Root, Inc. 2Q 2024 Letter to Shareholders

Dear Shareholders

Our team delivered another strong quarter in Q2, as we again demonstrated our ability to drive toward sustained profitability. We nearly quadrupled total revenue year-over-year, continued to grow policies-in-force, delivered operating income of $4 million, net loss of $8 million, adjusted EBITDA of $12 million, and achieved our fourth consecutive quarter of positive operating cash flow.

As we continue to invest across our three strategic pillars-pricing and automation, differentiated distribution, and building a product customers know and love-we have proof points that our approach is unique and our foundation for profitable growth is strong. Our goal remains to build the largest, most profitable personal lines insurance carrier in the U.S. The confidence in our ability to execute against this vision strengthens with each quarter of marked progress.

Q2 2024 Highlights

All figures are compared to Q2 2023 unless otherwise stated.

• Policies-in-forcenearly doubled to 406,283
• Gross premiums written increased 113% to $308 million
• Gross premiums earned increased 134% to $308 million
• Gross premiums earned cession rate decreased 36 points to 15%
• Renewal premium was 45% of gross premiums earned

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Letter to Shareholders: Q2 2024

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Key quarterly metrics

Growth

Since our founding nearly a decade ago, Root has built a formidable business model that has translated to some of the best loss ratios in the industry, a healthy capital position, and a culture of discipline and rigor. With this foundation in place, we are focused on delivering sustainable and profitable growth over the long term. We are doing this through our Direct channel, where we target consumers with a great insurance product at a great price, and through our Partnership channel, where we meet consumers with our offering at contextually relevant times such as the car purchasing experience.

Our Direct marketing machine leverages data science and our modetechnology stack to measure marketing efficiency at very granular levels. Through constant monitoring, we can optimize retuon marketing investment to adapt to seasonal trends and changes in competition. As anticipated, during the quarter, we saw competition increase in our marketing channels, and our data-science machine reacted quickly and exactly as designed, delivering new business at our estimated retutargets.

This is core to our growth strategy and allows us to take advantage of opportunities as they arise by leveraging our machine learning and data science acumen. Currently, we are predominantly focusing on lower-funnel search channels and are experimenting and expanding into mid- and upper-funnel channels, leveraging our data science advantage.

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Letter to Shareholders: Q2 2024

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Our Partnership channel serves as an increasingly strong ballast to our Direct channel and an important part of Root's long-term growth strategy. We have built a technology platform that facilitates seamless, native integrations and allows for a simple insurance purchasing experience in as little as three clicks. This is accomplished through easy-to-use APIs that allow partners to get up and running with Root quickly. We have more than a dozen partners and a strong pipeline of opportunities-including both direct integrations and independent agents-that we believe will continue to support growth in this channel. We're excited to share more details on our agent partners in the coming weeks.

Partnerships as a Percentage of New Writings

In support of growth in all of our distribution channels, we continue to work toward national expansion through recent state filings. We currently write business in 34 states and are working diligently to expand our footprint.

Pricing and Underwriting

As mentioned, a key pillar in Root's strategy is best-in-class pricing and automation. This means superiority in matching price to risk. We know price is the number one reason a customer chooses a car insurance company, and it is the number one reason they leave. Our modetechnology and data science approach allows us to leverage machine learning and the rapid deployment of models to fine tune our prices and drive further targeted growth in our business. By monitoring our loss ratios through our automated reserving models, we can quickly update our pricing and underwriting requirements at a granular level to strike a balance between offering a competitive price and achieving target unit economics.

Our pricing and underwriting engine not only allows for rapid advancements in machine learning based segmentation, but is also extremely flexible and a critical component of our distribution strategy. As we expand distribution channels and partners, we can absorb various sources of data on a single platform to price policies fairly, and profitably, and compound our flywheel effect.

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Letter to Shareholders: Q2 2024

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Loss ratio remains the most important metric in measuring insurance company performance and we continue to successfully deliver strong loss ratios, achieving a 62% gross accident period loss ratio in the second quarter of 2024.

