Slide 1: Lemonade Shareholder Letter Q4 2023
Lemonade Shareholder Letter Q4 2023
Slide 2: Q4 2023 key metrics
$747M 77% IN FORCE PREMIUM (IFP) GROSS LOSS RATIO 4 20% YOY 4 12% YOY $369 2,026,918 96% PREMIUM PER CUSTOMER TOTAL CUSTOMERS e $747™M 4 7%YOY ‘12% YOY py 89% ° $625M ° 77% ° $380M ° Q42t 422 423 Q42t Q422 Q423 $200 $181 $151 $100 $89 % ($54) ($52) ($29) (50%) (79%) (100%) ($100) Qa 422 Qa23 ADJ EBI
Slide 3: Dear Shareholders
Dear Shareholders, We’re happy to report on a strong fourth quarter and an upbeat outlook for 2024. • Top line: At $747 million, in-force premium (IFP) grew by 20% year on year, while revenue grew 31%. • Loss Ratio: At 77%, gross loss ratio showed a 12 point year on year improvement. • Gross Profit:
Slide 4: Up and to the right
Up and to the right Q4 delivered more topline growth than we had anticipated, and the outperformance of the bottom line was more significant yet. Zooming out, we can say much the same about 2023 writ large: relative to our expectations at the outset of the year, we saw materially higher top line gro
Slide 5: Adjusted Gross Profit growth
This growing profitability is also reflected in our Adjusted Gross Profit, which jumped nearly 170% over the same period: Looking forward, we expect to grow faster this year, and to see Adjusted EBITDA continue its upward progression. Importantly, though, we do not expect that progression to be enti
Slide 6: Loss Ratio & Seasonality
Loss Ratio & Seasonality We delivered continued strong progress in our Q4 Gross Loss Ratio: a 12 point improvement year on year - 6 points sequentially - brought our loss ratio back into the 70s for the first time in over 2 years. While our target of <75% seems tantalizingly close, we want to cautio
Slide 7: Loss ratio outlook and seasonal headwinds
All of this is to provide some visibility into how our loss ratio is likely to evolve over the coming quarters. While we believe our loss ratio will continue to trend downwards (with occasional bona fide surprises), this positive momentum will face seasonal headwinds in Q1, and these typically stren
Slide 8: Trailing twelve months loss ratio
Better yet, opening the aperture, from the 90-day lookback of the ‘quarterly loss ratio’, to take in the full trailing twelve months (TTM), further denoises results and boosts credibility. TTM loss ratio does a decent job of neutralizing not only predictable reversals, but the unpredictable ones too
Slide 9: Annual loss ratio and TTM reporting
In the insurance industry it is customary to share a trailing twelve months loss ratio just once a year, at the end of each year (AKA: Annual Loss Ratio) - and in 2023 ours was 85%, down from 90% in 2022. We believe this trailing 12 month view does add a more credible perspective on longer term tren
Slide 10: LTV
LTV 9 Our improving loss ratio, and our growing powers of prognostication, owe much to our suite of homegrown AIs, and specifically to one we refer to fondly as ‘LTV’. This composite AI harnesses some 50 machine learning models to predict, for each customer, their lifetime value, or LTV, in net pres
Slide 11: LTV insights on Car and Home customers
overestimating the LTV of our Car and, to a greater extent, our Home customers. All these insights flow into our systems, and our targeting and spend allocation gets instantly more refined and rewarding. As a reminder, the AI making the LTV predictions uses the rates in effect at the moment the sale
Slide 12: Homeowners… still a way to go
Homeowners… still a way to go In the US, during the years 1980–2022, the insurance industry reported an average of 8 events each year where overall claims costs exceeded $1 billion (inflation-adjusted). In more recent years (2018–2022) that average more than doubled to 18 events, and in 2023 we saw
Slide 13: Rising CATs and repair costs
These figures capture not only how the weather has been increasingly battering homeowners, but how inflation has been too. In recent years, the costs for home repairs have been consistently and significantly higher than the core CPI inflation rate: This double whammy - increasing CATs and rising cos
Slide 14: Rebalancing the homeowners portfolio
At Lemonade we have observed these trends for some time, and have been proactively rebalancing our portfolio to reduce our homeowners exposure in many areas. The chart below shows what percentage of newly written premiums came from homeowners policies in recent years: This notable drop is in line wi
Slide 15: Diverse products and third-party paper pilot
Having a diverse portfolio of products and markets has afforded us the flexibility to prioritize opportunities where we are well priced, though having to bench major products in major states did force us to slow down our growth in 2023. (Admittedly, at 20% we still grew significantly.) We have been
Slide 16: Cash & Investments
Cash & Investments Something noteworthy happened in H2 2023: our total cash levels rose. We ended Q2 with $942m in ‘cash and investments’, while we ended both Q3 and Q4 with $945m. This suggests we’ve been flirting with net cash flow positivity (i.e. a favorable change in cash and investments) for a
Slide 17: Europe comes of age
Europe comes of age Our European business made solid strides in 2023, with increasingly healthy loss ratios and profitable unit economics, and the launch of the UK market - which quickly became our largest customer base in Europe. Our European business is still dwarfed by our US book, but it is fast
Slide 18: European product launches in 2024
have done in launching countries, improving unit economics, and readying new products for launch. Apropos that, one of the things that has hindered our European growth is that we’ve been a monoline insurer there: renters insurance only (or, ‘contents insurance’ as it is referred to in some European
Slide 19: Forecast for 2024: Acceleration!
