Lemonade, Inc. (LMND)·Q1 2025 Earnings Summary

Executive Summary

• Q1 2025 delivered accelerating top-line with revenue up 27% to $151.2M and in-force premium (IFP) up 27% to $1.008B; adjusted gross profit rose 25% to $46.0M, while gross profit was $38.6M .
• Wildfires materially affected quarterly margins (gross loss ratio 78%; ex-CAT 59%), but trailing-12-month loss ratio remained stable at 73%, within the target range, underscoring underwriting resilience and reinsurance protection .
• Management modestly raised FY 2025 revenue and GEP guidance and reiterated adjusted EBITDA loss and IFP trajectories; Q2 guidance points to continued growth with revenue of $157–$159M and adjusted EBITDA loss of $(44)–$(41)M .
• S&P Global consensus was beat on revenue ($151.2M vs $144.98M*) and EPS (−$0.86 vs −$0.93*), catalyzed by stronger earned premium and higher ceding commission/investment income, though CAT headwinds weighed on profitability this quarter .
• Strategic catalysts: continued AI-driven operating leverage, “Day Zero” telematics (60% conversion lift) and cross-sell momentum (car cross-sales more than doubled YoY; ≈50% of new car sales from existing customers), plus Colorado car launch expanding coverage beyond 40% of U.S. market .

What Went Well and What Went Wrong

What Went Well

• Accelerating growth with durable KPIs: Revenue +27% to $151.2M; IFP crossed $1B (+27% YoY); adjusted GP +25%; TTM loss ratio stable at 73%, within target range .
• AI-driven leverage and cost discipline: Technology development expense up just 5% YoY to $22M, headcount up ~2% while IFP grew 27%, illustrating operating leverage .
• Car momentum and cross-sell: “Day Zero” telematics boosted conversion ~60%; car IFP growth outpaced the rest of the book; cross-sales to car more than doubled YoY, with ~50% of new car sales from existing customers .

What Went Wrong

• CAT impact compressed quarterly margins: Gross loss ratio at 78% (ex-CAT 59%), with California wildfires contributing ~19 pts to gross LR; EBITDA impact approx. $(22)M in Q1 .
• ADR declined to 84% (−4 pts YoY), reflecting deliberate non-renewals in more CAT-exposed home geographies and pay-per-mile car product dynamics; management expects normalization over coming quarters .
• FAIR Plan assessment added expense burden: ~$6.9M assessment flowed through other insurance expense; management plans to recoup up to 50% over ~2 years but near-term drag remains .

Financial Results

Core P&L and Margins (oldest → newest)

Estimates vs Actuals (Q1 2025)

Values with asterisks retrieved from S&P Global.

KPIs and Insurance Metrics (oldest → newest)

Segment/Geography Breakdown (IFP)

Guidance Changes

Earnings Call Themes & Trends

Management Commentary

• “At 27% year-on-year growth, Q1 was our sixth consecutive quarter of accelerating top line growth… we’ve seen no material corresponding rise in our expense base… AI hard at work” .
• “We’re comfortable reiterating… achieving EBITDA breakeven by the end of next year… modestly raising our expectations for gross earned premium and revenue” .
• Car strategy: “Day zero telematics” drove ~60% conversion lift; car IFP growth outpaced the book; cross-sell more than doubled YoY; Colorado launch expands coverage beyond 40% of U.S. auto market .
• CAT impact: “Initial estimate ~$45M gross… came in at ~$44M; EBITDA impact ~$22M negative; FAIR Plan assessment detailed” .
• Tariffs: “A headline 25% tariff… would likely increase loss trends by single-digit percentage points, which we would endeavor to reflect in our rates” .

Q&A Highlights

• Subrogation: Sold Eaton fire subrogation rights; ~$8M impact recognized; potential for incremental recoveries depending on loss thresholds .
• FAIR Plan recoup: Expect to recoup up to 50% over ~2 years; customer impact managed thoughtfully .
• Growth spend and channels: Pricing efficiency stable; mix optimized via AI LTV in real-time; brand spend increased modestly in metro areas .
• Car state expansion: Focus on fine-tuning unit economics before “full pedal”; more states to follow with disciplined rollout .
• Cross-sell contribution: ~50% of new car policies now from existing customers vs ~1/3 historically; multi-policy approaching ~5% .
• Chewy partnership: Warrant agreement terminated (shift to cash commissions), commercial partnership “steady and strong” .

Estimates Context

• Q1 2025 beats vs S&P consensus: Revenue $151.2M vs $144.98M*, EPS −$0.86 vs −$0.93*; positive variance driven by higher gross earned premium, ceding commission rate and +26% investment income .
• Street models should reflect CAT headwinds (gross LR 78% with ~19pts CAT, ex-CAT 59%) but maintain TTM stability at 73%; FY revenue and GEP nudges upward while adjusted EBITDA loss unchanged, indicating confidence in operating trajectory .

Values with asterisks retrieved from S&P Global.

Key Takeaways for Investors

• Revenue and EPS beat consensus despite significant CAT impact; strength came from earned premium growth, reinsurance economics, and investment income .
• Margin volatility from CATs is transitory; TTM loss ratio remains at 73% and ex-CAT LR is 59%, evidencing underwriting discipline and portfolio diversification .
• Car is beginning to inflect: ~60% conversion uplift from “Day Zero” telematics and accelerating cross-sell; expect car to increasingly drive growth with maturation improving loss ratios .
• Guidance raised for FY revenue and GEP, maintained for adjusted EBITDA and IFP—suggesting confidence tempered by macro/tariff uncertainty; Q2 guide supports continued growth .
• Near-term watch items: ADR stabilization as home mix and pay-per-mile dynamics normalize; FAIR Plan recoup ramps over ~2 years; continued rate adequacy and filings cadence .
• Capital and liquidity robust: ~$996M cash and investments at quarter-end; synthetic agents financing supports growth while preserving cash dynamics .
• Trading lens: Positive narrative on AI-driven operating leverage and emerging car growth, with near-term margin noise from CATs; catalysts include additional state launches, cross-sell momentum, and continued guidance execution .