Executive Summary

Strong quarter: revenue +35% YoY to $164.1M, gross loss ratio improved to 67% (TTM 70%), and gross profit +109% YoY; Adj. FCF turned positive at $25M, while Adj. EBITDA loss narrowed to ($40.9)M .
Estimates beat: Q2 revenue beat S&P Global consensus ($164.1M vs $160.8M*) and EPS beat (−$0.76 vs −$0.80*); EBITDA outperformed as well (S&P “EBITDA” −$33.9M actual vs −$42.2M* consensus), reflecting underwriting gains and higher revenue retention from reinsurance changes .
Guidance: Raised FY25 IFP, GEP, and revenue; reiterated FY25 Adj. EBITDA loss guidance (−$140M to −$135M) and positive FY25 Adj. FCF; introduced Q3 guidance reflecting step-down in quota share cession (55%→20%) which boosts revenue retention .
Strategic catalyst: Reinsurance renewal materially reduces quota share cession to ~20% effective July 1, expected to drive revenue growth > IFP growth and modestly lift gross profit as a % of GEP; management emphasized no material change to the capital plan due to improved loss ratios and use of Lemonade Re .

What Went Well and What Went Wrong

What Went Well
- Underwriting improved meaningfully: Q2 gross loss ratio 67% (−12 pts YoY), TTM 70% within target; gross profit +109% YoY to $64.3M with margins +14 pts to 39% .
- Growth engines accelerated: Car IFP +12% QoQ with lowest GLR since launch (82%, −13 pts YoY); Europe IFP >$43M (+200% YoY) with GLR ~83% (−15 pts YoY) and >20% of net new customers .
- CEO tone: “Our seventh consecutive quarter of IFP growth acceleration…gross margin at 39% is among the highest we’ve ever recorded…strong Adj. FCF generation of $25M” .
What Went Wrong
- Retention headwind: ADR 84% (−4 pts YoY) due to ongoing non‑renewal program in homeowners to remix profitability; management expects ADR to stabilize then tick up after 2H25 as program winds down .
- Operating expense optics: Total OpEx ex loss & LAE +21% YoY (growth spend nearly doubled to $49.7M); results also benefited from a one‑time $11.7M ERC tax refund .
- Car still above target loss ratio overall (82% GLR) despite improvement; management highlighted ~20 ppt loss ratio improvement from first policy to renewal cohorts, but continued execution is needed .

Financial Results

Income statement, loss ratios, and profitability

Metric	Q2 2024	Q1 2025	Q2 2025
Revenue ($M)	122.0	151.2	164.1
Gross Earned Premium (GEP, $M)	199.9	233.6	252.3
Gross Profit ($M)	30.8	38.6	64.3
Gross Profit Margin (%)	25%	26%	39%
Net Loss ($M)	(57.2)	(62.4)	(43.9)
Diluted EPS ($)	(0.81)	(0.86)	(0.60)
Adjusted EBITDA ($M)	(43.0)	(47.0)	(40.9)
Gross Loss Ratio (%)	79%	78%	67%
Net Loss Ratio (%)	79%	82%	69%

Q2 2025 vs S&P Global consensus (Wall Street)

Revenue: Actual $164.1M vs $160.8M* consensus → +$3.3M beat .
EPS (Primary): Actual −$0.76 vs −$0.80* consensus → +$0.04 beat .
EBITDA: S&P “EBITDA” Actual −$33.9M vs −$42.2M* consensus → +$8.3M beat. Company-reported Adj. EBITDA was −$40.9M .

KPIs

KPI	Q2 2024	Q1 2025	Q2 2025
Customers (end)	2,167,194	2,545,496	2,693,107
In-Force Premium ($M, end)	838.8	1,007.8	1,083.4
Premium per Customer ($)	387	396	402
Annual Dollar Retention (%)	88%	84%	84%

Segment/Type details (Q2 2025 focus)

Segment/Type	IFP ($M) Q2 2024	IFP ($M) Q1 2025	IFP ($M) Q2 2025	GLR (%) Q2 2024	GLR (%) Q1 2025	GLR (%) Q2 2025
Homeowners multi‑peril	468	513	523	78	82	60
Pet	224	314	350	72	68	70
Car	123	134	150	95	88	82
Europe (all products)	14	33	43	98	91	83
Other	10	14	17	—	—	—

Notes: Car GLR hit its best level since launch (82%), driven by broad telematics adoption and pricing segmentation; Europe IFP >$43M (+200% YoY) with GLR in low 80s, both materially improved .

Guidance Changes

Metric	Period	Previous Guidance (from Q1’25 letter)	Current Guidance (Q2’25)	Change
In‑Force Premium (IFP)	FY 2025	$1,203–$1,208M	$1,213–$1,218M	Raised
Gross Earned Premium (GEP)	FY 2025	$1,028–$1,031M	$1,036–$1,039M	Raised
Revenue	FY 2025	$661–$663M	$710–$715M	Raised (reinsurance cession cut drives higher retention)
Adjusted EBITDA	FY 2025	($140)–($135)M	($140)–($135)M	Maintained
Stock‑based Compensation	FY 2025	~$60M	~$61M	Slightly raised
Weighted Avg Shares	FY 2025	~74M	~74M	Maintained
IFP	Q3 2025	—	$1,144–$1,147M	New
GEP	Q3 2025	—	$267–$269M	New
Revenue	Q3 2025	—	$183–$186M	New
Adjusted EBITDA	Q3 2025	—	($37)–($34)M	New

Management also expects revenue growth rates to outpace IFP growth in the reinsurance transition period and reiterates positive FY25 Adj. FCF and positive Adj. EBITDA before the end of FY26 .

