What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2025-02-26 compared with 2024-02-21 · 444 added, 305 removed, 923 unchanged (45% of the section changed)

Financial Statements and Supplementary Data

INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS

INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES

Report of Independent Registered Public Accounting Firm (PCAOB ID:

Consolidated Balance Sheets

Consolidated Statements of Operations and Comprehensive Loss

Consolidated Statements of Operations and Comprehensive I ncome ( Loss )

Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders' Equity

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Notes to Consolidated Financial Statements

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.

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.

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, 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").

and subsidiaries (the "Company") as of December 31, 2024 and 2023, the related consolidated statements of operations and comprehensive income (loss), redeemable convertible preferred stock and stockholders' equity, and cash flows, for each of the three years in the period ended December 31, 2024, 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, 2024 and 2023, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2024, in conformity with accounting principles generally accepted in the United States of America.

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Critical Audit Matter Description

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

Loss and loss adjustment expense reserves represent 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.

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Class A common stock, $ 0.0001 par value, 11.1 and 9.5 shares issued and outstanding at December 31, 2024 and December 31, 2023, respectively (Note 11)

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)

Class B convertible common stock, $ 0.0001 par value, 4.0 and 5.0 shares issued and outstanding at December 31, 2024 and December 31, 2023, respectively (Note 11)

Additional paid-in capital 1,887.9 1,883.4

Accumulated other comprehensive loss

( 2.3 ) ( 2.5 )

Accumulated loss ( 1,681.9 ) ( 1,715.2 )

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AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

FOR THE YEARS ENDED DECEMBER 31, 2024, 2023 AND 2022

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Total operating expenses 1,098.0 556.3 573.9

Operating loss ( 101.3 ) ( 263.1 ) ( 485.2 )

Operating income (loss) 78.5 ( 101.3 ) ( 263.1 )

Interest expense ( 42.2 ) ( 46.1 ) ( 34.6 )

Loss on early extinguishment of debt — — ( 15.9 )

Loss before income tax expense ( 147.4 ) ( 297.7 ) ( 521.1 )

Loss on extinguishment of debt ( 5.4 ) — —

Income (loss) before income tax expense 30.9 ( 147.4 ) ( 297.7 )

Income tax expense — — —

Net loss ( 147.4 ) ( 297.7 ) ( 521.1 )

Net income (loss) 30.9 ( 147.4 ) ( 297.7 )

Net income attributable to participating securities ( 1.7 ) — —

Net income (loss) attributable to common shareholders 29.2 ( 147.4 ) ( 297.7 )

Other comprehensive income (loss):

Net income (loss) 30.9 ( 147.4 ) ( 297.7 )

Changes in net unrealized gains (losses) on investments 0.2 3.3 ( 6.2 )

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

Loss per common share:

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

Comprehensive income (loss) $ 31.1 $ ( 144.1 ) $ ( 303.9 )

Earnings (loss) per common share:

(both Class A and B)

Basic $ 1.96 $ ( 10.24 ) $ ( 21.11 )

Diluted $ 1.83 $ ( 10.24 ) $ ( 21.11 )

Weighted-average common shares outstanding:

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

(both Class A and B)

Basic 14.9 14.4 14.1

Diluted 16.9 14.4 14.1

See Notes to Consolidated Financial Statements

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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

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

Shares Amount Class A Shares Class B Shares Amount

(in millions)

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Warrant compensation expense — — — — — 14.5 — — 14.5

Retirement of treasury shares — — — — — ( 0.3 ) 0.8 ( 0.8 ) — — —

Preferred stock issued 14.1 126.5 — — — — — — — — —

Preferred stock and related warrants issuance costs — ( 14.5 ) — — — — — ( 1.0 ) — — ( 1.0 )

Warrant issuance costs — — — — — ( 1.6 ) — — ( 1.6 )

Term Loan warrants issued — — — — — 0.6 — — 0.6

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 loss — — — — — — — — ( 6.2 ) — ( 6.2 )

Conversion of Class B to Class A common stock — — 1.1 ( 1.1 ) — — — — — — —

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

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

Term Loan warrants issued — — — — — — — 0.6 — — 0.6

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

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

Net income — — — — — — — 30.9 30.9

Other comprehensive income — — — — — — 0.2 — 0.2

Conversion of Class B to Class A common stock — — 1.0 ( 1.0 ) — — — — —

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

Reclassification of early-exercised stock option from liabilities

— — 0.6 — — ( 17.4 ) — 2.4 ( 15.0 )

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Cash flows from operating activities:

Net loss $ ( 147.4 ) $ ( 297.7 ) $ ( 521.1 )

Adjustments to reconcile net loss to net cash used in operating activities:

Net income (loss) $ 30.9 $ ( 147.4 ) $ ( 297.7 )

Adjustments to reconcile net income (loss) to net cash used in operating activities:

Share-based compensation 18.5 17.3 30.5

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Bad debt expense 33.6 14.1 17.4

Loss on early extinguishment of debt — — 15.9

Paid-in-kind interest expense — — 10.6

Paid-in-kind interest paid — — ( 20.5 )

Loss on extinguishment of debt

Net realized gains on investments — — ( 0.5 )

Gain on lease modification — ( 0.3 ) ( 0.9 )

Change in fair value of equity securities — — ( 3.8 )

Changes in operating assets and liabilities:

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Other liabilities 28.7 41.4 8.5

Net cash used in operating activities ( 33.6 ) ( 210.6 ) ( 403.4 )

Net cash provided by (used in) operating activities 195.7 ( 33.6 ) ( 210.6 )

Cash flows from investing activities:

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Purchases of fixed assets ( 0.4 ) ( 0.2 ) —

Net cash (used in) provided by investing activities ( 45.7 ) ( 16.6 ) 76.9

Net cash used in investing activities ( 154.4 ) ( 45.7 ) ( 16.6 )

Cash flows from financing activities:

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

Proceeds from exercise of stock options and restricted stock units

Taxes paid related to net share settlement of equity awards ( 15.1 ) ( 1.1 ) ( 1.0 )

Payment of preferred stock and related warrants issuance costs ( 3.0 ) ( 3.0 ) ( 3.0 )

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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 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.”

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, Root Florida Insurance Company, a Florida-domiciled insurance company, which was formed in 2025, 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.

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

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, valuation allowance for income taxes and allowance for expected credit losses on premium receivables and reinsurance recoverables.

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 on our deferred tax assets and the amount of reinsurance recoverable and receivable from reinsurance contracts.

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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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.

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

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

We consider legal actions relating to claims made in the ordinary course of seeking indemnification for a loss covered by the insurance policy in establishing loss and LAE reserves.

