Greetings, and welcome to the Root, Inc. Fourth Quarter Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the call over to Matt LaMalva, Head of Investor Relations and Corporate Development. Please go ahead, sir.

Good afternoon, and thank you for joining us. Root is hosting this call to discuss its fourth quarter and full year 2025 earnings results. Participating on today's call is Alex Timm, Co-Founder and Chief Executive Officer; Jason Shapiro, Senior Vice President of Business Development; and Megan Binkley, Chief Financial Officer. Earlier today, Root issued a shareholder letter announcing its financial results. While this call will reflect items within that document, for more complete information about our financial performance, we also encourage you to read our full year 2025 Form 10-K. Before we begin, I want to remind you that matters discussed on today's call will include forward-looking statements related to our operating performance, financial goals and business outlook, which are based on management's current beliefs and assumptions. Please note that these forward-looking statements reflect our opinions as of the date of this call, and we are not obligated to revise this information as a result of new developments that may occur. Forward-looking statements are subject to various risks, uncertainties and other factors that could cause our actual results to differ materially from those expected and described today. For a more detailed description of our key performance indicators and risk factors, please review our most recent 10-K and shareholder letter. A replay of this conference call will be available on our website under the Investor Relations section. I would also like to remind you that during the call, we will discuss some non-GAAP measures while talking about Root's performance. You can find reconciliations of these historical measures to the nearest comparable GAAP measures in our financial disclosures, all of which are posted on our website at ir.joinroot.com. I will now turn the call over to Alex.

Thanks, Matt. 2025 was another strong year for Root. We grew revenue by 29% and our net income by 30%, exiting the year in the strongest position in the company's history. These are standout results in any year, but particularly in 2025. This is a testament to the strong foundation that Root has built to deliver throughout cycles. With $1.5 billion in premiums, exceptional financial performance and a strong balance sheet, we have put in the hard work, time and investment to be in the enviable position to drive profitable and material growth in our business, and we are doing this in a $350 billion auto market. Furthermore, our technology has given us a structural advantage and positioned us since our founding to lead in the adoption of AI-driven pricing and automation. As a company whose founding principles lie at the heart of AI, namely the advancements of modern quantitative methods, we are able to take advantage of an increasingly connected world and we are seeing this come through the numbers. In the last 12 months, we increased our LTVs by more than 20% on average by just doing better math. While we believe that automation via robotic process automation and chatbots will be important to our operating leverage, our data suggests that this opportunity pales in comparison to the relative enormity of leveraging next-generation quantitative machines to the fundamental problem of insurance that is prediction. And our technology advantage doesn't end there. As technology and consumer behavior rapidly shifts and expectations rise, insurance distribution is now increasingly a technology problem. In the past, distribution first relied on appointing the right exclusive agents in local areas. Then as the direct channel grew, it moved to inundating customers with ads. Today, whether it's integrating with new consumer-facing GPTs, financial services apps…

Thanks, Alex. I'd like to spend a few minutes on our partnerships channel, what we've built, why it matters and why we believe it represents a durable competitive advantage for Root. Over the past 2 years, we have built a partnerships business that was nearly half of overall new writings in the fourth quarter and is achieving our profitability and loss ratio target. That growth has been delivered. It's the result of a focused strategy to diversify distribution and solve what we believe is fundamentally a technology problem inside the insurance industry. For years, the idea of embedded insurance has been promised in the industry. The idea is simple, meet customers where they are and make insurance easy. But in practice, much of the industry stopped at surface level integrations, public APIs, referral links or marketing announcements labeled as partnerships. That is not what we mean when we say Root is in the partnerships business. A true partnership requires a shared vision, deep technical integration, aligned incentives, ongoing optimization and measurable impact for both companies and their customers. It requires scale, regulatory breadth and a modern technology stack capable of solving real operational complexity. That is where Root is differentiated. We operate in 36 states, representing roughly 80% of the U.S. population. We have a full stack digital platform with a comprehensive suite of APIs that enable quoting, underwriting, binding, servicing and telematics, all configurable to a partner's native environment. That combination of scale plus modern infrastructure is rare in our industry and extremely difficult to replicate. Let me give you a few examples. With Carvana, we are deeply embedded in their purchase flow. Customers can quote and buy an insurance in 3 clicks and as little as 30 seconds without ever leaving the Carvana experience. This is not a…

