Lemonade Q1 2025 Earnings Call Transcript

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May 6, 2025
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Operator

Hello, and welcome everyone to the Lemonade Q1 '20 '20 '5 Earnings Call. My name is Maxine, and I'll be coordinating the call today.

Operator

I will now hand over to the Lemonade team to begin. Please go ahead.

Executive

Good morning, and welcome to Lemonade's first quarter twenty twenty five earnings call. Joining us on our call today, we have Daniel Schreiber, CEO and Co Founder Michal Langer, Chief Product Officer and Leader of our Car business and Tim Bixby, Chief Financial Officer. A letter to shareholders covering the company's first quarter twenty twenty five financial results is available on our Investor Relations website at lemonade.com/investor. I would like to remind you that management's remarks made on this call may contain forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by these forward looking statements as a result of various important factors, including those discussed in the Risk Factors section of our Form 10 ks filed with the SEC on 02/26/2025, and our other filings with the SEC.

Executive

Any forward looking statements made on this call represent our views only as of today, and we undertake no obligation to update them. We will be referring to certain non GAAP financial measures on today's call, including adjusted EBITDA, adjusted free cash flow and adjusted gross profit, which we believe may be important to investors to assess our operating performance. Reconciliations of our non GAAP financial measures to the most directly comparable GAAP financial measures are included in our letter to shareholders. The letter to shareholders also includes information about our key performance indicators, including customers, in force premium, premium per customer, annual dollar retention, gross earned premium, gross loss ratio, gross loss ratio ex cat, trailing 12 loss ratio, and net loss ratio, and a definition of each metric, why each is useful to investors and how we use each to monitor and manage our business. With that, I'll turn the call over to Daniel for some opening remarks.

Daniel Schreiber
Daniel Schreiber
CEO and Co-Founder at Lemonade

Good morning, and thank you for joining us to discuss Lemonade's results for Q1 twenty twenty five. It's a pleasure to report that across all of our key metrics, our financial performance in the first quarter was strong and that everything in the business is progressing very much to plan. At 27% year on year growth, q one was a sixth consecutive quarter of accelerating top line growth. Perhaps more notably, with the exception of our growth spend, we've seen no material corresponding rise in our expense base. Quite the contrary, in real terms, growth spend, in the past ten quarters, we have seen a decline in our expenses while the book has increased by more than 65%.

Daniel Schreiber
Daniel Schreiber
CEO and Co-Founder at Lemonade

When you see our top line surging by two thirds even as fixed costs stay flat or fall, what you're seeing is AI hard at work. For us, AI was never a fashionable acronym to roll out on earning calls. It's always been core to our culture, to our differentiation, and to our strategy, and its power is increasingly apparent in our p and l. We expect this dynamic to persist with the growth of our gross profit far outpacing the growth of our fixed costs. This is why we're comfortable reiterating expectation of achieving EBITDA breakeven by the end of next year, now just a few quarters away.

Daniel Schreiber
Daniel Schreiber
CEO and Co-Founder at Lemonade

We are also reiterating our EBITDA guidance for this year and modestly raising our expectations for gross and premium and revenue. We also reiterate our expectation of generating positive adjusted free cash flow in 2025 despite the unfavorable impact of the California wildfires in the first quarter. Speaking of the California wildfires, their impact on our Q1 results was notable, contributing 16 percentage points to our gross loss ratio. Even with that impact, our trailing twelve month gross loss ratio remained stable and in line with our target range at 73%, while adjusted gross profit actually improved 25% year on year. That, I think, speaks volumes to the quality of our book and resilience of our business.

Daniel Schreiber
Daniel Schreiber
CEO and Co-Founder at Lemonade

We're closely monitoring the evolving tariff environment, particularly for imported auto parts. A headline 25% tariff on auto parts should it endure would likely increase loss trends in that category by single digit percentage points, which we would endeavor to reflect in our rates as soon as possible in order to maintain stable loss ratios. Finally, you may have noticed that we changed the timing of our shareholder letter to align more closely with common practice. We've also refreshed our investor website, so pop over to investor.lemonade.com or lemonade.com/investor and check it out. In the same vein, we're also going to mix things up a little on the call and try to bring in a wider array of voices from the management team.

Daniel Schreiber
Daniel Schreiber
CEO and Co-Founder at Lemonade

And to kick this off as Shay is taking a well earned vacation with his family, he has asked Michal Langer to update you on our car business. Michal is both our chief product officer and the executive leading our car business, and so her contribution and perspective is central to everything that we do at Lemonade. Michal?

Michal Langer
Michal Langer
Chief Product Officer at Lemonade

Thanks, Daniel. Lemonade car continued to build momentum this quarter. And for the first time, its quarter over quarter IFP growth outpaced the rest of the business. That's a key milestone and one that signals the engine is starting to rev. There are two elements that we consider our unique differentiators.

Michal Langer
Michal Langer
Chief Product Officer at Lemonade

First, our LTV and telematics models, which give us a unique ability to find and price ideal customers. This is true especially for safe younger drivers who other insurance routinely overcharge relying on blunt age based risk buckets. With industry leading telematics adoption and a continuous lifetime flow of driving data for each customer, we can fine tune pricing and automate processes with unrivaled precision. Second, we've got a large untapped growth pool, nearly 2,500,000 non core customers who together spend north of $3,000,000,000 annually on auto insurance. We're turning those advantages into impact through product development and geographic expansion.

Michal Langer
Michal Langer
Chief Product Officer at Lemonade

We've been running a series of experiments on what we're calling day zero telematics, and have seen conversion rates jump by over 60% in the past few months. Cross sell is improving too. We've optimized our bundling flows leading to more than doubling our cross sells volume year over year. Geographically, we launched Colorado this quarter, pushing us past 40% coverage of The U. S.

Michal Langer
Michal Langer
Chief Product Officer at Lemonade

Auto market and to nearly 60% of our existing customer base, with more states coming prioritized by profitability and fit. As always, growth comes with discipline. Cars loss ratio is still elevated, not unexpected for young books. But older cohorts are seasoning nicely, which gives us confidence in the model. We typically see a double digit loss ratio improvement as new cohorts pass the renewal date.

