assets 0.7 1.3

Deferred acquisition costs 1.5 0.6

Unrealized gains — 0.1

Deferred policy acquisition costs

Intangible assets

Other 0.1 0.1

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(2) whether they are ordinary or capital;

(3) the timing of expected reversal;

timing of expected reversal;

(4) taxable income in prior carry back years as well as projected taxable earnings exclusive of reversing temporary differences and carry forwards;

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As such, a valuation allowance of $ 356.4 million has been established.

The valuation allowance increased by $ 34.1 million and $ 67.3 million for the years ended December 31, 2023 and 2022, respectively, primarily due to our net operating loss.

We have experienced an ownership change under Section 382 of the Internal Revenue Code, or the Code.

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RESTRUCTURING COSTS

In November 2022, we initiated a company-wide involuntary workforce reduction as part of our efforts to improve efficiency and operating costs, and prioritize resources to further strengthen our pricing and underwriting foundation and the continued development of our embedded products, or November 2022 Restructuring.

As a result of the November 2022 Restructuring, we incurred severance, benefits, share-based compensation, employee compensation expense dependent upon continuous employment for certain employees, and related employee costs, or Employee costs.

In 2023, we expect to incur approximately $ 6.6 million of employee compensation expense, dependent upon continuous employment for certain employees, to be recognized ratably through the fourth quarter of 2023.

We expect a cash expenditure related to these employee compensation costs in the first quarter of 2024.

We do not expect to incur any material additional expenditures related to real estate exit costs or software costs in future periods.

In January 2022, we instituted an organizational realignment, which included an involuntary workforce reduction, due to inflation and loss cost trends and to further drive efficiency and increased focus on our strategic priorities, or January 2022 Restructuring.

As a result of the January 2022 Restructuring, we incurred Employee costs and accelerated expense for software that no longer has economic benefit.

Additionally, we incurred real estate exit costs related to certain floors of our corporate headquarters in Columbus, Ohio that we ceased using.

To the extent we had no intent or ability to sublease the space, we accelerated the amortization of the related right-of-use assets, leasehold improvements and furniture and fixtures.

For subleased space, we recognized sublease income as an offset to amortization of the right-of-use asset.

As of December 31, 2022, we do not expect to incur any material additional expenditures in future periods related to the January 2022 Restructuring.

In 2022, we conducted strategic initiatives to reduce operating costs, improve efficiency, and increase focus on our strategic priorities.

These initiatives resulted in restructuring actions that included a reduction in workforce levels, contract terminations, and in certain instances, a reduction in office space.

These restructuring actions include the following costs:

Employee costs —consist of severance, benefits, share-based compensation, and employee compensation expense dependent upon continuous employment for certain employees and related employee costs.

Real estate exit costs —consist of real estate exit costs primarily related to accelerated amortization of right-of-use assets, leasehold improvements and furniture and fixtures.

Other costs —primarily consist of contract termination costs incurred as part of our efforts to improve efficiency and reduce operating costs and accelerated expense for software that no longer has economic benefit.

As of December 31, 2023 we do not expect to incur any additional material expenditures in future periods related to restructuring actions that have occurred.

The following table displays restructuring costs recorded in general and administrative expenses on the consolidated statements of operations and comprehensive loss:

Years Ended December 31,

For the Years Ended December 31,

Cumulative Incurred Through December 31, 2023

2023 2022 2021

Restructuring costs:

(dollars in millions)

Restructuring costs:

Employee costs $ 7.7 $ 15.5 $ — $ 23.2

Real estate exit costs — 2.1 — 2.1

Software costs 1.0 — —

Other costs 3.5 1.0 — 4.5

Total restructuring costs $ 11.2 $ 18.6 $ — $ 29.8

The following table displays a rollforward of the accrual for restructuring costs recorded in other liabilities on the consolidated balance sheets:

Employee costs Software costs Total liability

Restructuring activity:

The following table displays a rollforward of the accrual for restructuring costs recorded in accounts payable and accrued expenses on the consolidated balance sheets:

Employee costs Other costs Total liability

(dollars in millions)

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Restructuring liability as of December 31, 2022

$ 3.1 $ 0.1 $ 3.2

Expense incurred 7.3 3.4 10.7

Payments ( 2.1 ) ( 3.5 ) ( 5.6 )

Restructuring liability as of December 31, 2023

$ 8.3 $ — $ 8.3

CAPITAL STOCK

In August 2022, an authorized subcommittee of our board of directors approved a reverse stock split of our Class A and Class B common stock at a ratio of 1-for-18, which became effective on August 12, 2022.

Accordingly, all common stock, equity award, warrant, and per share amounts have been adjusted to reflect the reverse stock split for all prior periods presented.

Our total authorized shares consist of 1,000.0 million of Class A common stock, 269.0 million shares of Class B common stock and 100.0 million shares of preferred stock.

All classes of stock have a par value of $ 0.0001 per share.

For additional information related to the reverse stock split, see Note 2, “Basis of Presentation and Significant Accounting Policies.”

As of December 31, 2022, the Company has issued and outstanding:

9.2 million shares of Class A common stock, 5.0 million shares of Class B common stock, and 14.1 million shares of preferred stock that have a redemption value of $ 126.5 million.

As of December 31, 2023, our total authorized shares consist of 1.0 billion shares of Class A common stock, 269.0 million shares of Class B common stock, and 100.0 million shares of preferred stock.

In October 2021, we issued redeemable convertible preferred stock to Carvana pursuant to the Investment Agreement.

We received $ 126.5 million of gross proceeds from the issuance of 14.1 million shares of redeemable convertible preferred stock designated as the Series A Preferred Stock and issued Carvana eight tranches of warrants to purchase shares of the Company’s Class A common stock.

