Lemonade, Inc. · Q2 2026 call

In-force premium reached $1.43 billion, growing about 32.5% year-over-year and extending our streak of accelerating growth to 11 consecutive quarters. Revenue grew even faster, increasing 79% to $294 million, and gross profit increased 76% year-over-year to a record $113 million. As a result, adjusted EBITDA loss improved 54% to $19 million, and we remain on track to deliver our first positive adjusted EBITDA quarter in Q4 this year, followed by positive adjusted EBITDA full year 2027.

The agreement related to our synthetic agent extension provides $0.25 billion in growth financing at roughly 9.8% cost and applies to growth spend in '27 and '28. […] This amounts to more than 6 percentage points improvement in our cost of capital, materially lowering expected interest expense on a go-forward basis.

Some of you have noted that this growth spend outpaced the corresponding growth in-force premium. The concern that I understand it is that this gap signals declining efficiency that each incremental growth dollar is buying less premium than once it did. It doesn't, and I'd like to walk you through why.

Growth spend is a flow. […] It's expensed and reset each year. The premium it buys is a stock. Cohorts stay on the books, layered on top of every cohort before them. So while spend growth decelerates, the premium of those dollars created keeps compounding, boosted further by our accelerating cross-sell.

Beginning in 2027 and beyond, we expect IFP growth to outpace spend growth, a key driver of operating leverage and profitability.

At year-end, after more than 9 years as our CFO, Tim Bixby will pass that baton on to Nick Stead, our Senior Vice President of Finance, and Tim will step up to Lemonade's Board of Directors. This transition was years in the making, instigated and paced by Tim himself.

This is a key metric when looking at insurance carrier efficiency with an industry average of around 9%. In the second quarter, we delivered our best ever LAE ratio result of 5%. […] It is notable that the gains have been broad-based with record low LAE ratios in the quarter across each of our product lines.

And what these numbers show today is that our competitors spend almost twice as much as we do on handling claims, and we're not done here by any means.

We have several state launches expected in the near term. And before the end of 2027, I believe our car product will be available to the majority of drivers in the United States.

Notably, revenue grew nearly 50 percentage points faster than IFP due to dynamics related to our sustained trend of increased premium retention at reinsurance renewals in recent years.

Importantly, adjusted free cash flow was positive for the fifth consecutive quarter at $19 million and has been positive 8 of the last 9 quarters, while operating cash flow was negative $3 million, following a common seasonal pattern. We ended the quarter with roughly $1.2 billion in cash and investments, of which about $330 million is required to be held as regulatory surplus.

Annual dollar retention, or ADR, remained stable sequentially at 85%, continuing to reflect the impact of our prior clean the book actions within our homeowners product line. […] So while those portfolio actions are now largely behind us, they will continue to impact the reported ADR metric for the next couple of quarters before rolling out of the comparison period.

The year-on-year increase in G&A was driven primarily by a onetime tax refund benefit in the prior year period, the SBC impact of recent multiyear executive equity awards in the current period and growth in interest expense. Excluding those items, the year-over-year growth rate of G&A expense was 2%.

Based on our third quarter and full year guidance, implied fourth quarter adjusted EBITDA is approximately $8 million.

We're not tied to any one frontier model provider. We continuously benchmark the latest models against one another to identify the best combination of capability and cost for each specific use case. When a new model is released, our teams typically begin evaluating it immediately, where we see performance advantage, moving from evaluation to implementation can happen in a matter of hours.

we are not -- I am not -- we are not focused on gross margin per se. The metric that we focus on, and we do encourage our investors to focus on as well is gross profit because there will be times where we can increase our profitability through shrinking gross margins and times when we cannot.

that kind of structural advantage allows us to produce a pricing advantage that will allow us to continue to grow and take market share. It will not manifest necessarily as an advantaged play in gross margin, but it will manifest in growing gross profit, which is the more important of the 2 metrics

So while we would not expect to see such dramatic loss ratio impact as we've seen historically, something like 30 points of gross loss ratio improvement over time as expected and as planned, but a result of lots of hard work over time, you'll now see the gross loss ratio move around as much more of an output than an input.

just looking at our LAE, we are at 5% industry is at around 9%. And I was saying that they spend about twice as much of their customers' premiums than we do of our customers' premiums on the bureaucracy of handling claims.