Michal Langer
Michal Langer
Chief Product Officer at Lemonade

This dynamic is worth underlining. Short lived spikes in loss ratios associated with the new business penalty, a well understood phenomena, can send a false signal about the lifetime profitability of new business, and so we routinely look past these in preference of the predicted lifetime loss ratio. So while we still have a lot of work to do this year and plan significant rollouts and improvements in the coming quarters, Lemonade Car is already gaining speed and boosting our confidence that Car will increasingly drive our growth. I'll now hand the call over to Tim, who will speak to our financial performance and outlook. Tim?

Tim Bixby
Tim Bixby
CFO at Lemonade

Great. Thanks, Michal. I'll review highlights of our Q1 results and provide our expectations for Q2 and the full year 2025, and then we'll take questions. In short, our Q1 financial results were very solid, and our experience with regard to the California wildfires proved out our conservative underwriting approach, a healthy product mix and the protection afforded by a thoughtful reinsurance strategy. In force premium grew 27% to just above $1,000,000,000 while customer count increased by 21% to 2,500,000.

Tim Bixby
Tim Bixby
CFO at Lemonade

Premium per customer increased 4% versus the prior year to $396 driven primarily by rate increases. Annual dollar retention or ADR was 84%, a 4% decrease since this time last year and down slightly versus 86% in the prior quarter. In broad strokes, we saw an unfavorable impact to ADR from our continuing effort to improve the profitability of our home book of about four points, about two points unfavorable from our pay per mile car product and about two points favorable from the rest of the book. We expect ADR to normalize and resume improvement over the coming quarters. Gross earned premium in Q1 increased 24% as compared to the prior year to $234,000,000 in line with IFP growth.

Tim Bixby
Tim Bixby
CFO at Lemonade

Revenue in Q1 increased 27% from the prior year to $151,000,000 The growth in revenue was driven by the increase in gross earned premium, a slightly higher effective ceding commission rate under our quota share reinsurance and a 26% increase in investment income. Our gross loss ratio was 78% for Q1 as compared to 79% in Q1 twenty twenty four and sixty three percent in Q4 twenty twenty four. Excluding the total impact of cats in Q1, which was roughly 19 percentage points, our gross loss ratio ex cat was 59%. Total gross prior period development had a roughly 8% favorable impact with a negligible portion of that driven by cat. We saw this favorable prior period development across all products with the exception of pet with the largest impact in our homeowners multi peril business.

Tim Bixby
Tim Bixby
CFO at Lemonade

On a net basis, prior period development had a roughly 10% favorable impact, of which 1% was from cat. Trailing twelve months or TTM loss ratio was about 73% or 10 points better year on year and stable sequentially. All of these insurance metrics and more are included in our insurance supplement that you'll find at the end of our shareholder letter. Gross profit increased 11% as compared to the prior year, driven primarily by premium growth offset by the California Fare Plan impact, while adjusted gross profit increased 25% driven primarily by premium growth. Operating expenses excluding loss and loss adjustment expense increased 29% to $127,000,000 in Q1 as compared to the prior year, driven primarily by an increase in growth spend and the impact of the fair plan assessment.

Tim Bixby
Tim Bixby
CFO at Lemonade

Other insurance expense grew 51% in Q1 versus the prior year, driven primarily by the impact of the fair plan assessment. Total sales and marketing expense increased by $13,000,000 or 42%, primarily due to increased gross spend of approximately $18,000,000 offset by a stock compensation benefit related to the Chewy warrant termination. Total growth spend in the quarter was $38,000,000 nearly double the $20,000,000 in the prior year quarter. We continue to utilize our synthetic agents growth funding program and have continued to finance 80% of our growth spend. As a reminder, you'll see 100% of our growth spend flow through the P and L as always, while the impact of the growth mechanism is visible on the cash flow statement and the balance sheet.

Tim Bixby
Tim Bixby
CFO at Lemonade

And the net financing to date is $102,000,000 as of the end of the quarter. Technology development expense was up just 5% year on year to $22,000,000 while G and A expense increased 20% as compared to the prior year to $36,000,000 primarily due to the growth in interest expense from our financing agreement. Personnel expense and headcount control continued to be a high priority and total headcount is up just slightly, about 2% as compared to the prior year at twelve sixty, while the top line IFP, as a reminder, grew fully 27%. Net loss was $62,000,000 in Q1 or a loss of $0.86 per share as compared to a net loss of $47,000,000 or a $0.67 per share loss in the prior year. Adjusted EBITDA loss was $47,000,000 in Q1 versus $34,000,000 EBITDA loss in the prior year.

Tim Bixby
Tim Bixby
CFO at Lemonade

Our total cash, cash equivalents and investments ended the quarter at approximately $996,000,000 up $69,000,000 versus Q1 of last year and down $25,000,000 versus the prior quarter, primarily driven by the impact of the wildfires. With these metrics in mind, I'll outline our specific financial expectations for the second quarter and for the full year 2025. From a growth spend perspective, we expect to invest roughly $45,000,000 in Q2 to generate profitable customers with a healthy lifetime value. This amount will likely increase slightly in Q3 and then may decline somewhat in Q4 to a level similar to the Q1 growth spend rate, totaling roughly $170,000,000 for the year. This expected quarterly spend pattern is fairly similar to prior years.

Tim Bixby
Tim Bixby
CFO at Lemonade

For the second quarter of twenty twenty five, we expect in force premium at June 30 of between $1,061,000,000 and $1,064,000,000 gross earned premium between $246,000,000 and $248,000,000 revenue between 157,000,000 and $159,000,000 and an adjusted EBITDA loss of between $44,000,000 and $41,000,000 stock based compensation expense of approximately $16,000,000 and a weighted average share count of approximately 73,000,000 shares. For the full year 2025, we expect in force premium at December 31 of between $1,203,000,000 and $1,208,000,000 gross earned premium of between $1,028,000,000 and $1,031,000,000 revenue between $661,000,000 and $663,000,000 and adjusted EBITDA loss of between $140,000,000 and $135,000,000 stock based compensation expense of approximately $60,000,000 and a weighted average share count of approximately 74,000,000 shares. And with that, I would like to hand things back over to Daniel to answer some questions from our retail investors. Daniel?