Further details on the warrants are discussed in Note 12, "Share-Based Compensation." In connection with the Investment Agreement, we incurred issuance costs of $ 19.6 million, $ 9.0 million of which were contingent upon the success of the Investment Agreement as measured by achievement of certain warrant vesting milestones.

We received $ 126.5 million of gross proceeds from the issuance of 14.1 million shares of redeemable convertible preferred stock designated as the Series A Preferred Stock, which have a redemption value of $ 126.5 million, and issued Carvana eight tranches of warrants to purchase shares of the Company’s Class A common stock.

Further details on the warrants are discussed in Note 12, “Share-Based Compensation.” In connection with the Investment Agreement, we incurred issuance costs of $ 19.6 million.

As of December 31, 2023, there was $ 3.0 million of unpaid issuance costs contingent upon certain warrant vesting milestones in connection with the Investment Agreement.

We allocated the issuance costs between the preferred stock and the warrants based on their relative fair values.

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In October 2021, our board of directors approved the retirement of 0.3 million shares of Class A common stock that were held in treasury at $ 0.8 million.

In October 2020, we completed our IPO, which resulted in the issuance and sale of 1.3 million shares of Class A common stock at the IPO price of $ 486.00 .

Concurrently, we issued and sold 1.0 million shares of our Class A common stock in private placements.

We received net proceeds of $ 1.1 billion after deducting certain underwriting discounts and commissions and other offering costs of $ 57.5 million.

All shares of our common stock and redeemable convertible preferred stock outstanding immediately prior to our IPO were converted into shares of our Class B common stock, and all warrants were exercised into shares of Class B common stock.

The voting, dividend and liquidation rights of the holders of our Class A and Class B common stock are subject to and qualified by the rights, powers, and preferences of the holders of the preferred stock.

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We are not permitted to declare, pay, or set aside any dividends on shares of any other class or series of capital stock unless the holders of the preferred stock then outstanding first receive, or simultaneously receive, a dividend.

Beginning after the fifth anniversary of the Integrated Platform becoming available to customers, Series A Preferred Stockholders are entitled to receive, when, as and if declared by the board of directors, a dividend at an annual rate of 5 % of the liquidation preference per share of Series A Preferred Stock, if our 90-day volume-weighted average price, or VWAP, per share of Class A common stock is below the conversion price at that time.

Beginning after the fifth anniversary of the Integrated Platform becoming available to customers, Series A Preferred Stockholders are entitled to receive, when, as and if declared by the board of directors, a dividend at an annual rate of 5 % of the liquidation preference per share of Series A Preferred Stock, if our 90-day volume-weighted average price per share of Class A common stock is below the conversion price at that time.

Voting Rights —Our Class B common stock has ten votes per share and our Class A common stock has one vote per share.

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As of December 31, 2023, the conversion price was $ 162.00 per share and the Series A Preferred Stock was convertible into 0.8 million shares of Class A common stock.

To the extent that such conversion would cause the holder to hold in excess of 9.9 % of the voting stock, such conversion would be subject to approval from (a) the Delaware Insurance Commissioner and (b) the Ohio Director of Insurance.

To the extent that such conversion would cause the holder to hold in excess of 9.9 % of the voting stock, such conversion would be subject to approval from the Ohio Director of Insurance.

Redemption and Balance Sheet Classification —The redeemable convertible preferred stock is classified as mezzanine equity because while it is not mandatorily redeemable, it will become convertible or redeemable at the option of the preferred stockholder in connection with any change of control of the Company, which is considered not solely within our control.

SHARE-BASED COMPENSATION

Accordingly, all stock, equity award, warrant, and per share amounts have been adjusted to reflect the reverse stock split for all prior periods presented.

As part of the Investment Agreement discussed in Note 11, “Capital Stock,” we issued Carvana eight tranches of warrants, comprised of three tranches of “short-term warrants” and five tranches of “long-term warrants.” However, the exercisability of certain tranches are subject to Carvana’s decision to exercise certain other tranches.

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We recognized warrant compensation expense related to these equity-classified warrants based on progress toward completing the Integrated Platform and policies originating through the Integrated Platform.

In September 2022, the Integrated Platform launched and as a result, tranche 1 of our short-term warrants vested.

September 2022, the Integrated Platform launched and as a result, tranche 1 of our short-term warrants vested.

In November 2023, tranche 2 of our short-term warrants vested as a result of policies originated through the Integrated Platform.

There were no exercises upon vesting and all warrants remain outstanding.

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The following table displays warrant compensation expense recorded in the consolidated statements of operations and comprehensive loss:

Years Ended December 31,

For the Years Ended December 31,

2023 2022 2021

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Sales and marketing $ — $ 8.8 $ 8.8

Other insurance (benefit) expense 5.7 — —

Other insurance expense (benefit) 17.4 5.7 —

Total warrant compensation expense $ 17.4 $ 14.5 $ 8.8

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Total Long-Term 7.2

The fair value of the warrants is estimated on the date of grant using a Monte Carlo simulation with Geometric Brownian Motion that uses certain inputs, assumptions and estimates, as follows:

expected term of five years , based on the contractual term of the warrants;

risk-free interest rate of 0.9 %, based on U.S.

Constant Maturity Yield Curve over a similar term;

dividend rate of 0.0 %, based on our historical and expected future dividend payouts, which may be subject to change in the future;

and volatility of 45 %, based on historical and implied volatility of comparable publicly held companies, because we did not have sufficient company-specific volatility at the time of grant, and other factors.

As of December 31, 2023, there was $ 3.8 million of unrecognized compensation cost related to the warrants.

The remaining costs are expected to be recognized over a period of approximately two years .

The remaining costs are expected to be recognized over a period of approximately one year .