Forecast for 2024: Acceleration! 2023 was a year of extraordinary challenges in the insurance world: the hardest reinsurance market in decades, some of the worst winter storms on record, and combined ratios above 100 throughout the industry. Several of the largest insurers in the US pulled out of so
Slide 20: Accelerating growth toward 25% CAGR
The upshot is that we are on a trajectory of steadily gaining velocity, as we smoothly accelerate our growth rate back to our target baseline of 25% CAGR, and beyond. The associated spend, and the resultant growth, should boost our bottom line a couple of years hence, but it will weigh on our bottom
Slide 21: Closing and supplementary shareholder information
team. We were built for speed, and we can’t wait to shift gears and to feel the wind in our face once more. ---------------------------- Please note: on our investor relations website, we have published Supplementary Shareholder Information, a document that provides additional color on several impor
Slide 22: Q4 2023 Results, KPIs and Non-GAAP Financial Measures
Q4 2023 Results, KPIs and Non-GAAP Financial Measures In Force Premium IFP, defined as the aggregate annualized premium for customers as of the period end date, increased by 20% to $747 million as compared to the fourth quarter of 2022. Customers Customer count increased by 12% to 2,026,918 as compa
Slide 23: Revenue and Gross Profit
Revenue Fourth quarter revenue of $115.5 million increased by $27.1 million or 31% as compared to the fourth quarter of 2022, primarily due to the increase of gross earned premium during the quarter, coupled with greater investment income. Gross Profit Fourth quarter gross profit of $33.6 million in
Slide 24: Adjusted EBITDA and Cash & Investments
Adjusted EBITDA Adjusted EBITDA loss of $28.9 million decreased by $22.8 million as compared to an Adjusted EBITDA loss of $51.7 million in the fourth quarter of 2022, primarily due to higher revenue, improved loss ratio and lower operating expenses in the fourth quarter. Adjusted EBITDA is a non-GA
Slide 25: Key Operating and Financial Metrics
Key Operating and Financial Metrics Three Months Ended December 31, Year Ended December 31, 2023 2022 2023 2022 ($ in millions, except Premium per customer) Customers (end of period) 2,026,918 1,807,548 2,026,918 1,807,548 In force premium (end of period) $ 747.3 $ 625.1 $ 747.3 $ 625.1 Premium per
Slide 26: Guidance
Guidance First Quarter 2024 We expect: • In force premium at March 31, 2024 of $789 - $791 million (~21% growth YoY) • Gross earned premium of $183 - $185 million (~20% growth YoY) • Revenue of $111 - $113 million (~19% growth YoY) • Adjusted EBITDA loss of ($43) - ($41) million (~19% improvement Yo
Slide 27: Adjusted EBITDA guidance reconciliation note
A full reconciliation of Adjusted EBITDA guidance to net loss on a forward- looking basis cannot be provided without unreasonable efforts, as we are unable to provide reconciling information with respect to income tax expense, depreciation and amortization, interest income, net investment income, an
Slide 28: Non-GAAP financial measures and key operating metrics
Non-GAAP financial measures and key operating metrics The non-GAAP financial measures used in this letter to shareholders are Adjusted EBITDA, Adjusted Gross Profit, and Ratio of Adjusted Gross Profit to Gross Earned Premium. We define Adjusted EBITDA as net loss excluding income tax expense, deprec
Slide 29: Ratio of Adjusted Gross Profit to Gross Earned Premium definition
We define Ratio of Adjusted Gross Profit to Gross Earned Premium as the ratio of adjusted gross profit to gross earned premium. The Ratio of Adjusted Gross Profit to Gross Earned Premium measures the relationship between the underlying business volume and gross economic benefit generated by our unde
Slide 30: Use of non-GAAP measures and KPIs
