10-Q 1 lmnd-20220331.htm 10-Q lmnd-20220331
FALSE000169142112/312022Q1100016914212022-01-012022-03-3100016914212022-05-10xbrli:shares00016914212022-03-31iso4217:USD00016914212021-12-31iso4217:USDxbrli:shares00016914212021-01-012021-03-310001691421us-gaap:CommonStockMember2021-12-310001691421us-gaap:AdditionalPaidInCapitalMember2021-12-310001691421us-gaap:RetainedEarningsMember2021-12-310001691421us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-12-310001691421us-gaap:CommonStockMember2022-01-012022-03-310001691421us-gaap:AdditionalPaidInCapitalMember2022-01-012022-03-310001691421us-gaap:RetainedEarningsMember2022-01-012022-03-310001691421us-gaap:AccumulatedOtherComprehensiveIncomeMember2022-01-012022-03-310001691421us-gaap:CommonStockMember2022-03-310001691421us-gaap:AdditionalPaidInCapitalMember2022-03-310001691421us-gaap:RetainedEarningsMember2022-03-310001691421us-gaap:AccumulatedOtherComprehensiveIncomeMember2022-03-310001691421us-gaap:CommonStockMember2020-12-310001691421us-gaap:AdditionalPaidInCapitalMember2020-12-310001691421us-gaap:RetainedEarningsMember2020-12-310001691421us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-12-3100016914212020-12-310001691421us-gaap:CommonStockMember2021-01-012021-03-310001691421us-gaap:AdditionalPaidInCapitalMember2021-01-012021-03-310001691421us-gaap:RetainedEarningsMember2021-01-012021-03-310001691421us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-01-012021-03-310001691421us-gaap:CommonStockMember2021-03-310001691421us-gaap:AdditionalPaidInCapitalMember2021-03-310001691421us-gaap:RetainedEarningsMember2021-03-310001691421us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-03-3100016914212021-03-310001691421lmnd:PublicStockOfferingMember2021-01-142021-01-140001691421us-gaap:OverAllotmentOptionMember2021-02-012021-02-0100016914212021-02-012021-02-010001691421us-gaap:AccountingStandardsUpdate201602Memberus-gaap:OtherAssetsMember2021-01-010001691421us-gaap:OtherLiabilitiesMemberus-gaap:AccountingStandardsUpdate201602Member2021-01-010001691421us-gaap:AccountingStandardsUpdate201602Memberus-gaap:OtherAssetsMember2021-11-080001691421us-gaap:OtherLiabilitiesMemberus-gaap:AccountingStandardsUpdate201602Member2021-11-080001691421lmnd:MetromileMember2021-11-08xbrli:pure0001691421lmnd:MetromileMember2021-11-082021-11-080001691421us-gaap:CorporateDebtSecuritiesMember2022-03-310001691421us-gaap:USGovernmentAgenciesDebtSecuritiesMember2022-03-310001691421lmnd:MunicipalSecuritiesMember2022-03-310001691421us-gaap:CorporateDebtSecuritiesMember2021-12-310001691421us-gaap:USGovernmentAgenciesDebtSecuritiesMember2021-12-310001691421lmnd:MunicipalSecuritiesMember2021-12-310001691421us-gaap:CashAndCashEquivalentsMember2022-01-012022-03-310001691421us-gaap:CashAndCashEquivalentsMember2021-01-012021-03-310001691421us-gaap:DebtSecuritiesMember2022-01-012022-03-310001691421us-gaap:DebtSecuritiesMember2021-01-012021-03-310001691421us-gaap:ShortTermInvestmentsMember2022-01-012022-03-310001691421us-gaap:ShortTermInvestmentsMember2021-01-012021-03-31lmnd:security0001691421us-gaap:CorporateDebtSecuritiesMemberus-gaap:FairValueInputsLevel1Member2022-03-310001691421us-gaap:CorporateDebtSecuritiesMemberus-gaap:FairValueInputsLevel2Member2022-03-310001691421us-gaap:CorporateDebtSecuritiesMemberus-gaap:FairValueInputsLevel3Member2022-03-310001691421us-gaap:FairValueInputsLevel1Memberus-gaap:USGovernmentAgenciesDebtSecuritiesMember2022-03-310001691421us-gaap:FairValueInputsLevel2Memberus-gaap:USGovernmentAgenciesDebtSecuritiesMember2022-03-310001691421us-gaap:USGovernmentAgenciesDebtSecuritiesMemberus-gaap:FairValueInputsLevel3Member2022-03-310001691421us-gaap:FairValueInputsLevel1Memberlmnd:MunicipalSecuritiesMember2022-03-310001691421lmnd:MunicipalSecuritiesMemberus-gaap:FairValueInputsLevel2Member2022-03-310001691421lmnd:MunicipalSecuritiesMemberus-gaap:FairValueInputsLevel3Member2022-03-310001691421us-gaap:FairValueInputsLevel1Member2022-03-310001691421us-gaap:FairValueInputsLevel2Member2022-03-310001691421us-gaap:FairValueInputsLevel3Member2022-03-310001691421us-gaap:CorporateDebtSecuritiesMemberus-gaap:FairValueInputsLevel1Member2021-12-310001691421us-gaap:CorporateDebtSecuritiesMemberus-gaap:FairValueInputsLevel2Member2021-12-310001691421us-gaap:CorporateDebtSecuritiesMemberus-gaap:FairValueInputsLevel3Member2021-12-310001691421us-gaap:FairValueInputsLevel1Memberus-gaap:USGovernmentAgenciesDebtSecuritiesMember2021-12-310001691421us-gaap:FairValueInputsLevel2Memberus-gaap:USGovernmentAgenciesDebtSecuritiesMember2021-12-310001691421us-gaap:USGovernmentAgenciesDebtSecuritiesMemberus-gaap:FairValueInputsLevel3Member2021-12-310001691421us-gaap:FairValueInputsLevel1Memberlmnd:MunicipalSecuritiesMember2021-12-310001691421lmnd:MunicipalSecuritiesMemberus-gaap:FairValueInputsLevel2Member2021-12-310001691421lmnd:MunicipalSecuritiesMemberus-gaap:FairValueInputsLevel3Member2021-12-310001691421us-gaap:FairValueInputsLevel1Member2021-12-310001691421us-gaap:FairValueInputsLevel2Member2021-12-310001691421us-gaap:FairValueInputsLevel3Member2021-12-310001691421lmnd:WinterStormUriMember2021-01-012021-03-310001691421lmnd:ProportionalReinsuranceContractsMember2021-01-012021-06-300001691421lmnd:ProportionalReinsuranceContractsMember2022-01-012022-03-310001691421lmnd:ProportionalReinsuranceContractsMember2022-03-310001691421lmnd:NonProportionalReinsuranceContractsMember2022-01-012022-03-310001691421lmnd:ProportionalReinsuranceContractsMember2021-07-012021-07-010001691421lmnd:OtherLiabilitiesAndAccruedLiabilitiesMember2022-03-310001691421lmnd:OtherLiabilitiesAndAccruedLiabilitiesMember2021-12-3100016914212020-07-070001691421lmnd:FollowOnOfferingMember2021-01-142021-01-140001691421lmnd:FollowOnOfferingSellingShareholdersMember2021-01-142021-01-140001691421us-gaap:OverAllotmentOptionMember2021-01-142021-01-140001691421lmnd:LemonadeFoundationMembersrt:AffiliatedEntityMember2020-01-012020-12-310001691421lmnd:LemonadeFoundationMemberlmnd:FollowOnOfferingSellingShareholdersMember2021-01-142021-01-140001691421lmnd:IncentiveCompensationPlan2020Member2020-07-020001691421lmnd:IncentiveCompensationPlan2020Member2020-07-022020-07-020001691421lmnd:IncentiveCompensationPlan2020Member2022-01-012022-01-010001691421lmnd:IncentiveCompensationPlan