Employee Share-Based Compensation

2020 Equity Incentive Plan

We maintain an equity incentive plan, the 2020 Equity Incentive Plan, or the 2020 Plan, for the issuance and grant of equity awards (restricted stock, RSUs, and incentive and nonqualified stock options) to our officers, directors, employees and certain advisors.

We maintain an equity incentive plan, the 2020 Equity Incentive Plan, or the 2020 Plan, for the issuance and grant of equity awards (restricted stock, RSUs, PSUs, and incentive and nonqualified stock options) to our officers, directors, employees and certain advisors.

As of December 31, 2023, the number of shares authorized under the 2020 Plan was 3.8 million shares of Class A common stock, inclusive of available shares previously reserved for issuance under the 2015 Equity Incentive Plan, or the 2015 Plan, and subject to increase for awards previously issued under the 2015 Plan which are forfeited or lapse unexercised.

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However, the board of directors may act prior to January 1 of a given year to provide that the increase for such year will be a lesser number of shares of Class A common stock.

The aggregate maximum number of shares of Class A common stock that may be issued pursuant to the exercise of incentive stock options is 6.7 million shares.

The aggregate maximum number

of shares of Class A common stock that may be issued pursuant to the exercise of incentive stock options is 6.7 million shares.

As of December 31, 2023, the number of shares available for issuance under the 2020 Plan was 1.2 million.

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The following table displays employee share-based compensation expense recorded in the consolidated statements of operations and comprehensive loss:

Years Ended December 31,

For the Years Ended December 31,

2023 2022 2021

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Sales and marketing 0.3 0.8 1.0

Other insurance (benefit) expense 0.8 1.6 1.0

Other insurance expense (benefit) 0.6 0.8 1.6

Technology and development 3.4 3.3 4.5

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The following table provides total employee share-based compensation expense by type of award:

Years Ended December 31,

For the Years Ended December 31,

2023 2022 2021

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Restricted stock unit expense $ 15.8 $ 28.8 $ 14.9

Performance-based restricted stock unit expense 0.4 — —

Stock option expense 1.1 1.7 4.4

Total share-based compensation expense $ 17.3 $ 30.5 $ 19.3

In March 2020, a current investor completed a tender offer for common stock from vested shareholders, many of whom were employees or members of the board of directors.

To encourage participation, the tender offer was made at a price in excess of the fair value of our common stock.

As a result, we recognized $ 25.1 million of share-based compensation expense related to these tender offers during the year ended December 31, 2020.

As of December 31, 2022, there was $ 2.2 million and $ 40.2 million of unrecognized compensation cost related to unvested stock options and RSUs, respectively.

The remaining costs are expected to be recognized over a period of four years for unvested stocks options and RSUs.

Restricted Stock Units

A summary of RSU activity for the year ended December 31, 2022 and 2021 is as follows:

Restricted Stock Units

As of December 31, 2023, there was $ 1.0 million, $ 21.0 million and $ 1.9 million of unrecognized compensation cost related to unvested stock options, RSUs and PSU’s, respectively.

The remaining costs are expected to be recognized over a period of approximately three years for unvested stock options and four years for RSUs and PSUs.

Performance-Based Restricted Stock Units

The fair value of the PSUs is estimated on the date of grant using a Monte Carlo simulation with Geometric Brownian Motion that uses certain inputs, assumptions and estimates, as follows:

expected term of approximately five years , based on the contractual term of the PSUs;

risk-free interest rate of 4.06 %, based on U.S.

Constant Maturity Yield Curve over a similar term;

dividend rate of 0.0 %, based on our historical and expected future dividend payouts;

and volatility of 76 %, and other factors.

The following table provides other key terms of the PSUs:

Performance-Based Restricted Stock Units Stock Price Goals Shares Issued

Grant Date Fair Value per Share

(in millions, except per share amounts)

Tranche 1 $ 16.76 — $ 7.69

Tranche 2 25.14 0.1 6.70

Tranche 3 33.52 0.1 5.87

Tranche 4 41.90 0.2 5.10

Restricted Stock Units and Performance-Based Restricted Stock Units

A summary of RSU and PSU activity for the years ended December 31, 2023 and 2022 is as follows:

Restricted Stock Units and Performance-Based Restricted Stock Units

Number of Shares Weighted-Average

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— $ 148.88 6.33

The 2020 Plan permits the optionee to early exercise options to obtain preferred tax treatment before the completion of the award’s requisite service or vesting period.

The 2020 and 2015 Plans permit the optionee to early exercise options to obtain preferred tax treatment before the completion of the award’s requisite service or vesting period.

If the employee terminates employment before the end of this period, the 2020 and 2015 Plans allow us to repurchase the shares, at our option, at the exercise price of the award.

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Except as disclosed below, we do not believe that we are party to any current or pending legal action that could reasonably be expected to have a material adverse effect on our financial condition or results of operations and cash flow.

On February 9, 2023, a purported class action complaint was filed against the Company’s subsidiary, Root Insurance Company, in the U.S.

District Court for the Middle District of Louisiana (Case No.

3:23-cv-00089-JWD-RLB) by an individual on her behalf and further claiming to represent a putative class of insureds.

The complaint alleges that the defendant breached its insurance contract and violated specific provisions of the Louisiana law in settling her vehicle total loss claim.

The complaint seeks damages to include payment of alleged benefits owed under the policy, in addition to pre- and post-judgment interest, statutory penalties, attorneys fees and costs, and injunctive relief on behalf of the named plaintiff and the putative class members.

The Company believes that the claims in this lawsuit are without merit and intends to defend against them vigorously.

The lawsuit is in its early stages.

Therefore, at this time, we cannot predict the outcome or estimate the likelihood or magnitude of our possible or potential loss contingency.

On December 19, 2022, a purported class action complaint was filed against the Company’s subsidiary, Root Insurance Company, in the U.S.