Daniel Schreiber
Daniel Schreiber
CEO and Co-Founder at Lemonade

Thanks, Tim. And we'll start with questions from the SAE platform, retail investor questions. And Tafiq asks about our EBITDA losses, which have been narrowing and asks that we elaborate on the time line for reaching EBITDA profitability and what levers will drive this. So thanks for that question, Tafiq, and happy to delay on this for a moment. We've been guiding to adjusted EBITDA breakeven by year end 2026 since the very first Investor Day back in 2022.

Daniel Schreiber
Daniel Schreiber
CEO and Co-Founder at Lemonade

We reiterated that guidance in our twenty twenty four Investor Day, and we continue to reiterate our expectation to be adjusted EBITDA positive by q four of next year, with 2027 being our first full year of positive adjusted, EBITDA. Our unchanging message across the years, I think, speaks to the grounded nature of our multiyear plan and to the execution that has consistently delivered a plan. The business is doing exactly what we expected it to do all along. And in this important way, you can set your watch to it, and that's because the clockwork here is pretty simple. As we continue to grow the business, we generate ever more gross profit.

Daniel Schreiber
Daniel Schreiber
CEO and Co-Founder at Lemonade

And at the same time, thanks to AI, we're seeing no commensurate increase in our fixed costs. And so with every turn of the flywheel, gross profit comes closer and closer to eclipsing operating costs, and that means that the business is getting closer and closer to profitability. This progression has proven reasonably predictable, and we have a fairly good handle on its levers, giving us confidence that we're only a few quarters from crossing that all important line. Also remember that our underlying business is already profitable. Last quarter, we disclosed that if we had opted not to spend on growth, the quarter would have been EBITDA profitable.

Daniel Schreiber
Daniel Schreiber
CEO and Co-Founder at Lemonade

And as it is, 2024 was cash flow positive, a reliable precursor to EBITDA profitability, particularly given the dynamics, the cash flow dynamics in the insurance space. I encourage you to have a look at page four in our shareholder letter. I think you will see that highlights and, give some visuals to the trajectories that I just touched on. The next question comes from Paperbag, who's asking about cross sales particularly to car and what rates we can expect to see in the coming years. So, Paperbag, thanks for that.

Daniel Schreiber
Daniel Schreiber
CEO and Co-Founder at Lemonade

Certainly a central area of focus, over the coming months and quarters and years. Zooming out to a multiyear view, our ambition is to drive to industry leading multiline customer rates. So large incumbents typically see levels in the thirties and forties. I I think maybe some of the direct players are in the mid twenties. And so it's a major opportunity for us with our existing customer customer spending probably over $3,000,000,000 on car insurance.

Daniel Schreiber
Daniel Schreiber
CEO and Co-Founder at Lemonade

We certainly expect to be tapping into that and to continue to do that as our installed base of customers grows. I think it's reasonable to assume that we can approach the multiline customer levels in the teens on a five year horizon, and ultimately to reach parity with the rest of the industry, and you've got the models to show just how impactful that would be in our business. But it's important to clarify that a model is not dependent on this acceleration and indeed crosses in our modeling, we cross, EBITDA and net income breakeven, while multiline customer rates are expected still to be in the single digits. So we think we'll be profitable in the high single digits even though we think that in the years following, we'll go into the teens and ultimately in the into the twenties as well. The biggest driver of cross sell acceleration are state coverage expansions and leveraging telematics insight offer unbeatable prices to the best drivers.

Daniel Schreiber
Daniel Schreiber
CEO and Co-Founder at Lemonade

If we isolate specific states where we have full suite of products available, we already see multiline rates that are nearly double the 5% level that we're seeing across the book at the moment, so closer to 10%. So that gives us confidence that in the coming years, we'll be able to replicate that everywhere. Cross sales have another impact that dovetails nicely to to Rafiq's question. Over time, as cross sales ramp up, CAC free growth is a powerful lever that benefits our profitability trajectory by allowing us to moderate the growth spend, which would otherwise be required in order to sustain our target of 30 plus CAGR? Thanks for that question.

Daniel Schreiber
Daniel Schreiber
CEO and Co-Founder at Lemonade

CyberKat asks about the tariffs and the geopolitical tension and whether that will impact on our expectation of being, in the thirties in terms of CAGR, how much confidence we have notwithstanding that. And I I think I touched on this a bit already in my opening remarks, but our business has proven highly resilient in the past few years. So based on everything we know today about shifting macro environment, I am pleased to reiterate our 30 plus percent growth in 2026 and and beyond. Our sector is inherently resilient, fairly recession proof, and not inherently exposed to global trade, certainly much lesser than many, many sectors. So the one thing that we do need to monitor is inflation, and we're keeping a close eye on that because that has and if it re resurge would again impact our business.

Daniel Schreiber
Daniel Schreiber
CEO and Co-Founder at Lemonade

Our bill our business is also, though, pretty diversified these days, both across products and geographies, not all of which are impacted by tariffs. So auto parts is the obvious place to look, but in pet insurance and and renters insurance and home insurance and certainly our European business, which is growing at quite a clip, those remain largely immune even to that. Okay. And with with that, I'll pass the mic back over to the moderator, and we'll take some questions from the street.

Operator

Thank you. Our first question today comes from Jack Matson from BMO. Please go ahead, Jack. Your line is now open.

Jack Matten
Jack Matten
Vice President Equity Research at BMO Capital Markets

Good morning. Just one on the subrogation benefit that you recorded from the California wildfires. Any other color you can provide on that? Did you sell your subrogation rights? Or is there the potential for additional recoveries in coming quarters?

Tim Bixby
Tim Bixby
CFO at Lemonade

Sure. Good morning. So the subro was was reasonably interesting. If you look at the general impact of the California fires, there were primarily two events, two major events, the Palisades fire and the Eaton fire. The subro market and opportunity for us was much more distinct for the Eaton fire as it was for many other players.