Gross accident period loss ratio

Financials

This was another strong quarter with sustained performance on unit economics, underwriting outcomes, and expense management. Net loss improved 79% year-over-year to $8 million. We also delivered operating income of $4 million, a $29 million improvement year-over-year, and adjusted EBITDA of $12 million, a $24 million improvement year-over-year. Our strong results were driven by targeted marketing investments, loss ratio performance, and a scalable fixed expense base.

The evolution of our reinsurance strategy continues to benefit results through increased retention, lower reinsurance costs, and adequate catastrophe protection. We reduced the difference between our gross and net loss and LAE ratios to 2 points for the quarter, a reduction of 16 points year-over-year.

Unencumbered capital at the end of the quarter was $447 million, reflecting quarterly unencumbered cash consumption of $35 million due to capital contributions to fund growth in our insurance subsidiaries, tax liability associated with the vesting of employee equity awards driven by the market value appreciation of our Class A common stock, which we previously noted would occur, and customer acquisition investment. Operating GAAP cash flow was positive for the fourth consecutive quarter due to continued growth and loss ratio performance.

As our results improve, we continue to evaluate our cost of capital and how to optimize our capital structure while maintaining appropriate regulatory capital levels.

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Letter to Shareholders: Q2 2024

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Net Loss and Adjusted EBITDA ($M)

*Reconciliation from Net Loss to Adjusted EBITDA disclosed below.

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Letter to Shareholders: Q2 2024

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Looking Forward

We are approaching our near-term target of net income profitability and continue to be excited by the prospect for sustainable, profitable growth as we apply our technology advantage to our marketing channels and a wide array of partners across our distribution channels. Most importantly, we continue to focus on our customer, offering a great insurance experience at a great price.

Thank you to our employees for their hard work, to our customers for their trust, and to our shareholders for their support.

Alex Timm

Co-Founder & CEO

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Letter to Shareholders: Q2 2024

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Non-GAAP financial measures

This letter and statements made during our earnings webcast may include information relating to Direct Contribution and Adjusted EBITDA, which are "non-GAAP financial measures" and are defined below. These non- GAAP financial measures have not been calculated in accordance with generally accepted accounting principles in the United States, or GAAP, and should be considered in addition to results prepared in accordance with GAAP and should not be considered as a substitute for, or superior to, GAAP results.

In addition, Direct Contribution and Adjusted EBITDA should not be construed as indicators of our operating performance, liquidity, or cash flows generated by operating, investing and financing activities, as there may be significant factors or trends that they fail to address. We caution investors that non-GAAP financial information, by its nature, departs from traditional accounting conventions. Therefore, its use can make it difficult to compare our current results with our results from other reporting periods and with the results of other companies.

Our management uses these non-GAAP financial measures, in conjunction with GAAP financial measures, as an integral part of managing our business and to, among other things: (1) monitor and evaluate the performance of our business operations and financial performance, (2) facilitate internal comparisons of the historical operating performance of our business operations, (3) facilitate external comparisons of the results of our overall business to the historical operating performance of other companies that may have different capital structures and debt levels, (4) review and assess the performance of our management team, including when determining incentive compensation, (5) analyze and evaluate financial and strategic planning decisions regarding future operating investments, and (6) plan for and prepare future annual operating budgets and determine appropriate levels of operating investments.

For more information regarding the non-GAAP financial measures discussed in this release, please see "Non-GAAP financial measures," "Reconciliation of Total Revenue to Direct Contribution" and "Reconciliation of Net Loss to Adjusted EBITDA" below and in Root's Quarterly Report on Form 10-Q at http://ir.joinroot.com or the SEC's website at www.sec.gov.

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Letter to Shareholders: Q2 2024

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Defined Terms & Glossary

We utilize the following definitions for terms used in this letter.