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1:22-cv-01328-LY) by an individual on her behalf and further claiming to represent a putative class of insureds.

The complaint alleges that the defendant breached its insurance contract and violated specific provisions of the Texas Prompt Payment of Claims Act for an alleged failure to include sales tax in total loss vehicle settlements.

The complaint alleges that Root Insurance Company breached its insurance contract and violated specific provisions of the Texas Prompt Payment of Claims Act for an alleged failure to include sales tax in total loss vehicle settlements.

The complaint seeks damages to include payment of alleged benefits owed under the policy, in addition to pre- and post-judgment interest and attorneys fees on behalf of the named plaintiff and the putative class members.

The defendant has moved to dismiss the claims set forth in the complaint.

Root Insurance Company’s motion to dismiss the claims set forth in the complaint was granted and the lawsuit was dismissed with prejudice on August 22, 2023, which dismissal has been appealed.

The Company believes that the claims in this lawsuit are without merit and intends to defend against them vigorously.

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The Company was named as a nominal defendant.

The complaint alleges that defendants made false or misleading statements and omissions of purportedly material fact, in violation of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, breached their fiduciary duties and/or aided and abetted the breach of fiduciary duties, were unjustly enriched, wasted corporate assets, and are liable under Section 11(f) of the Securities Act, in connection with and following the Company’s IPO.

The complaint alleges that defendants made false or misleading statements and omissions of purportedly material fact, in violation of Section 10(b) of the Securities Exchange Act of 1934, or the Exchange Act, and Rule 10b-5 thereunder, breached their fiduciary duties and/or aided and abetted the breach of fiduciary duties, were unjustly enriched, wasted corporate assets, and are liable under Section 11(f) of the Securities Act of 1933, or the Securities Act, in connection with and following the Company’s initial public offering.

The complaint seeks unspecified damages.

believes that the claims in this lawsuit are without merit and intends to defend against them vigorously.

The lawsuit is currently stayed pending resolution of the motion to dismiss filed by the defendants in the below matter and, at this time, we are unable to predict the outcome and we cannot estimate the likelihood or magnitude of our possible or potential loss contingency.

The Company believes that the claims in this lawsuit are without merit and intends to defend against them vigorously.

The lawsuit is currently stayed pending final resolution of the below matter and, at this time, we cannot predict the outcome or estimate the likelihood or magnitude of our possible or potential loss contingency.

On March 19, 2021, a purported class action complaint was filed against the Company and certain of its current and former officers and directors in the U.S.

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2:21-cv-01197) on behalf of certain Root shareholders.

The complaint alleges that defendants made false or misleading statements and omissions of purportedly material fact, in violation of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, or the Exchange Act, and Rule 10b-5 thereunder, and of Sections 11 and 15 of the Securities Act of 1933, or the Securities Act, in connection with and following the Company’s IPO.

The complaint alleges that defendants made false or misleading statements and omissions of purportedly material fact, in violation of Sections 10(b) and 20(a) of the Exchange Act

and Rule 10b-5 thereunder, and of Sections 11 and 15 of the Securities Act in connection with and following the Company’s initial public offering.

The complaint seeks unspecified damages.

The defendants have moved to dismiss the claims set forth in the complaint.

The defendants’ motion to dismiss the claims set forth in the complaint was granted and the lawsuit was dismissed with prejudice on March 31, 2023, which dismissal has been appealed.

The Company believes that the claims in this lawsuit are without merit and intends to defend against them vigorously.

The lawsuit is in the early stages and, at this time, we are unable to predict the outcome and we cannot estimate the likelihood or magnitude of our possible or potential loss contingency.

The lawsuit is in the early stages and, at this time, we cannot predict the outcome or estimate the likelihood or magnitude of our possible or potential loss contingency.

We are contingently liable for possible future assessments under regulatory requirements for insolvencies and impairments of unaffiliated insurance companies.

OTHER COMPREHENSIVE (LOSS) INCOME AND ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME

OTHER COMPREHENSIVE INCOME (LOSS) AND ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME

The following table presents the changes in our accumulated other comprehensive (loss) income, or AOCI, for the years ended December 31, 2023, 2022 and 2021:

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Beginning balance $ ( 5.8 ) $ 0.4 $ 5.6

Other comprehensive (loss) income before reclassifications ( 6.9 ) ( 2.8 ) 5.3

Other comprehensive income (loss) before reclassifications 3.3 ( 6.9 ) ( 2.8 )

Net realized losses (gains) on investments reclassified from AOCI to net loss — 0.7 ( 2.4 )

Other comprehensive (loss) income ( 6.2 ) ( 5.2 ) 5.0

Other comprehensive income (loss) 3.3 ( 6.2 ) ( 5.2 )

Ending balance $ ( 2.5 ) $ ( 5.8 ) $ 0.4

LOSS PER SHARE

Accordingly, all stock, equity award, warrant, and per share amounts have been adjusted to reflect the reverse stock split for all prior periods presented.

The following table displays the computation of basic and diluted loss per share for both Class A and Class B common stock for the years ended December 31, 2023, 2022 and 2021:

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We excluded the following potentially dilutive common stock equivalents, presented based on amounts outstanding at each year end, from the computation of diluted EPS attributable to common stockholders for the years indicated because including them would have had an anti-dilutive effect:

As of December 31,

For the Years Ended December 31,

2023 2022 2021

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Nonvested shares subject to repurchase

Restricted stock units

RSUs and PSUs 1.9 1.1 0.5

Redeemable convertible preferred stock (as converted to common stock)

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STATUTORY FINANCIAL INFORMATION

Root Insurance Company and Root Property & Casualty, or our insurance subsidiaries, are required to prepare statutory financial statements in conformity with the basis of accounting practices prescribed or permitted by the Ohio DOI and Delaware DOI, respectively.