In the ordinary course of business, we also face certain lawsuits that seek damages beyond policy limits, or extra-contractual claims.

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

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.

We consider each legal action using this guidance and record reserves for losses as warranted by establishing a reserve in loss and loss adjustment expense reserves for extra-contractual claims and other liabilities for class action and other non-claims related lawsuits in our consolidated balance sheets.

We continually evaluate potential liabilities and reserves for litigation and other matters using the guidance issued in the 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, claims or other matters 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.

We consider each matter using this guidance and record reserves for losses as warranted by establishing a reserve in loss and loss adjustment expense reserves for extra-contractual claims and other liabilities for class action, other non-claims related lawsuits and other matters in our consolidated balance sheets.

Any non-reinsurance related recoveries are recognized as other assets in our consolidated balance sheets.

We record amounts within loss and loss adjustment expenses for extra-contractual claims and general and administrative for class action and other non-claims related lawsuits in our consolidated statements of operations and comprehensive loss.

For other recoveries, we record these amounts in the same account as the initial expense in our consolidated statements of operations and comprehensive income (loss).

Further details are discussed in Note 13, “Commitments and Contingencies.”

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 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.

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 $ 200.0 million six-year term loan, or Amended Term Loan, that we entered into on October 29, 2024.

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 —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.

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

Indefinite-Lived Intangible Assets —As of December 31, 2024 and 2023, we had insurance licenses of $ 8.9 million and an intangible asset related to the purchase of the Root.com domain of $ 1.3 million, including transaction costs, 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 2024, 2023 or 2022 related to indefinite-lived intangible assets.

Segment Information —Our chief operating decision maker is the Chief Executive Officer.

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 insurance products to customers.

Segment Information —We are a technology company that provides direct-to-consumer insurance products to customers.

We operate as a single reporting segment that is managed on a consolidated basis.

Our Chief Executive Officer is our chief operating decision maker, or CODM.

The primary measure the CODM utilizes to manage operations, monitor budget versus actual results, and evaluate financial performance is net income (loss) as reported on the consolidated statements of comprehensive income (loss).

This information is regularly provided to the CODM.

The CODM allocates resources based on consolidated expense and forecasted expense information.

Significant expenses, which are presented on the consolidated statements of operations and comprehensive income (loss), include loss and loss adjustment expense, sales and marketing, other insurance expense (benefit) and technology and development.

Other segment items include expenses that our CODM does not evaluate for purposes of making operating decisions.

These items include general and administrative, interest expense, loss on extinguishment of debt and income tax expense, which can all be found on the consolidated statements of operations and comprehensive income (loss).

Assets provided to the CODM are consistent with those reported on the consolidated balance sheets.

Statement of Cash Flows — The supplemental disclosures for cash and non-cash flows for the years ended December 31, 2024, 2023 and 2022 are as follows:

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Leasehold improvements - non-cash — — 0.9

Lease liabilities arising from obtaining right-of-use asset

Investment Agreement issuance costs - non-cash — — 9.1

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

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$ 600.3 $ 679.7

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.

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

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.

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

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

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We elected to account for these investments at cost minus any impairment, plus or minus changes resulting from observable price changes in orderly transactions for an identical or a similar investment of the same issuer.

Such changes are accounted for within net investment income in our consolidated statements of operations and comprehensive loss.

We also invest in Low Income Housing Tax Credits, or LIHTC, projects by way of investing in a limited liability entity to offset Georgia premium taxes.

The purpose of these investments is to encourage private capital investments into regions within Georgia that are in need of economic development, while providing tax credits and operating loss tax benefits to investors.

changes are accounted for within net investment income in our consolidated statements of operations and comprehensive income (loss).

We also invest in Low Income Housing Tax Credits, or LIHTC, projects by way of investing in a limited liability entity to offset certain state premium taxes.

The purpose of these investments is to encourage private capital investments into regions within these states that are in need of economic development, while providing tax credits and operating loss tax benefits to investors.

We account for this investment using the cost method because our interest in the limited liability entity is minor and we have virtually no influence over the entity’s operating and financial policies.

When we utilize the tax credits, the associated investment becomes impaired.

Impairment of the investment is recognized within net investment income in our consolidated statements of operations and comprehensive loss.

Impairment of the investment is recognized within net investment income in our consolidated statements of operations and comprehensive income (loss).

Fair Value Measurements —Fair value is defined as the price that would be received upon selling an asset or the price paid to transfer a liability on the measurement date in the principal or most advantageous market for the asset or liability in an orderly transaction between willing market participants.

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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.

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.

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

Sales and Marketing —Sales and marketing includes expenses related to direct performance marketing, channel media, advertising, sponsorship, experimental marketing, referral fees and certain non-commission expenses related to the partnership 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 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.

Other Insurance Expense (Benefit) —Other insurance expense (benefit) includes report costs and any refunds related to these expenses, commission expenses related to our partnership channel, premium taxes which includes low income housing tax credits to offset certain state premium taxes, credit card and policy processing expenses, premium write-offs, insurance license expenses, certain warrant compensation expense related to policies originating through the integrated automobile insurance solution for Carvana’s online buying platform, 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.

Tax credits are recognized when utilized.

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.

Certain warrant compensation expense is recognized on a pro-rata basis considering progress toward achieving milestones for policies originated through the Integrated Platform as defined under the Carvana commercial agreement.

These expenses are 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 expense (benefit).

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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 policy acquisition costs, net of

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

Deferred policy acquisition costs, net of accumulated amortization, was $ 29.3 million and $ 18.0 million as of December 31, 2024 and 2023, respectively.

We amortized deferred policy acquisition costs of $ 35.7 million, $ 35.1 million and $ 22.5 million for the years ended December 31, 2024, 2023 and 2022, respectively.

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There is considerable uncertainty associated with the actuarial estimates, and therefore no assurance can be made that the ultimate unpaid claim liability will not vary materially from such estimates.

These loss estimates are continually reviewed by management and adjusted as necessary, with adjustments included in the period determined and recorded in loss and LAE in our consolidated statements of operations and comprehensive loss.

As such, loss and LAE reserves represent management’s best estimate of the ultimate liability related to reported and unreported claims.

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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 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.

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As of December 31, 2024 and 2023, 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.

The Inflation Reduction Act of 2022 includes a 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, 2024, we nor our subsidiaries had a three year average annual AFSI exceeding $1.0 billion.

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Fixed assets, net $ 1.8 $ 2.8

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.

Employee Share-Based Compensation —We award share-based compensation to our officers, directors, employees, and have also in the past awarded to certain advisors, through approval from the Compensation Committee of the board of directors.

