Lemonade(LMND) - 2025 Q1 - Quarterly Results

Q1 2025 Performance Highlights This section provides an overview of Q1 2025 performance highlights Letter to Shareholders & Executive Summary The first quarter of 2025 demonstrated strong performance, characterized by accelerating growth in In Force Premium (IFP) and Revenue, alongside stable loss ratios. Despite a significant impact from the California Wildfires, the company's results were in line with guidance, and it remains on track to achieve positive Adjusted EBITDA before the end of 2026 | Metric | Q1 2025 Value | YoY Growth | Note | | :--- | :--- | :--- | :--- | | In Force Premium (IFP) | $1,008 million | 27% | Sixth consecutive quarter of accelerating growth | | Revenue | - | 27% | - | | TTM Gross Loss Ratio | 73% | Stable | Within target range | | Q1 Gross Loss Ratio | 78% | - | Includes a 16-point impact from California Wildfires | | Gross Profit | $39 million | 11% | Growth achieved despite wildfire impact | | Adj. Gross Profit | $46 million | 25% | - | | Adj. EBITDA Loss | ($47) million | - | In line with guidance, includes ~$22M wildfire impact | | Net Loss | ($62) million | - | - | - The company surpassed the $1 billion In Force Premium (IFP) milestone in March, eight and a half years after its inception[7] - The business is projected to reach profitability, with positive Adjusted EBITDA expected before the end of 2026, consistent with previous guidance[6] Strategic Execution Overview The company is successfully executing its strategy, evidenced by six consecutive quarters of accelerating In Force Premium (IFP) growth, a stable Trailing Twelve Months (TTM) gross loss ratio within the target range, and controlled operating expenses relative to IFP growth - In Force Premium (IFP) YoY growth has accelerated for the sixth consecutive quarter, reaching 27% in Q1 2025[9] - The Trailing Twelve Months (TTM) Gross Loss Ratio has stabilized at 73% for the last two quarters, remaining within the company's target range[9] - Operating expenses (excluding growth spend) have remained stable, showing a Compound Annual Growth Rate (CAGR) of only 1% since Q3 2022, compared to a 21% CAGR for IFP over the same period[9] Product and Market Analysis This section provides an overview of product and market analysis Product Spotlight: Lemonade Car Lemonade Car is showing signs of inflection, with its sequential IFP growth now outpacing other products. The strategy focuses on leveraging proprietary AI for pricing safe, young drivers and cross-selling to the existing customer base. Significant progress has been made in product optimization, geographic expansion, and pricing segmentation - Q1 marked the first quarter where Car's sequential In Force Premium (IFP) growth outpaced the rest of the company's product portfolio[11] - Strategic initiatives to optimize the cross-selling experience have resulted in a more than 100% increase in Car cross-sales in Q1 2025 compared to Q1 2024[12] - The company is expanding its geographic footprint, with the recent launch in Colorado bringing coverage to over 40% of the U.S. car market and nearly 60% of Lemonade's customer base[12] - Pricing sophistication is accelerating, with 24 rate and coverage filings made in Q1 2025 alone, nearly matching the 29 filings made in all of 2024. The focus is on segmentation via telematics[12] Macro Environment and Catastrophe Impact The company is monitoring inflation risks from U.S. tariff policies, which could impact loss trends. The financial impact of the Q1 California Wildfires was in line with previous estimates, with a net impact of ($22) million on Adjusted EBITDA and ($29) million on Net Loss | Impact Metric | Q1 2025 Favorable (Unfavorable) Impact | Note | | :--- | :--- | :--- | | Gross loss & LAE | ($36) million | In line with $45m gross estimate | | Net loss & LAE | ($16) million | In line with $20m net estimate | | Adj. EBITDA | ($22) million | - | | Net loss | ($29) million | Includes CA FAIR Plan assessment | | CA FAIR Plan assessment | ($7) million | - | - The company is closely monitoring inflation risk driven by U.S. tariff policy. A hypothetical 25% tariff on cars or parts could increase the loss trend by single-digit percentage points, which would be incorporated into future pricing[14] Financial Outlook This section provides an overview of financial outlook Q2 and Full Year 2025 Guidance Lemonade reiterates its full-year 2025 IFP growth guidance of 28% and its Adjusted EBITDA guidance. It is raising expectations for Gross Earned Premium (GEP) and Revenue for the full year. The company also maintains its guidance for positive Adjusted Free Cash Flow in 2025 | Metric ($ in millions) | Q2 2025 Guidance (Low - High) | Full Year 2025 Guidance (Low - High) | | :--- | :--- | :--- | | In force premium (IFP) | $1,061 - $1,064 | $1,203 - $1,208 | | Gross earned premium (GEP) | $246 - $248 | $1,028 - $1,031 | | Revenue | $157 - $159 | $661 - $663 | | Adjusted EBITDA loss | ($44) - ($41) | ($140) - ($135) | - The company reiterates its guidance for achieving positive Adjusted Free Cash Flow (Adj. FCF) in 2025, despite the negative impact from the California Wildfires in Q1[17] - Full-year IFP guidance implies a growth rate of 28%, sustaining acceleration towards the company's target 'cruising velocity' of 30% expected in 2026[17] Detailed Q1 2025 Financial Results This section provides an overview of detailed Q1 2025 financial results Key Performance Indicators (KPIs) In Q1 2025, the company saw strong growth in key metrics, with In Force Premium (IFP) up 27% YoY to over $1 billion and customer count increasing by 21%. Premium per customer also rose by 4%, while Annual Dollar Retention (ADR) decreased to 84%, primarily due to the non-renewal of policies not meeting underwriting criteria | KPI | Q1 2025 | YoY Change | | :--- | :--- | :--- | | In Force Premium (IFP) | $1,007.8 million | +27% | | Customers | 2,545,496 | +21% | | Premium per Customer | $396 | +4% | | Annual Dollar Retention (ADR) | 84% | -4 p.p. | - The decline in Annual Dollar Retention (ADR) is largely attributed to the intentional non-renewal of policies that failed to meet certain underwriting criteria[23] Profitability and Expense Analysis Gross Profit grew 11% YoY to $38.6 million, while Adjusted Gross Profit increased 25% to $46.0 million. The Net Loss widened to ($62.4) million and the Adjusted EBITDA loss increased to ($47.0) million, primarily driven by higher growth spend for customer acquisition and the impact of the California Wildfires | Metric | Q1 2025 | Q1 2024 | YoY Change | | :--- | :--- | :--- | :--- | | Revenue | $151.2M | $119.1M | +27% | | Gross Profit | $38.6M | $34.7M | +11% | | Adjusted Gross Profit | $46.0M | $36.7M | +25% | | Net Loss | ($62.4M) | ($47.3M) | Increased Loss | | Adjusted EBITDA Loss | ($47.0M) | ($33.9M) | Increased Loss | - Operating expenses increased by 29% YoY, primarily driven by higher growth spend for customer acquisition, which rose to $38.1 million from $19.8 million in Q1 2024, and a one-time $6.9 million California FAIR Plan assessment[28] Cash Flow and Capital Position The company ended Q1 with approximately $1 billion in cash, cash equivalents, and investments. Adjusted Free Cash Flow was ($31.0) million, a decline from the prior year, attributed to the California Wildfires. Without this event, Adjusted FCF would have been positive - As of March 31, 2025, the company's cash, cash equivalents, and investments totaled approximately $1 billion[31] - Adjusted Free Cash Flow was ($31.0) million in Q1 2025, compared to ($18.9) million in Q1 2024. The company states that this metric would have been positive if not for the impact of the California Wildfires and the FAIR Plan assessment[32] Financial Statements and Reconciliations This section provides an overview of financial statements and reconciliations Condensed Consolidated Financial Statements This section presents the unaudited GAAP financial statements for Q1 2025 compared to Q1 2024, including the Statements of Operations, Balance Sheets, and Statements of Cash Flows Statements of Operations This section presents statements of operations | ($ in millions) | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | Total revenue | $151.2 | $119.1 | | Total expense | $212.6 | $164.3 | | Net loss | ($62.4) | ($47.3) | | Net loss per share | ($0.86) | ($0.67) | Balance Sheets This section presents balance sheets | ($ in millions) | As of March 31, 2025 | As of December 31, 2024 | | :--- | :--- | :--- | | Total investments | $676.1 | $634.9 | | Cash, cash equivalents and restricted cash | $319.7 | $385.7 | | Total assets | $1,856.6 | $1,849.1 | | Total liabilities | $1,311.1 | $1,255.7 | | Total stockholders' equity | $545.5 | $593.4 | Statements of Cash Flows This section presents statements of cash flows | ($ in millions) | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | Net cash used in operating activities | ($47.2) | ($29.8) | | Net cash (used in) provided by investing activities | ($40.3) | $30.9 | | Net cash provided by financing activities | $20.0 | $13.5 | | Net (decrease) increase in cash | ($66.0) | $13.7 | Reconciliation of Non-GAAP Measures This section provides detailed reconciliations of non-GAAP financial measures, such as Adjusted Gross Profit, Adjusted EBITDA, and Adjusted Free Cash Flow, to their most directly comparable GAAP counterparts - Q1 2025 Gross Profit of $38.6 million reconciles to an Adjusted Gross Profit of $46.0 million after adjustments for items like net investment income and certain employee-related expenses[68] - Q1 