Lemonade, Inc. — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023. Unaudited consolidated results include Metromile from its July 28, 2022 acquisition date; comparisons with 2022 are therefore not fully like-for-like.
Financial results and key metrics
| Metric | Q2 2023 | Q2 2022 | H1 2023 | H1 2022 |
|---|---|---|---|---|
| Total revenue | $104.6 million | $50.0 million | $199.8 million | $94.3 million |
| Net earned premium | $76.5 million | $31.2 million | $144.7 million | $58.6 million |
| Net loss | $(67.2) million | $(67.9) million | $(133.0) million | $(142.7) million |
| Adjusted EBITDA (non-GAAP) | $(52.7) million | $(50.3) million | $(103.5) million | $(107.7) million |
| Gross profit margin | 12% | 23% | 14% | 23% |
| Adjusted gross profit margin (non-GAAP) | 16% | 35% | 19% | 36% |
| Net loss ratio | 99% | 90% | 96% | 90% |
| Operating cash flow | Not separately provided for the quarter | $(96.7) million | $(79.7) million |
- Q2 gross written premium rose 44% to $181.9 million; customers reached 1.91 million, up 21% year over year. In-force premium was $686.6 million, premium per customer $360, and annual dollar retention 87%.
- Q2 sales and marketing expense declined 33% to $24.8 million, while loss and loss adjustment expense rose 170% to $75.9 million. H1 net loss improved 7%, but Q2 net loss was nearly unchanged year over year.
- At June 30, cash, cash equivalents and restricted cash were $193.8 million, down from $286.5 million at year-end 2022. Investments were $748.1 million; total assets were $1.613 billion, total liabilities $842.1 million, and stockholders’ equity $771.0 million. No conventional debt balance is reported in the provided filing text.
Changes, outlook and risks
- Growth in revenue and premium reflected customer additions, higher premium per customer, expanded products and geography, and assumed Texas auto premium. A lower proportional-reinsurance share also increased the portion of premium retained and losses borne by Lemonade.
- Claims costs were affected by inflation and by $10.0 million of net incurred losses from winter storm Elliott and $3.5 million from a Texas hailstorm in H1. Management reported $1.3 million of favorable prior-year reserve development.
- Reinsurance contracts were renewed effective July 1, 2023 through June 30, 2024. The new program cedes approximately 55% of premium, with stated catastrophe exclusions and per-occurrence/per-risk limits. Lemonade remains liable to policyholders if reinsurers fail to pay; availability, cost and adequacy of reinsurance remain material risks.
- Management said existing cash and cash equivalents at June 30 should meet working-capital, liquidity and capital-expenditure needs for at least 12 months, subject to external factors. It reported $941.9 million of cash and investments available to address potential losses, including catastrophe losses. No specific revenue or profitability guidance is provided.
- A June 28 Customer Investment Agreement with a General Catalyst affiliate makes up to $150 million available over an 18-month commitment period for growth spending. Advances may cover up to 80% of growth spend and are repayable with a 16% return. There were no borrowings at June 30; Lemonade subsequently received $4.4 million. The company cautions that the arrangement may not work as intended.
- Other risks include continuing operating losses and cash burn, uncertain loss reserves, catastrophe and inflation exposure, reinsurer counterparty risk, regulatory and capital requirements, and SoftBank’s approximately 17.2% voting control. Management reported disclosure controls effective at the reasonable-assurance level and no material change in internal control over financial reporting.
Key investor verification points
- Track whether customer, premium and retention growth translates into improving loss ratios and gross margins, rather than primarily reflecting greater net risk retention.
- Review the terms, limits, exclusions, cost and counterparty strength of the renewed reinsurance program, and the development of catastrophe-related claims and reserves.
- Monitor operating cash burn, available liquidity and regulatory surplus, including restrictions on transferring funds from insurance subsidiaries.
- Verify the economics and repayment obligations of the General Catalyst financing as advances scale, including whether associated growth spending generates durable customer value.
- Separate organic performance from Metromile acquisition effects and assess dilution from equity compensation and outstanding options, RSUs and warrants.