These awards have been made in the forms of stock options, service-based restricted stock units, or RSUs, market-based restricted stock units, or MRSUs, performance-based restricted stock units, or PRSUs, and restricted stock.

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.

The BSM option pricing model requires inputs based on certain subjective assumptions, including the expected stock price volatility, the expected term of the options, the risk-free interest rate for a period that approximates the expected term of the option, and our expected dividend yield.

The fair value of common stock underlying the stock options, restricted stock and RSUs granted before our initial public offering, or IPO, had historically been determined by our board of directors, with input from management, and considering third-party valuations of our common stock.

Because there had been no public market for our common stock, our board of directors had determined its fair value at the time of grant of the pre-IPO option by considering a number of objective and subjective factors, including financing investment rounds, operating and financial performance, the lack of liquidity of share capital and general and industry specific economic outlook, among other factors.

Our board of directors determined the fair value of common stock based on valuations performed using the Option Pricing Method and the Probability Weighted Expected Return Method subject to relevant facts and circumstances.

In connection with our IPO, our common stock became listed on the Nasdaq Global Select Market and we use these market prices for the fair value of our common shares.

Stock options are generally exercisable for a period up to ten years from the grant date.

The BSM option pricing model requires inputs based on certain subjective assumptions, including the expected stock price volatility, the expected term of the options (generally ten years from grant date), the risk-free interest rate for a period that approximates the expected term of the option, and our expected dividend yield.

We recognize forfeitures as they occur, which generally results in the reversal of previously recognized expense for nonvested awards.

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 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.

For performance-based awards, expense is not recognized until it is probable that the performance condition(s) will be met.

If a performance condition is improbable but later becomes probable of achievement, a catch up of expense will be recorded as if the award had been vesting on a ratable basis from the grant date.

If a performance condition is not achieved or becomes improbable of achievement, the respective cumulative compensation cost is reversed.

For market-based awards, if the market condition(s) are never achieved before the expiration date, but the service condition is met, the respective compensation costs remain recognized.

Stock options generally vested over four years , with 25 % cliff vesting after one year and approximately 2 % vesting 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 approximately 2 % vests each month over three years thereafter, or fully vest after one year .

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

Certain other RSUs 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.

PRSUs are expected to vest over an explicit service period of two to three years after the performance period and are dependent upon the fulfillment of both a service condition and the achievement of certain adjusted EBITDA and new writings goals during the performance period.

The actual number of PRSUs earned can vary from zero to 200 % of the target depending on goal achievement relative to the adjusted EBITDA and new writings goal matrix.

The performance period begins on January 1, 2025 and ends on December 31, 2025.

For our awards vesting over three years , 25 % vests on the Compensation Committee certification date, expected to be in February 2026, and 25 % vests annually over approximately three years thereafter.

For our awards vesting over two years , 33 % vests on the Compensation Committee certification date and approximately 8 % vests quarterly over approximately two years thereafter.

The PRSU compensation expense is recognized based on the grant date fair value of the award, which was determined using the Company’s closing stock price as of the grant date.

The expense is recognized ratably over the requisite service period.

We assess the probability of the award vesting based on the performance conditions on a quarterly basis.

MRSUs 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 first tranche of MRSUs was met on April 1, 2024 and the remaining three tranches of MRSUs will be met in installments on 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.

Any tranche of MRSUs 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 MRSU 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.

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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.

Inputs and assumptions used in our analysis included our stock price at grant date, exercise prices, the term of the MRSUs, 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.

MRSU 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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If deemed probable, we recognize compensation expense on a pro-rata basis considering progress toward achieving the milestones.

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.

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.

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 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.

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

Basic earnings per share is calculated using the two-step method.

Undistributed earnings are allocated to participating securities based on the extent to which each class may share in earnings as if all the earnings for the period have been distributed.

Basic earnings per share is calculated by dividing net income attributable to common shareholders by the weighted-average number of common shares outstanding for the period.

Common shares, when contingencies, such as vesting requirements, exist and have not been satisfied, are excluded from basic earnings per share.

Our shares of Class A and Class B common stock are entitled to the same liquidation and dividend rights and therefore earnings are allocated equally.

Our redeemable convertible preferred stock and nonvested shares subject to repurchase are considered to be participating securities because they participate in dividends that are non-forfeitable and distributions with common stock.

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, 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.

Therefore, the conversion of common stock equivalents would increase the denominator of the EPS calculation and create a lower loss per share.

The dilutive effect of stock options, nonvested shares subject to repurchase, RSUs, PRSUs, MRSUs, and warrants are calculated using the treasury stock method.

The dilutive effect of redeemable convertible preferred stock is calculated using the if-converted method.

For periods in which we operate at a loss, the conversion of common stock equivalents would increase the denominator of the diluted earnings per share calculation and create a lower loss per share.

Therefore, these common stock equivalents are considered antidilutive and diluted EPS is equal to basic EPS.

Losses are allocated equally between both classes of common stock because they are entitled to the same liquidation and dividend rights.

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 — In November 2023, the FASB issued Accounting Standards Update, or ASU, No.

Participating securities do not participate in losses and therefore are not allocated in the two-class method.

Further details are discussed in Note 15, “Loss Per Share.”

Reclassification —Certain prior-year amounts have been reclassified for comparability with the current year presentation.

These reclassifications did not have a material impact on the consolidated financial statements and Notes to Consolidated Financial Statements.

Recently Adopted Accounting Pronouncements —In November 2023, the FASB issued Accounting Standards Update, or ASU, No.

2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures .

Improvements to Reportable Segment Disclosures, or ASU 2023-07.

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.

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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.

We adopted ASU 2023-07 on December 31, 2024 and the adoption did not have a material impact on the Notes to Consolidated Financial Statements, as noted above.

Recently Issued Financial Accounting Standards Not Yet Adopted —In November 2024, the FASB issued ASU No.

2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40):

Disaggregation of Income Statement Expenses.

This ASU looks to improve financial reporting by requiring that public business entities disclose additional information about specific expense categories in the notes to financial statements at interim and annual reporting periods.

The main provisions require a company to disclose in the notes to the financial statements the amounts of employee compensation, depreciation, intangible asset amortization and certain other costs and expenses included in each relevant expense caption and include certain

amounts that are already required to be disclosed under current generally accepted accounting principles in the same disclosure as the other disaggregation requirements.

It also requires a company to disclose a qualitative description of the amounts remaining in relevant expense captions that are not separately disaggregated quantitatively and the total amount of selling expenses and, in annual reporting periods, an entity’s definition of selling expenses.