Tim Bixby
Tim Bixby
CFO at Lemonade

And so we did sell those rights, at a at a pretty healthy ratio. And you'll see that in the detailed disclosures, something on the order of $8,000,000 impact there. There is an opportunity to recover more over time. The losses exceed a certain percent, for example, in the Palisades fire, there is some opportunity. But I would expect that a substantial amount of the subrogation is already represented in the numbers.

Jack Matten
Jack Matten
Vice President Equity Research at BMO Capital Markets

Got it. Thank you. And then, maybe just one on the fair plan assessment in California. Is somebody planning to recoup any of that with rate increases or supplemental fees? I think insurers are able to request to recoup, half of the initial assessment.

Jack Matten
Jack Matten
Vice President Equity Research at BMO Capital Markets

So just wondering how you're thinking about that.

Tim Bixby
Tim Bixby
CFO at Lemonade

The plan is yes. We do expect to recoup over time. There are a number of rules and requirements around how you do go about that, and there's also a potential customer impact that we're thoughtful about. But we are proceeding as if, we'll be able to endeavor to recover as much as is allowed, which is a 50% limit. And some will come in year one, but there's really a two year period over which all of this will will be fully resolved.

Tim Bixby
Tim Bixby
CFO at Lemonade

So we will proceed full speed ahead and and look to recover all of that.

Jack Matten
Jack Matten
Vice President Equity Research at BMO Capital Markets

Thank you.

Operator

Thank you. The next question comes from Jason Helfstein from Oppenheimer. Please go ahead. Your line is now open.

Jason Helfstein
MD & Head - Internet at Oppenheimer & Co. Inc.

Thanks, guys. A few questions. One, can you give us the impact of the wildfires on gross profit in the quarter? That's housekeeping. Then on the tariff question, obviously, saw your commentary.

Jason Helfstein
MD & Head - Internet at Oppenheimer & Co. Inc.

So just are you assuming any impact in the full year guide? Is there any conservatism or kind of you're just kind of turning the business as is and we'll have to adjust as we go? And then maybe give us a little more detail on car, which states will be you highlighted Colorado, but over the next twelve months, which states will be biggest for you and where should we pay attention? Thank you.

Tim Bixby
Tim Bixby
CFO at Lemonade

Sure. So maybe I'll take the first two on California and on the tariff impact, and I'll turn it to Daniel maybe on some of the car thoughts. So there's a a nice little table in the letter from today that I would I would point everyone to that breaks down the California wildfire impact as as best we could within the the disclosure, restrictions. And you'll see a line item there that goes from a top line to a bottom line impact, essentially. And it lines up quite nicely with what our estimate was, when we gave our our prior guidance.

Tim Bixby
Tim Bixby
CFO at Lemonade

Our initial estimate was about a $45,000,000 gross impact that turned out to be about 44, so right in line. We estimated the EBITDA impact, which was also at the time the net loss or net operating loss impact of about, $20,000,000 that came in at about, 22, negative impact. And then, added to that to get to the true eventual net income impact is, the California fair plan assessment amount, which is also detailed in that table. We were not aware of that, of course, at the time because it had not been issued yet. So I think from your from a gross profit impact, I would I would look at that, total net income as as probably the best proxy, but the the detail is there there in the letter.

Tim Bixby
Tim Bixby
CFO at Lemonade

From a tariff expectation or impact, you know, we did reiterate our full year guidance for growth. We actually upped a couple of our key metrics below the top line, partly to take account of the better than expectation result in q one. Tariffs are a bit tricky to understate what we're all kind of, living living through. Good reminder, though, is that, obviously, the tariff structure, has been a little bit volatile and and is likely to change or or could potentially change. Nevertheless, a a tariff, for example, on car, car parts or or cars in in general of, say, 25%, by the time it kinda works its way through the math, the percent of, claims affected, the percent of your business that's domestic versus foreign, and a number of other numbers, you get from a a headline number of 25% down to typically single digit impact, which is not zero.

Tim Bixby
Tim Bixby
CFO at Lemonade

And so we are able to reiterate our our growth metrics assuming that there is a modest headwind, but that's an inflation impact that we have, typically take into account. We'll adjust that as we go, but we're we're we're quite comfortable with where we are now based on what we know now for the full year, and we'll we'll come back in in three months and update that. I don't know. Daniel, did you have any maybe some thoughts to add on the the car front?

Daniel Schreiber
Daniel Schreiber
CEO and Co-Founder at Lemonade

Yes, gladly. Hi, Jason. Good morning. So you asked where to pay attention on car and the geographic expansion. I definitely would encourage you to pay attention.

Daniel Schreiber
Daniel Schreiber
CEO and Co-Founder at Lemonade

We certainly are paying very close attention to car in the proceeding and coming quarters. We've spoken in the past about the kind of, I used the term, I think, tinkering that we're doing. But in this week's or sorry, today's letter, we put some numbers to what that tinkering is yielding, 60% increase in conversion, 100% increase in cross sales over recent quarters. So we're certainly seeing a very strong ROI from all the experimentation that we're doing. And we do want to continue some of these.

Daniel Schreiber
Daniel Schreiber
CEO and Co-Founder at Lemonade

We've still got quite a few irons in the fire, and we'll work through those in the coming months and quarters in order to continue to refine the proposition. The true growth in card is already growing. It's accelerating. We spoke about how it is now outpacing for the first time the rest of our business this quarter. But I think we will put full pedal to the metal and all the other car related euphemisms and jokes once we complete a few more of the experiments that we have running.

Daniel Schreiber
Daniel Schreiber
CEO and Co-Founder at Lemonade

We are kind of walking and chewing gum. So in parallel to doing that, we are also expanding geographically. We are still, after the Colorado launch, only available to 40% of the nation's customers. So there's a lot of headroom there, and we will do both together. We are not ready to start naming states or dates.

Daniel Schreiber
Daniel Schreiber
CEO and Co-Founder at Lemonade

We'll announce them as we go. But I think if you're asking about where the focus is our focus, I think, is on the first part of that equation rather than on the geographic expansion, which will flow naturally after we feel the confidence that we are readily gaining.