2020Member2022-01-010001691421lmnd:IncentiveCompensationPlan2020Member2022-03-310001691421lmnd:EmployeeStockPurchasePlan2020Member2020-07-020001691421lmnd:EmployeeStockPurchasePlan2020Member2020-07-022020-07-020001691421lmnd:EmployeeStockPurchasePlan2020Member2022-01-012022-01-010001691421lmnd:EmployeeStockPurchasePlan2020Member2022-03-310001691421us-gaap:EmployeeStockOptionMemberlmnd:IncentiveShareOptionPlan2015Member2022-01-012022-03-310001691421lmnd:IncentiveShareOptionPlan2015Member2015-07-310001691421lmnd:IncentiveShareOptionPlan2015Member2022-03-310001691421us-gaap:EmployeeStockOptionMember2022-01-012022-03-310001691421us-gaap:EmployeeStockOptionMember2021-01-012021-03-3100016914212021-01-012021-12-310001691421us-gaap:RestrictedStockUnitsRSUMember2021-12-310001691421us-gaap:RestrictedStockUnitsRSUMember2022-01-012022-03-310001691421us-gaap:RestrictedStockUnitsRSUMember2022-03-310001691421lmnd:ClaimsAndClaimsAdjustmentExpenseMember2022-01-012022-03-310001691421lmnd:ClaimsAndClaimsAdjustmentExpenseMember2021-01-012021-03-310001691421lmnd:OtherInsuranceExpenseMember2022-01-012022-03-310001691421lmnd:OtherInsuranceExpenseMember2021-01-012021-03-310001691421us-gaap:SellingAndMarketingExpenseMember2022-01-012022-03-310001691421us-gaap:SellingAndMarketingExpenseMember2021-01-012021-03-310001691421us-gaap:ResearchAndDevelopmentExpenseMember2022-01-012022-03-310001691421us-gaap:ResearchAndDevelopmentExpenseMember2021-01-012021-03-310001691421us-gaap:GeneralAndAdministrativeExpenseMember2022-01-012022-03-310001691421us-gaap:GeneralAndAdministrativeExpenseMember2021-01-012021-03-310001691421us-gaap:RestrictedStockUnitsRSUMember2021-01-012021-03-310001691421us-gaap:EmployeeStockOptionMember2022-03-310001691421us-gaap:EmployeeStockOptionMember2022-01-012022-03-310001691421us-gaap:EmployeeStockOptionMember2021-01-012021-03-310001691421us-gaap:RestrictedStockMember2022-01-012022-03-310001691421us-gaap:RestrictedStockMember2021-01-012021-03-310001691421lmnd:TravelExpenseMemberus-gaap:PrincipalOwnerMember2022-01-012022-03-310001691421lmnd:TravelExpenseMemberus-gaap:PrincipalOwnerMember2021-01-012021-03-310001691421srt:AffiliatedEntityMemberlmnd:RentExpenseMember2022-01-012022-03-310001691421srt:AffiliatedEntityMemberlmnd:RentExpenseMember2021-01-012021-03-310001691421lmnd:LemonadeFoundationMembersrt:AffiliatedEntityMember2022-03-31lmnd:director0001691421lmnd:LemonadeFoundationMembersrt:AffiliatedEntityMember2022-01-012022-03-310001691421srt:AffiliatedEntityMemberlmnd:RentExpenseMember2021-01-012021-12-310001691421stpr:CA2022-01-012022-03-310001691421us-gaap:GeographicConcentrationRiskMemberlmnd:PremiumsWrittenGrossBenchmarkMemberstpr:CA2022-01-012022-03-310001691421stpr:CA2021-01-012021-03-310001691421us-gaap:GeographicConcentrationRiskMemberlmnd:PremiumsWrittenGrossBenchmarkMemberstpr:CA2021-01-012021-03-310001691421stpr:TX2022-01-012022-03-310001691421us-gaap:GeographicConcentrationRiskMemberlmnd:PremiumsWrittenGrossBenchmarkMemberstpr:TX2022-01-012022-03-310001691421stpr:TX2021-01-012021-03-310001691421us-gaap:GeographicConcentrationRiskMemberlmnd:PremiumsWrittenGrossBenchmarkMemberstpr:TX2021-01-012021-03-310001691421stpr:NY2022-01-012022-03-310001691421us-gaap:GeographicConcentrationRiskMemberlmnd:PremiumsWrittenGrossBenchmarkMemberstpr:NY2022-01-012022-03-310001691421stpr:NY2021-01-012021-03-310001691421us-gaap:GeographicConcentrationRiskMemberlmnd:PremiumsWrittenGrossBenchmarkMemberstpr:NY2021-01-012021-03-310001691421stpr:NJ2022-01-012022-03-310001691421us-gaap:GeographicConcentrationRiskMemberlmnd:PremiumsWrittenGrossBenchmarkMemberstpr:NJ2022-01-012022-03-310001691421stpr:NJ2021-01-012021-03-310001691421us-gaap:GeographicConcentrationRiskMemberlmnd:PremiumsWrittenGrossBenchmarkMemberstpr:NJ2021-01-012021-03-310001691421stpr:IL2022-01-012022-03-310001691421us-gaap:GeographicConcentrationRiskMemberlmnd:PremiumsWrittenGrossBenchmarkMemberstpr:IL2022-01-012022-03-310001691421stpr:IL2021-01-012021-03-310001691421us-gaap:GeographicConcentrationRiskMemberlmnd:PremiumsWrittenGrossBenchmarkMemberstpr:IL2021-01-012021-03-310001691421stpr:GA2022-01-012022-03-310001691421us-gaap:GeographicConcentrationRiskMemberlmnd:PremiumsWrittenGrossBenchmarkMemberstpr:GA2022-01-012022-03-310001691421stpr:GA2021-01-012021-03-310001691421us-gaap:GeographicConcentrationRiskMemberlmnd:PremiumsWrittenGrossBenchmarkMemberstpr:GA2021-01-012021-03-310001691421stpr:CO2022-01-012022-03-310001691421us-gaap:GeographicConcentrationRiskMemberlmnd:PremiumsWrittenGrossBenchmarkMemberstpr:CO2022-01-012022-03-310001691421stpr:CO2021-01-012021-03-310001691421us-gaap:GeographicConcentrationRiskMemberlmnd:PremiumsWrittenGrossBenchmarkMemberstpr:CO2021-01-012021-03-310001691421stpr:PA2022-01-012022-03-310001691421us-gaap:GeographicConcentrationRiskMemberlmnd:PremiumsWrittenGrossBenchmarkMemberstpr:PA2022-01-012022-03-310001691421stpr:PA2021-01-012021-03-310001691421us-gaap:GeographicConcentrationRiskMemberlmnd:PremiumsWrittenGrossBenchmarkMemberstpr:PA2021-01-012021-03-310001691421stpr:VA2022-01-012022-03-310001691421us-gaap:GeographicConcentrationRiskMemberlmnd:PremiumsWrittenGrossBenchmarkMemberstpr:VA2022-01-012022-03-310001691421stpr:VA2021-01-012021-03-310001691421us-gaap:GeographicConcentrationRiskMemberlmnd:PremiumsWrittenGrossBenchmarkMemberstpr:VA2021-01-012021-03-310001691421stpr:MD2022-01-012022-03-310001691421us-gaap:GeographicConcentrationRiskMemberlmnd:PremiumsWrittenGrossBenchmarkMemberstpr:MD2022-01-012022-03-310001691421stpr:MD2021-01-012021-03-310001691421us-gaap:GeographicConcentrationRiskMemberlmnd:PremiumsWrittenGrossBenchmarkMemberstpr:MD2021-01-012021-03-310001691421lmnd:AllOtherStatesMember2022-01-012022-03-310001691421us-gaap:GeographicConcentrationRiskMemberlmnd:PremiumsWrittenGrossBenchmarkMemberlmnd:AllOtherStatesMember2022-01-012022-03-310001691421lmnd:AllOtherStatesMember2021-01-012021-03-310001691421us-gaap:GeographicConcentrationRiskMemberlmnd:PremiumsWrittenGrossBenchmarkMemberlmnd:AllOtherStatesMember2021-01-012021-03-310001691421us-gaap:GeographicConcentrationRiskMemberlmnd:PremiumsWrittenGrossBenchmarkMember2022-01-012022-03-310001691421us-gaap:GeographicConcentrationRiskMemberlmnd:PremiumsWrittenGrossBenchmarkMember2021-01-012021-03-31lmnd:segment