Thanks, Jason. Turning to financial performance. We concluded 2025 with exceptional underwriting, a strong capital position and record net income. This foundation positions us to accelerate growth and invest further into our business, all while maintaining the disciplined unit economics that underpin our long-term success. In the fourth quarter, we grew gross written premium and gross earned premium by 9% and 14% year-over-year. We achieved this growth while generating net income of $5 million, a decrease of $17 million year-over-year. In the fourth quarter, we also delivered operating income of $11 million and adjusted EBITDA of $29 million, a $24 million and $14 million decrease year-over-year, respectively. The year-over-year decreases reflect deliberate investments in partnership acquisition and direct R&D marketing as well as a modest increase in loss ratio due to elevated seasonality. We accelerated policies in force growth by more than double the pace of the fourth quarter of 2024. For the full year 2025, we grew our gross written premium and gross earned premiums by 16% and 19%, respectively. We generated net income of $40 million, an increase of $9 million year-over-year. In 2025, operating income was $62 million and adjusted EBITDA was $132 million. This compares to 2024 operating income of $79 million and adjusted EBITDA of $112 million. We are incredibly proud of achieving record net income in 2025. This momentum reflects the durability of our unit economics and our continued discipline in managing fixed expenses. We ended 2025 with $312 million of unencumbered capital and maintained an excess capital position across our insurance subsidiaries. We are well capitalized as we focus on accelerated growth and believe continued execution will further reduce our cost of capital over time. Looking ahead to the first quarter of 2026, on the growth side, we expect to see elevated shopping…

[Operator Instructions] And we'll take a question from Tommy McJoynt with KBW.

The first one here is regarding your anticipation for accelerating PIF growth in 2026. In the shareholder letter, you talked about the 5 different growth drivers. Should we think of those as sort of the ranking that you were thinking about in terms of what's going to be most impactful to drive PIF growth?

Yes. Thanks, Tommy. I wouldn't say that those are necessarily in order. I will say pricing, which is really the first lever that we listed, that's going to be and continue to be the tide that lifts all ships, right? As we get better at pricing, we really see that hit both our direct channel and our independent agent channel. So -- and similarly, as we expand geographies, that will open up, again, more growth opportunities for our direct machine as well as our independent agent machine and our partner machine. So all of those are really intimately linked to one another, and they actually have a really nice way that they work together. Independent agents, of course, has been our fastest-growing channel to date. It's more than tripled year-over-year in new writings. And again, we're in about 10% of appointed agents nationwide. And so that, we think, has a really strong growth opportunity that we are executing on currently and is going really well for us. And then on the connected vehicle ecosystem, we're really excited about the announcement that we're sharing with Toyota. We think we're just getting started there. Those might take a little bit longer to get to scale as we crawl, walk, run through those integrations and those strategies similar to what you saw with Carvana. And then on our direct machine, we're continuing to optimize that. That's grown -- we've grown our direct new writings really well for the last 3 quarters straight as we've continued to optimize that machine. So I think you're going to see real positive progression across all of those. And as each one begins to execute, it has positive impacts on all of the others. So that's really what I'd expect.

You also mentioned a willingness to see average premium per policy come down a little bit as you price risk more accurately, and that can help with retention. Do you have an expectation for the magnitude that we could see the average premium per policy come down? It's decelerated pretty decently over the past year. I just want to get a sense of where that could go terminally.

