Root, Inc. 10-K

Item 9A. Controls and Procedures Evaluation of Disclosure Controls and Procedures Our management, with the participation of our principal executive officer and principal financial officer, evaluated, as of the end of the period covered in this Annual Report on Form 10-K, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on that evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of December 31, 2023. Management’s Report on Internal Control Over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States. Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our internal control over financial reporting based on the framework in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on this evaluation, our principal executive officer and principal financial officer concluded that, as of December 31, 2023, our internal control over financial reporting was effective. Deloitte & Touche LLP, an independent registered public accounting firm, has audited the consolidated financial statements contained in this Annual Report on Form 10-K, and has issued an attestation report on the effectiveness of our internal controls over financial reporting, which is included below. Changes in Internal Control over Financial Reporting As previously disclosed in Item 9A of our Annual Report on Form 10-K for the year ended December 31, 2022 (the “preceding Form 10-K”), management concluded that there was a material weakness in internal controls over financial reporting related to monitoring and the control environment, including the circumvention of control activities, that contributed to the fraud perpetrated by a former senior marketing employee, and aggregated to a material weakness. Specifically, the material weakness related to inadequate hiring practices for employees in senior leadership positions whose roles and responsibilities include the initiation of transactions with third parties, and ineffective control and monitoring activities, including the circumvention of certain control activities, related to the review, authorization and approval of third-party vendors, and associated contracts for services, and approval of third-party vendor payments. We have taken the following steps to remediate the material weakness described above: • Enhanced our policy to require more comprehensive hiring practices for individuals in senior leadership positions, which includes more robust background checks than we require for all other employees. • Improved the design of internal vendor management processes and controls, including hiring dedicated procurement resources to ensure contracts, including amendments, are appropriately reviewed, authorized in accordance with our delegation of authority policies, and approved. • Clarified the design of vendor payment controls to prescribe the criteria an approver must review, in addition to invoice requests, to adequately support payments to vendors. • Implemented more stringent monitoring controls to ensure compliance with contract reviews, approval authority limits and vendor payment policies. 127 As of December 31, 2023, testing of both the design and operating effectiveness of the new controls was completed, and management concluded that the material weakness in internal controls over financial reporting related to this matter has been remediated. Except as noted in the preceding paragraphs, there has been no change in our internal control over financial reporting that occurred during the most recent quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. 128 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and the Board of Directors of Root, Inc. Opinion on Internal Control over Financial Reporting We have audited the internal control over financial reporting of Root, Inc. and subsidiaries (the “Company”) 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 (COSO). In our opinion, the Company maintained, in all material respects effective internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2023, of the Company and our report dated February 21, 2024, expressed an unqualified opinion on those financial statements. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Controls over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. 129 Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ DELOITTE & TOUCHE LLP Columbus, Ohio February 21, 2024 130 Item 9B. Other Information None of the Company’s directors or officers (as defined in Rule 16a-1(f) under the Securities Exchange Act of 1934) adopted, modified, or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement (as each term is defined in Item 408 of Regulation S-K) during the Company’s fiscal quarter ended December 31, 2023. On February 19, 2024, Matt Bonakdarpour, 37, was appointed President and Chief Technology Officer of the Company. Mr. Bonakdarpour has been the Chief Technology Officer of the Company since February 23, 2022. Mr. Bonakdarpour will continue to receive compensation and benefits materially similar to those described in the Company’s Definitive Proxy Statement on Schedule 14A, as filed with the SEC on April 27, 2023 (the “2023 Proxy Statement”), except that Mr. Bonakdarpour’s target annual incentive opportunity was increased to 100% of annual base salary under the Company’s annual short-term incentive program, and in the Company’s Current Report on Form 8-K, as filed with the SEC on August 11, 2023. The biographical information and business experience of Mr. Bonakdarpour is also included in the 2023 Proxy Statement, and those descriptions are incorporated herein by reference. 