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2022
or
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________________ to ___________________
Commission File Number: 001-39367
Lemonade, Inc.
(Exact Name of Registrant as Specified in Its Charter)
Delaware32-0469673
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
5 Crosby Street, 3rd Floor
New York, New York
10013
(Address of principal executive offices)(Zip Code)
(844) 733-8666
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock,
$0.00001 par value per share
LMNDNew York Stock Exchange
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes  x    No  ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  x    No  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerx  Accelerated filero
Non-accelerated filero  Smaller reporting companyo
Emerging growth companyo
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  o    No  x
As of May 10, 2022, the registrant had 61,779,955 shares of common stock, $0.00001 par value per share, outstanding.



Table of Contents
Page
PART I.
Item 1.
Item 2.
Item 3.
Item 4.
PART II.
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.


1


CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (the "Quarterly Report") contains forward-looking statements. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. All statements other than statements of historical fact contained in this Quarterly Report, including without limitation statements regarding our future results of operations and financial position, our ability to attract, retain and expand our customer base, our ability to operate under and maintain our business model, our ability to maintain and enhance our brand and reputation, our ability to effectively manage the growth of our business, the effects of seasonal trends on our results of operations, our ability to attain greater value from each customer, our ability to compete effectively in our industry, the future performance of the markets in which we operate, and our ability to maintain reinsurance contracts, and the plans and objectives of management for future operations and capital expenditures are forward-looking statements. These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.
In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplate,” “believe,” “estimate,” “predict,” “potential”, or “continue” or the negative of these terms or other similar expressions. The forward-looking statements in this Quarterly Report are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. These forward-looking statements speak only as of the date of this Quarterly Report and are subject to a number of important factors that could cause actual results to differ materially from those in the forward-looking statements, including:
We have a history of losses and we may not achieve or maintain profitability in the future.
Our success and ability to grow our business depend on retaining and expanding our customer base. If we fail to add new customers or retain current customers, our business, revenue, operating results and financial condition could be harmed.
The "Lemonade" brand may not become as widely known as incumbents' brands or the brand may become tarnished.
Denial of claims or our failure to accurately and timely pay claims could materially and adversely affect our business, financial condition, results of operations, and prospects.
Our future revenue growth and prospects depend on attaining greater value from each user.
The novelty of our business model makes its efficacy unpredictable and susceptible to unintended consequences.
We could be forced to modify or eliminate our Giveback, which could undermine our business model and have a material adverse effect on our results of operations and financial condition.
Our limited operating history makes it difficult to evaluate our current business performance, implementation of our business model, and our future prospects.
We may not be able to manage our growth effectively.
Intense competition in the segments of the insurance industry in which we operate could negatively affect our ability to attain or increase profitability.
Reinsurance may be unavailable at current levels and prices, which may limit our ability to write new business. Furthermore, reinsurance subjects us to counterparty risk and may not be adequate to protect us against losses, which could have a material effect on our results of operations and financial condition.
Failure to maintain our risk-based capital at the required levels could adversely affect the ability of our insurance subsidiary to maintain regulatory authority to conduct our business.
2


If we are unable to expand our product offerings, our prospects for future growth may be adversely affected.
Our proprietary artificial intelligence algorithms may not operate properly or as we expect them to, which could cause us to write policies we should not write, price those policies inappropriately or overpay claims that are made by our customers. Moreover, our proprietary artificial intelligence algorithms may lead to unintentional bias and discrimination.
Regulators may limit our ability to develop or implement our proprietary artificial intelligence algorithms and/or may eliminate or restrict the confidentiality of our proprietary technology, which could have a material adverse effect on our financial condition and results of operations.
New legislation or legal requirements may affect how we communicate with our customers, which could have a material adverse effect on our business model, financial condition, and results of operations.
We rely on artificial intelligence and our digital platform to collect data points that we evaluate in pricing and underwriting our insurance policies, managing claims and customer support, and improving business processes, and any legal or regulatory requirements that restrict our ability to collect this data could thus materially and adversely affect our business, financial condition, results of operations and prospects.
We depend on search engines, social media platforms, digital app stores, content-based online advertising and other online sources to attract consumers to our website and our online app, which may be affected by third-party interference beyond our control and as we grow our customer acquisition costs will continue to rise.
We may require additional capital to grow our business, which may not be available on terms acceptable to us or at all.
Security incidents or real or perceived errors, failures or bugs in our systems, website or app could impair our operations, result in loss of personal customer information, damage our reputation and brand, and harm our business and operating results.
We are periodically subject to examinations by our primary state insurance regulator, which could result in adverse examination findings and necessitate remedial actions. In addition, insurance regulators of other states in which we are licensed to operate may also conduct examinations or other targeted investigations, which may also result in adverse examination findings and necessitate remedial actions.
We collect, process, store, share, disclose and use customer information and other data, and our actual or perceived failure to protect such information and data, respect customers' privacy or comply with data privacy and security laws and regulations could damage our reputation and brand and harm our business and operating results.
We may be unable to prevent or address the misappropriation of our data.
If we are unable to underwrite risks accurately and charge competitive yet profitable rates to our customers, our business, results of operations and financial condition will be adversely affected.
Our product development cycles are complex and subject to regulatory approval, and we may incur significant expenses before we generate revenues, if any, from new products.
Our expansion within the United States and any future international expansion strategy will subject us to additional costs and risks and our plans may not be successful.
The insurance business, including the market for renters and homeowners insurance, is historically cyclical in nature, and we may experience periods with excess underwriting capacity and unfavorable premium rates, which could adversely affect our business.
We are subject to extensive insurance industry regulations.
State insurance regulators impose additional reporting requirements regarding enterprise risk on insurance holding company systems, with which we must comply as an insurance holding company.
3