Yes. Again, we're -- really what's driving this is as we've been better and better at segmenting risk, which we're rapidly getting better at through our AI and ML pricing models. As we continue to refine those, we're finding the ability to actually continually lower prices for our customers while continuing to post strong net income and strong loss ratios. And that's really the beauty of the model. We believe long term that actually creates a moat around our customers because we're continually expanding our pricing advantage in the market. And again, price is the #1 reason a consumer purchases insurance and chooses a particular carrier. It's also the #1 reason they leave. So as we do that, we believe that we're continuing to build a structural advantage into the business. We still have our new model out there. Some are still renewing on to that model. And so you might see a slight decrease in average premiums through the first quarter, but we think it will probably normalize thereafter.

Yes. And then, Tommy, if I could just layer on to that. Alex talked about the increases that we're expecting in terms of growth on a year-over-year basis. Keep in mind that is going to translate into an increase in acquisition investments throughout 2026. And keep in mind also that as we continue investing in the partnership and IA channel, you're going to see that growth translate to increased acquisition expense through other insurance expense line item. And then we are also planning to continue scaling our direct channel, which shows up in the sales and marketing line item.

Next, we'll move to Andrew Andersen with Jefferies.

This is Charlie on for Andrew. I want to start kind of just more broadly with a question regarding the OEM partnerships in general. What exactly is the data that you guys are receiving and pricing based on? Is it more behavioral telemetry data? Or do you also kind of look at whether or not autonomous or ADAS features are enabled or how often they're enabled? And I guess, just a better look at what kind of data you'll be getting from these sorts of partnerships and what you are either able to or plan to price on with that?

Thanks, Charlie. It's really dependent on each individual OEM. And so we've now partnered with several OEMs, and they all have their own strategies. Some OEMs have publicly available APIs that you can -- really any company can integrate with, which is simple consumer consent. Others require more deeper integrations. And through these integrations, all of the data is different depending on what vehicle model you're dealing with. you, of course, get the basic telemetry data from pretty much all of these, but then you're increasingly getting access to more data than that. And so that includes both ADAS features as well as autonomous features. And as that data continues to progress, it's still changing. So we are also seeing actually additional data features being added to a lot of this as the vehicle technology is changing. And really, what we're doing is we're using all of that. So we pull in as much data as we possibly can from every OEM. We actually work very closely with these OEMs, too, in terms of the specific data that we're getting and that we can get access to proactively actually see if we can get even more data off of these vehicles, but we're using all of that data to really make sure that our models are appropriately fit to each specific model and OEM because it's very, very important. Again, all of these are very different. And so that's really what we're getting. Some OEMs, the other nuance here, some OEMs will give you data on a consumer in the past. And so you download the Root app and we can see that we have driving data on you and we can immediately give you an insurance quote with telematics involved. Others will only do streaming and only have streaming capabilities on a go-forward basis. And so you've really got to have a flexible system that understands the nuance between every single OEM in order to successfully use this data.

And then I guess just looking at the overall pricing environment for the industry, right, we're looking at pricing has been moderating for some time now. It's likely to turn negative pretty soon for the industry. I know you guys are talking about accelerating PIF and also trying to compete on price as well. But how are you kind of prioritizing retention versus new business acquisition? And maybe how does that look different within the different channels? And I guess just kind of looking at retention, what levers aside from pricing, I suppose, are your kind of key ones within those 5 for improving retention rather than growth?

Absolutely. So yes, I would say we saw and we've continued to see increased competition really over the past year, and you still saw us grow impressively. I had just mentioned over the last 3 quarters, despite the increase in competition, we were still able to grow new writings even in the direct channel. And so -- and that's just through continuing to refine our models within marketing. And so we still believe that we can grow the company actually across cycles, which is important to note. On retention, the first and the biggest driver of retention is customer profile. And there, what we're doing is we're making sure that we're appropriately priced really across the spectrum from really preferred business all the way to more nonstandard business. As well as showing up where all of these different segments are shopping for insurance. And so if that's in independent agents, for example, we see a different customer mix come through there than we do on the direct business. And so that's one of the biggest needle movers to driving retention is making sure that we're targeting the right distribution channels. From there, of course, price is important. And then the third I would say is our product features. We're constantly working to make our product more flexible for customers, whether that's flexible billing schedules, whether that's different grace periods. And so we're actively working there to continue to improve retention, and we've seen good results.