Jason Helfstein
MD & Head - Internet at Oppenheimer & Co. Inc.

Thank you.

Tim Bixby
Tim Bixby
CFO at Lemonade

And Jason, just one clarification on my comments around gross profit were all germane to GAAP gross profit. We also have an adjusted gross profit number, which would be slightly different. Due to its definition, it would exclude the impact of the fair plan. So that would result in a modest difference in terms of the impact of the fires overall.

Operator

Thank you. The next question comes from Bob Huang from Morgan Stanley. Please go ahead, Bob. Your line is now open.

Jian Huang
Jian Huang
Analyst at Morgan Stanley

Good morning. So maybe the first one is on the car business. I think one thing you mentioned is that lifetime loss ratio should be better than the current loss ratio just given that once they start to renew, the LTV equation really should pick up. Can you maybe help us think about how we should assume a retention rate for your current cohort of business in the car side? And also what's kind of the driver for that retention rate?

Tim Bixby
Tim Bixby
CFO at Lemonade

So I would I would think of the retention rate generally as in line with the the rest of our business, but adjusted for a couple nuances. That the car business has gone from, basically, a a flat or no growth spend approach to flattening and now growing. And so by definition, when you grow at a more rapid pace, it grew more rapid than than the overall book. You're typically gonna see what we would call a new business penalty where the short term retention aspects and the loss ratio experience is gonna be slightly worse than you would expect over the lifetime. And so for some time, as we increase and accelerate the investment there, you you'll continue to see somewhat lower or worse short term retention rates on car than you might be otherwise.

Tim Bixby
Tim Bixby
CFO at Lemonade

On the other hand, you see a pretty consistent uptick or improvement at renewal. So car policies renew at six months, as you know, versus twelve. And at six months, we typically see something on the order of a double digit, 10 percentage, improvement, in in terms of the loss ratio and also some improvement in retention rate. And so I think you'll see this normalize as we have with our other more mature products as the the car growth acceleration continues into the later part of this year and into next year. We don't disclose exact retention rates by product, and and so I'm I'm kinda unable to go too much further in into it there.

Tim Bixby
Tim Bixby
CFO at Lemonade

But that's generally how how we think about the business.

Jian Huang
Jian Huang
Analyst at Morgan Stanley

Okay. No. That's helpful. Thank you.

Tim Bixby
Tim Bixby
CFO at Lemonade

Thought is cross cross sells probably just as a as a as a note or something that's that are quite important to this. As the as the customer count grows, as the as we expand our cross sells, and we saw a pretty very solid uptick in the in the the quantity of cross sells in q one. That's a dynamic that helps overall retention, generally. And so that's another sort of a a tailwind that, we'll we'll see move us in the right direction, especially as car, grows as a as a proportion of the business.

Jian Huang
Jian Huang
Analyst at Morgan Stanley

Okay. Got it. No. That that that's very helpful. It does sounds like once you bundle the product and cross sell that the retention rate should be relatively higher than industry.

Jian Huang
Jian Huang
Analyst at Morgan Stanley

At least that's what I thought. So maybe, like, moving on to the the second question. You touched on this a little bit like regarding full year guidance, right? Like you beat earnings by higher than what you're moving up the full year guidance. It does sound like it's because the tariff unknowns and things of that nature.

Jian Huang
Jian Huang
Analyst at Morgan Stanley

Is it fair to assume that if tariff comes in below that 25% assumption that you have, your full year adjusted EBITDA should actually be reasonably higher than what you're guiding to? Is it that the guidance not moving as much as the first quarter beat, it's just purely a function of conservatism?

Tim Bixby
Tim Bixby
CFO at Lemonade

I think I I would not recommend that we isolate tariffs as the the sole driver. It's just one of many drivers, in in terms of things that are more certain or less certain for our trajectory. You know, one one quarter into the year doesn't give you a a too much information about q three and q four. So this is the time where if you look back last year or the year before historically, we've been moderately, you know, cautious about what we see in the back half of the year. That fundamentally changes when you report q two, because you're into q three, and you've got a majority of the information for the year.

Tim Bixby
Tim Bixby
CFO at Lemonade

So if tariffs disappear, go to zero, certainly, would be a benefit. But it's, it's not a binary thing where that's the only, you know, risk in the business. So I I I'd say we approach our guidance very much as we have in the last, several quarters, which is, very close to or exactly what we expect to happen with some bit of conservativeness around the things where we have high uncertainty. And there are things that can go the other way. So I'd say it's very balanced, as it has been for several quarters.

Daniel Schreiber
Daniel Schreiber
CEO and Co-Founder at Lemonade

And, again, that's really helpful. Well, just to add that our revenue guide was raised commensurate with our Q1 beat. But Q1 EBITDA came in very much to plan. So we are reiterating there was no significant beat there. So I think you'll see we're being fairly consistent.

Jian Huang
Jian Huang
Analyst at Morgan Stanley

Thanks. Really appreciate it.

Operator

You. The next question comes from Andrew Kligerman from TD Securities. Please go ahead, Andrew. Your line is now open.

Andrew Kligerman
Managing Director at TD Securities

Hey, thank you and good morning. So you talked a little bit on the call about a higher growth spend for customer acquisitions. I'm kind of curious in the components of that, the change in online ad spending, Has pricing gone up? Could you give a little color around how pricing is in your ad spend? And then secondly, maybe a little color possibly on where you advertise online.

Andrew Kligerman
Managing Director at TD Securities

Where do you play most?

Tim Bixby
Tim Bixby
CFO at Lemonade

Sure. So a couple of thoughts there. I would say broad strokes, no real change in in overall cost. So we're seeing a similar level of efficiency, if you compare to the prior quarters or the prior year. And the mix of channels, I would say, changes, but probably in the long tail.