Severe weather events and other catastrophes, including the effects of climate change and global pandemics, are inherently unpredictable and may have a material adverse effect on our financial results and financial condition.
We expect our results of operations to fluctuate on a quarterly and annual basis. In addition, our operating results and operating metrics are subject to seasonality and volatility, which could result in fluctuations in our quarterly revenues and operating results or in perceptions of our business prospects.
We rely on data from our customers and third parties for pricing and underwriting our insurance policies, handling claims and maximizing automation, the unavailability or inaccuracy of which could limit the functionality of our products and disrupt our business.
Our results of operations and financial condition may be adversely affected due to limitations in the analytical models used to assess and predict our exposure to catastrophe losses.
Our actual incurred losses may be greater than our loss and loss adjustment expense reserves, which could have a material adverse effect on our financial condition and results of operations.
Our insurance subsidiary is subject to minimum capital and surplus requirements, and our failure to meet these requirements could subject us to regulatory action.
We are subject to assessments and other surcharges from state guaranty funds, and mandatory state insurance facilities, which may reduce our profitability.
As a public benefit corporation, our focus on a specific public benefit purpose and producing a positive effect for society may negatively impact our financial performance.
Our directors have a fiduciary duty to consider not only our stockholders' interests, but also our specific public benefit and the interests of other stakeholders affected by our actions. If a conflict between such interests arises, there is no guarantee such a conflict would be resolved in favor of our stockholders.
A joint investment committee consisting of our Co-Founders and an executive of SoftBank will have sole voting and dispositive control over the shares owned by the entities affiliated with SoftBank Group Corp. This joint investment committee further concentrates voting power with our Co-Founders, which could limit your ability to influence the outcome of important transactions, including a change in control.
We conduct certain of our operations in Israel and therefore our results may be adversely affected by political, economic and military instability in Israel and the region.
The factors described under the sections "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, and the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" in this Quarterly Report.
You should read this Quarterly Report and the documents that we reference in this Quarterly Report completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise.
4

PART I—FINANCIAL INFORMATION
Item 1. Financial Statements.
LEMONADE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
($ in millions, except share and per share amounts)

As of
March 31,December 31,
20222021
(Unaudited)
Assets
Investments
Fixed maturities available-for-sale, at fair value (amortized cost: $714.5 million and
   $696.8 million as of March 31, 2022 and December 31, 2021)
$694.7 $691.4 
Short-term investments (cost: $83.3 million and $110.4 million as of March 31, 2022 and December 31, 2021)
83.2 110.4 
Total investments777.9 801.8 
Cash, cash equivalents and restricted cash235.0 270.6 
Premium receivable, net of allowance for credit losses of $1.9 million and $1.6 million as of March 31, 2022 and December 31, 2021
135.6 127.0 
Reinsurance recoverable112.5 89.8 
Prepaid reinsurance premium156.7 149.6 
Deferred acquisition costs6.7 6.2 
Property and equipment, net13.0 11.7 
Intangible assets0.6 0.6 
Other assets57.4 53.2 
Total assets$1,495.4 $1,510.5 
Liabilities and Stockholders' Equity
Unpaid loss and loss adjustment expense$107.6 $97.9 
Unearned premium222.4 207.7 
Trade payables2.6 1.0 
Funds held for reinsurance treaties108.2 103.1 
Deferred ceding commission38.8 36.5 
Ceded premium payable34.8 18.7 
Other liabilities and accrued expenses68.3 57.4 
Total liabilities582.7 522.3 
Commitments and contingencies (Note 15)
Stockholders' equity
Common stock, $0.00001 par value, 200,000,000 shares authorized; 61,758,739 and 61,660,996 shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively
  
Additional paid-in capital1,568.2 1,553.5 
Accumulated deficit (636.7)(561.9)
Accumulated other comprehensive loss(18.8)(3.4)
Total stockholders' equity912.7 988.2 
Total liabilities and stockholders' equity$1,495.4 $1,510.5 

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

5


LEMONADE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
($ in millions, except share and per share amounts)
(Unaudited)
Three Months Ended March 31,
20222021
Revenue
Net earned premium$27.4 $13.8 
Ceding commission income14.0 9.0 
Net investment income0.9 0.2 
Commission and other income2.0 0.5 
Total revenue44.3 23.5 
Expense
Loss and loss adjustment expense, net24.4 16.5 
Other insurance expense9.1 4.8 
Sales and marketing38.3 29.1 
Technology development16.9 7.1 
General and administrative28.2 14.1 
Total expense116.9 71.6 
Loss before income taxes(72.6)(48.1)
Income tax expense2.2 0.9 
Net loss$(74.8)$(49.0)
Other comprehensive loss, net of tax
Unrealized (loss) gain on investments in fixed maturities(14.3)0.1 
  Foreign currency translation adjustment(1.1)0.7 
Comprehensive loss$(90.2)$(48.2)
Per share data:
Net loss per share attributable to common stockholders
  —basic and diluted
$(1.21)$(0.81)
Weighted average common shares outstanding—basic
  and diluted
61,698,56860,218,652

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

6


LEMONADE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
($ in millions, except share amounts)
(Unaudited)
Common StockAdditional Paid-In CapitalAccumulated DeficitAccumulated Other Comprehensive (Loss) IncomeTotal Stockholders' Equity
SharesAmount
Balance as of December 31, 2021
61,660,996 $ $1,553.5 $(561.9)$(3.4)988.2 
Exercise of stock options and distribution of restricted stock units97,743 — 0.6 — — 0.6 
Stock-based compensation— — 14.1 — — 14.1 
Net loss— — — (74.8)— (74.8)
Other comprehensive loss— — — — (15.4)(15.4)
Balance as of March 31, 202261,758,739 $ $1,568.2 $(636.7)$(18.8)$912.7 
Balance as of December 31, 2020
56,774,294 $ $859.8 $(320.6)$1.8 $541.0 
Issuance of common stock upon closing of Follow-on Offering, net of underwriting discounts and commissions and offering costs of $28.2 million
4,018,647 — 640.3 — — 640.3 
Exercise of stock options577,162 — 6.1 — — 6.1 
Stock-based compensation— — 6.1 — — 6.1 
Net loss— — — (49.0)— (49.0)
Other comprehensive loss— — — — (0.8)(0.8)
Balance as of March 31, 202161,370,103 $ $1,512.3 $(369.6)$1.0 $1,143.7 
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
7

LEMONADE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in millions)
(Unaudited)
Three Months Ended March 31,
20222021
Cash flows from operating activities:
Net loss$(74.8)$(49.0)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation1.5 0.9 
Stock-based compensation14.1 6.1 
Amortization of discount on bonds2.5  
Provision for bad debt2.0 0.9 
Changes in operating assets and liabilities:
Premium receivable(10.6)(13.3)
Reinsurance recoverable(22.7)(16.8)
Prepaid reinsurance premium(7.1)(13.1)
Deferred acquisition costs(0.5)(0.6)
Other assets(4.2)(1.6)
Unpaid loss and loss adjustment expense9.7 15.9 
Unearned premium14.7 19.7 
Trade payables1.6 (0.4)
Funds held for reinsurance treaties5.1 3.9 
Deferred ceding commissions2.3 3.6 
Ceded premium payable16.1 2.3 
Other liabilities and accrued expenses10.8 1.2 
Net cash used in operating activities(39.5)(40.3)
Cash flows from investing activities:
Proceeds from short-term investments sold or matured44.7  
Proceeds from bonds sold or matured9.2  
Cost of short-term investments acquired(17.9) 
Cost of bonds acquired(29.1) 
Purchases of property and equipment(2.8)(2.0)
Net cash provided by (used in) investing activities4.1 (2.0)
Cash flows from financing activities:
Proceeds from Follow-on Offering, net of underwriting discounts and commissions
and offering costs
 640.3 
Proceeds from stock exercises0.6 6.1 
Net cash provided by financing activities0.6 646.4 
Effect of exchange rate changes on cash and cash equivalents(0.8)(0.8)
Net (decrease) increase in cash, cash equivalents and restricted cash(35.6)603.3 
Cash, cash equivalents and restricted cash at beginning of period270.6 571.4 
Cash, cash equivalents and restricted cash at end of period$235.0 $1,174.7 
Supplemental disclosure of cash flow information:
Cash paid for income taxes$1.1 $0.6 

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
8


LEMONADE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.Nature of the Business
Lemonade, Inc. is a public benefit corporation organized under Delaware law on June 17, 2015. It provides certain personnel, facilities and services to each of its subsidiaries (together with Lemonade, Inc., the “Company”), all of which are 100% owned, directly or indirectly, by Lemonade, Inc. For the list of the Company's US and EU subsidiaries, see Note 1 - Nature of the Business, of the audited consolidated financial statements and related notes thereto for the year ended December 31, 2021 as included in the Company's Annual Report on Form 10-K for the year ending December 31, 2021 (the "Annual Report on Form 10-K") for more complete descriptions and discussions.