2025 Net Loss of ($62.4) million reconciles to an Adjusted EBITDA loss of ($47.0) million. Key adjustments include adding back stock-based compensation ($10.3M), depreciation & amortization ($4.5M), and a $6.9M adjustment for the CA FAIR Plan assessment, while subtracting net investment income ($9.5M)[71] - Q1 2025 Cash Flow from Operating Activities of ($47.2) million reconciles to an Adjusted Free Cash Flow of ($31.0) million after subtracting capital expenditures ($2.3M) and adding net borrowings under a financing agreement ($18.5M)[74] Supplemental and Historical Data This section provides supplemental details on stock-based compensation allocation, a breakdown of written and earned premiums, and a comprehensive table of historical operating metrics for the past nine quarters | Premium ($ in millions) | Q1 2025 | Q1 2024 | % Change | | :--- | :--- | :--- | :--- | | Gross written premium | $254.2 | $205.6 | 24% | | Gross earned premium | $233.6 | $187.9 | 24% | | Net written premium | $115.4 | $93.9 | 23% | | Net earned premium | $104.3 | $84.4 | 24% | - Historical data shows a consistent upward trend in key metrics such as Customers (from 1.86M in Q1'23 to 2.55M in Q1'25) and In Force Premium (from $653.3M in Q1'23 to $1,007.8M in Q1'25)[80] Insurance Supplement This section provides an overview of insurance supplement Loss Ratio Analysis The Gross Loss Ratio for Q1 2025 was 78%, impacted by catastrophe events which contributed 19 percentage points. Excluding catastrophes, the ratio was 59%. The Trailing Twelve Month (TTM) gross loss ratio remained stable at 73%. The report provides a detailed breakdown of loss ratios by catastrophe impact, prior period development, and product type | Loss Ratio | Q1 2025 | Q4 2024 | Q1 2024 | | :--- | :--- | :--- | :--- | | Gross loss ratio | 78% | 63% | 79% | | Gross loss ratio ex-CAT | 59% | 62% | 63% | | TTM gross loss ratio | 73% | 73% | 83% | | Net loss ratio | 82% | 62% | 78% | - In Q1 2025, catastrophe events (CAT) contributed 19 percentage points to the gross loss ratio, a significant increase from 1% in the prior quarter and 14% in the prior year quarter[98] Product Portfolio Performance The In Force Premium (IFP) breakdown shows continued growth across all product lines, with Pet and Europe showing the highest percentage growth. Homeowners multi-peril remains the largest segment at $513 million. Premium per customer also increased across all product lines, notably in Car and Pet insurance | IFP Breakdown ($ in millions) | Q1 2025 | Q1 2024 | YoY Growth | | :--- | :--- | :--- | :--- | | Homeowners multi-peril | $513 | $449 | 14% | | Pet | $314 | $201 | 56% | | Car | $134 | $123 | 9% | | Europe | $33 | $12 | 175% | | Total | $1,008 | $794 | 27% | | Premium Per Customer | Q1 2025 | Q1 2024 | YoY Growth | | :--- | :--- | :--- | :--- | | Homeowners multi-peril | $265 | $266 | (0.4%) | | Pet | $742 | $664 | 12% | | Car | $1,853 | $1,544 | 20% | | Total Average | $396 | $379 | 4% | Definitions and Disclosures This section provides an overview of definitions and disclosures Definitions of Non-GAAP Measures and KPIs This section provides formal definitions for all non-GAAP financial measures (e.g., Adjusted EBITDA, Adjusted Gross Profit) and key performance indicators (e.g., In Force Premium, Annual Dollar Retention) used throughout the report, explaining their calculation and management's rationale for their use - Adjusted EBITDA: Defined as net loss excluding items like income tax, depreciation, stock-based compensation, interest, and other unique or non-cash adjustments[36] - In Force Premium (IFP): The aggregate annualized premium for all customers as of the period end date. It is not a forecast of future revenues[45] - Annual Dollar Retention (ADR): The percentage of IFP retained over a twelve-month period, inclusive of changes in policy value, number of policies, policy type, and churn[48] Forward-Looking Statements and Risk Factors This section contains the standard "safe harbor" statement, cautioning that the report includes forward-looking statements subject to various risks and uncertainties. It directs investors to the company's SEC filings, such as the Form 10-K, for a detailed discussion of risk factors - The letter contains forward-looking statements regarding financial guidance, future profitability, growth in the car insurance segment, and the efficacy of AI models[59] - These statements are not guarantees and involve risks and uncertainties. Key risks mentioned include a history of losses, competition, reinsurance availability, regulatory risks, and the cyclical nature of the insurance industry[60][61] - Investors are directed to the "Risk Factors" section of the company's Form 10-K and other SEC filings for a more comprehensive discussion of potential risks[62]