Not profitable yet, but Lemonade beats expectations in Q3 earnings

The insurtech disruptor Lemonade Inc., set Wall Street buzzing on Thursday when it unveiled better than expected third quarter financial results and company executives even used words and phrases like “positive cash flow,” and “profitability” in touting the numbers.

The company’s not there yet, in fact Lemonade hasn’t made a nickel since its founding in 2015. But perhaps for the first time there were signs that the New York-based insurer might meet those goals ahead of schedule.

The company reported robust growth across multiple key performance indicators in Q3 2023. Active premiums, what the industry calls “in-force premiums, reached $719 million, marking an 18% increase compared to the same quarter in 2022. Meanwhile, operating expenses declined by 11%, reaching $98 million.

Progress toward target loss ratio

But the most notable achievement, perhaps, was the 11% improvement in the gross loss ratio, which now stands at 83%. This trend reinforces Lemonade's progress towards its target loss ratios, the company said, despite occasional setbacks, such as those experienced in Q2 2023.

The gross profit also showed marked improvement, surging by 170% to reach $22 million.

On the bottom line, Lemonade reported a 39% improvement in the adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA), which came in at -$40 million. Although there was still a net loss of $62 million, it represented a 33% improvement compared to the previous year.

Lemonade celebrated a significant milestone, ending the quarter just shy of two million customers. It took the upstart company 4.25 years to reach the 1 million customer mark, and it added its second million in 2.75 years. Lemonade's approach of adding customers more rapidly while increasing the average payment per customer has resulted in an expanding business and improved efficiencies, the company said in a letter to shareholders.

“Connecting the dots, the picture that emerges is of a business that is adding customers faster, with each customer paying more, resulting in an expanding business and increasing efficiencies,” the letter said. “That suggests solid progress along the path to profitability.”

Wall Street took notice, pushing up Lemonade stock nearly 40% in mid-day trading Thursday, to 15.23 per share.

Lemonade looking 'toward the long-term'

“We're not focused on the short-term performance of the stock but look toward the long-term and encourage our investors to do the same,” said co-CEO and co-founder Shai Winegar in a morning call with investors. “We have high conviction in the long-term prospects for Lemonade, and the value we can create for shareholders, quarter after quarter, we are delivering underlying improvements that are meaningful and significant to our business. And as we head closer to profitability, we are optimistic that the true value of Lemonade will be reflected more fully in our stock price over time.”

Looking to the future, the company said its technological advantages and integration of generative artificial intelligence continues to evolve, positioning Lemonade for success once industry challenges subside. With inflation on a downward trajectory and insurance rates on the rise, a more favorable cycle appears to be on the horizon, the company said.

“Our interim goal of being cash flow positive is now within sight,” the company said, predicting the moment will occur in 2025.

“We will reach that point with hundreds of millions of unencumbered dollars in the bank,” said CEO Daniel Schreiber. “We expect to become adjusted EBITDA positive by year-end 2026. Towards that end, we anticipate accelerating our pace of growth considerably in 2024.”

Doug Bailey is a journalist and freelance writer who lives outside of Boston. He can be reached at [email protected].

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Doug Bailey is a journalist and freelance writer who lives outside of Boston. He can be reached at [email protected].