2.Basis of Presentation
The accompanying interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and include the accounts of the Company and its wholly-owned subsidiaries. All material intercompany transactions and balances have been eliminated upon consolidation. All foreign currency amounts in the condensed consolidated statement of operations and comprehensive loss have been translated using an average rate for the reporting period. All foreign currency balances in the balance sheet have been translated using the spot rate at the end of the reporting period. All figures expressed, except share amounts, are in U.S. dollars in millions.
Risk and Uncertainties
The COVID-19 pandemic has caused national and global economic and financial market disruptions and may adversely impact our business. Although the Company did not see a material impact on its results of operations for the three months ended March 31, 2022 and year ended December 31, 2021 due to the COVID-19 pandemic, the Company cannot predict the duration or magnitude of the pandemic or the full impact that it may have on the Company’s financial condition and results of operations, business operations, and workforce.
Unaudited interim financial information
In the opinion of the Company, the accompanying unaudited condensed consolidated financial statements contain all adjustments, consisting of only normal recurring adjustments, necessary for the fair presentation of its financial position and its results of operations, changes in stockholders’ equity and cash flows. The condensed consolidated balance sheet at December 31, 2021, was derived from audited annual financial statements but does not contain all of the footnote disclosures from the annual financial statements. The accompanying unaudited condensed consolidated financial statements and related financial information should be read in conjunction with the audited consolidated financial statements and the related notes thereto for the fiscal year ended December 31, 2021 contained in the Company’s Annual Report on Form 10-K.
3.Use of Estimates
The preparation of the condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. On an ongoing basis, the Company’s management evaluates estimates, including those related to contingent assets and liabilities as of the date of the financial statements as well as the reported amounts of revenue and expense during the reporting period. Such estimates are based on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities at the dates of the condensed consolidated financial statements, and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates. Significant estimates reflected in the Company’s condensed consolidated financial statements include, but are not limited to, reserves for loss and loss adjustment expense, reinsurance recoverables on unpaid losses and valuation allowance on deferred tax assets.

9


4.Summary of Significant Accounting Policies
Cash, cash equivalents and restricted cash
The following represents the Company’s cash, cash equivalents and restricted cash as of March 31, 2022 and December 31, 2021:
March 31,December 31,
20222021
Cash and cash equivalents$234.8 $270.6 
Restricted cash0.2  
Total cash, cash equivalents and restricted cash$235.0 $270.6 
Cash and cash equivalents consist primarily of bank deposits and money market accounts with maturities of three months or less at the date of acquisition and are stated at cost, which approximates fair value. The Company’s restricted cash relates to security deposits for an office lease in the Netherlands. The carrying value of restricted cash approximates fair value.
Deferred offering costs
The Company capitalizes certain legal, accounting and other third-party fees that are directly associated with in-process equity financings as deferred offering costs until such financings are consummated. After consummation of the equity financing, these costs are recorded as a reduction to the carrying value of stockholders' equity (deficit) as a reduction of additional paid-in capital generated as a result of such offering. On January 14, 2021, the Company completed a Follow-on Offering of common stock, as defined and discussed in detail in Note 10, which generated net proceeds of $525.7 million, after deducting underwriting discounts and offering costs. On February 1, 2021, the underwriters exercised their option to purchase additional shares, and generated additional net proceeds to us of $114.6 million. Deferred offering costs from the Follow-on Offering amounted to $0.4 million.
Recently adopted accounting pronouncements
Leases
In February 2016, the FASB issued Leases (Topic 842) ("ASU 2016-02"), as subsequently amended, which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e. lessees and lessors), and replaces the existing guidance in ASC 840, Leases. The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine the recognition pattern of lease expense over the term of the lease. In addition, a lessee is required to record (i) a right-of-use asset and a lease liability the balance sheet for all leases with accounting lease terms of more than 12 months regardless of whether it is an operating or financing lease, and (ii) lease expense for operating leases and amortization and interest expense for financing leases, in statement of operations. Leases with a term of 12 months or less may be accounted for similar to existing guidance for operating leases under ASC 840. In July 2018, the FASB issued ASU No. 2018-11, Leases (Topic 842), which added an optional transition method that allows companies to adopt the standard as of the beginning of the year of adoption as opposed to the earliest comparative period presented.
The Company adopted the new standard effective January 1, 2021, using the modified retrospective transition approach which uses the effective date as the date of initial application with no adjustment to prior periods presented. There was no adjustment to the opening balance of retained earnings.
10


At adoption date, the new standard resulted in the recognition of an operating lease Right-of-Use (ROU) asset of $16.9 million included under Other Assets and a corresponding operating lease liabilities of $17.2 million included in Other Liabilities on the consolidated balance sheet. The difference of $0.3 million between the operating lease ROU assets and operating lease liabilities represents reclassification of deferred rent liability (the difference between the straight-line rent expenses and paid rent amounts under the leases) to operating lease ROU assets from other liabilities at the adoption date. The adoption of the standard did not have a material impact on the Company’s consolidated statements of operations and comprehensive loss, or consolidated statements of cash flows. The adoption impact relates to the Company’s existing operating leases for office spaces in the US, Netherlands and Israel.
The Company has elected to apply the package of practical expedients requiring no reassessment of whether any expired or existing contracts are or contain leases, the lease classification of any expired or existing leases, or the capitalization of initial direct costs for any existing leases. Additionally, the Company elected the practical expedients that permit the exclusions of leases considered to be short-term.
Current Expected Credit Losses
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, or ASU 2016-13. ASU 2016-13 introduced a current expected credit loss (CECL) model for measuring expected credit losses for certain types of financial instruments held at the reporting date requiring significant judgment in application based on historical experience, current conditions and reasonable supportable forecasts, but is not prescriptive about certain aspects of estimating expected losses. The guidance replaced the current incurred loss model for measuring expected credit losses and provided for additional disclosure requirements. Subsequently, the FASB issued additional ASUs on Topic 326 that did not change the core principle of the guidance in ASU 2016-13, but provided clarification and implementation guidance on certain aspects of ASU 2016-13, and have the same effective date and transition requirements as ASU 2016-13. The Company adopted the guidance using a modified retrospective approach as of January 1, 2021 which resulted in no cumulative-effect adjustment to retained earnings.
The updated guidance in ASU 2016-13 also amended the previous other-than-temporary impairment (“OTTI”) model for available-for-sale fixed income securities by requiring the recognition of impairments relating to credit losses through an allowance account and limits the amount of credit loss to the difference between a security’s amortized cost basis and its fair value. In addition, the length of time a security has been in an unrealized loss position will no longer impact the determination of whether a credit loss exists. The Company adopted the guidance related to available-for-sale fixed income securities on January 1, 2021 using a prospective transition approach for available-for-sale fixed income securities that were purchased with credit deterioration or had recognized an OTTI write-down prior to the effective date. The effect of the prospective transition approach was to maintain the same amortized cost basis before and after the effective date.
5.    Acquisition of a Business
On November 8, 2021, Lemonade entered into a definitive agreement (“Agreement”) to acquire Metromile, Inc. (“Metromile’). Pursuant to the terms of the Agreement, the Company will acquire 100% of the equity of Metromile, through an all stock transaction that implies a fully diluted equity value of $500.0 million, or over $200.0 million net of cash (based upon the conversion ratio of 19 shares of Metromile for 1 share of Lemonade). The transaction is expected to close in the second quarter of 2022 subject to customary closing conditions and approvals.
Metromile is a leading digital insurance platform in the United States. With data science at its foundation, Metromile offers real-time, personalized auto insurance policies by the mile instead of the industry’s reliance on approximations that have historically made prices unfair. Metromile’s digitally native offering is built around the modern driver’s needs, featuring automated claims and complementary smart driving features. In addition, through Metromile Enterprise, Metromile licenses its technology platform to insurance companies around the world. Metromile’s cloud-based software as a service enables carriers to operate with greater efficiency, automate claims to expedite resolution, reduce losses associated with fraud, and unlock the productivity of employees.
11


