Lemonade, Inc. — 2022 Form 10-K Summary
Business context and reporting period
This annual report covers the fiscal year ended December 31, 2022. It includes the fourth quarter within full-year results but does not provide a clear standalone Q4 income statement or cash-flow summary. Lemonade sells insurance through a digital platform, with products including renters, homeowners, pet, car and life insurance. The July 28, 2022 Metromile acquisition added pay-per-mile auto insurance and related operations; reported results include Metromile only from the acquisition date.
Key financial and operating metrics
| Metric | 2022 | 2021 |
|---|---|---|
| Total revenue | $256.7 million | $128.4 million |
| Net earned premium | $172.4 million | $77.0 million |
| Gross written premium | $555.7 million | $375.7 million |
| Gross profit / margin | $42.3 million / 16% | $31.2 million / 24% |
| Adjusted gross profit / margin | $64.9 million / 25% | $45.6 million / 36% |
| Net loss | $(297.8) million | $(241.3) million |
| Adjusted EBITDA | $(225.1) million | $(184.2) million |
| Gross / net loss ratio | 90% / 97% | 90% / 93% |
| Operating cash flow | $(163.0) million | $(144.6) million |
At year-end, customers totaled 1.81 million, up from 1.43 million; in-force premium was $625.1 million, up from $380.1 million; premium per customer was $346, up from $266; and annual dollar retention was 86%, versus 82%.
Cash and cash equivalents were $282.5 million, and investments were $750.1 million; cash, cash equivalents and restricted cash totaled $286.5 million. Total assets were $1.69 billion and total liabilities were $823.9 million. Liabilities included $256.2 million of unpaid losses and loss-adjustment expenses and $288.0 million of unearned premium. The filing does not show a material borrowings balance; it describes equity issuance as a principal historical source of funding. Insurance-subsidiary funds are subject to regulatory restrictions, and those entities held $350.4 million in cash and investments.
Material changes versus 2021
- Revenue doubled, reflecting premium growth, more customers and higher premium per customer, as well as the acquired Metromile business and increased investment income.
- Net loss widened by $56.5 million. Total expenses rose 52% to $551.5 million, while revenue rose 100%.
- Gross loss ratio held at 90%, but net loss ratio increased from 93% to 97%. Gross and adjusted gross profit margins declined, partly reflecting changes in reinsurance and the cost mix.
- Proportional reinsurance was reduced from 75% to 55% of premium effective July 1, 2022. Ceded earned premium declined to 65% of gross earned premium from 74%, increasing Lemonade’s retained premium and claims exposure.
- Cash used in operations increased by $18.4 million. Investing activities provided $181.1 million, including cash acquired with Metromile; financing activities provided $3.6 million, compared with $649.6 million in 2021, primarily from that year’s follow-on offering.
Outlook, commentary, risks and unusual items
- Management said year-end cash and cash equivalents should be sufficient for working capital and capital expenditure needs for at least 12 months. The filing provides no specific revenue, earnings or profitability guidance.
- Management expects continued investment in marketing, technology, products and expansion. It expects sales and marketing expense to rise in absolute dollars in the near term, while potentially declining as a share of revenue over the longer term if acquisition efficiency and renewals improve.
- Inflation may raise claims costs and affect reserve estimates and product pricing; management said the impact could not be estimated precisely. Severe weather and catastrophe losses remain material, and 2022 net incurred losses included $7.6 million for winter storm Elliott and $0.4 million for Hurricane Ian. Favorable prior-period reserve development partly offset current-period losses.
- Metromile contributed $35.0 million of revenue and $36.4 million of net loss after acquisition. Lemonade recorded $8.4 million of acquisition-related transaction and integration costs. Integration benefits and cost savings are not assured.
- Important risks include continuing losses and cash burn; availability, cost and counterparty performance of reinsurance; catastrophe exposure and reserve-estimation uncertainty; competition and customer retention; insurance regulation and rate approvals; AI, telematics and potential discrimination concerns; data privacy and cybersecurity; and the execution of the Metromile integration.
- A class action concerning certain business practices was settled in October 2022. The filing says no pending legal proceeding was expected to have a material adverse effect. The auditor gave an unqualified opinion on the financial statements and internal controls; Metromile was excluded from management’s and the auditor’s internal-control assessment during the permitted post-acquisition period.
Important facts for investors to verify
- Standalone Q4 performance: this 10-K does not provide clear Q4-only financial results; verify against the relevant quarterly filing.
- Whether customer growth, retention and premium-per-customer gains continue, and whether they translate into improving GAAP margins and lower losses.
- Reinsurance renewal terms, retained risk, and the collectability and concentration of reinsurance recoverables.
- Claims severity, inflation effects, catastrophe exposure and subsequent development of the $256.2 million gross loss reserve, including $87.3 million of net IBNR reserves.
- Metromile integration progress, ongoing costs and any realized synergies; also note Metromile was outside the internal-control assessment for 2022.
- Liquidity available after accounting for regulated insurance-subsidiary capital and dividend restrictions, alongside ongoing operating cash use.