• Gross Premiums Written: $1.3 billion.
• GAAP Net Income: $31 million for the full year 2024.
• Adjusted EBITDA: $112 million for the full year 2024.
• Policies in Force: Grew by 21% year over year to more than 414,000.
• Gross Loss Ratio: 59% for the full year 2024.
• Gross Combined Ratio: 95% for the full year 2024.
• Net Income (Q4): $22 million, a $46 million improvement year over year.
• Operating Income (Q4): $35 million.
• Adjusted EEA (Q4): $43 million.
• Gross Accident Period Loss Ratio (Q4): 61%, a two-point improvement year over year.
• Gross Combined Ratio (Q4): 91%, a 19% improvement year over year.
• Reinsurance Costs: Reduced due to improved underwriting results.
• Interest Expense Reduction: Expected to reduce by approximately 50% in 2025 due to debt refinancing.

• Warning! GuruFocus has detected 4 Warning Signs with ROOT.

Release Date: February 26, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Root Inc (NASDAQ:ROOT) achieved its first full year of net income profitability in 2024, with a GAAP net income of $31 million.
• The company reported a gross combined ratio of 95 and a gross loss ratio of 59%, indicating strong underwriting performance.
• Policies in force grew by 21% year over year, reaching over 414,000, showcasing significant customer base expansion.
• Root Inc (NASDAQ:ROOT) successfully reduced its run rate interest expense by more than 50% and reinsurance costs, enhancing financial efficiency.
• The company expanded its partnership channel, with new writings through this channel representing roughly a third of overall new business.

Negative Points

• Despite profitability, Root Inc (NASDAQ:ROOT) acknowledges that lower rates could lead to improved renewals but may not necessarily gain market share.
• The company faces potential pressure on average premiums due to modest rate decreases, which could affect revenue growth.
• Root Inc (NASDAQ:ROOT) does not defer the majority of customer acquisition costs, leading to accelerated expense recognition relative to earned premium.
• There is uncertainty around macroeconomic factors and potential impacts from tariffs, which could affect future financial performance.
• Increased competition in the market could pose challenges to maintaining current growth and profitability levels.

Q & A Highlights

Q: With some geographies and customer segments allowing for selective rate decreases, what do you expect to be the direction of the premium for policy in the year ahead? A: Alex Timm, Co-Founder & CEO: We expect to file for modest rate decreases, which may apply pressure to average premiums. However, as we grow our independent agency and partnership channels, which typically have longer retention and more vehicles per policy, the average premium per policy may remain relatively flat or modestly increase.

Q: Is the fourth quarter's mid-single-digit session rate on your premium a good run rate going forward? A: Megan Binkley, CFO: Yes, the reinsurance structure has evolved with improved underwriting results, reducing quota share sessions. We expect session levels to remain materially consistent with the fourth quarter's 9% of earned premium.

Q: Can you share any data points on retention levels for recent cohorts? A: Alex Timm, Co-Founder & CEO: While we won't share specific data points, we've seen the hyper-growth penalty from 2023 to 2024 abate and normalize, providing a tailwind for policy growth. Retention remains fairly consistent.

Q: With loss ratios trending below the 60-65% target, where do you expect the loss ratio to settle with rate reductions? A: Alex Timm, Co-Founder & CEO: We project a low to mid-single-digit loss trend for 2025. While slight rate decreases may lead to slight increases in the loss ratio, we don't expect any material changes.

Q: How do you view earnings trends for 2025 given recent positive earnings? A: Alex Timm, Co-Founder & CEO: We manage the company based on lifetime value rather than quarterly earnings. While we see opportunities for growth through partnerships and state expansion, short-term investments may pressure quarterly earnings, but they are the right long-term investments.

Q: Are you predicting any impacts from tariffs in 2025? A: Alex Timm, Co-Founder & CEO: We are not currently predicting impacts from tariffs. However, our technology platform allows us to detect and respond to changes quickly, positioning us well against competitors if disruptions occur.

Q: How is ad spend shifting in 2025 between brand awareness and performance marketing? A: Alex Timm, Co-Founder & CEO: We are increasing investment in acquisition spend, focusing on mid to upper funnel channels like YouTube and direct mail, but not on brand awareness. We apply the same technology and discipline to ensure returns on investment.

Q: Where are you seeing better returns between the direct and partnership channels? A: Alex Timm, Co-Founder & CEO: Both channels are operating at target returns. The direct channel has lower acquisition costs but upfront expenses, while the partnership channel offers longer retention and higher premiums, with costs spread over time. We are investing in both.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.