Okay. And then if I could just quickly slip one last one in. What kind of assumptions are you guys embedding in your pricing for 2026 regarding loss cost inflation?

Right now, we're in roughly a low single-digit probably net trend environment. And so that's really where we're thinking we're going to end up.

And next, we'll move on to Andrew Kligerman with TD Securities.

My first question, I guess, Megan kind of talked about the kind of targeted 60 to 65 accident year loss ratio and kind of in the fourth quarter came squarely in between that. Just looking through 2026, '27, how do we think about the -- and Megan talked about investing in various areas. How do we think about that 30 to [ 35 ] expense ratio, where does that kind of settle out? I guess it kind of bumps from quarter-to-quarter. And are you on a combined ratio basis kind of looking to -- I think you've said in the past, 100 or maybe slightly even higher than 100 is sort of a going combined. So maybe you can help me think through the time line for that.

Yes. Thanks, Andrew. It's a good question. As we think about the loss ratio expectations in 2026, I think it's important to keep in mind that, as you mentioned, our long-term loss ratio target is between 60% and 65%. On a full year basis, we've been operating below that for quite some time now, both in 2024 and in 2025. So as we look to accelerate new business growth in 2026 and as we expand our distribution channels with more new business, that mix is naturally going to carry a higher loss ratio than the renewal business, though we do still expect to remain within our long-term loss ratio targets. On the expense ratio side, when we think about operating expenses, we really think about them in 2 main components. The first one being acquisition expense. So you can expect that as we continue our investments into growth in 2026 consistent with what you saw in both 2024 and 2025, we're going to continue to spend from an acquisition perspective. We're comfortable increasing that spend as long as we continue to meet our unit economic or profitability targets. The acquisition expense really mainly runs through sales and marketing and other insurance expense. And I think I hit on this earlier, as we continue to invest in the partnership and independent agent channel, then you're going to see more acquisition expense actually show up in other insurance expense. And then lastly, on the fixed expense cost, we do expect that our fixed expense will remain relatively flat as a percentage of gross earned premium. When you compare 2025 to 2026, we are continuing to make targeted investments in our product and our technology as we look to scale our proprietary platforms and distribution channels. Important to note that most of our technology and talent costs really roll up into your tech and dev and G&A line item. And as we think about these line items as a percentage of GEP, you can expect some consistency in 2026 as you saw in 2025. I hope that answers your question.

Yes. And just to kind of round it out, so it sounds like that kind of puts you somewhere around 100 combined. Is that right?

Yes. We think about it more in terms of specific investments that we're making in 2026. And we don't necessarily want to give a guide for a specific combined ratio, particularly given the way that we manage the direct marketing expense. If we identify opportunities to push into growth, particularly indirect, we're certainly going to do that. So you could see the combined ratio increase in certain quarters, really driven by our appetite for growth.

Understood. And I guess next question is around independent agents. It sounds like you've got some really robust opportunity there. Of course, maybe in the last couple of weeks, investors have assumed that the independent agency channel is going to die because AI is going to completely displace it. So I'm kind of -- I'm intrigued by your interest in growing in the independent channel and how you think AI will affect that channel going forward?

Yes. I think -- well, one, first, I'd say, if I take a step back, there's $100 billion of premium today going through independent agents. So it's roughly 1/3 of the market. If I go back, by the way, 10 years ago, it was 1/3 of the market. If I go back 50 years ago, it was roughly 1/3 of the market. And so the independent agents have had material staying power. And the way they've done that is actually through evolving their businesses. And we're still seeing that today. We actually have 2 partners, both of which function as independent agents that are actually already live within ChatGPT and generating effectively quotes. And we are there and we are live and we're doing that. I think Google, a lot of independent agents still advertise on Google. So I think what you're going to see is consumers will continue to move, but a lot of what's going to happen is you're going to see companies continue to adapt. I think things like chatbots and those types of experiences are going to become commoditized. And that's where you're going to see, I think, AI really play a big role, at least in terms of distribution. But we don't necessarily -- we think that, that's actually a much smaller opportunity compared to the opportunity to actually apply a lot of the underlying advancements in really prediction sciences that are underlying a lot of these LLMs that sure might be used for predicting the next word in a sentence, but that can now be used actually directly to predict also who's going to get into an auto accident and who's not. And what we've seen is that, that opportunity is far, far larger. And it's based on -- importantly, it's based on really…