operating investments; and (vi) plan for and prepare future annual operating budgets and determine appropriate levels of operating investments. Investors are encouraged to review the reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures as prov
Slide 31: IFP and premium per customer definitions
forecast of future revenues nor is it a reliable indicator of revenue expected to be earned in any given period. We believe that our calculation of IFP is useful to analysts and investors because it captures the impact of growth in customers and premium per customer at the end of each reported perio
Slide 32: ADR and gross earned premium definitions
including companies in our industry, may calculate ADR differently or not at all, which reduces the usefulness of ADR as a tool for comparison. Gross earned premium ("GEP") is the earned portion of our gross written premium. Gross earned premium includes direct and assumed premium. In December 2022,
Slide 33: Links, earnings teleconference and About Lemonade
Links The information contained on, or that can be accessed through, hyperlinks included herein is deemed not to be incorporated in or part of this shareholder letter. Earnings teleconference information The Company will discuss its fourth quarter and full year ended December 31, 2023 financial resu
Slide 34: Forward-looking statement safe harbor
For more information, please visit www.lemonade.com, and follow Lemonade on Twitter or Instagram. Media inquiries: press@lemonade.com Investor contact: ir@lemonade.com Forward-looking statement safe harbor This letter to shareholders contains forward-looking statements within the meaning of the Priv
Slide 35: Forward-looking statements risk factors
algorithms may not operate properly or as expected; the intense competition in the segments of the insurance industry in which we operate; our ability to maintain our risk-based capital at the required levels; our ability to expand our product offerings; the novelty of our business model and its unp
Slide 36: Forward-looking statements risk factors (continued)
policies; limitations in the analytical models used to assess and predict our exposure to catastrophe losses; potential losses could be greater than our loss and loss adjustment expense reserves; the minimum capital and surplus requirements our insurance subsidiaries are required to have; assessment
Slide 37: Consolidated Statements of Operations and Comprehensive Loss
Consolidated Statements of Operations and Comprehensive Loss $ in millions, except per share amounts Three Months Ended December 31, Year Ended December 31, 2023 2022 2023 2022 (unaudited) Revenue Net earned premium $ 83.9 $ 63.2 $ 315.2 $ 172.4 Ceding commission income 18.4 17.7 69.8 64.1 Net inves
Slide 38: Consolidated Balance Sheets
Consolidated Balance Sheets $ in millions, except per share amounts December 31, 2023 2022 Assets Investments Fixed maturities available-for-sale, at fair value (amortized cost: $632.0 million and $673.5 million as of December 31, 2023 and 2022, respectively) $ 627.4 $ 650.3 Short-term investments (
Slide 39: Consolidated Statements of Cash Flows
Consolidated Statements of Cash Flows $ in millions Year Ended December 31, 2023 2022 Cash flows from operating activities: Net loss $ (236.9) $ (297.8) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 20.0 12.2 Stock-based compensation 59.9 5
Slide 40: Reconciliation of Non-GAAP Financial Measures
Reconciliation of Non-GAAP Financial Measures to their Most Directly Comparable GAAP Financial Measures Adjusted Gross Profit and Adjusted Gross Profit Margin The following table provides a reconciliation of total revenue to adjusted gross profit and the related adjusted gross profit margin for the
Slide 41: Ratio of Adjusted Gross Profit to GEP and Adjusted EBITDA
Ratio of Adjusted Gross Profit to Gross Earned Premium The following table sets forth our calculation of the Ratio of Adjusted Gross Profit to Gross Earned Premium for the periods presented: Three Months Ended December 31, Year Ended December 31, 2023 2022 2023 2022 ($ in millions) Numerator: Adjust