Tim Bixby
Tim Bixby
CFO at Lemonade

So if you if you rank the distribution channels from from high to low, you'd see, you know, some of the similar names you've seen for some time that you recognize, TikTok and YouTube and podcasts and kind of the usual suspects. But that long tail does change quite a bit, and that's really where our growth team, you know, earns their keep in some ways as they're able to find and leverage and manage those channels that are less well known to find the new ones that are much more productive and to maybe wean some of the others that are are less so. And so that does tend to change quite a bit. That's the human side. I mean, on the flip side, we have an AI LTV model that functions in real time to manage all this and evaluate the expected lifetime value of each of those customers in real time.

Tim Bixby
Tim Bixby
CFO at Lemonade

And so the the combination of those is is what gives us a real consistency in the overall efficiency. But, yeah, if you look under the hood, you'd you'd see a a fair amount of change. We're optimizing the channel. We're optimizing by geography. We're optimizing by product.

Tim Bixby
Tim Bixby
CFO at Lemonade

And so under the covers, there's a there's a fair amount of of change. From an overall perspective, there's a there's a a slight change, I would call it, in in how we allocate the total. So you you've probably you've out and about a bit in key metro areas, in The US primarily, you're gonna see lemonade, in the brand spend world, in public, whether it's on a on a a billboard or on the subway or public in different places where, that's a little more lean in, this year, particularly this, part of the year, q one, q '2, q '3, you'll see more of that. That's embedded in our our growth spend numbers, and, that's typically more of a longer term investment. You don't always get a return the next day like you do online, but, we believe it's really the the right time to push that number.

Tim Bixby
Tim Bixby
CFO at Lemonade

It's relatively modest in dollar terms, but you're gonna see more of that in in public. So I think those are kind of the highlights on the the brand spend and the ad spend.

Andrew Kligerman
Managing Director at TD Securities

Thanks for that. Yeah. That that was very helpful. And and and maybe, you know, earlier, Daniel was commenting, that with AI, there's no commensurate increase in fixed cost. And as I think about AI and Lemonade and still even with 2,500,000 customers, some of these other carriers are dramatically bigger in terms of the data that they have.

Andrew Kligerman
Managing Director at TD Securities

Do you think or maybe you could talk a little bit about the playing field and whether your AI has leveled it or maybe you're even ahead of competition in, utilizing data and analytics?

Daniel Schreiber
Daniel Schreiber
CEO and Co-Founder at Lemonade

Sure, Bob. Companies in our space are not want to share exactly what they're doing behind the scenes. So there's an element of kind of speculation, if you like, in what I'm going to say. But I have said on multiple occasions that already now, you know, prior to our tenth anniversary, I don't think there is a carrier in The United States that we would trade dataset with. And the others have been around for often times, most times, close to or more than a century.

Daniel Schreiber
Daniel Schreiber
CEO and Co-Founder at Lemonade

So it's not that they don't have more data than we do. They certainly do. But when you have the digital infrastructure that we have, you're able to connect dots in a way that is far more meaningful. I remember one person one of their incumbent telling me that the number one cause of loss in their system is other, and they suffer from a tremendous kind of garbage in garbage out kind of situation. Ajeet James spoke a couple of years ago about GEICO having 600 systems that don't talk to one another.

Daniel Schreiber
Daniel Schreiber
CEO and Co-Founder at Lemonade

So it's not mere tonnage of data or, you know, how many years you've been in operation. It's really about what kind of systems you've built in order to collate high quality actionable data, and then what systems are built in order to act upon them. And when you are selling insurance using AI that in real time can use all of the signals that we have, and Tim alluded to this in his answer to your question, right down to do I want this customer? How much am I projecting them to be worth over their lifetime? How much would I invest upon them?

Daniel Schreiber
Daniel Schreiber
CEO and Co-Founder at Lemonade

To the best of my knowledge, there isn't another carrier in the nation, perhaps in the world, that has that kind of capability. I think going forward, this compounds. Talking just yesterday at the annual general meeting again, Jain, who runs insurance of that Berkshire Hathaway, said that, they're really gonna take a wait and see approach to AI. The direct quote is individual insurance operations do double in AI, but we have not yet made a conscious big time effort in this. And he says that they're gonna can be in a state of readiness.

Daniel Schreiber
Daniel Schreiber
CEO and Co-Founder at Lemonade

Warren Buffett added that he wouldn't trade, all the AI over the next ten years for one Ajit. And, of course, that perspective is is well respected, but it's dramatically different to our own. We are all in on AI and digital systems. We do think that ultimate competitive advantage, is rooted in that and our ability to quantify risk, AI's ability to quantify risk, delight consumers and crush costs, and that is a pure facet of AI. And it is now moving from being a hypothesis that we've been chatting from the rooftops to something readily visible in our results.

Daniel Schreiber
Daniel Schreiber
CEO and Co-Founder at Lemonade

We spoke earlier about 10 during which our real underlying cost structures have declined even as our book has come close to doubling. And I think that that is already concrete, financially powerful, evidence of this AI in practice. That kind of operating leverage is, I believe, impossible without the kind of infrastructure that we have in place, and I believe others do not.

Andrew Kligerman
Managing Director at TD Securities

I think, absolutely, Jeev, AI is an amazing strategy. And if I could sneak one more in, you highlighted 29 rate filings in '24 and then already 24 in the first quarter of twenty five. What are what you know, maybe just the Part A of it is where are rates going right now in that book? Like, were they up? Any detail on where rates went in the quarter net would be of interest?

Andrew Kligerman
Managing Director at TD Securities

And I assume these telematics are on your existing car customers so that you're kind of seeing how they're driving and what's happening and that's why you're able file so quickly. Maybe just a little more color on that.

Daniel Schreiber
Daniel Schreiber
CEO and Co-Founder at Lemonade

Sure. And it's very much along the lines that you are outlining there, which is to say we're not predominantly now focused on rate adequacy. In other words, we've got the rates that we need in order to, you know, at a book level for the for everything to make sense and mature customers are at kind of target loss ratios. We're feeling pretty good about that. The tinkering that I keep talking about earlier is about playing with all the levers and all the data that we get in in order to become ever more precise at matching individual behaviors to rate and constantly refining those, refiling them, seeing the results, acting on those results, filing again.