And next question, we'll hear from Christian Getzoff with Wells Fargo.

My first question is on the accelerating annual PIF growth. So that's versus the 16.2% uptick we saw in 2025. I guess how much of that accelerating growth is based off improving retention, just given your lower pricing and just lower rates across the industry? Or is the vast majority of that accelerating growth going to stem from the IA channel growth and the national footprint expansion?

Yes. Thanks, Christian. Our goal in 2026 is to invest in growth across all of our channels. We are expecting on a year-over-year basis that we're going to grow our gross written premium, our PIF and our premium and in force. And that's really building and compounding on our pricing advantage that Alex talked about earlier. One thing I do want to highlight, as we think about sequential quarter growth and going into Q1, thus far, we have continued to see sequential PIF growth from Q4 to Q1. And we do expect to continue investing in profitable growth across both of our distribution channels in 2026. But as we look back to this time last year, and I hit on this in my prepared remarks, one thing I just want to caution is Q1 of 2025 was an exceptionally strong growth quarter for us. And that was really driven by -- in part by tariff-related pull forward and shopping activity. So it will be tough to do a year-over-year comparison Q1 to Q1. But to be clear, overall, we are continuing to invest in growth, and we expect to have annual PIF growth year-over-year.

Got it. And then for my second question, we've seen a few direct autonomous solution insurance partnerships announced in recent months. And I guess, how should we think about the premium per policy for an AV vehicle versus a non-AV vehicle over the long run as we've seen some aggressive price cuts on that cohort given the lower frequency. But I'm guessing with your new OEM partners, you've seen some of the loss cost data already on it. And I know -- I recognize it's premature, but do you see a large drop-off in premiums per policy in the long run? for this cohort or higher severity will be a larger offset than the lower frequency?

So first, I think it's important to note where we are. And where we are right now is we are still seeing a lot of those vehicles that have fully autonomous continuing to have loss costs rise. And so we are still seeing a healthy amount of increase and positive trend. And so we haven't yet seen sort of the crest of that where suddenly average premiums are coming down materially. That said, our belief is certainly that vehicle technology is going to continue to progress and that as that vehicle technology progresses, it is, of course, much cheaper. A lot of these fully autonomous vehicles are getting materially fewer accidents, often 80% to 90% fewer accidents than human-driven vehicles. It's important that not all of that technology is created equal as well. And so whether there's LiDAR on the car or whether there's just camera technology, all of this impacts -- by the way, when that technology is used, is it being used through a city street or is it being used on the highway. If you just sort of naively apply any sort of pricing adjustment to that, it will actually erode your predictiveness. And so you've got to be really nuanced in the way that you, again, use this data. We do believe over time, what this will do as autonomous vehicles become more prolific, we will then be well positioned with these partnerships that we have with OEMs to ensure these vehicles. And as we ensure those vehicles, whether that turns into product liability coverage or whether that turns into personal coverage, by the way, we think there will be a hybrid world for a very, very long time where sometimes it will be personal liability, sometimes it will be product liability, but I think the important part is through our embedded platform where we have a clear lead in the market and through our deep OEM relationships, we are really positioned at the forefront to allow and to help and assist these OEMs really see their strategies through and to help execute their strategies as that continues to move forward. And we're really excited for that because we think we're probably the best positioned in the industry to do so.

And there are no more further questions at this time. This does conclude today's teleconference. We thank you for your participation. You may now disconnect your lines at this time.