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Lemonade, Inc. (LMND)·Q3 2025 Earnings Summary

Executive Summary

  • Q3 2025 delivered accelerating growth and profitability metrics: Revenue rose 42% to $194.5M; gross profit more than doubled to $79.9M; gross margin expanded to 41% (vs. 27% YoY); gross loss ratio fell to a record 62%; net loss improved to ($37.5)M and ($0.51) per share .
  • Wall Street consensus underappreciated the quarter: Revenue beat by ~5% ($194.5M vs. $185.1M*), EPS beat by ~$0.15 (−$0.55 actual vs. −$0.70* est.), and EBITDA beat (−$25.6M adj. EBITDA vs. −$35.2M* est.) driven by improved loss ratios, higher retained business, and ceding commission tailwinds from better underwriting .
  • Guidance raised: FY 2025 revenue to $727–$732M (from $710–$715M), GEP to $1,044–$1,047B, and adjusted EBITDA loss to ($130)–($127)M; Q4 revenue guided to $217–$222M, implying ~49% YoY growth at the high end .
  • Strategic catalysts: AI-driven LAE efficiency (7% company-wide) and operating leverage, Europe scaling with flexible pricing, Car mix expansion with improving loss ratios, and quota share cede rate declining toward ~40% in Q4—all supporting revenue growth outpacing IFP in near-term .

What Went Well and What Went Wrong

  • What Went Well

    • “Gross margin climbed into the 40s while our gross profit more than doubled to $18 million, propelling us steadily and predictably towards EBITDA profitability in Q4 of next year” (CEO) .
    • LAE ratio averaged ~7% across products (vs. ~9% at large carriers), halved over three years as automation scaled claims handling; management expects to halve LAE again alongside next doubling of the business (President) .
    • Europe posting ~170% growth with a healthier loss ratio vs. U.S. at similar scale due to rapid pricing iteration without state filing constraints (CEO/CFO) .

  • What Went Wrong

    • Operating expenses ex. losses rose 13% YoY to $141.2M, with growth spend up to $46.1M; technology and G&A increased on personnel and interest expense (CFO) .
    • ADR remains below historical levels at 85% (down 2 pts YoY) due to ongoing “clean the book” non-renewals in Home; management expects impact to persist through year-end before normalizing (CFO) .
    • Car still at elevated GLR of 76% despite a 16-pt YoY improvement; new business penalties and mix require ongoing pricing/telematics refinement and cohort seasoning (CFO) .

Financial Results

MetricQ3 2024Q2 2025Q3 2025
Revenue ($USD Millions)$136.6 $164.1 $194.5
Net Loss ($USD Millions)($67.7) ($43.9) ($37.5)
Diluted EPS ($USD)($0.95) ($0.60) ($0.51)
Gross Profit ($USD Millions)$37.5 $64.3 $79.9
Gross Margin (%)27% 39% 41%
Gross Loss Ratio (%)73% 67% 62%
Net Loss Ratio (%)81% 69% 64%
Adjusted EBITDA ($USD Millions)($49.0) ($40.9) ($25.6)
Q3 2025 Actual vs. S&P Global ConsensusConsensusActual
Revenue ($USD Millions)$185.1M*$194.5M
Primary EPS ($USD)−$0.704*−$0.5499
EBITDA ($USD Millions)($35.17)M*(Adj. EBITDA) ($25.6)M
Revenue – # of Estimates7*—
EPS – # of Estimates10*—

Values retrieved from S&P Global*

Segment Breakdown (IFP and Loss Ratios)

SegmentQ3 2024 IFP ($M)Q2 2025 IFP ($M)Q3 2025 IFP ($M)Q3 2024 GLR (%)Q3 2025 GLR (%)
Homeowners Multi-Peril$488 $523 $531 69% 51%
Pet$254 $350 $394 71% 69%
Car$117 $150 $163 92% 76%
Europe (All Products)$19 $43 $51 92% 70%
Other$11 $17 $19 ——

KPIs

KPI (End of Period)Q3 2024Q2 2025Q3 2025
Customers2,313,113 2,693,107 2,869,900
In-Force Premium (IFP, $M)$889.1 $1,083.4 $1,157.9
Premium per Customer ($)$384 $402 $403
Annual Dollar Retention (ADR) (%)87% 84% 85%

Guidance Changes

MetricPeriodPrevious Guidance (Q2 Letter)Current Guidance (Q3 Letter)Change
In-Force Premium (IFP, $M)FY 2025 (Dec 31)$1,213–$1,218 $1,218–$1,223 Raised
Gross Earned Premium (GEP, $M)FY 2025$1,036–$1,039 $1,044–$1,047 Raised
Revenue ($M)FY 2025$710–$715 $727–$732 Raised
Adjusted EBITDA ($M)FY 2025($140)–($135) ($130)–($127) Less negative
Stock-based Compensation ($M)FY 2025$61 $61 Maintained
Weighted Avg. Shares (M)FY 202574 74 Maintained
Revenue ($M)Q4 2025N/A$217–$222 New
Adjusted EBITDA ($M)Q4 2025N/A($16)–($13) New
Stock-based Compensation ($M)Q4 2025N/A$18 New
Weighted Avg. Shares (M)Q4 2025N/A75 New

Management noted Q4 revenue growth implied at ~49% YoY at the high end .