This ASU is to be applied on a prospective basis with an effective date for the first annual reporting period beginning after December 15, 2026, and interim reporting periods within annual reporting periods beginning after December 15, 2027.

Early adoption is permitted.

We are currently evaluating the impact of this ASU.

In December 2023, the FASB issues ASU No.

In December 2023, the FASB issued ASU No.

2023-09, Income Taxes (Topic 740):

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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 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.

This ASU only requires additional disclosure, will not have an impact on our results of operations or financial condition, and is not expected to have a material impact on the Notes to Consolidated Financial Statements.

The amortized cost and fair value of short-term investments and available-for-sale fixed maturity securities at December 31, 2024 and 2023 are as follows:

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Corporate debt securities 106.6 — 0.3 ( 1.2 ) 105.7

Residential mortgage-backed securities 12.0 — 0.1 ( 0.2 ) 11.9

Commercial mortgage-backed securities 30.4 — 0.1 ( 0.7 ) 29.8

Other debt obligations 20.3 — 0.1 ( 0.1 ) 20.3

Asset-backed securities 117.3 — 0.4 ( 1.1 ) 116.6

Total fixed maturities 294.3 — 0.8 ( 3.1 ) 292.0

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Corporate debt securities 66.3 — 0.2 ( 1.3 ) 65.2

Residential mortgage-backed securities 5.5 — — ( 0.3 ) 5.2

Commercial mortgage-backed securities 24.4 — — ( 1.2 ) 23.2

Other debt obligations 11.1 — 0.1 ( 0.2 ) 11.0

Asset-backed securities 62.7 — 0.3 ( 1.0 ) 62.0

Total fixed maturities 168.4 — 0.7 ( 3.2 ) 165.9

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Corporate debt securities 49.5 ( 0.6 ) 21.1 ( 0.6 ) 70.6 ( 1.2 )

Residential mortgage-backed securities 4.1 — 1.9 ( 0.2 ) 6.0 ( 0.2 )

Commercial mortgage-backed securities 9.1 ( 0.1 ) 13.4 ( 0.6 ) 22.5 ( 0.7 )

Other debt obligations 4.4 — 4.4 ( 0.1 ) 8.8 ( 0.1 )

Asset-backed securities 53.6 ( 0.6 ) 10.6 ( 0.5 ) 64.2 ( 1.1 )

Total fixed maturities 136.6 ( 1.6 ) 43.9 ( 1.5 ) 180.5 ( 3.1 )

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Corporate debt securities 13.4 — 35.1 ( 1.3 ) 48.5 ( 1.3 )

Residential mortgage-backed securities 2.2 — 1.9 ( 0.3 ) 4.1 ( 0.3 )

Commercial mortgage-backed securities 18.3 ( 0.8 ) 4.6 ( 0.4 ) 22.9 ( 1.2 )

Other debt obligations 6.8 ( 0.2 ) — — 6.8 ( 0.2 )

Asset-backed securities 17.6 ( 0.1 ) 19.7 ( 0.9 ) 37.3 ( 1.0 )

Total fixed maturities 35.8 ( 0.1 ) 72.3 ( 3.1 ) 108.1 ( 3.2 )

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As of December 31, 2024 and 2023, 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:

There were no realized gains or losses for the years ended December 31, 2024 and 2023.

We recognized $ 1.2 million of realized gains in 2022 related to the sale of one of our private equity investments, which was recorded within net realized gains on investments in our consolidated statements of operations and comprehensive income (loss).

There were no unrealized gains and losses or impairment losses recognized on private equity investments for the years ended December 31, 2024, 2023 and 2022.

The following table reflects the gross and net realized gains and losses on short-term investments, available-for-sale fixed maturities and other investments that have been included in the consolidated statements of operations and comprehensive income (loss) for the years ended December 31, 2024, 2023 and 2022:

For the Years Ended December 31,

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(dollars in millions)

Interest on bonds $ 4.8 $ 2.4 $ 2.4

Interest on deposits and cash equivalents 28.0 5.7 1.1

Other investments (1)

Interest on fixed maturities and short-term investments

$ 9.6 $ 4.8 $ 2.4

Interest on cash and cash equivalents

31.9 28.0 5.7

Total 41.5 32.8 8.1

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Net investment income $ 35.9 $ 30.2 $ 6.2

______________

(1) Unrealized gains resulting from observable price changes related to our private equity investments.

The following tables summarize the credit ratings of short-term investments and available-for-sale fixed maturity securities at December 31, 2024 and 2023:

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AA+, AA, AA-, A-1+

146.0 145.0 47.3

A+, A, A- 67.8 67.1 21.9

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AA+, AA, AA-, A-1+

59.4 58.8 35.3

A+, A, A- 42.1 41.2 24.7

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Corporate debt securities — 105.7 — 105.7

Residential mortgage-backed securities — 11.9 — 11.9

Commercial mortgage-backed securities — 29.8 — 29.8

Other debt obligations — 20.3 — 20.3

Asset-backed securities — 116.6 — 116.6

Total fixed maturities 46.2 245.8 — 292.0

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Corporate debt securities — 65.2 — 65.2

Residential mortgage-backed securities — 5.2 — 5.2

Commercial mortgage-backed securities — 23.2 — 23.2

Other debt obligations — 11.0 — 11.0

Asset-backed securities — 62.0 — 62.0

Total fixed maturities 13.3 152.6 — 165.9

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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.

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

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Gross loss and LAE reserves, December 31 $ 413.2 $ 284.2 $ 287.4

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 2024 of $ 19.4 million was primarily driven by lower-than-expected reported losses and LAE from accident year 2023 related to liability and physical damage coverages.

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 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 (unaudited) 2023 IBNR Reported Claims (1)

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

(unaudited) 2022 (unaudited) 2023

(unaudited) 2024 IBNR Reported Claims (1)

(dollars in millions)

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Cumulative Paid Losses and ALAE—Net of Reinsurance

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

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

(unaudited) 2022

(unaudited) 2023

(unaudited) 2024

(dollars in millions)

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(1) Supplemental information and unaudited .

The following table reflects amounts affecting the consolidated balance sheets and statements of operations and comprehensive loss for reinsurance as of and for the years ended December 31:

The following table reflects amounts affecting the consolidated balance sheets and statements of operations and comprehensive income (loss) for reinsurance as of and for the years ended December 31:

2024 2023 2022

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Net losses and LAE incurred $ 733.0 $ 331.3 $ 351.0

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.

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 income (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.

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.

During 2024, we recovered $ 0.5 million from this previously commuted reinsurer and relieved the remaining reinsurance recoverable and related allowance for credit losses.

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.

