Lemonade(LMND) - 2025 Q2 - Quarterly Results

Executive Summary & Q2 2025 Highlights Q2 2025 Performance Overview Lemonade reported strong Q2 2025 results with accelerating growth, healthy underwriting, and effective expense management, raising full-year guidance - Lemonade achieved its seventh consecutive quarter of IFP growth acceleration, alongside significant improvements in gross loss ratio and gross profit[7][9] Q2 2025 Key Financial & Operational Highlights | Metric | Q2 2025 Value | YoY Change | | :----------------------- | :-------------- | :--------- | | In Force Premium (IFP) | $1.08 billion | +29% | | Revenue | $164.1 million | +35% | | TTM Gross Loss Ratio | 70% | -3 points (sequential) | | Q2 Gross Loss Ratio | 67% | -12 points | | Gross Profit | $64.3 million | +109% | | Gross Margin | 39% | +14 points | | Operating Expenses (excl. growth spend) | Declined $1 million | -2% | | Adjusted EBITDA Loss | ($41) million | +5% improvement | | Net Loss | ($44) million | +23% improvement | | Adjusted Free Cash Flow | $25 million | +$23 million | | Cash Flow from Operations | $6 million | +$17 million | Key Metrics Snapshot Key metrics for Q2 2025 demonstrate significant year-over-year growth in customers and In Force Premium, alongside improved profitability Q2 2025 Key Metrics (in millions) | Metric | Q2 2025 | YoY Change | | :-------------------- | :-------- | :--------- | | Total Customers | 2,693,107 | +24% | | In Force Premium (IFP) | $1,083 | +29% | | Premium Per Customer | $402 | +4% | | Adjusted EBITDA Net Loss | ($41) | Improved from ($43) | | Gross Earned Premium (GEP) | $252 | Increased from $200 | | Adjusted Gross Profit | $64 | Increased from $33 | | Adjusted Free Cash Flow | $25 | Increased from $2 | Business Performance & Strategic Initiatives Overall Growth and Operating Leverage Lemonade achieved accelerating IFP growth and improved loss ratios for seven consecutive quarters, demonstrating operating leverage and nearly tripling gross profit - Lemonade has demonstrated sustained operating leverage through AI and automation, leading to a significant increase in gross profit alongside accelerating IFP growth and improving loss ratios[9] IFP Growth and TTM Gross Loss Ratio Trends | Quarter | IFP YoY Growth Rate | TTM Gross Loss Ratio | | :------ | :------------------ | :------------------- | | Q3 23 | 20% | 88% | | Q4 23 | 22% | 85% | | Q1 24 | 22% | 83% | | Q2 24 | 24% | 79% | | Q3 24 | 26% | 77% | | Q4 24 | 27% | 73% | | Q1 25 | 29% | 73% | | Q2 25 | 29% | 70% | Lemonade Car Update Lemonade Car accelerated its growth in Q2 2025 with 12% sequential IFP growth and a 13-point YoY improvement in gross loss ratio to 82%, driven by telematics and expansion - Lemonade Car achieved 12% sequential IFP growth, outpacing the overall business, driven by successful telematics integration and geographic expansion[10][11][12] - The Car segment's gross loss ratio improved significantly to 82% (13 points YoY), the lowest since launch, due to precise risk evaluation enabled by telematics[13] Lemonade Car IFP and Gross Loss Ratio Trends | Quarter | IFP ($m) | Gross Loss Ratio (GLR) | | :------ | :------- | :--------------------- | | Q1 24 | $117 | 95% | | Q2 24 | $123 | 95% | | Q3 24 | $132 | 92% | | Q4 24 | $122 | 83% | | Q1 25 | $134 | 88% | | Q2 25 | $150 | 82% | Spotlight: Lemonade Europe Lemonade's European business is a significant growth engine, with over 200% YoY IFP growth to $43 million in Q2, contributing over 20% of new customers and demonstrating superior efficiency - European operations provide growth diversification, lower catastrophe exposure, and a regulatory environment that accelerates AI model refinement and pricing accuracy[16] - Europe's IFP grew over 200% YoY to $43 million in Q2, contributing over 20% of net new customers, with a 15-point YoY improvement in gross loss ratio to the low 80s[17] - The European business exhibits better gross loss ratios (20 points better) and double the new business per growth spend dollar compared to the U.S. at a similar IFP level[19] Europe IFP Growth Rate | Quarter | IFP ($m) | Growth Rate | | :------ | :------- | :---------- | | Q1 24 | $12 | 50% (approx) | | Q2 24 | $14 | 100% (approx) | | Q3 24 | $19 | 150% (approx) | | Q4 24 | $24 | 200% (approx) | | Q1 25 | $33 | 200% (approx) | | Q2 25 | $43 | >200% | Reinsurance Program Renewal Lemonade renewed its reinsurance program, reducing the proportional quota share from 55% to 20% to retain more revenue and gross profit, with revenue growth expected to outpace IFP during the transition - Lemonade reduced its proportional quota share reinsurance cession from 55% to 20% for the year starting July 1, 2025, aiming to retain more revenue and gross profit[20] - The reduction in quota share was made possible by consistent improvements in loss ratios and predictable underwriting performance, with no material change to the capital plan due to improved loss ratios and expanded use of Lemonade Re[21][23] - A lower quota share cession will cause revenue growth rates to outpace IFP growth rates during the gradual transition period, as ceded earned premium ramps down from 55% to 20% over several quarters[23] Financial Guidance Lemonade raised its full-year 2025 guidance for IFP, GEP, and Revenue, while reiterating Adjusted EBITDA guidance and expecting positive Adjusted Free Cash Flow for FY 2025 - Lemonade raised its FY 2025 guidance for IFP, GEP, and Revenue, while maintaining its FY Adjusted EBITDA guidance[24] - The company expects to achieve positive Adjusted Free Cash Flow for FY 2025 and positive Adjusted EBITDA before the end of FY 2026[25] Q3 and Full Year 2025 Guidance | Metric (in millions) | Q3 2025 (Low - High) | Full Year 2025 (Low - High) | | :------------------- | :------------------- | :-------------------------- | | In force premium (IFP) | $1,144 - $1,147 | $1,213 - $1,218 | | Gross earned premium (GEP) | $267 - $269 | $1,036 - $1,039 | | Revenue | $183 - $186 | $710 - $715 | | Adjusted EBITDA loss | ($37) - ($34) | ($140) - ($135) | | Stock-based compensation expense | $17 | $61 | | Weighted avg. common shares | 74 | 74 | Q2 2025 Detailed Financial Results & KPIs Key Operating Metrics In Q2 2025, IFP grew 29% to $1,083.4 million, customer count increased 24%, and revenue rose 35% to $164.1 million, reflecting strong top-line expansion Q2 2025 Key Operating Metrics | Metric | Q2 2025 Value | YoY Change | | :-------------------------- | :-------------- | :--------- | | In Force Premium (IFP) | $1,083.4 million | +29% | | Customers | 2,693,107 | +24% | | Premium per Customer | $402 | +4% | | Annual Dollar Retention (ADR) | 84% | -4 points | | Gross Earned Premium (