Slide 42: Supplemental Financial Information
Supplemental Financial Information $ in millions, unaudited Stock-based compensation Three Months Ended December 31, Year Ended December 31, 2023 2022 2023 2022 Loss and loss adjustment expense, net $ 0.6 $ 0.8 $ 2.8 $ 2.7 Other insurance expense 0.6 0.4 2.2 1.6 Sales and marketing (1) 1.8 1.6 6.4 6
Slide 43: Historical Operating Metrics
Historical Operating Metrics $ in millions except Premium per customer Dec. 31, Mar. 31, Jun. 30, Sept. 30, Dec. 31, Mar. 31 Jun. 30, Sep. 30, Dec. 31, 2021 2022 2022 2022 2022 2023 2023 2023 2023 Customers (end of period) 1,427,481 1,504,197 1,579,936 1,775,824 1,807,548 1,856,012 1,906,408 1,984,1
Slide 44: Appendix to the Q4 2023 Shareholder Letter
Appendix to the Q4 2023 Shareholder Letter
Slide 45: Customers, In Force Premium and Premium Per Customer
Customers (in ‘000s) In Force Premium ($s in m) 12% 27% YoY growth 20%64% 1,427 1,808 2,027 Q4 21 Q4 22 Q4 23 $380.1 $625.1 $747.3 Q4 21 Q4 22 Q4 23 $266 $346 $369 Q4 21 Q4 22 Q4 23 Premium Per Customer 7% 30% * = Appendix p.2
Slide 46: Gross Earned Premium and Revenue
Gross Earned Premium (“GEP”) ($s in m) Revenue ($s in m) $41.0 $88.4 $115.5 Q4 21 Q4 22 Q4 23 31%116%YoY growth $89.3 $151.3 $181.0 Q4 21 Q4 22 Q4 23 20% 69% Appendix p.3
Slide 47: Loss Ratio
89% 87% 94% 83% 77% 97% 93% 99% 88% 78% 79% 72% 73% 73% 72% Q4 22 Q1 23 Q2 23 Q3 23 Q4 23 Loss Ratio Gross Loss Ratio (1) Net Loss Ratio (1) (1) We define gross loss ratio, expressed as a percentage, as the ratio of losses and loss adjustment expense to gross earned premium, and net loss ratio, expr
Slide 48: Gross Profit and Gross Profit Margin
Gross Profit ($s in m) Gross Profit Margin 165%63% 19% 14% 29% Q4 21 Q4 22 Q4 23 YoY growth Appendix p.5 $7.8 $12.7 $33.6 Q4 21 Q4 22 Q4 23
Slide 49: Adj. Gross Profit and Ratio to GEP
Adj. Gross Profit (1) ($s in m) Ratio of Adj. Gross Profit to GEP $12.6 $17.9 $35.3 Q4 21 Q4 22 Q4 23 97%42% (1) This is a non-GAAP metric. For a description of these metrics and a reconciliation to the most directly comparable GAAP measure, please see "Reconciliation of Non-GAAP Financial Measures
Slide 50: Operating Expenses
($84.5) ($95.0) ($90.1) Q4 21 Q4 22 Q4 23 Other insurance expense Sales and marketing Technology development General and administrative Operating Expenses (1) ($s in m) (1) Represents total expense less loss and loss adjustment expense, net. Appendix p.7
Slide 51: Net Loss and Adj. EBITDA
Net Loss ($s in m) Adj. EBITDA (1) ($s in m) 44%(1%) YoY growth 33% 9% (1) This is a non-GAAP metric. For a description of these metrics and a reconciliation to the most directly comparable GAAP measure, please see "Reconciliation of Non-GAAP Financial Measures to GAAP" and "Non-GAAP financial measu
Slide 52: Guidance
Guidance ($s in m) Q1 2024 Full Year 2024 $789 $791 $183 $185 $111 $113 ($43) ($41) ($160) ($155) $505 $510 $815 $820 $938 $942 Low High Low High In Force Premium (as of end of period) Gross Earned Premium Revenue Adj. EBITDA (1) (1) Adj. EBITDA is a non-GAAP metric. A full reconciliation of Adj. EB
Slide 53: Adjusted Gross Profit reconciliation
Adjusted Gross Profit (1) (1) This is a non-GAAP metric. For a description of these metrics and a reconciliation to the most directly comparable GAAP measure, please see "Reconciliation of Non-GAAP Financial Measures to GAAP" and "Non-GAAP financial measures and key operating metrics". Three Months
Slide 54: Adjusted EBITDA reconciliation
Adjusted EBITDA (1) (1) This is a non-GAAP metric. For a description of these metrics and a reconciliation to the most directly comparable GAAP measure, please see "Reconciliation of Non-GAAP Financial Measures to GAAP" and "Non-GAAP financial measures and key operating metrics". Three Months Ended