There were no commutations during 2024.

If our reinsurance was cancelled at December 31, 2024 and 2023, the maximum amount of return ceded commissions due with the return of unearned premiums would have been $ 4.4 million and $ 12.3 million, respectively.

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LONG-TERM DEBT

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 %.

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.

Such warrants will expire on the later of the repayment in full of the Term Loan or January 27, 2027.

The total fair value of these warrants at January 27, 2022 was $ 0.6 million.

The Term Loan contains debt covenants which, among other things, require cash and cash equivalents held in entities other than our insurance subsidiaries to be at least $ 200.0 million at all times.

This threshold may be reduced to $ 150.0 million under two sets of circumstances:

issuing 62,500 insurance policies through our Carvana embedded product and achieving a ratio of direct contribution to gross premiums earned of 12 %;

or ceasing any customer acquisition spend outside of the Carvana commercial agreement and reducing our monthly cash burn to no greater than $ 12.0 million.

Under the latter set of circumstances, we must issue additional warrants to purchase shares of our Class A common stock equal to 1.0 % of the aggregate number of issued and outstanding shares of Class A common stock on a fully-diluted basis as of the date the threshold is reduced.

The additional warrants, if issued, would have an exercise price equal to the 30 -trading day volume weighted average price of the Class A common stock as of the trading day immediately prior to the triggering date.

The additional warrants will expire on the later of the repayment in full of the Term Loan, January 27, 2027 or the date that falls 12 months after the issuance of these warrants.

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

In January 2022, we entered into our $ 300.0 million five-year term loan, or Term Loan, with the full principal amount originally due and payable upon maturity on January 27, 2027.

Interest was payable quarterly and determined on a floating interest rate 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, or Tranche 1 Warrants.

In September 2024, we entered into the first amendment to the Term Loan, which, among other things, provides greater flexibility for investments in future insurance subsidiaries.

In October 2024, we entered into the second amendment to the Term Loan, or Amended Term Loan, that resulted in extinguishment of $ 237.1 million of the Term Loan, modification of $ 62.9 million of the Term Loan, and new borrowings of $ 137.1 million from new BlackRock participation.

The resulting principal amount under the Amended Term Loan is $ 200.0 million and has a maturity date of October 29, 2030.

Interest is payable quarterly and is determined on a floating interest rate calculated on SOFR, with a 1.0 % floor, plus an applicable margin ranging from 5.25 % to 6.00 %, based upon the debt-to-capital ratio payable quarterly.

The Amended Term Loan contains debt covenants that require cash and cash equivalents held in entities other than our insurance subsidiaries to be at least $ 50.0 million at all times, direct contribution margin on a rolling twelve months to be at least 20 % at the end of each fiscal quarter and the surplus of our insurance and Cayman subsidiaries to be at least $ 125.0 million at the end of each fiscal quarter.

Additionally, in connection with the Amended Term Loan, a new expiration date was established for the Tranche 1 Warrants of January 26, 2027.

In connection with the Amended Term Loan, during the fourth quarter of 2024, we recognized a loss on extinguishment of debt of $ 5.4 million and we incurred $ 2.4 million of debt discount and issuance costs related to the new borrowings, which were capitalized and will be amortized over the life of the Amended Term Loan.

The Amended Term Loan can be repaid at any time through the maturity date as long as we provide at least three business days written notice and pay a prepayment premium of 2.00 % applicable between October 29, 2024 to October 28, 2025, 1.00 % applicable between October 29, 2025 to October 25, 2026, and no prepayment premium thereafter.

The following summarizes the carrying value of long-term debt and warrants as of December 31, 2024 and 2023:

(dollars in millions)

Principal balance

$ 200.0 $ 300.0

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Total $ 200.1 $ 299.0

We primarily have operating leases for offices that support our corporate, claims and customer service functions.

We have operating leases for offices that primarily support our claims and customer service, engineering, and corporate functions.

We determine if an arrangement is a lease at inception by evaluating whether the arrangement conveys the right to use an identified asset and whether we obtain substantially all of the economic benefits from and have the ability to direct the use of the asset.

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Operating lease right-of-use assets and corresponding operating lease liabilities are recognized upon the commencement date based primarily on the present value of lease payments over the lease term.

We use the implicit

rate of the lease, if it is readily determinable, in determining the present value of lease payments.

We use the implicit rate of the lease, if it is readily determinable, in determining the present value of lease payments.

Our leases generally do not provide an implicit rate.

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Operating lease liabilities are included in other liabilities and operating lease right-of-use assets are included in other assets in our consolidated balance sheets.

The components of lease costs 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)

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, 2023, 2022, and 2021 were immaterial.

Operating lease expense, variable lease expense and short-term lease expense recognized during the years ended December 31, 2024, 2023 and 2022 were immaterial.

Supplemental cash flow information for the years ended December 31, 2024, 2023 and 2022 are as follows:

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Operating cash flows paid for amounts included in the measurement of lease liabilities $ 3.0 $ 3.2 $ 3.9

In October 2022, we reduced our square footage at one of our offices.

The amendment triggered a remeasurement of the operating lease assets and liabilities at the modification date, resulting in a decrease of $ 0.9 million as of December 31, 2022.

The modification also resulted in a $ 0.9 million gain for the year ended December 31, 2022.

The gain is a contra-expense in general and administrative expenses on the consolidated statements of operations and comprehensive loss.

In August 2022, we ceased using a portion of our corporate headquarters and extended the lease term on the remaining portion to December 31, 2027.

The amendment triggered a change in estimate to the respective useful lives, which has been accounted for as a lease modification.

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.

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,

2023, 2022 and 2021.

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

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, 2024, 2023 and 2022.

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

The weighted average remaining lease term and weighted average operating lease discount rate, as of December 31, 2024 and 2023 are as follows:

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(dollars in millions)

Loss before income taxes $ ( 147.4 ) $ ( 297.7 ) $ ( 521.1 )

Income (loss) before income taxes $ 30.9 $ ( 147.4 ) $ ( 297.7 )

Statutory U.S.

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(2) whether they are ordinary or capital;

timing of expected reversal;

(3) the 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 $ 345.9 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.

Accordingly, use of a portion of our net operating losses, or NOLs, and tax credit carryforwards are subject to an annual limitation under Section 382 of the Code.

We do not expect any of our deferred tax assets related to our NOLs or tax credit carryforwards to expire unutilized as a result of this limitation.

The valuation allowance decreased by $ 10.5 million primarily due to our net operating income for the year ended December 31, 2024.

The following table sets forth carryforwards related to NOLs and tax credits:

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We file a consolidated federal income tax return and certain state income tax returns.