131 Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections Not applicable. 132 PART III. Item 10. Directors, Executive Officers and Corporate Governance The information required by this Item is incorporated by reference in the definitive proxy statement for our Annual Meeting of Stockholders to be held on or about June 5, 2024. This proxy statement is referred to in this report as the 2024 Proxy Statement. We will provide disclosure of delinquent Section 16(a) reports, if any, in our Proxy Statement in a section entitled “Delinquent Section 16(a) Reports,” and such disclosure, if any, is incorporated herein by reference. 133 Item 11. Executive Compensation The information required by this Item is incorporated by reference in the 2024 Proxy Statement. 134 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters The information required by this Item is incorporated by reference in the 2024 Proxy Statement. 135 Item 13. Certain Relationships and Related Party Transactions, and Director Independence The information required by this Item is incorporated by reference in the 2024 Proxy Statement. 136 Item 14. Principal Accountant Fees and Services The information required by this Item is incorporated by reference in the 2024 Proxy Statement. 137 PART IV. Item 15. Exhibits and Financial Statement Schedules. (a) Exhibits. Exhibit Number Description of Exhibit Form SEC File Number Exhibit Filing Date Filed Herewith 3.1 Amended and Restated Certificate of Incorporation of Root, Inc. 8-K 001-39568 3.1 October 30, 2020 3.2 Certificate of Amendment to Amended and Restated Certificate of Incorporation of Root, Inc. 8-K 001-39658 3.1 August 15, 2022 3.3 Amended and Restated Bylaws of Root, Inc. 10-K 001-39658 3.3 February 22, 2023 3.4 Certificate of Designations of Series A Preferred Stock, filed with the Delaware Secretary of State on October 1, 2021 8-K 001-39658 3.1 October 1, 2021 4.1 Form of Class A common stock certificate. S-1/A 333-249332 4.1 October 20, 2020 4.2 Description of Securities X 4.3 Common Stock Purchase Warrants, dated as of October 1, 2021, by and between Root, Inc. and Carvana Group, LLC 8-K 001-39658 4.1 October 1, 2021 4.4 Form of Common Stock Purchase Warrant (Tranche 1), dated January 26, 2022 8-K 001-39658 4.1 January 27, 2022 4.5 Form of Common Stock Purchase Warrant (Tranche 2) 8-K 001-39658 4.2 January 27, 2022 10.1# Root, Inc. 2020 Employee Stock Purchase Plan. S-8 333-256076 99.2 May 13, 2021 10.2# First Amendment to 2020 Employee Stock Purchase Plan 10-Q 001-39658 10.1 November 9, 2022 10.3# Root, Inc. 2020 Equity Incentive Plan. 10-Q 001-39658 10.1 December 2, 2020 10.4# First Amendment to 2020 Equity Incentive Plan 10-Q 001-39658 10.2 November 9, 2022 10.5# Root, Inc. Amended and Restated 2015 Equity Incentive Plan. S-1 333-249332 10.1 October 5, 2020 10.6# First Amendment to 2015 Amended and Restated Equity Incentive Plan 10-Q 001-39658 10.3 November 9, 2022 10.7# Offer Letter by and between Root, Inc. and Alexander Timm, dated January 4, 2021. 10-K 001-39658 10.16 March 4, 2021 10.8# Amended and Restated Offer Letter by and between Root, Inc. and Daniel Rosenthal, dated February 24, 2021. 10-K 001-39658 10.17 March 4, 2021 10.9# First Amendment to Amended and Restated Offer Letter by and between Root, Inc. and Daniel Rosenthal, dated February 23, 2022 10-K 001-39658 10.27 February 23, 2022 10.10# First Amendment to Offer Letter by and between Root, Inc. and Alexander Timm, dated February 22, 2022 10-K 001-39658 10.26 February 23, 2022 138 10.11# Executive Employment Agreement with Robert Bateman 8-K 001-39658 10.1 March 23, 2022 10.12# Executive Employment Agreement with Matt Bonakdarpour 10-Q 001-39658 10.2 August 8, 2022 10.13# Form of Executive Retention Award 10-K 001-39658 10.3 February 23, 2022 10.14# Root Inc, Non-Employee Director Compensation Policy adopted February 17, 2022 10-K 001-39658 10.4 February 23, 2022 10.15# Form of Stock Option Agreement under the Amended and Restated 2015 Equity Incentive Plan. S-1 333-249332 10.2 October 5, 2020 10.16# Form of Notice of Stock Option Exercise and Stock Option Exercise Agreement under the Amended and Restated 2015 Equity Incentive Plan. 10-K 001-39658 10.7 March 4, 2021 10.17# Form of Root, Inc. 2020 Equity Incentive Plan RSU Award Grant Notice and Award Agreement 10-Q 001-39658 10.2 May 6, 2021 10.18# Form of Root, Inc. 2020 Equity Incentive Plan Stock Option Grant Notice and Option Agreement 10-Q 001-39658 10.1 August 12, 2021 10.19# Form of Director and Officer Indemnity Agreement 10-K 001-39658 10.22 February 23, 2022 10.20# Form of RSU Agreement under the Amended and Restated 2015 Equity Incentive Plan. S-1 333-249332 10.4 October 5, 2020 10.21* Term Loan Agreement, dated as of January 26, 2022, by and among the Company, Caret