Ohio and Delaware have adopted the NAIC Accounting Practices and Procedures Manual as the basis of their statutory accounting practices.

Root Insurance Company and Root Property & Casualty maintained statutory capital and surplus as of December 31, 2022 and 2021 and had statutory net loss for the years ended December 31, 2022, 2021 and 2020 as follows:

Ohio has adopted the National Association of Insurance Commissioners, or NAIC Accounting Practices and Procedures Manual as the basis of their statutory accounting practices.

Root Insurance Company and Root Property & Casualty’s statutory capital and surplus as of December 31, 2023 and 2022 and statutory net loss for the years ended December 31, 2023, 2022 and 2021 are as follows:

Statutory Net Loss Statutory Capital and Surplus

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Total $ ( 56.6 ) $ ( 156.5 ) $ ( 160.3 ) $ 81.4 $ 97.3

The payment of dividends by Root Insurance Company and Root Property & Casualty are subject to restrictions set forth in the insurance laws and regulations of the States of Ohio and Delaware, respectively, or the insurance laws.

The insurance laws require domestic insurance companies to notify the supervisory superintendent, commissioner and/or director to seek prior regulatory approval to pay a dividend or distribute cash or other property if the fair market value thereof, together with that of other dividends or distributions made in the preceding twelve months, exceeds the greater of (1) 10% of statutory-basis policyholders' surplus as of the prior December 31 or (2) the statutory-basis net income of the insurer as of the prior December 31.

The payment of dividends by our insurance subsidiaries is subject to restrictions set forth in the insurance laws and regulations of the State of Ohio.

These insurance laws require domestic insurance companies to notify the supervisory superintendent, commissioner and/or director to seek prior regulatory approval to pay a dividend or distribute cash or other property if the fair market value thereof, together with that of other dividends or distributions made in the preceding twelve months, exceeds the greater of (1) 10% of statutory-basis policyholders' surplus as of the prior December 31 or (2) the statutory-basis net income of the insurer as of the prior December 31.

During the years ended December 31, 2023, 2022 and 2021, Root Insurance Company and Root Property & Casualty did not pay any dividends.

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The model includes components for asset risk, underwriting risk, credit risk and other factors.

The State of Ohio and the State of Delaware impose minimum RBC requirements that are developed by the NAIC.

The State of Ohio imposes a minimum RBC requirement that is developed by the NAIC.

The formulas in the model for determining the amount of RBC specify various weighting factors that are applied to financial balances or various levels of activity based on the perceived degree of risk.

Regulatory compliance is determined by a ratio of total adjusted capital to authorized control level RBC, as

defined by the NAIC.

Regulatory compliance is determined by a ratio of total adjusted capital to authorized control level RBC, as defined by the

Companies below specific trigger points or ratios are classified within certain levels, all of which require specified corrective action.

The statutory surplus for Root Insurance Company and Root Property & Casualty exceeded the minimum RBC requirements for the years ended December 31, 2022 and 2021.

Root Insurance Company and Root Property & Casualty’s capital and surplus exceeded its authorized control level RBC of $ 12.8 million and $ 2.8 million for the year ended December 31, 2023, respectively, and $ 17.4 million and $ 4.1 million for the year ended December 31, 2022, respectively.

GEOGRAPHICAL BREAKDOWN OF GROSS PREMIUMS WRITTEN

3 unchanged sentences

Amount % of Total Amount % of Total Amount % of Total

State (dollars in millions)

(dollars in millions)

Texas $ 134.3 17.1 % $ 109.3 18.2 % $ 152.3 20.5 %

2 unchanged sentences

Pennsylvania 45.2 5.8 34.9 5.8 39.8 5.4

Louisiana 33.1 5.5 42.2 5.7 28.0 4.5

Utah 30.9 5.2 33.8 4.6 26.0 4.2

Nevada 28.4 4.7 33.6 4.5 19.1 3.1

Arizona 35.4 4.5 17.1 2.9 23.5 3.2

South Carolina 34.4 4.4 20.1 3.4 26.3 3.5

Utah 30.8 3.9 30.9 5.2 33.8 4.6

Ohio 26.7 3.4 15.1 2.5 18.0 2.4

Oklahoma 23.6 3.0 19.8 3.3 22.5 3.0

Indiana 17.8 3.0 21.7 2.9 18.1 2.9

Missouri 22.9 2.9 17.2 2.9 24.7 3.3

All others states 281.9 36.2 232.7 38.6 289.0 38.9

Total $ 783.1 100.0 % $ 600.0 100.0 % $ 742.6 100.0 %

REVISION OF PREVIOUSLY ISSUED QUARTERLY FINANCIAL STATEMENTS (UNAUDITED)

Presented below are the revisions to the previously issued quarterly financial statements for immaterial errors in 2022 related to the purported misappropriation of funds by a former senior marketing employee as disclosed in Note 2, “Basis of Presentation and Summary of Significant Accounting Policies.” The following tables present the effect of the revision on the condensed consolidated statements of operations and comprehensive loss, condensed consolidated statements of redeemable convertible preferred stock and stockholders' equity and condensed consolidated statements of cash flows.

Three Months Ended March 31, 2022 (unaudited)

As reported Adjustments As Corrected

Condensed consolidated statement of operations and comprehensive loss data:

(in millions, except per share amounts)

Sales and marketing $ 14.7 $ 0.6 $ 15.3

General and administrative 30.0 0.5 30.5

Total operating expenses 156.3 1.1 157.4

Operating loss ( 70.9 ) ( 1.1 ) ( 72.0 )

Loss before income tax expense ( 76.4 ) ( 1.1 ) ( 77.5 )

Net loss ( 76.4 ) ( 1.1 ) ( 77.5 )

Comprehensive loss $ ( 80.1 ) $ ( 1.1 ) $ ( 81.2 )

Weighted-average common shares outstanding:

basic and diluted (both Class A and B) (1)

Loss per common share:

basic and diluted (both Class A and B) (1)

$ ( 5.46 ) $ ( 5.54 )

______________

(1) Reflects the 1-for-18 reverse stock split that became effective August 12, 2022.