Tax years 2020 and forward are still subject to U.S.

Tax years 2021 and forward are still open to U.S.

federal examinations.

The federal statute of limitations is generally three years.

Currently all state income and franchise tax returns are within each taxing authorities statute of limitations and are subject to examination.

With some exceptions, the statute of limitations for state income and franchise tax returns remains open for tax years 2018 and forward.

There are currently no tax years under examination.

RESTRUCTURING COSTS

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

Beginning 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.

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As of December 31, 2024, 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:

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

For the Years Ended December 31,

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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

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Restructuring liability as of December 31, 2023

$ 3.1 $ 0.1 $ 3.2

Expense incurred 0.1 — 0.1

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Restructuring liability as of December 31, 2024

$ 8.3 $ — $ 8.3

CAPITAL STOCK

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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.

The warrants are recognized on a pro-rata basis considering Carvana’s progress toward achieving the milestones and the allocated issuance costs are reclassified from other assets to contra-equity on that same pro-rata basis.

As of December 31, 2024, issuance costs were recognized in our consolidated balance sheets as follows:

$ 14.5 million as contra-redeemable convertible preferred stock;

$ 4.7 million as contra-additional paid-in capital;

and $ 0.4 million as other assets.

and $ 5.1 million as contra-additional paid-in capital.

The carrying value of our preferred stock was $ 112.0 million as of December 31, 2024.

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.

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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Holders of preferred stock are entitled to vote, together with the holders of Class A common stock and Class B common stock, on an as-converted basis on all matters submitted to a vote of the holders of Class A common stock and Class B common stock.

Liquidation Preferences —In the event of any voluntary or involuntary liquidation, dissolution, or winding up of our business, after payment or provision for payment of the debts and other liabilities of the Company, the holders of Series A Preferred Stock are entitled to receive, before any distribution out of the assets of the Company may be made to or set aside for the holders of any common stock, an amount per share equal to the greater of (i) $ 9.00 per share plus the amount of any accrued but unpaid dividends thereon as of such date and (ii) the amount such preferred stockholders would have received had they, immediately prior to such an event, converted such shares of Series A Preferred Stock into Class A common stock.

Preferred Stock into Class A common stock.

Thereafter, holders of Class A and Class B common stock are entitled to any remaining proceeds on a pro-rata basis.

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If Carvana exercises short-term tranches, then long-term tranche 1 warrants are cancelled and the remaining long-term tranches would be reduced such that Carvana will have the opportunity to purchase a maximum of 7.2 million shares of Class A common stock.

As of December 31, 2023, we determined the remaining unvested short-term warrants were probable of vesting.

Under that scenario, it is not a possible outcome for the long-term warrants to also vest, so they are considered not probable of vesting.

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.

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.

All of these warrants are out-of-the-money and therefore have no intrinsic value as of December 31, 2023.

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

For the Years Ended December 31,

2023 2022 2021

(dollars in millions)

Warrant compensation expense:

Sales and marketing $ — $ 8.8 $ 8.8

Other insurance expense (benefit) 17.4 5.7 —

Total warrant compensation expense $ 17.4 $ 14.5 $ 8.8

The short-term warrants will expire September 1, 2025 and the long-term warrants will expire September 1, 2027.

The short-term and long-term warrants have expiration dates of September 1, 2025 and September 1, 2027, respectively.

The following table provides other key terms of the warrants:

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Total Long-Term 7.2

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 one year .

Employee Share-Based Compensation

As of December 31, 2024, all of the short-term warrants have vested and all of the respective compensation cost has been recognized.

While the short-term warrants are vested and outstanding, it is not a possible outcome for the long-term warrants to also vest, so they are considered not probable of vesting.

If, however, the short-term warrants expire unexercised during 2025, and at that time certain long-term warrants become probable of vesting, we would

recognize a cumulative warrant expense catch-up in other insurance expense (benefit) considering progress toward achieving the long-term warrant policy origination milestones.

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

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

All of these warrants are out-of-the-money and therefore have no intrinsic value as of December 31, 2024.

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

For the Years Ended December 31,

2024 2023 2022

(dollars in millions)

Warrant compensation expense:

Sales and marketing $ — $ — $ 8.8

Other insurance expense (benefit) 3.8 17.4 5.7

Total warrant compensation expense $ 3.8 $ 17.4 $ 14.5

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, PSUs, 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, PRSUs, MRSUs and incentive and nonqualified stock options) to our officers, directors, employees and certain advisors.

As of December 31, 2024, the number of shares authorized under the 2020 Plan was 4.3 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, 2024, the number of shares available for issuance under the 2020 Plan was 1.4 million.

In August 2022, our board of directors approved the First Amendment to our 2020 Employee Stock Purchase Plan, or ESPP.

The number of shares of Class A common stock initially reserved for issuance under the ESPP is limited to 0.3 million shares.

As of December 31, 2024, the number of shares authorized and available for issuance under the ESPP was 0.8 million shares.

In addition, the number of shares reserved for issuance under the ESPP is subject to an annual increase on the first day of each calendar year beginning on January 1, 2021 and ending on and including January 1, 2030, in an amount equal to the lesser of (i) 1 % of the total number of shares of capital stock outstanding on December 31 of the preceding year and (ii) 0.4 million shares of Class A common stock.

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In October 2020, this plan was superseded by the 2020 Plan and all reserved shares under the 2015 Plan were transferred to the 2020 Plan.

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

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

For the Years Ended December 31,

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Total share-based compensation expense $ 18.5 $ 17.3 $ 30.5

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

For the Years Ended December 31,

As of December 31, 2024, there was $ 0.5 million, $ 19.3 million, $ 1.1 million and $ 17.2 million of unrecognized compensation cost related to unvested stock options, RSUs, MRSUs and PRSUs, respectively.

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

Service-Based Restricted Stock Units

A summary of RSU activity for the years ended December 31, 2024, 2023 and 2022 is as follows:

Service-Based Restricted Stock Units

Number of Shares Weighted-Average

Grant Date Fair

Value per Share Aggregate Intrinsic Value

(in millions, except per share amounts)

Nonvested at December 31, 2021

0.5 $ 162.36 $ 27.4

(dollars in millions)

Share-based compensation expense:

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

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.