Holdings, Inc., as borrower, the loan parties party thereto and Acquiom Agency Services LLC, as the administrative agent for the lenders party thereto 10-Q 001-39658 10.1 May 4, 2022 10.22* Commercial Agreement, dated as of October 1, 2021 8-K 001-39658 10.1 October 1, 2021 10.23* First Amendment to Carvana Commercial Agreement, dated as of May 13, 2022 10-Q 001-39658 10.3 August 8, 2022 10.24# Root, Inc. Executive Compensation Agreement 10-K 001-39658 10.30 February 23, 2022 10.25# Form of Root, Inc. Cash Incentive Agreement 10-Q 001-39658 10.9 May 4, 2022 10.26 Investment Agreement, dated as of August 11, 2021, by and between Root, Inc. and Carvana Group, LLC 8-K 001-39658 10.1 August 12, 2021 10.27 First Amendment to Investment Agreement, dated as of September 29, 2021, by and between Root, Inc. and Carvana Group, LLC 8-K 001-39658 10.3 October 1, 2021 10.28 Fifth Amended and Restated Investors’ Rights Agreement by and among Root, Inc. and certain of its stockholders, dated November 25, 2019. S-1 333-249332 4.2 October 5, 2020 139 10.29 Amendment to the Fifth Amended and Restated Investors’ Rights Agreement by and among Root, Inc. and certain of its stockholders, dated October 28, 2020 10-K 001-39658 10.5 February 23, 2022 10.30 Board Observation Side Letter, dated January 26, 2022, by and between the Company and GCO II Aggregator 2 L.P. 8-K 001-39658 10.2 January 27, 2022 10.31 Registration Rights Agreement, dated January 26, 2022, by and between the Company and the other parties thereto. 8-K 001-39658 10.3 January 27, 2022 10.32*# Separation and Transition Agreement dated February 20, 2023, between Daniel Rosenthal and Root, Inc. 10-K 001-39658 10.34 February 22, 2023 10.33# Executive Employment Agreement with Megan Binkley 8-K 001-39658 10.1 March 1, 2023 10.34# Retention Bonus Agreement between Megan Binkley and Root, Inc. 10-Q 001-39658 10.3 May 3, 2023 10.35# Non-Employee Director Compensation Policy 10-Q 001-39658 10.1 August 2, 2023 10.36# Executive Retention Agreement between Matt Bonakdarpour and Root, Inc. dated August 9, 2023 8-K 001-39658 10.1 August 11, 2023 10.37# Performance-Based RSU Award Grant Notice 10-Q 001-39658 10.2 November 1, 2023 10.38# Root, Inc. Non-Employee Director Compensation Policy adopted October 23, 2023 8-K 001-39658 10.1 October 26, 2023 21.1 List of subsidiaries of Root, Inc. X 23.1 Consent of Deloitte & Touche LLP. X 24.1 Power of Attorney (incorporated by reference to the signature pages of this Annual Report on Form 10-K). X 31.1 Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. X 31.2 Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. X 32.1† Certification of Principal Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. X 97.1 Root, Inc. Compensation Recovery Policy X 101.INS Inline XBRL Instance Document 101.SCH Inline XBRL Taxonomy Extension Schema Document 140 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document 101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document 101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document 104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). _______________ * Schedules and exhibits to this Exhibit omitted pursuant to Regulation S-K Item 601(a)(5) and (b)(10). The Company agrees to furnish supplementally a copy of any omitted schedule or exhibit to the SEC upon request. # Indicates management contract or compensatory plan. † The certifications furnished in Exhibit 32.1 hereto are deemed to accompany this Annual Report on Form 10-K and will not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, except to the extent that the registrant specifically incorporates them by reference. 141 Item 16. Form 10-K Summary None. 142 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized . Date: February 21, 2024 ROOT, INC. By: /s/Alexander Timm Alexander Timm Chief Executive Officer and Director POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Alexander Timm and Megan Binkley, and each of them, as his or her true and lawful attorneys-in-fact and agents, with full power of substitution for him or her, and in his or her name in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with exhibits thereto and other documents in connection therewith, with the U.S. Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done therewith, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, and either of them, his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Report has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated. Signature Title Date /s/ Alexander Timm Chief Executive Officer and Director ( Principal Executive Officer ) February 21, 2024 Alexander Timm /s/ Megan Binkley Chief Financial Officer ( Principal Financial Officer and Principal Accounting Officer ) February 21, 2024 Megan Binkley /s/ Doug Ulman Director February 21, 2024 Doug Ulman /s/ Jerri DeVard Director February 21, 2024 Jerri DeVard /s/ Larry Hilsheimer Director February 21, 2024 Larry Hilsheimer /s/ Beth Birnbaum Director February 21, 2024 Beth Birnbaum /s/ Nancy Kramer Director February 21, 2024 Nancy Kramer /s/ Julie Szudarek Director February 21, 2024 Julie Szudarek /s/ Donna Dorsey Director February 21, 2024 Donna Dorsey