Lemonade, Inc. Q3 FY2024 earnings call

• Investor Day on November 19 will detail vision, AI capabilities, and plans.
• Third quarter showed strong progression: in-force premium up 24%, cash flow positive with net cash flow increasing by $48 million and free cash flow $14 million positive.
• Business resilient despite industry catastrophic losses, with gross loss ratio 73% (strongest in 4 years) and double-digit loss ratio improvements for 4 consecutive quarters.
• Technology-driven efficiency: automation improved IFP per employee, operating expenses stable when excluding growth spend, and AI capabilities to drive more efficiency.
• Financial results: in-force premium, customer count, premium per customer, revenue, gross earned premium, gross loss ratio, gross profit, operating expenses, net loss, and cash position all discussed.

In Q3 2024, Lemonade's in-force premium grew 24% to $889 million, with customer count increasing by 17% to $2.3 million. Premium per customer was $384, annual dollar retention (ADR) was 87%. Gross earned premium in Q3 was $213 million, up 23% year-over-year. Revenue in Q3 was $137 million, up 19% year-over-year. Gross loss ratio was 73%, a 10-point improvement year-over-year. Gross profit increased 71% year-over-year to $37 million. Operating expenses excluding loss and loss adjustment expense increased 27% to $125 million, but absent growth spend, operating expenses were stable year-over-year. Net loss was $68 million, a 10% decline year-over-year. Cash, cash equivalents, and investments ended the quarter at $979 million.

• Increased full-year expectations for revenue and gross earned premium.
• Q4 2024 guidance: in-force premium between $940 million and $944 million, gross earned premium $222 million to $225 million, revenue $144 million to $146 million, adjusted EBITDA loss between $29 million and $25 million.
• Full-year 2024 guidance: in-force premium at end of year $940 to $944 million, gross earned premium $823 million to $826 million, revenue $522 million to $524 million, adjusted EBITDA loss $155 million to $151 million.

• Catastrophic losses impacting the insurance industry, though Lemonade's business was resilient but remains a risk.
• Exposure to weather-related risks, particularly in homeowners insurance.
• Dependence on technology and AI advancements, with potential challenges in implementation and integration.

Q: What is the expansion plan for Lemonade Auto Insurance?

A: 2025 will see us roll out car in several additional states, prioritizing those with the most attractive LTV dynamics and regulatory environments that facilitate timely rate approvals. Importantly, we expect the unlock on car growth to come from multiple directions cross selling to our existing customer base as well as acquiring new customers.

Q: What is the timeline for access to Lemonade Insurance services in all 50 states?

A: We already sell some of our products in all 50 states and are currently available for the overwhelming majority of the U.S. population when it comes to our more mature products. As for car, 2025 marks a year of notable geographic expansion. We expect to continue this in 2026 and launch more states where we can grow our car product profitably.

Q: What is your view on insurers who outsource work such as data science and AI, and whether that is a risk to our business model?

A: Legacy insurers have been outsourcing data science and AI work for over a decade, yet despite these costly efforts, consumers haven't really noticed major changes in experience or insurance pricing. I believe there are many reasons for this lack of progress, such as the challenge of changing century old processes and culture in organizations that are highly conservative by design. Unlike traditional insurers, the Lemonade platform was designed, built and maintained in house and I believe this is our secret weapon.