Refer to Note 2, “Basis of Presentation and Summary of Significant Accounting Policies.”

Three Months Ended June 30, 2022 (unaudited) Six Months Ended June 30, 2022 (unaudited)

As reported Adjustments As Corrected As reported Adjustments As Corrected

Condensed consolidated statements of operations and comprehensive loss data:

(in millions, except per share amounts) (in millions, except per share amounts)

Sales and marketing $ 25.4 $ ( 4.0 ) $ 21.4 $ 40.1 $ ( 3.4 ) $ 36.7

General and administrative 29.9 9.6 39.5 59.9 10.1 70.0

Total operating expenses 161.1 5.6 166.7 317.4 6.7 324.1

Operating loss ( 80.7 ) ( 5.6 ) ( 86.3 ) ( 151.6 ) ( 6.7 ) ( 158.3 )

Loss before income tax expense ( 89.9 ) ( 5.6 ) ( 95.5 ) ( 166.3 ) ( 6.7 ) ( 173.0 )

Net loss ( 89.9 ) ( 5.6 ) ( 95.5 ) ( 166.3 ) ( 6.7 ) ( 173.0 )

Comprehensive loss $ ( 91.2 ) $ ( 5.6 ) $ ( 96.8 ) $ ( 171.3 ) $ ( 6.7 ) $ ( 178.0 )

Weighted-average common shares outstanding:

basic and diluted (both Class A and B) (1)

14.1 14.1 14.0 14.0

Loss per common share:

basic and diluted (both Class A and B) (1)

$ ( 6.38 ) $ ( 6.77 ) $ ( 11.88 ) $ ( 12.36 )

______________

(1) Reflects the 1-for-18 reverse stock split that became effective August 12, 2022.

Refer to Note 2, “Basis of Presentation and Summary of Significant Accounting Policies.”

Three Months Ended September 30, 2022 (unaudited) Nine Months Ended September 30, 2022 (unaudited)

As reported Adjustments As Corrected As reported Adjustments As Corrected

Condensed consolidated statements of operations and comprehensive loss data:

(in millions, except per share amounts) (in millions, except per share amounts)

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) (1)

14.1 14.1 14.0 14.0

Loss per common share:

basic and diluted (both Class A and B) (1)

$ ( 4.54 ) $ ( 4.71 ) $ ( 16.45 ) $ ( 17.10 )

______________

(1) Reflects the 1-for-18 reverse stock split that became effective August 12, 2022.

Refer to Note 2, “Basis of Presentation and Summary of Significant Accounting Policies.”

As of March 31, 2022 (unaudited)

As reported Adjustments As Corrected

Condensed consolidated statement of redeemable convertible preferred stock and stockholders equity data:

(in millions)

Accumulated loss $ ( 1,346.5 ) $ ( 1.1 ) $ ( 1,347.6 )

Total stockholders’ equity $ 468.7 $ ( 1.1 ) $ 467.6

As of June 30, 2022 (unaudited)

As reported Adjustments As Corrected

Condensed consolidated statement of redeemable convertible preferred stock and stockholders equity data:

(in millions)

Accumulated loss $ ( 1,436.4 ) $ ( 6.7 ) $ ( 1,443.1 )

Total stockholders’ equity $ 388.0 $ ( 6.7 ) $ 381.3

As of September 30, 2022 (unaudited)

As reported Adjustments As Corrected

Condensed consolidated statement of redeemable convertible preferred stock and stockholders equity data:

(in millions)

Accumulated loss $ ( 1,500.4 ) $ ( 9.1 ) $ ( 1,509.5 )

Total stockholders’ equity $ 330.9 $ ( 9.1 ) $ 321.8

Three Months Ended March 31, 2022 (unaudited)

As reported Adjustments As Corrected

Condensed consolidated statement of cash flows data:

(in millions)

Net loss $ ( 76.4 ) $ ( 1.1 ) $ ( 77.5 )

Other assets 4.9 1.1 6.0

Net cash used in operating activities $ ( 51.2 ) $ — $ ( 51.2 )

Six Months Ended June 30, 2022 (unaudited)

As reported Adjustments As Corrected

Condensed consolidated statement of cash flows data:

(in millions)

Net loss $ ( 166.3 ) $ ( 6.7 ) $ ( 173.0 )

Other assets ( 10.5 ) 6.7 ( 3.8 )

Net cash used in operating activities $ ( 104.9 ) $ — $ ( 104.9 )

Nine Months Ended September 30, 2022 (unaudited)

As reported Adjustments As Corrected

Condensed consolidated statement of cash flows data:

(in millions)

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 )

QUARTERLY FINANCIAL DATA (UNAUDITED)

The interim financial statements for the quarterly periods in 2022 are unaudited and, in the opinion of management, include all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the periods presented.

Information for the three months ended March 31, 2022, June 30, 2022 and September 30, 2022 have been adjusted to correct immaterial errors.

For additional information, refer to Note 2, “Basis of Presentation and Summary of Significant Accounting Policies,” and Note 18, “Revision of Previously Issued Financial Statements.”