6.    Investments
Unrealized gains and losses
The following tables present cost or amortized cost and fair values of investment in fixed maturities as of March 31, 2022 and December 31, 2021 ($ in millions):
Cost or Amortized CostGross
Unrealized
Fair
Value
GainsLosses
March 31, 2022
Corporate debt securities$611.2 $ $(16.8)$594.4 
U.S. Government obligations102.1  (3.0)99.1 
Municipal securities1.2   1.2 
Total$714.5 $ $(19.8)$694.7 
December 31, 2021
Corporate debt securities$593.4 $ $(4.7)$588.7 
U.S. Government obligations102.2 0.1 (0.8)101.5 
Municipal securities1.2   1.2 
Total$696.8 $0.1 $(5.5)$691.4 

Gross unrealized losses for fixed maturities was $19.8 million as of March 31, 2022 and $5.5 million as of December 31, 2021. Gross unrealized gains and losses were recorded as a component of accumulated other comprehensive loss.
Contractual maturities of bonds
The following table presents the cost or amortized cost and estimated fair value of investments in fixed maturities as of March 31, 2022 by contractual maturity ($ in millions). Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
March 31, 2022
Cost or
Amortized
Cost
Fair Value
Due in one year or less$158.9 $157.2 
Due after one year through five years555.6 537.5 
Due after five years through ten years  
Due after ten years  
Total$714.5 $694.7 
12


Net investment income
An analysis of net investment income follows ($ in millions):
Three Months Ended March 31,
20222021
Interest on cash and cash equivalents$ $0.2 
Fixed maturities0.9  
Short-term investments0.1  
Total1.0 0.2 
Investment expense0.1  
Net investment income$0.9 $0.2 

Investment gains and losses
The Company had pre-tax net realized capital losses of less than $0.1 million for the three months ended March 31, 2022. There were no pre-tax net realized capital gains or losses for the three months ended March 31, 2021.
Aging of gross unrealized losses
The following table presents the gross unrealized losses and related fair values for the Company’s investment in fixed maturities, grouped by duration of time in a continuous unrealized loss position as of March 31, 2022 and December 31, 2021 ($ in millions):
Less than 12 Months12 Months or MoreTotal
Fair ValueGross Unrealized LossesFair ValueGross Unrealized LossesFair ValueGross Unrealized Losses
March 31, 2022
Corporate debt securities$574.4 $(16.8)$ $ $574.4 $(16.8)
U.S. Government obligations95.1 (3.0)0.5  95.6 (3.0)
Municipal securities1.2    1.2  
Total$670.7 $(19.8)$0.5 $ $671.2 $(19.8)
Less than 12 Months12 Months or MoreTotal
Fair ValueGross Unrealized LossesFair ValueGross Unrealized LossesFair ValueGross Unrealized Losses
December 31, 2021
Corporate debt securities$581.9 $(4.7)$ $ $581.9 $(4.7)
U.S. Government obligations95.0 (0.8)0.5  95.5 (0.8)
Municipal securities1.2    1.2  
Total$678.1 $(5.5)$0.5 $ $678.6 $(5.5)

Gross unrealized losses for fixed maturities for twelve months or more was less than $0.1 million for both March 31, 2022 and December 31, 2021.
13


As of March 31, 2022, 279 of the securities held were in an unrealized loss position. The Company determined that unrealized losses on fixed maturities were primarily due to the interest rate environment, and not credit risk related to the issuers of these securities. The Company does not intend to sell these investment in fixed maturities, and it is not more likely than not that that the Company will be required to sell these investment in fixed maturities before recovery of the amortized cost basis. No allowance for credit losses related to any of these securities was recorded for the three months ended March 31, 2022. The Company does not measure an allowance for credit losses on accrued interest receivable and would instead write off accrued interest receivable at the time an issuer defaults or is expected to default on payments.
7.     Fair Value Measurements
The following tables present the Company’s fair value hierarchy for financial assets and liabilities measured as of March 31, 2022 and December 31, 2021 ($ in millions):

March 31, 2022
Level 1Level 2Level 3Total
Assets:
Corporate debt securities$ $594.4 $ $594.4 
U.S. Government obligations 99.1  99.1 
Municipal securities 1.2  1.2 
Fixed maturities $694.7  $694.7 
Short term investments 83.2  83.2 
Total$ $777.9 $ $777.9 
December 31, 2021
Level 1Level 2Level 3Total
Assets:
Corporate debt securities$ $588.7 $ $588.7 
U.S. Government obligations 101.5  101.5 
Municipal securities 1.2  1.2 
Fixed maturities  691.4  691.4 
Short term investments 110.4  110.4 
Total$ $801.8 $ $801.8 
The fair value of all our different classes of Level 2 fixed maturities and short-term investments are estimated by using quoted prices from a third-party valuation service provider to gather, analyze and interpret market information and derive fair values based upon relevant methodologies and assumptions for individual instruments.
There were no transfers between Level 1, Level 2, or Level 3 during March 31, 2022 and December 31, 2021, respectively.
14


8.    Unpaid Loss and Loss Adjustment Expense
The following table presents the activity in the liability for unpaid loss and loss adjustment expense ("LAE") for the three months ended March 31, 2022 and 2021 ($ in millions):
Three Months Ended March 31,
20222021
Unpaid loss and LAE at beginning of period$97.9 $46.3 
Less: Reinsurance recoverable at beginning of period (1)
72.7 36.3 
Net unpaid loss and LAE at beginning of period25.2 10.0 
Add: Incurred loss and LAE, net of reinsurance, related to:
Current year24.8 16.7 
Prior years(0.4)(0.2)
Total incurred24.4 16.5 
Deduct: Paid loss and LAE, net of reinsurance, related to:
Current year10.6 8.3 
Prior years10.8 3.9 
Total paid21.4 12.2 
Unpaid loss and LAE, net of reinsurance recoverable, at end of period28.2 14.3 
Reinsurance recoverable at end of period (1)
79.4 47.9 
Unpaid loss and LAE, gross of reinsurance recoverable, at end of period$107.6 $62.2 
(1)    Reinsurance recoverable in this table includes only ceded unpaid loss and LAE
Unpaid loss and LAE includes anticipated salvage and subrogation recoverable.