Direct Contribution

We define direct contribution, a non-GAAP financial measure, as gross profit/(loss) excluding net investment income, net realized gains (losses) on investments, report costs, commission expenses related to our partnership channel, certain warrant compensation expense related to policies originating through the integrated automobile insurance solution for Carvana's online buying platform, overhead allocated based on headcount, or Overhead, and salaries, health benefits, bonuses, employee retirement plan-related expenses and employee share-based compensation expense, or Personnel Costs, licenses, professional fees and other expenses, ceded premiums earned, ceded loss and LAE, and net ceding commission and other. Net ceding commission and other is comprised of ceding commission received in connection with reinsurance ceded, partially offset by amortization of excess ceding commission, and other impacts of reinsurance ceded, which are included in other insurance expense. After these adjustments, the resulting calculation is inclusive of only those gross variable costs of revenue incurred on the successful acquisition of business. We view direct contribution as an important metric because we believe it measures progress towards the profitability of our total policy portfolio prior to the impact of reinsurance.

Adjusted EBITDA

We define adjusted EBITDA, a non-GAAP financial measure, as net loss excluding interest expense, income tax expense, depreciation and amortization, share-based compensation, warrant compensation expense, restructuring charges, legal fees and other items that do not reflect our ongoing operating performance. After these adjustments, the resulting calculation represents expenses directly attributable to our operating performance. We use adjusted EBITDA as an internal performance measure in the management of our operations because we believe it provides management and other users of our financial information useful insight into our results of operations and underlying business performance. Adjusted EBITDA should not be viewed as a substitute for net loss calculated in accordance with GAAP, and other companies may define adjusted EBITDA differently.

Encumbered Capital

We define encumbered capital as cash and cash equivalents held within our regulated insurance entities.

Unencumbered Capital

We define unencumbered capital as unrestricted cash and cash equivalents held outside of our regulated insurance entities.This amount includes borrowed funds that are subject to certain minimum liquidity covenants.

Distribution Channels

• Direct: seamless experiences driven by performance marketing and organic traffic connecting consumers directly to the product.

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Letter to Shareholders: Q2 2024

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• • Digital. Our direct digital channel is designed to drive volume by efficiently capturing high-intent customers. We accomplish this by meeting our customers within platforms they use extensively such as Google or select marketplace platforms where consumers are actively shopping for insurance. We deploy dynamic data science models to optimize targeting and bidding strategies across our digital platforms, aligning customer acquisition cost to expected lifetime value of the potential customer.
  • Referral. We encourage our existing customers to spread our value proposition. Our referral channel compensates existing customers who refer new customers who subsequently complete a test drive. This channel facilitates community-based growth to those who value our fair and transparent approach to insurance. This is our lowest cost acquisition channel and an important aspect of our ongoing distribution strategy.
  • Channel Media. We build consideration and drive intent through household-level targeted media channels including direct mail, billboards, and regional TV and radio. We utilize these media channels to drive awareness when launching in new markets and to actively target customers in active states.
• Partnerships: a wide array of integrations, spanning early-stage marketing partnerships through fully embedded user experiences.
• • Embedded. We build upon the mobile and web customer experiences of distribution partners to reach a captive customer base with an embedded solution. With varying levels of connectivity, including our proprietary and fully-integrated application programming interfaces, or APIs, we are able to engage high intent prospective customers in contextually relevant third-party applications. While these partnerships take time to onboard and launch, over the long term, we believe our flexible technology stack offers a seamless bind experience, creating a differentiated customer experience in this channel. We expect increased penetration of this channel over time as we seek to grow embedded relationships with other tech-enabled companies with relevant customer bases.
  • Agency. We continue to invest in a product to bring the speed and ease of our technology to the independent agency channel. This channel provides access to a larger demographic of customers and we believe it has staying power. We developed an efficient quote and bind process through our agent platform that enables simplified distribution from agents to their customers. The technology driven approach makes this an appealing platform for agents and an efficient acquisition channel for us.

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