For the 2022 Quarter Ended

March 31 June 30 September 30 December 31

(in millions, except per share data)

Net premiums earned $ 78.3 $ 74.7 $ 68.6 $ 64.3

Net investment income 0.6 0.7 0.9 4.0

Net realized gains (losses) on investments 1.2 ( 0.1 ) — ( 0.6 )

Fee income 4.9 4.4 3.8 3.4

Other income 0.4 0.7 0.4 0.2

Total revenue 85.4 80.4 73.7 71.3

Operating expenses:

Loss and loss adjustment expenses 96.7 95.7 80.9 77.7

Sales and marketing 15.3 21.4 8.1 3.2

Other insurance expense (benefit) 1.0 ( 7.8 ) 1.1 ( 2.3 )

Technology and development 13.9 17.9 14.3 9.4

General and administrative 30.5 39.5 26.4 31.0

Total operating expenses 157.4 166.7 130.8 119.0

Operating loss ( 72.0 ) ( 86.3 ) ( 57.1 ) ( 47.7 )

Interest expense ( 5.5 ) ( 9.2 ) ( 9.3 ) ( 10.6 )

Loss before income tax expense ( 77.5 ) ( 95.5 ) ( 66.4 ) ( 58.3 )

Income tax expense — — — —

Net loss ( 77.5 ) ( 95.5 ) ( 66.4 ) ( 58.3 )

Other comprehensive loss:

Changes in net unrealizes (losses) gains on investments ( 3.7 ) ( 1.3 ) ( 2.3 ) 1.1

Comprehensive loss $ ( 81.2 ) $ ( 96.8 ) $ ( 68.7 ) $ ( 57.2 )

Loss per common share:

basic and diluted (both Class A and B) (1)

$ ( 5.54 ) $ ( 6.77 ) $ ( 4.71 ) $ ( 4.13 )

Weighted-average common shares outstanding:

basic and diluted (both Class A and B) (1)

14.0 14.1 14.1 14.1

______________

(1) Reflects the 1-for-18 reverse stock split that became effective August 12, 2022.

Refer to Note 2, “Basis of Presentation and Summary of Significant Accounting Policies.”

and CARET HOLDINGS, INC.

Condensed Combined Financial Information of Registrant

Balance Sheets (Parent Company)

(in millions, except par value)

As of December 31,

Other investments

Cash and cash equivalents

Restricted cash

Investments in subsidiaries

Intercompany receivable

$ 723.7 $ 749.1

Liabilities, Redeemable Convertible Preferred Stock and Stockholders’ Equity

Long-term debt and warrants

Investments in subsidiaries — 58.5

Accounts payable and accrued expenses

Other liabilities

Intercompany payable 4.8 8.9

Total liabilities

Commitments and Contingencies

Redeemable convertible preferred stock, $ 0.0001 par value, 14.1 shares issued and outstanding at December 31, 2022 and December 31, 2021 (liquidation preference of $ 126.5 )

Stockholders’ equity:

Class A common stock, $ 0.0001 par value, 9.2 and 7.9 shares issued and outstanding at December 31, 2022 and December 31, 2021, respectively (1)

Class B common stock, $ 0.0001 par value, 5.0 and 6.1 shares issued and outstanding at December 31, 2022 and December 31, 2021, respectively (1)

Additional paid-in capital

1,850.7 1,806.1

Accumulated other comprehensive income

Accumulated loss ( 1,567.8 ) ( 1,270.1 )

Total stockholders’ equity

Total liabilities, redeemable convertible preferred stock and stockholders’ equity

$ 723.7 $ 749.1

______________

(1) Reflects the 1-for-18 reverse stock split that became effective August 12, 2022.

Refer to Note 2, “Basis of Presentation and Summary of Significant Accounting Policies.”

See Notes to Condensed Combined Financial Statements

and CARET HOLDINGS, INC.

Condensed Combined Financial Information of Registrant

Statements of Operations and Comprehensive Loss (Parent Company)

(in millions)

For the Years Ended December 31,

2022 2021 2020

Net investment income $ 4.5 $ 4.6 $ 0.9

Net realized gains on investments 1.2 — —

Total revenue 5.7 4.6 0.9

Operating expenses:

Sales and marketing 11.9 10.0 —

Other insurance expense 6.6 2.9 —

Technology and development 33.4 42.5 19.5

General and administrative 18.3 5.3 37.8

Total operating expenses 70.2 60.7 57.3

Operating loss ( 64.5 ) ( 56.1 ) ( 56.4 )

Interest expense ( 34.6 ) ( 20.0 ) ( 77.7 )

Loss on early extinguishment of debt — ( 15.9 ) —

Loss before income tax expense ( 99.1 ) ( 92.0 ) ( 134.1 )

Income tax expense — — —

Net loss before equity net loss of subsidiaries ( 99.1 ) ( 92.0 ) ( 134.1 )

Net loss of subsidiaries ( 198.6 ) ( 429.1 ) ( 228.9 )

Net loss ( 297.7 ) ( 521.1 ) ( 363.0 )

Other comprehensive (loss) income:

Other comprehensive (loss) income of subsidiaries ( 6.2 ) ( 5.2 ) 5.0

Comprehensive loss $ ( 303.9 ) $ ( 526.3 ) $ ( 358.0 )

See Notes to Condensed Combined Financial Statements

and CARET HOLDINGS, INC.