Considerable variability is inherent in the estimate of the reserve for losses and LAE. Although management believes the liability recorded for losses and LAE is adequate, the variability inherent in this estimate could result in changes to the ultimate liability, which may be material to stockholders' equity. Additional variability exists due to accident year allocations of ceded amounts in accordance with reinsurance agreements, which is not expected to result in any changes to the ultimate liability. Other factors that can impact loss reserve development may also include trends in general economic conditions, including the effects of inflation. The Company had favorable development on net loss and LAE reserves of $0.4 million for the three months ended March 31, 2022, and favorable development on net loss and LAE reserves of $0.2 million for the three months ended March 31, 2021. No additional premiums or returned premiums have been accrued as a result of prior year effects.
For the three months ended March 31, 2021, current accident year incurred loss and LAE included $6.5 million of net incurred loss and LAE from the severe winter storm that affected our customers in the states of Texas and Oklahoma. The net incurred loss and LAE from Winter Storm Uri as of March 31, 2021 represents the Company's best estimates based upon information currently available.
Through June 30, 2021, the Company had proportional reinsurance contracts which cover all of the Company's products and geographies, and transferred, or “ceded,” 75% of the premium to reinsurers ("Proportional Reinsurance Contracts"). In exchange, these reinsurers paid a ceding commission of 25% for every dollar ceded, in addition to funding all of the corresponding claims, or 75% of all claims. The Company opted to manage the remaining 25% of the business with alternative forms of reinsurance through non-proportional reinsurance contracts ("Non-Proportional Reinsurance Contracts").
A portion of the Company’s proportional reinsurance program expired on June 30, 2021. The Company renewed the majority of the expiring reinsurance contracts at terms that are very similar to the prior agreements. As the business continues to grow and diversify, and with stability in our insurance results, the Company decreased the overall share of proportional reinsurance from 75% of premium to 70%. In addition, the Company purchased a new reinsurance program to protect against catastrophe risk in the U.S that exceed $60 million in losses. Other non-proportional reinsurance contracts were renewed with terms similar to the expired contracts.
15



9.    Other Liabilities and Accrued Expenses
Other liabilities and accrued expenses as of March 31, 2022 and December 31, 2021 consist of the following ($ in millions):
March 31,December 31,
20222021
Lease liabilities $24.0 $22.3 
Accrued advertising costs10.5 11.2 
Employee compensation6.9 5.4 
Income taxes payable5.6 4.7 
Payable for securities5.0  
Accrued professional fees4.9 4.6 
Advance premium2.8 2.0 
Premium taxes payable2.5 5.4 
Other payables6.1 1.8 
Total other liabilities and accrued expenses$68.3 $57.4 

10.    Stockholders’ Equity

Common stock
Upon closing of the initial public offering ("IPO") in 2020, the Company filed an amended and restated certificate of incorporation on July 7, 2020 with the Secretary of State of the State of Delaware to authorize the issuance of up to 200,000,000 shares of common stock, par value $0.00001 per share, and 10,000,000 shares of undesignated preferred stock, par value $0.00001 per share.
On January 14, 2021, the Company completed a Follow-on Offering of common stock (the "Follow-on Offering"), which resulted in the issuance and sale of 3,300,000 shares of common stock of the Company, and 1,524,314 shares of common stock by certain selling shareholders, and generated net proceeds to us of $525.7 million after deducting underwriting discounts and commissions and other offering costs. On February 1, 2021, the underwriters exercised their option to purchase additional shares, which resulted in the issuance and sale of an additional 718,647 shares of common stock of the Company, and generated additional net proceeds of $114.6 million to us after deducting underwriting discounts.
As of March 31, 2022 and December 31, 2021, the Company was authorized to issue 200,000,000 shares of par value $0.00001 per share common stock. The voting, dividend and liquidation rights of the holders of the Company’s common stock is subject to and qualified by the rights, powers and preferences of the holders of the preferred stock.
The Company in 2020 made a contribution of 500,000 newly issued shares of common stock to a related party, the Lemonade Foundation (see Note 14). In connection with the Follow-on Offering noted above, Lemonade Foundation sold 100,000 of the contributed shares of the Company.
Undesignated Preferred Stock
As of both March 31, 2022 and December 31, 2021, the Company's certificate of incorporation, as amended and restated, authorized the Company to issue up to 10,000,000 shares of undesignated preferred stock, par value $0.00001 per share. As of both March 31, 2022 and December 31, 2021, there were no shares of undesignated preferred stock issued or outstanding.

16


11.    Stock-based Compensation
Share option plans
2020 Incentive Compensation Plan
On July 2, 2020, the Company’s board of directors adopted and the Company’s stockholders approved the 2020 Incentive Compensation Plan (the “2020 Plan”), which became effective immediately prior to the effectiveness of the registration statement for the Company’s IPO on July 2, 2020. The 2020 Plan provides for the issuance of incentive stock options, non-qualified stock options, stock awards, stock units, stock appreciation rights and other stock-based awards.
The number of shares initially reserved for issuance under the 2020 Plan is 5,503,678 shares, inclusive of available shares previously reserved for issuance under the 2015 Incentive Share Option Plan, as amended and restated on September 4, 2019 (the “2015 Plan”). In addition, the number of shares reserved for issuance under the 2020 Plan is subject to increase for awards previously issued under the 2015 Plan which are forfeited or lapse unexercised. Annually, on the first day of each calendar year beginning on January 1, 2021 and ending on and including January 1, 2030, the reserve will be increased by an amount equal to the lesser of (A) 5% of the shares outstanding (on an as-converted basis) on the last day of the immediately preceding fiscal year and (B) such smaller number of shares as determined by the Company’s board of directors, provided that no more than 3,650,000 shares may be issued upon the exercise of incentive stock options. On January 1, 2022, the 2020 Plan share pool was increased by 3,083,050 shares, equal to 5% of the aggregate number of outstanding common stock as of December 31, 2021. As of March 31, 2022, there were 8,044,269 shares of common stock available for future grants.
2020 Employee Stock Purchase Plan
On July 2, 2020, the Company's board of directors adopted and the Company's stockholders approved the 2020 Employee Stock Purchase Plan (the "2020 ESPP"), which became effective immediately prior to the effectiveness of the registration statement for the Company's IPO on July 2, 2020. The total shares of common stock initially reserved for issuance under the 2020 ESPP is limited to 1,000,000 shares. In addition, the number of shares available for issuance under the 2020 ESPP will be annually increased on January 1 of each calendar year beginning in 2021 and ending in and including 2030, by an amount equal to the lesser of (A) 1,000,000 shares, (B) 1% of the shares outstanding on the final day of the immediately preceding calendar year and (C) such smaller number of shares as is determined by the board of directors. The board of directors or a committee of the board of directors will administer and will have authority to interpret the terms of the 2020 ESPP and determine eligibility of participants. On January 1, 2022, there was no increase in the 2020 ESPP share pool. As of March 31, 2022, there were no shares of common stock issued under the 2020 ESPP.
2015 Incentive Share Option Plan
In July 2015, the Company adopted the 2015 Incentive Share Option Plan ("2015 Plan"). The 2015 Plan has been amended and restated from time to time to increase the number of shares reserved for grant and to enable the grant of options to employees of the Company’s subsidiaries. Under the 2015 Plan, options to purchase common stock of the Company may be granted to employees, officers, directors and consultants of the Company. Each option granted can be exercised for one share of common stock of the Company. Options granted to employees generally vest over a period of no more than four years. The options expire ten years from the date of grant.
Pursuant to the 2015 Plan, the Company had reserved 7,312,590 shares of common stock for issuance. Effective immediately upon the approval of the 2020 plan, the remaining shares of common stock available for future grant under the 2015 Plan were transferred to the 2020 Plan. As of March 31, 2022, there were no shares of common stock available for future grant under the 2015 Plan. Subsequent to the approval of the 2020 Plan, no additional grants will be made under the 2015 Plan and any outstanding awards under the 2015 Plan will continue with their original terms.
17


