Lemonade, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; comparisons are with Q1 2023 unless noted. Lemonade is a technology-enabled insurer offering renters, homeowners, pet, car and life insurance. Amounts are in U.S. dollars; financial statement amounts are in millions unless stated otherwise.
Key financial results
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Total revenue | $119.1 | $95.2 | +25% |
| Net earned premium | $84.4 | $68.2 | +24% |
| Net loss | $(47.3) | $(65.8) | Loss narrowed $18.5 |
| Net loss per share, basic and diluted | $(0.67) | $(0.95) | Improved |
| Gross profit / margin | $34.7 / 29% | $16.5 / 17% | Margin +12 points |
| Adjusted gross profit / margin | $36.7 / 31% | $20.6 / 22% | Non-GAAP |
| Adjusted EBITDA | $(33.9) | $(50.8) | Non-GAAP; loss narrowed |
| Net cash used in operating activities | $(29.8) | $(46.4) | Cash use decreased $16.6 |
Gross written premium grew 25% to $205.6 million, while ceded written premium rose 37% to $111.7 million; net written premium increased 14% to $93.9 million. Gross earned premium was $187.9 million, up 22%. Net investment income rose 52% to $7.6 million.
Financial position and operating metrics
- At March 31, cash and cash equivalents were $278.7 million and investments were $641.9 million; cash, cash equivalents and restricted cash totaled $285.2 million. The company reported $927.1 million of cash and investments available.
- Total assets were $1.646 billion and total liabilities were $970.0 million. Borrowings under the General Catalyst financing agreement were $28.3 million, compared with $14.9 million at year-end 2023.
- Net cash from investing activities was $30.9 million and from financing activities was $13.5 million. Cash and cash equivalents increased to $278.7 million from $264.5 million at December 31, 2023.
- Customers increased 13% to 2.10 million; in-force premium grew 22% to $794.2 million; premium per customer rose to $379 from $352. Annual dollar retention was 88%, versus 87%.
- Gross loss ratio improved to 79% from 87%, and net loss ratio to 78% from 93%. These ratios reflect insurance losses and reinsurance effects.
Material changes and drivers
- Revenue growth reflected higher net earned premium, ceding commission income, investment income and commission and other income. Management attributed gross written premium growth to customer additions, digital advertising and partnerships, geographic and product expansion, higher premium per customer, and assumed Texas auto premium.
- Net loss and loss adjustment expense increased 4% to $65.9 million, reflecting premium growth, higher retained losses following reinsurance changes, and inflation-related claims costs. Q1 2024 included $6.5 million of favorable prior-year reserve development, compared with $5.7 million of unfavorable development in Q1 2023.
- Total expenses increased 3% to $164.3 million. Other insurance expense rose 27% and sales and marketing rose 8%; technology development fell 4% and general and administrative expense fell 9%.
- Operating cash use improved year over year, but remained negative. Management attributed quarterly cash-flow variation in part to claims payments, reinsurance settlements and growth spending, offset by premium collections and reinsurance recoveries.
Outlook, risks and contingencies
- No quantified earnings or revenue guidance is provided in the supplied filing text. Management says existing cash and cash equivalents are expected to be sufficient for working capital, liquidity and capital needs for at least 12 months, subject to external factors.
- The General Catalyst agreement provides up to $150 million of financing for growth spend, with an additional commitment of up to $140 million beginning after the original commitment period through December 31, 2025. Advances are subject to agreement terms and carry a 16% rate of return.
- The reinsurance program effective through June 30, 2024 cedes approximately 55% of premium under proportional contracts, with contract limits and exclusions. The company remains responsible to policyholders if reinsurers fail to pay; reinsurance availability, pricing and recoverability are risks. The filing describes catastrophe and per-risk coverage that also expires June 30, 2024.
- Management cites inflation, unpredictable catastrophes and weather, loss-reserve estimation uncertainty, reinsurance counterparty and coverage risk, regulatory capital requirements, competition, and the Israel-region conflict as potential risks. It says the conflict’s effects on operations remain uncertain.
- Metromile-related litigation complaints were voluntarily dismissed, with plaintiffs reserving rights to seek fees. The company recorded a liability for a related matter it considers probable and reasonably estimable; the filing text does not provide a clear value. Routine legal proceedings are not believed likely to have a material adverse effect. Office-lease guarantees totaled $2.7 million.
- Management reported effective disclosure controls as of March 31, 2024 and no material change in internal control over financial reporting during the quarter.
Investor facts to verify
- Whether growth in customers and premium per customer translates into sustained underwriting profitability and reduced operating cash use.
- Renewal terms, pricing and capacity of reinsurance arrangements expiring June 30, 2024, and the impact on retained losses and margins.
- Loss-reserve development and claims inflation, including the sustainability of favorable prior-year reserve development in Q1.
- Terms and repayment economics of General Catalyst financing, including the 16% return and outstanding borrowings.
- Liquidity available to the parent versus funds held in regulated insurance subsidiaries; $185.8 million of subsidiary cash and investments was held as regulatory surplus.
- Potential changes in uncertain tax positions, reserve estimates, catastrophe exposures and the recorded Metromile-related contingency.