Granted 1.1 31.34

Vested ( 0.1 ) 135.25 3.3

Forfeited, expired or canceled ( 0.4 ) 81.38

Nonvested at December 31, 2022

1.1 $ 51.81 $ 5.0

Granted 1.2 6.91

Vested ( 0.6 ) 49.11 3.4

Forfeited, expired or canceled ( 0.2 ) 51.90

Nonvested at December 31, 2023 1.5 $ 16.74 $ 16.2

Granted 0.3 50.55

Vested ( 0.8 ) 18.34 40.5

Forfeited, expired or canceled — 22.21

Nonvested at December 31, 2024 1.0 $ 25.89 $ 73.6

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;

A summary of PRSU activity for the year ended December 31, 2024 is as follows:

Performance-Based Restricted Stock Units Number of Shares Weighted-Average

Grant Date Fair

Value per Share Aggregate Intrinsic Value

(in millions, except per share amounts)

Nonvested at December 31, 2023 — $ — $ —

Granted 0.2 75.55

Forfeited, expired or canceled — —

Nonvested at December 31, 2024 0.2 $ 75.55 $ 17.6

Market-Based Restricted Stock Units

The fair value of the MRSUs 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 MRSUs;

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

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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

A summary of MRSU activity for the years ended December 31, 2024 and 2023 is as follows:

Market-Based Restricted Stock Units Number of Shares Weighted-Average

Grant Date Fair

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(in millions, except per share amounts)

Nonvested at January 1, 2022 0.5 $ 162.36 $ 27.4

Nonvested at December 31, 2022

Granted 0.4 5.91

Vested ( 0.1 ) 135.25 3.3

Forfeited, expired or canceled — —

Nonvested at December 31, 2023 0.4 $ 5.91 $ 4.1

Granted 1.6 6.67

Vested — 7.69 2.4

5 unchanged sentences

(in millions, except exercise price and term amounts)

Outstanding at January 1, 2022 0.4 $ 42.48 6.12 $ 9.5

Outstanding at December 31, 2021

0.4 $ 42.48 6.12 $ 9.5

Granted — 21.42

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Outstanding at December 31, 2022

0.2 $ 38.15 5.63 $ 0.2

Granted — 8.94

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Outstanding at December 31, 2023 0.1 $ 33.68 4.29 $ 0.5

Exercised — 16.77 0.3

Forfeited, expired or canceled — 90.82

Outstanding at December 31, 2024 0.1 $ 34.13 3.15 $ 6.7

A summary of total options outstanding and exercisable at December 31, 2024:

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

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

District Court for the Western District of Texas (Case No.

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 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.

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.

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 June 27, 2022, a verified shareholder derivative complaint was filed against certain of the Company’s current and former officers and directors in the U.S.

District Court for the District of Delaware (Case No.

1:22-cv-00865).

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 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.

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.

While the outcome of all legal actions is not presently determinable, we do not believe that we are party to any current or pending legal action that if concluded adversely could reasonably be expected to have a material adverse effect on our financial condition or results of operations and cash flow.

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.

1 unchanged sentence

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 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’ 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 cannot predict the outcome or estimate the likelihood or magnitude of our possible or potential loss contingency.

The complaint alleged 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 sought unspecified damages.

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 was affirmed on April 29, 2024, by the U.S.

Court of Appeals for the Sixth Circuit.

The plaintiffs filed a petition for a writ of certiorari on August 28, 2024 with the U.S.

Supreme Court, which defendants opposed.

The plaintiffs moved to voluntarily dismiss the petition for writ of certiorari and the petition was dismissed on December 6, 2024.

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

6 unchanged sentences

Other comprehensive income (loss) before reclassifications 0.2 3.3 ( 6.9 )

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

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

Other comprehensive income (loss) 0.2 3.3 ( 6.2 )

Ending balance $ ( 2.3 ) $ ( 2.5 ) $ ( 5.8 )

LOSS PER SHARE

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:

EARNINGS (LOSS) PER SHARE

The following table displays the computation of basic and diluted EPS for both Class A and Class B common stock for the years ended December 31, 2024, 2023 and 2022:

For the Years Ended December 31,

1 unchanged sentence

(in millions, except per share amounts)

Net loss $ ( 147.4 ) $ ( 297.7 ) $ ( 521.1 )

Net income (loss) $ 30.9 $ ( 147.4 ) $ ( 297.7 )

Undistributed income allocated to participating securities ( 1.7 ) — —

Net income (loss) attributable to common shareholders 29.2 ( 147.4 ) ( 297.7 )

Weighted-average common shares outstanding:

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

Loss per common share:

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

basic (both Class A and B) 14.9 14.4 14.1

Effect of dilutive securities:

Redeemable convertible preferred stock 0.8 — —

Stock options 0.1 — —

Weighted-average common shares outstanding:

diluted (both Class A and B) 16.9 14.4 14.1

Earnings (loss) per common share (both Class A and B):

Basic $ 1.96 $ ( 10.24 ) $ ( 21.11 )

Diluted $ 1.83 $ ( 10.24 ) $ ( 21.11 )

For the years ended December 31, 2023 and 2022, we operated at a loss and therefore, the conversion of common stock equivalents would increase the denominator of the diluted EPS calculation and create a lower loss per share.

Therefore, these common stock equivalents are considered anti-dilutive and diluted EPS is equal to basic EPS.

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:

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Nonvested shares subject to repurchase

RSUs and PSUs 1.9 1.1 0.5

Redeemable convertible preferred stock (as converted to common stock)

3 unchanged sentences

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

Root Insurance Company and Root Property & Casualty’s statutory capital and surplus as of December 31, 2024 and 2023 and statutory net income (loss) for the years ended December 31, 2024, 2023 and 2022 are as follows:

Statutory Net Income (Loss)

Statutory Capital and Surplus

2024 2023 2022 2024 2023

8 unchanged sentences

Earned surplus is defined under the insurance laws as the amount equal to our unassigned funds as set forth in its most recent statutory financial statements, including net unrealized capital gains and losses.

Additionally, following any dividend, an insurers policyholder surplus must be reasonable in relation to the insurer's outstanding liabilities and adequate for its financial needs.

Additionally, following any dividend, an insurer’s policyholder surplus must be reasonable in relation to the insurer's outstanding liabilities and adequate for its financial needs.

The NAIC Risk-Based Capital, or RBC, model law requires every insurer to calculate its total adjusted capital and RBC requirement to ensure insurer solvency.

2 unchanged sentences

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

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.

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

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Georgia 159.9 12.3 94.3 12.0 62.3 10.4

Colorado 53.6 6.8 40.6 6.8 33.5 4.5

107.4 8.3 16.9 2.2 2.4 0.4

Pennsylvania 74.6 5.7 45.2 5.8 34.9 5.8

Arizona 35.4 4.5 17.1 2.9 23.5 3.2

72.8 5.6 53.6 6.8 40.6 6.8

South Carolina 52.6 4.0 34.4 4.4 20.1 3.4

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

Missouri 22.9 2.9 17.2 2.9 24.7 3.3

50.0 3.8 35.4 4.5 17.1 2.9

49.2 3.8 10.7 1.4 7.7 1.3

36.9 2.8 26.7 3.4 15.1 2.5

33.2 2.6 22.3 2.8 11.8 2.0

All others states 415.2 31.9 309.3 39.6 278.7 46.3

Total $ 1,301.1 100.0 % $ 783.1 100.0 % $ 600.0 100.0 %

and CARET HOLDINGS, INC.