Options granted to employees and non-employees
The fair value of each option granted for the three months ended March 31, 2022 and 2021 is estimated on the date of grant using the Black-Scholes model based on the following assumptions:
Three Months Ended March 31,
20222021
Weighted average expected term (years)6.16.1
Risk-free interest rate1.7%0.7%
Volatility48%50%
Expected dividend yield0%0%
Expected volatility is calculated based on implied volatility from market comparisons of certain publicly traded companies and other factors. The expected term of options granted is based on the simplified method, which uses the midpoint between the vesting date and the contractual term in accordance with ASC 718, “Compensation — Stock Compensation”. The risk-free interest rate is based on observed interest rates appropriate for the term of the Company’s stock options. The dividend yield assumption is based on the Company’s historical and expected future dividend payouts and may be subject to substantial change in the future.
The following tables summarize activity of stock options and restricted stock units ("RSUs") ($ in millions, except for number of options and weighted average amounts):
Stock options
Number of
Options
Weighted-
Average
Exercise
Price
Weighted-Average Remaining Contractual Term (Years)Aggregate Intrinsic Value
Outstanding as of December 31, 2021
6,573,744$46.03 8.29$85.86 
Granted59,500 19.62 
Exercised(81,776)7.86 
Cancelled(196,194)60.91 
Outstanding as of March 31, 2022
6,355,274$45.82 8.00$32.88 
Options exercisable as of March 31, 2022
2,545,655$22.32 6.87$26.70 
Options unvested as of March 31, 2022
3,809,619$61.52 8.76$6.18 
Restricted Stock Units
Number of sharesGrant Date
Fair Value
Outstanding as of December 31, 2021
335,814 $66.94 
Granted175,233 22.18 
Vested(15,967)82.94 
Cancelled(19,331)47.72 
Outstanding as of March 31, 2022
475,749 $50.69 
18


Stock-based compensation expense
Stock-based compensation expense from stock options and RSUs granted as included and classified in the condensed consolidated statements of operations for the three months ended March 31, 2022 and 2021 is as follows ($ in millions):
Three Months Ended March 31,
20222021
Loss and loss adjustment expense, net$0.6 $0.2 
Other insurance expense0.3 0.2 
Sales and marketing1.5 1.1 
Technology development5.4 0.7 
General and administrative6.3 3.9 
Total stock-based compensation expense$14.1 $6.1 
Stock-based compensation expense classified by award type as included in the condensed consolidated statements of operations is as follows ($ in millions):
Three Months Ended March 31,
20222021
Stock options$12.1 $5.5 
RSUs2.0 0.6 
Total stock-based compensation expense$14.1 $6.1 
The total unrecognized expense granted to employees and non-employees outstanding at March 31, 2022 was $83.2 million for the stock options and $22.2 million for the RSUs, with a remaining weighted-average vesting period of 1.3 years for the stock options and 1.7 years for the RSUs.

12.    Income Taxes
Effective tax rates
The consolidated effective tax rate for the three months ended March 31, 2022 and 2021 was (3.0)% and (1.9)%, respectively. The change in effective tax rate over the two periods was predominantly reflective of the change in profit before tax of its wholly-owned subsidiaries in Israel and the Netherlands. The Company believes that as of March 31, 2022, it had no material uncertain tax positions. Interest and penalties related to unrecognized tax expenses (benefits) are recognized in income tax expense, when applicable.
There were no material liabilities for interest and penalties accrued as of March 31, 2022.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was signed into law in the U.S. to provide certain relief as a result of the COVID-19 pandemic. In addition, governments around the world have enacted or implemented various forms of tax relief in measures in response to the economic conditions due to the COVID-19 pandemic. As of March 31, 2022, the Company has determined that neither the CARES Act nor changes to income tax laws or regulations in other jurisdictions had a significant impact on the Company's effective tax rate.

19


13.    Net Loss per Share
Net loss per share
Basic and diluted net loss per share attributable to common stockholders was calculated as follows:
Three Months Ended March 31,
20222021
Numerator:
Net loss attributable to common stockholders ($ in millions)$(74.8)$(49.0)
Denominator:
Weighted average common shares outstanding — basic and diluted61,698,56860,218,652
Net loss per share attributable to common stockholders — basic and diluted$(1.21)$(0.81)
The Company’s potentially dilutive securities, which include stock options and unvested RSUs, have been excluded from the computation of diluted net loss per share as the effect would be anti-dilutive. Therefore, the weighted average number of common shares outstanding used to calculate both basic and diluted net loss per share attributable to common stockholders is the same. The Company excluded the following potential common shares, presented based on amounts outstanding at each period end, from the computation of diluted net loss per share attributable to common stockholders for the periods indicated because including them would have had an anti-dilutive effect.
Three Months Ended March 31,
20222021
Options to purchase common stock6,355,274 4,841,616 
Unvested restricted stock475,749 50,250 
6,831,023 4,891,866 

14.    Related Party Transactions
The Company uses the services of a travel agency owned by a relative of one of the Company’s key stockholders. The Company incurred travel related expenses in the amount of approximately less than $0.1 million for the three months ended March 31, 2022. There were no travel expenses for the three months ended March 31, 2021.
The Company has historically leased office spaces in the United States and The Netherlands from an affiliate. Rental expense in connection with the leased space was approximately $0.1 million for the three months ended March 31, 2022. There was no rental expense incurred for the three months ended March 31, 2021. There were no outstanding amounts due to or from related parties as of March 31, 2022 and December 31, 2021.
The Company’s Co-Chief Executive Officers, both of whom are also members of the Company’s board of directors, are the two sole members of the board of directors of the Lemonade Foundation. The Company contributed 500,000 shares of common stock with a fair market value of $24.36 per share (see Note 10). In connection with the Follow-on Offering as discussed in Note 10, Lemonade Foundation sold 100,000 shares of the contributed shares of the Company. As of March 31, 2022, there were no outstanding amounts due to or from the Lemonade Foundation.

20


15.    Commitments and Contingent Liabilities
Litigation
The Company is occasionally a party to routine claims or litigation incidental to its business. The Company records accruals for loss contingencies with these legal matters when it is probable that a liability will be incurred, and the amount of the loss can be reasonably estimated. The Company has been made a party to class action litigation alleging that certain of our business practices were improper. The Company has determined that the liability associated with this matter is probable and can be reasonably estimated and therefore has accrued a liability for this matter in accordance with ASC 450, Contingencies. The Company will continue to monitor all legal issues and adjust the accrued liability as new information and further developments arise.
Charges and guarantees
The Company provided a guarantee with respect to the office lease in the Netherlands in the amount of $0.2 million. There were no guarantees as of December 31, 2021.

16.    Geographical Breakdown of Gross Written Premium
The Company has a single reportable segment and offers insurance coverage under the homeowners multi-peril, inland marine and general liability lines of business. Gross written premium by jurisdiction are as follows ($ in millions):
Three Months Ended March 31,
20222021
JurisdictionAmount% of GWPAmount% of GWP
California$27.1 24.5 %$19.2 25.3 %
Texas20.2 18.3 %15.0 19.8 %
New York14.8 13.4 %10.0 13.2 %
New Jersey5.3 4.8 %3.1 4.1