Condensed Combined Financial Information of Registrant

Statements of Cash Flows (Parent Company)

(in millions)

For the Years Ended December 31,

2022 2021 2020

Cash flows from operating activities:

Net cash provided by (used in) operating activities

$ 205.9 $ ( 257.1 ) $ ( 62.9 )

Cash flows from investing activities:

Purchases of investments — ( 0.4 ) ( 0.5 )

Sales of investments

Purchases of indefinite-lived intangible assets and transaction costs ( 1.3 ) — —

Capitalization of internally developed software ( 8.8 ) ( 6.6 ) ( 5.4 )

Purchases of fixed assets — ( 4.6 ) ( 1.8 )

Investment in subsidiaries ( 360.9 ) ( 261.8 ) ( 201.9 )

Net cash used in investing activities ( 369.7 ) ( 273.4 ) ( 209.6 )

Cash flows from financing activities:

Proceeds from issuance of common stock from IPO and concurrent private placements, net of issuance cost

Proceeds from exercise of stock options and restricted stock units, net of tax proceeds/(withholding)

Proceeds from issuance of preferred stock and related warrants

Payment of preferred stock and related warrants issuance costs

( 3.0 ) ( 10.5 ) —

Proceeds from debt and warrants issuance, net of issuance cost 286.0 — 12.0

Repayments of long-term debt — ( 199.5 ) ( 13.5 )

Purchases of treasury stock — — ( 0.2 )

Net cash provided by (used in) financing activities

283.3 ( 80.3 ) 1,098.5

Net increase (decrease) in cash and cash equivalents

119.5 ( 610.8 ) 826.0

Cash, cash equivalents and restricted cash at beginning of year 433.3 1,044.1 218.1

Cash, cash equivalents and restricted cash at end of year $ 552.8 $ 433.3 $ 1,044.1

See Notes to Condensed Combined Financial Statements

and CARET HOLDINGS, INC.

Notes to Condensed Combined Financial Statements (Parent Company)

Caret Holdings, Inc.

is a holding company which was formed in 2015 to develop and launch a direct-to-consumer personal automobile insurance and mobile technology company.

In August 2019 a new holding company, Root, Inc.

was formed, which became the parent of Caret Holdings, Inc.

and maintains 100% ownership of Caret Holdings, Inc.

Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation and Combination —The condensed combined financial statements include the accounts of Root, Inc.

and its wholly owned subsidiary, Caret Holdings, Inc., and are prepared in accordance with accounting principles generally accepted in the United States.

All intercompany accounts and transactions have been eliminated.

These financial statements have been combined in order to present comparative parent company financial statements for 2022, 2021 and 2020 and should be read in conjunction with our consolidated financial statements.

Use of Estimates —The preparation of condensed combined 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 condensed financial statements and the reported amounts of revenue and expenses during the reporting period.

Actual results could differ from those estimates.

Reverse Stock Split — In August 2022, an authorized subcommittee of our board of directors approved a reverse stock split of our Class A and Class B common stock at a ratio of 1-for-18.

On August 12, 2022, we filed a Certificate of Amendment to our Amended and Restated Certificate of Incorporation to effect a 1-for-18 reverse stock split of our Class A and Class B common stock.

As a result of the reverse stock split, every 18 shares of our issued or outstanding pre-reverse split common stock of each class were combined into one share of common stock of such class.

No fractional shares were issued upon the reverse stock split.

On August 15, 2022, our Class A common stock began trading on a split-adjusted basis on the Nasdaq Stock Market.

In connection with the reverse stock split, there was no change to the shares authorized or in the par value per share of $ 0.0001 .

In addition, there was no change to the number of shares issued or outstanding for our Series A Preferred Stock.

The conversion price for our Series A Preferred Stock was adjusted to $ 162.00 and the exercise price and number of warrant shares for each of our outstanding warrants were also proportionately adjusted.

Statement of Cash Flows —The supplemental disclosures for cash and non-cash flows for the years ended December 31, 2022, 2021 and 2020 are as follows:

2022 2021 2020

(in millions)

Supplemental disclosures:

Interest paid $ 24.5 $ 23.9 $ 4.5

Federal income taxes paid — — —

Leasehold improvements - non-cash 0.9 1.5 —

Conversion of preferred stock to common stock - non-cash — — 560.4

Conversion of warrants to common stock - non-cash — — 75.0

Lease liabilities arising from obtaining right-of-use asset

Carvana investment agreement issuance costs - non-cash — 9.1 —

Purchases of treasury stock - non-cash — — 0.5

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

(in millions)

Cash and cash equivalents $ 551.8 $ 432.3

Restricted cash 1.0 1.0

Total cash, cash equivalents and restricted cash shown in the condensed combined statements of cash flows

$ 552.8 $ 433.3

Investments in Subsidiaries —As of December 31, 2021, Caret Holdings, Inc.

had a negative investment in subsidiaries balance of $ 58.5 million primarily related to accumulated losses from subsidiaries.

In accordance with applicable accounting guidance, we reclassified the negative investment in subsidiaries balance to the liabilities section of our combined balance sheet.

entered into an agreement with the Superintendent of Insurance, State of Ohio, (the “Superintendent”) guaranteeing that Root Insurance Company will maintain certain capital and surplus requirements or risk-based capital levels, whichever is greater, and such additional surplus as the Superintendent requires.

The guarantee remains in effect until such time as the Superintendent may release Root, Inc.

AND SUBSIDIARIES

Valuation and Qualifying Accounts

For the Years Ended December 31, 2022, 2021 and 2020

(in millions)

of period Charged to costs and expenses Charge to other accounts Deductions Balance at end of period

Year Ended December 31, 2020

Valuation allowance for deferred tax assets $ 76.8 $ 61.5 $ ( 1.0 ) $ — $ 137.3

Allowance for premium receivables $ 2.0 $ 23.6 $ — $ ( 22.1 ) $ 3.5

Year Ended December 31, 2021

Valuation allowance for deferred tax assets $ 137.3 $ 116.7 $ 1.0 $ — $ 255.0

Allowance for premium receivables $ 3.5 $ 20.9 $ 0.8 $ ( 19.8 ) $ 5.4

Allowance for reinsurance recoverables $ — $ — $ 0.2 $ — $ 0.2

Year Ended December 31, 2022

Valuation allowance for deferred tax assets $ 255.0 $ 65.8 $ 1.5 $ — $ 322.3

Allowance for premium receivables $ 5.4 $ 17.4 $ — $ ( 20.0 ) $ 2.8

Allowance for reinsurance recoverables $ 0.2 $ — $ — $ — $ 0.2

Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data