Condensed Combined Financial Information of Registrant

Balance Sheets (Parent Company)

As of December 31,

(in millions, except par value)

Other investments

Cash and cash equivalents

Restricted cash

Investments in subsidiaries

Intercompany receivable

$ 542.4 $ 609.6

Liabilities, Redeemable Convertible Preferred Stock and Stockholders’ Equity

Long-term debt and warrants

$ 200.1 $ 299.0

Accounts payable and accrued expenses

Other liabilities

Total liabilities

Commitments and Contingencies

Redeemable convertible preferred stock, $ 0.0001 par value, 14.1 shares issued and outstanding at December 31, 2024 and December 31, 2023 (redemption value of $ 126.5 )

Stockholders’ equity:

Class A common stock, $ 0.0001 par value, 11.1 and 9.5 shares issued and outstanding at December 31, 2024 and December 31, 2023, respectively

Class B common stock, $ 0.0001 par value, 4.0 and 5.0 shares issued and outstanding at December 31, 2024 and December 31, 2023, respectively

Additional paid-in capital

1,887.9 1,883.4

Accumulated other comprehensive loss

( 2.3 ) ( 2.5 )

Accumulated loss ( 1,681.9 ) ( 1,715.2 )

Total stockholders’ equity

Total liabilities, redeemable convertible preferred stock and stockholders’ equity

$ 542.4 $ 609.6

See Notes to Condensed Combined Financial Statements

and CARET HOLDINGS, INC.

Condensed Combined Financial Information of Registrant

Statements of Operations and Comprehensive Income (Loss) (Parent Company)

For the Years Ended December 31,

2024 2023 2022

(in millions)

Net investment income $ 17.4 $ 21.5 $ 4.5

Net realized gains on investments — — 1.2

Total revenue 17.4 21.5 5.7

Operating expenses:

Sales and marketing 0.4 1.5 11.9

Other insurance expense 4.7 17.8 6.6

Technology and development 23.0 17.3 33.4

General and administrative 8.9 23.4 18.3

Total operating expenses 37.0 60.0 70.2

Operating loss

( 19.6 ) ( 38.5 ) ( 64.5 )

Interest expense ( 42.2 ) ( 46.1 ) ( 34.6 )

Loss on early extinguishment of debt ( 5.4 ) — —

Loss before income tax benefit

( 67.2 ) ( 84.6 ) ( 99.1 )

Income tax benefit

( 12.4 ) ( 1.8 ) —

Net loss before equity net income (loss) of subsidiaries

( 54.8 ) ( 82.8 ) ( 99.1 )

Net income (loss) of subsidiaries

85.7 ( 64.6 ) ( 198.6 )

Net income (loss)

30.9 ( 147.4 ) ( 297.7 )

Other comprehensive income (loss):

Other comprehensive income (loss) of subsidiaries 0.2 3.3 ( 6.2 )

Comprehensive income (loss)

$ 31.1 $ ( 144.1 ) $ ( 303.9 )

See Notes to Condensed Combined Financial Statements

and CARET HOLDINGS, INC.

Condensed Combined Financial Information of Registrant

Statements of Cash Flows (Parent Company)

For the Years Ended December 31,

2024 2023 2022

(in millions)

Cash flows from operating activities:

Net cash (used in) provided by operating activities

$ ( 43.2 ) $ ( 89.1 ) $ 205.9

Cash flows from investing activities:

Sales of investments

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

Capitalization of internally developed software ( 11.4 ) ( 9.2 ) ( 8.8 )

Purchases of fixed assets ( 0.4 ) ( 0.2 ) —

Dividends from subsidiaries

Investment in subsidiaries ( 23.3 ) ( 44.8 ) ( 360.9 )

Net cash used in investing activities ( 10.1 ) ( 54.2 ) ( 369.7 )

Cash flows from financing activities:

Proceeds from exercise of stock options and restricted stock units

Taxes paid related to net share settlement of equity awards ( 15.1 ) ( 1.1 ) ( 1.0 )

Payment of preferred stock and related warrants issuance costs

( 3.0 ) ( 3.0 ) ( 3.0 )

Proceeds from issuance of debt and related warrants, net of issuance cost

134.4 — 286.0

Repayments of long-term debt ( 237.1 ) — —

Net cash (used in) provided by financing activities

( 120.7 ) ( 4.1 ) 283.3

Net (decrease) increase in cash, cash equivalents and restricted cash

( 174.0 ) ( 147.4 ) 119.5

Cash, cash equivalents and restricted cash at beginning of year 405.4 552.8 433.3

Cash, cash equivalents and restricted cash at end of year $ 231.4 $ 405.4 $ 552.8

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.

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 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 U.S.

All intercompany accounts and transactions have been eliminated.

These financial statements have been combined in order to present comparative parent company financial statements for 2024, 2023 and 2022 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.

Statement of Cash Flows — The supplemental disclosures for cash and non-cash flows for the years ended December 31, 2024, 2023 and 2022 are as follows:

2024 2023 2022

(in millions)

Supplemental disclosures:

Interest paid $ 43.9 $ 42.5 $ 24.5

Federal income taxes paid — — —

Leasehold improvements - non-cash — — 0.9

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 $ 230.4 $ 404.4

Restricted cash 1.0 1.0

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

$ 231.4 $ 405.4

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, 2024, 2023 and 2022

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

(in millions)

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

Year Ended December 31, 2023

Valuation allowance for deferred tax assets $ 322.3 $ 34.9 $ ( 0.8 ) $ — $ 356.4

Allowance for premium receivables $ 2.8 $ 12.5 $ — $ ( 11.3 ) $ 4.0

Allowance for reinsurance recoverables $ 0.2 $ 1.6 $ — $ — $ 1.8

Year Ended December 31, 2024

Valuation allowance for deferred tax assets $ 356.4 $ — $ — $ ( 10.5 ) $ 345.9

Allowance for premium receivables $ 4.0 $ 34.1 $ — $ ( 28.3 ) $ 9.8

Allowance for reinsurance recoverables $ 1.8 $ ( 0.5 ) $ — $ ( 1.2 ) $ 0.1

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