Earnings Call Themes & Trends

Topic	Previous Mentions (Q4’24, Q1’25)	Current Period (Q2’25)	Trend
AI/Automation & Telematics	LTV AI and automation underpin underwriting; Car telematics driving segmentation; 60% conversion uplift where telematics applied at POS	CEO: “clear testament” AI precision; Car GLR improved to 82%; renewal cohorts ~20 ppt better; LOCO no‑code LLM platform accelerates launches	Strengthening and scaling
Reinsurance Strategy	Standard renewals expected; capital‑light growth via Synthetic Agents; target to stay capital‑efficient	Quota share cession cut 55%→20%; revenue retention rises; GP up modestly; capital plan intact via improved loss ratios and Lemonade Re	Structural shift boosts P&L flow‑through
Car Performance	Car GLR above target but improving; state expansions (CO) and cross‑sell gains	Car IFP +12% QoQ; GLR 82% lowest since launch; more states (IN launched 7/7)	Accelerating with better unit economics
Europe	GLR improved to 75% in Q4; IFP $24M	IFP $43M (>200% YoY); GLR ~83%; >20% of net new customers	Rapid growth with improving GLR
Macro/Tariffs	Watching tariff‑driven inflation; CA wildfires impact quantified	Severity higher but frequency lower; cat added ~7 pts to GLR; net PPD ~$2.2M favorable	Mixed, manageable with pricing
Book “Cleaning”/ADR	ADR 86% in Q4; 84% Q1; non‑renewals in homeowners	ADR 84%; program persists through 2H25 then moderates; creates top‑line headwind near‑term	Headwind fading after 2025

Management Commentary

Strategic messages
- “Seventh consecutive quarter of IFP growth acceleration…gross loss ratio 67%…TTM 70%…gross margin at 39%…Adj. FCF $25M” .
- Reinsurance: “We reduced the scope of our quota share program from 55% to 20%…a deliberate decision enabled by multi‑year loss ratio improvement” .
- Europe/Car as engines of growth with improving loss ratios and efficiency, enabled by AI stack and LOCO platform .
Notable quotes
- CEO on reinsurance rationale: “Quota share was…more a tool for capital management…our entities have moved from loss‑making to profit‑making…allowing us to be less dependent on quota share” .
- CFO on loss ratios: “Gross loss ratio was 67%…ex‑cat 60%; total gross prior period development had ~3% favorable impact” .
- CFO on capital: “Reduction in quota share increases capital needs, but improved loss ratios and our captive offset this; no material change in capital planning” .

Q&A Highlights

Reinsurance and risk: Management emphasized existing cat and concentration protections beyond quota share, and that the quota share change mainly affects capital management and P&L flow‑through; illustrative P&L shared in letter .
Capital leverage: Target surplus leverage metrics effectively unchanged over coming years given use of captives; parent capital cushion around prior levels .
Car cohorts: ~20 ppt loss ratio improvement from first policy to renewal; frequency down, severity up, but net loss ratio trending favorable .
ADR/Non‑renewals: Program likely past most significant phase by year‑end; ADR expected to stabilize then improve, and top‑line drag to ease .
Profitability timing: Positive Adj. EBITDA before end of FY26 reiterated; flat near‑term EBITDA reflects higher growth spend whose benefits accrue over time .

Estimates Context

Q2 2025 results vs S&P Global consensus: revenue $164.1M vs $160.8M*, EPS −$0.76 vs −$0.80*, and S&P “EBITDA” −$33.9M vs −$42.2M*, all better than expected .
Looking ahead, S&P Global shows Q3 2025 revenue consensus ~$185.1M* and EPS −$0.70*, with improving EBITDA trajectory; management’s Q3 revenue guide $183–$186M brackets consensus .
With quota share cession falling to ~20% on a risk‑attaching basis, revenue recognition should run ahead of IFP growth during the transition, which may drive upward estimate revisions on revenue and margin flow‑through if loss ratios hold .
Values marked with * retrieved from S&P Global.

Key Takeaways for Investors

Underwriting momentum is durable: GLR 67% (TTM 70%) within target, enabling reinsurance step‑down and better P&L retention .
Revenue quality improves from structural change: quota share cut should lift revenue growth above IFP growth and modestly expand gross profit as % of GEP during the transition .
Growth engines compounding: Car and Europe are scaling with improving loss ratios; Car renewal cohorts show materially better economics; Europe diversifies cat exposure and scales efficiently .
Near‑term headwinds easing: homeowners non‑renewals press ADR and top line near‑term but are scheduled to abate after 2H25, potentially unlocking retention and growth optics .
Path to profitability intact: Positive Adj. FCF reiterated for FY25; Adj. EBITDA positive before end of FY26; operating leverage aided by AI and disciplined OpEx .
Watch list for revisions: Street revenue/EBITDA estimates likely drift higher given higher revenue retention and Q2 beats, contingent on continued loss ratio stability .
Trading setup: Raised FY revenue guidance and structural reinsurance improvement are positive catalysts; monitor seasonality, cat activity, and competitive auto pricing for 2H volatility .

Appendix: Other Relevant Items in Q2

Reinsurance renewal (June 30): Quota share cession reduced to ~20% effective July 1; variable ceding commission roughly equivalent; ancillary programs renewed on similar terms .
One‑time credit: Q2 OpEx benefited from $11.7M ERC tax refund; included in Adjusted EBITDA reconciliation “other adjustment” .

Footnote: Values marked with * retrieved from S&P Global.

Lemonade, Inc. (LMND)·Q2 2025 Earnings Summary