Daniel Schreiber
Daniel Schreiber
CEO and Co-Founder at Lemonade

So this is really about refining the precision of our pricing in order to be able to get to the right customer with the right price. That impacts everything, conversion, retention, profitability. That is kind of where the whole thing comes together. We're seeing rapid progress. We spoke about some of those numbers earlier, but those are what those 24 filings are there to do, and we'll be doing a lot more of that in the coming months as well.

Tim Bixby
Tim Bixby
CFO at Lemonade

In terms of the overall growth profile, there's been a a fairly consistent trend that while we're adding a a a very healthy number of customers, somewhere, on the order of two thirds of our growth, let's say, in in recent quarters and in q one, growth in IP comes from adding new customers, that means a substantial minority, the other third, comes from primarily rate increases, also upsells and cross sells, but, rate increases. And that's a theme we've seen over time where anywhere from from 20 to 20% to a third of our growth continues to come from, rate increases and and cross sells and upsells. So that that's been a fairly consistent theme. When you see us heading towards 30% plus growth, we would assume that those themes will continue. We'll continue to add a significant number of customers.

Tim Bixby
Tim Bixby
CFO at Lemonade

More than a majority of that growth will come from adding customers, but that, the ability to grow over time from our existing customers, I think, will will continue to increase over time.

Andrew Kligerman
Managing Director at TD Securities

Thanks. Appreciate it.

Operator

Thank you. The next question comes from Katie Sakis from Autonomous Research. Please go ahead. Your line is now open.

Katie Sakys
US P&C Insurance, Senior Associate at Autonomous Research

Thank you. Good morning. I'd like to circle back to the IFP guide, which for the full year, it looks like it hasn't changed despite significantly better than expected results this quarter. I was wondering if you guys could walk us through the thinking there and any timing considerations to keep in mind as the year progresses? And then sort of as an addendum, how much of the 28% growth that you guys are guiding to for the full year is expected to come from the car product?

Tim Bixby
Tim Bixby
CFO at Lemonade

Sure. So, in terms of the overall growth, and I and IFP is is really the the best measure, more most direct measure of that, we grow at a pace of our our own choosing. And so while there's some range around the the pace of growth, the amount of dollars we spend and the pace at which we spend it really drives that growth number. So our our strategy for the remainder of the year takes into account what happened in q one. So we've acknowledged the fact that we performed somewhat better on certain metrics.

Tim Bixby
Tim Bixby
CFO at Lemonade

But, despite our disclosures around the California wildfires as being separate and different and unique, all of which it was, it's part of the business. And, it was a a cash use, and we have to we have to manage that business. So we're managing the top line. We're managing the bottom line. We were able to reiterate that we will be EBITDA breakeven at the end of, next year, which is a date that hasn't moved since we started speaking about it a few years ago.

Tim Bixby
Tim Bixby
CFO at Lemonade

And so we're managing all of those things and still on track to accelerate the top line growth rate. We could grow faster. This has been true for a very long time. But growing faster would change the dynamics of the rest of the p and l, and so we approach in sort of a balanced way. So we we don't just roll forward the first quarter, but we do take into account the the results of the of the first quarter.

Katie Sakys
US P&C Insurance, Senior Associate at Autonomous Research

And on the car piece, how much of the full year growth are you guys currently expecting will come from car?

Tim Bixby
Tim Bixby
CFO at Lemonade

So, we haven't put out a specific number for good reasons. One is we're we're very opportunistic in our LTV models, tell us where to go and and how fast to go and when to really push the accelerator. But within reason, I would expect a similar dynamic as we saw in Q1 to continue, which is that, car is expected to grow at a faster pace than, the rest of the book, and we expect that to continue for, quite some time. And if everything stays on track as we expected, I would expect that pace to even accelerate. But I would expect the themes you saw in q one, to continue throughout, throughout the rest of the year.

Katie Sakys
US P&C Insurance, Senior Associate at Autonomous Research

Got it. Okay. And then if I can just sneak in one more. On the retention ratio this quarter, I think that the slip down to 84 makes sense given you guys are still working on on remixing out of some of those more cat exposed geographies. But but it is much lower than we've seen for quite some time, and it's the lowest we've seen since you started messaging the nonrenewals.

Katie Sakys
US P&C Insurance, Senior Associate at Autonomous Research

So I'm just curious, is is this sort of a bottom on the retention ratio, or should we expect that to continue to decline some over the next couple of quarters? And then as we think about retention going forward, how long does it take for you guys to start to see improvements to the bottom line after nonrenewing a cohort of customers in a given quarter?

Tim Bixby
Tim Bixby
CFO at Lemonade

So on the ADR, annual dollar retention is a is a good metric, but it it is a double edged sword. It it takes into account the entire business, and we feel it's better to have that metric, to share the metric that we look at internally, publicly, and that metric can move for a number of reasons. Our efforts to improve the profitability of the overall book had a significant impact on that number, and and that's a strategy that we've followed for some time and taken into account. Absent the part of the reason we broke that out is so you can see that absent those efforts, the underlying rest remaining parts of the book of business show that continuing positive trend, which is what we would expect. As to whether at the bottom, it's hard to to project that number with exact precision, but I would expect that it could be flat.

Tim Bixby
Tim Bixby
CFO at Lemonade

It wouldn't surprise me if it were flat at this level for for some time as we continue these efforts. I wouldn't I wouldn't expect it to to show us a significant additional deterioration, but it is a tougher one to project, out too far with with, precision. And, you know, on other side of the coin, our clean the book efforts really kinda came home in a in a great way in the California wildfire example. Several millions of dollars, double digit millions of dollars of benefit that we would otherwise seen as as losses did not occur because of our efforts over over time to clean the book. It's something we kinda track and make sure that the the efforts we're making to improve profitability are actually resulting in in dollars, and this was a hard example in the first quarter where we saw that actually came true.

Tim Bixby
Tim Bixby
CFO at Lemonade

So, you know, balancing a lot of things, but ADR should over time, continue its trajectory.

Michal Langer
Michal Langer
Chief Product Officer at Lemonade

Got it. Thank you.