Earnings Call Themes & Trends

TopicPrevious Mentions (Q-2, Q-1)Current Period (Q3)Trend
AI/Automation & LAEFocus on AI across the stack; LAE downtrend; cost structure advantage; experimentation with day-zero telematics; major conversion lift; AI guides ~90% growth spend Company-wide LAE ~7%; claims volume up 2.5x with fewer adjusters; Blender enables 3x claims throughput; plan to halve LAE again with next business doubling Reinforced efficiency gains and scalability
Reinsurance & Revenue RetentionQuota share reduced from 55% to 20% at July 1; revenue to outpace IFP through transition; capital plan unchanged via captive reinsurers Effective cede rate expected ~40% in Q4; ceding commission benefited from low loss ratio; P&L ceding commission appears ~4 pts lower than effective rate due to accounting nuance Revenue mix shifting positively; commission tailwinds
Car Product PerformanceGLR improved to 82% in Q2; 12% seq. IFP growth; new vs. renewal cohorts ~20-pt GLR improvement; cross-sell increasing (~50% CAC-less sales) GLR improved to 76%; 40% YoY IFP growth to $163M; >50% new Car sales from existing Lemonade customers; Tesla API integration for richer telemetry Loss ratios trending down; cross-sell engine accelerating
Europe Growth & Pricing Flexibility>200% IFP growth to $43M; GLR in low 80s; stronger efficiency via no rate filings and LOCO platform ~170% growth; GLR down 13 pts; U.K. renters mix lowers GLR; faster price iteration vs. U.S. Scaling with favorable risk metrics
Tariffs/MacroMonitoring potential 25% auto parts tariffs; inflation risk; resilient sector profile Minimal commentary; core growth trajectory reiterated; retention improving with book clean-up Balanced caution; trajectory intact

Management Commentary

  • “Given the incredible price sensitivity in insurance… a higher loss ratio and slimmer gross margins will actually translate into higher gross profit. Given the choice, we will always privilege dollars over percentages.” (CEO) .
  • “Our claims department shrank in absolute terms, even as claims volume increased by >2.5x… our LAE ratio [fell] from 13% to 7%… we expect to cut the LAE ratio in half yet again.” (President) .
  • “Revenue grew fully 12 percentage points faster than IFP… primarily due to increased retention through our quota share reinsurance structure renewed July 1.” (CFO) .
  • “We expect our ceding rate to continue to decline in Q4 to roughly 40%.” (CFO) .
  • “Direct integration with Tesla’s API… provides richer and more precise data… critical as cars get smarter and more autonomous.” (President) .

Q&A Highlights

  • Ceding commission tailwind: Effective rate ~28% vs. ~24% on P&L (accounting nuance); improved loss ratios drove higher commission within scaled bands .
  • OpEx uptick not structural: Growth spend timing, tech personnel costs, and interest expense; headcount down seq. (1,205 vs. 1,274) and nearly flat over 24 months .
  • IFP guidance nuance: Q3 beat captured in GEP/revenue; IFP guide reflects whole book (including retention dynamics and Home non-renewals) .
  • Loss ratio “target”: No fixed aggregate target; LR treated as an input to optimize gross profit dollars; product/campaign elasticity can warrant higher LR alongside greater conversion/retention .
  • Europe drivers: Mix shift (U.K. renters) and favorable prior period development; dynamic pricing without filing lags improves responsiveness .

Estimates Context

  • Q3 2025 revenue beat by ~5%: $194.5M actual vs. $185.1M* consensus; Primary EPS beat (−$0.55 actual vs. −$0.704* est.); EBITDA beat (Adj. EBITDA loss $25.6M vs. ($35.17)M* EBITDA est.). Analyst counts: 7 revenue, 10 EPS estimates* .
  • Implications: FY revenue guide raised; Q4 revenue guide implies ~49% YoY growth at the high end, which should prompt upward revisions to forward revenue and potentially EBITDA trajectories as ceding declines and loss ratios remain favorable .

Values retrieved from S&P Global*

Key Takeaways for Investors

  • Near-term beat-and-raise quarter: Revenue, EPS, and EBITDA outperformed consensus; FY guide raised across revenue, GEP, and adjusted EBITDA, supporting positive estimate revisions .
  • Structural revenue tailwind: Lower quota share cession increases revenue retention; effective cede rate trending toward ~40% in Q4 boosts revenue growth vs. IFP .
  • Profitability path intact: Gross margin at 41%; adjusted EBITDA loss narrowing; management reiterates full-quarter positive adjusted EBITDA in Q4 2026 .
  • AI-driven operating leverage: LAE at ~7% and expected to halve again with scale; continued automation supports fixed-cost-like dynamics and margin durability .
  • Car and Europe as growth pillars: Car GLR improvement to 76% with >50% CAC-less sales; Europe’s pricing agility accelerates growth with healthier loss ratios .
  • Watch ADR/retention normalization: Ongoing Home “clean-the-book” effort depresses ADR near-term; management expects stabilization and improvement post year-end .
  • Trading set-up: Revenue outpacing IFP near-term, margin expansion from underwriting and automation, and a credible path to EBITDA profitability—near-term catalysts include Q4 growth and continued ceding decline .

Additional relevant press releases and context:

  • Q3 earnings release logistics (Nov 5) and posting of results to letter .
  • Reinsurance program renewal: quota share reduced to ~20% starting July 1, retaining more revenue/gross profit while capital plan remains unchanged .
  • Car expansion: Indiana launch increases Car footprint to states representing ~42% of U.S. auto market .
  • Governance: PayPal’s CMO Geoff Seeley added to board, strengthening brand/marketing expertise .