Tim Bixby
Tim Bixby
CFO at Lemonade

Thank you.

Daniel Schreiber
Daniel Schreiber
CEO and Co-Founder at Lemonade

Thanks, Katie.

Operator

Thank you. The next question comes from Matthew O'Neill from SK Partners. Please go ahead, Your line is now open.

Zachary Gunn
Covering Analyst at Financial Technology Partners

Hey, there. This is Zach Gunn on for Matt. Thanks for taking the question. I just wanted to ask quickly about you talked about incorporating telematics earlier at near point of sale and how when you've done this, you've seen the 60% boost in conversion rates. I guess, my question is how widely rolled out is this?

Zachary Gunn
Covering Analyst at Financial Technology Partners

And what's the kind of gate limiting factor right now in pushing that out more broadly?

Daniel Schreiber
Daniel Schreiber
CEO and Co-Founder at Lemonade

Hey, Zach. Yeah. It's not very broadly rolled out. And we the trajectory that we're seeing, we kinda gave you a snapshot of that 60% number. We're we're not done with that.

Daniel Schreiber
Daniel Schreiber
CEO and Co-Founder at Lemonade

We think with every experiment, we're learning more things, and then we move on to the next AP test. So I think there's quite a lot of legs legs still in in a lot of those experiments. So we're not yet focused on massive rollout. I kind of alluded to this in an earlier question as well. We're much more focused on fine tuning and getting this all right and ready for what we perceive to be prime time and opportunity that's ahead.

Daniel Schreiber
Daniel Schreiber
CEO and Co-Founder at Lemonade

So it's in a few states where we can iterate relatively quickly, file a new state where regulators are favorably disposed to quick terms of filings and experimentation. It will roll out more uniformly across all of our states once we feel we've reached a certain stable point. We're not quite there yet.

Operator

Matthew, your line is still open.

Zachary Gunn
Covering Analyst at Financial Technology Partners

That's all for me. Thank you.

Operator

Thank you. The next question and our final question today comes from Tommy McJoint from KBW. Please go ahead, Tommy. Your line is now open.

Tommy McJoynt-Griffith
Director at Keefe, Bruyette & Woods (KBW)

Hey, good morning, guys. It definitely sounds like the cross sale opportunity is very important to gain some operating leverage around the growth spend. Perhaps one data point you could share is what percentage of the new car sales that you guys are generating are cross sales from existing lemonade customers versus new customers?

Tim Bixby
Tim Bixby
CFO at Lemonade

Yeah. So I think In terms of, trends in the quarter, we saw more of our growth, coming from cross sells, more of our growth coming from car. I think if if you look at a couple of the metrics, you can see this dynamic. One is our, multi policy rate is is increasing, and that's a dynamic that's not solely related to car, but we're now heading towards almost 5% of our customers having multi policy. In terms of the of the cross sell aspect, something like, half of our new sales are now coming, of car coming from existing customers.

Tim Bixby
Tim Bixby
CFO at Lemonade

That's up. If you look back over a longer period of time, that would have looked more like a third. So still plenty of room to grow, but definitely an an upward theme. So something on the order of half of those cross sells coming from existing customers. And two and a half million to go, 2 and half million less the ones we have already.

Tim Bixby
Tim Bixby
CFO at Lemonade

So it's a it's a it's a pretty deep pool, and a much more efficient way to acquire new business.

Tommy McJoynt-Griffith
Director at Keefe, Bruyette & Woods (KBW)

Okay. Got it. And then just, the second one, the the changes to the Chewy partnership, was that just the the the expiration of the warrants? Was that separate from what's going on with the the business relationship? Can just clarify what happened there?

Tim Bixby
Tim Bixby
CFO at Lemonade

Sure. Yeah. Chewy is all good news. The the Chewy folks are are terrific. We love everything they're doing, and the partnership is is humming along and and generating tons of policies for us.

Tim Bixby
Tim Bixby
CFO at Lemonade

We don't break it out for our reasons and their reasons in specific metrics, but it's going well. The the the contract that was terminated was a warrant structure. And so we had going into this the partnership with Chewy, we had a structure where we would had the opportunity to pay commissions in cash for equity. Initially, we chose almost entirely equity for cash preservation reasons and optionality, And we determined over time as we headed into year the end of year two of the agreement to switch that back to a cash structure. So we terminated just the warrant agreement.

Tim Bixby
Tim Bixby
CFO at Lemonade

Everything else from a commercial perspective is steady and strong and continues.

Operator

That does conclude our Q and A session for today, and that does conclude today's call. Thank you all for joining. You may now disconnect your lines.

Executives
    • Daniel Schreiber
      Daniel Schreiber
      CEO and Co-Founder
    • Michal Langer
      Michal Langer
      Chief Product Officer
    • Tim Bixby
      Tim Bixby
      CFO
Analysts
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Key Takeaways

  • 27% year-on-year top-line growth in Q1 marked Lemonade's sixth consecutive quarter of acceleration and was achieved even as fixed costs remained flat or declined, highlighting the impact of AI on operational efficiency.
  • Lemonade reiterated its goal of achieving adjusted EBITDA breakeven by Q4 2026, maintained full-year EBITDA loss guidance of $135M–$140M, and expects positive adjusted free cash flow in 2025 despite the California wildfires.
  • The California wildfires added approximately 16 percentage points to Lemonade’s Q1 gross loss ratio, yet its trailing 12-month loss ratio held steady at 73% and adjusted gross profit rose 25% year-on-year.
  • Lemonade Car accelerated this quarter with quarter-on-quarter IFP growth exceeding the rest of the business, a >60% surge in conversion from “day zero” telematics, doubled cross-sell volume, and the launch in Colorado boosting U.S. auto market coverage past 40%.
  • Key Q1 operating metrics included in-force premium surpassing $1 billion (+27% YoY), 2.5 million customers (+21%), premium per customer of $396 (+4%), and gross earned premium and revenue growth of 24% and 27% respectively.
AI Generated. May Contain Errors.
Earnings Conference Call
Lemonade Q1 2025
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