Lemonade, Inc. [LMND] Filings

10-Q 1 lmnd-20240630.htm 10-Q lmnd-20240630

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 June 30, 2024


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)


Delaware						32-0469673
(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 class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.00001 par value per share	LMND	New York Stock Exchange
Warrants to Purchase Common Stock	LMND.WS	New York Stock Exchange American

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 filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

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 July 30, 2024, the registrant had 71,027,947 shares of common stock, $0.00001 par value per share, outstanding.

Table of Contents


		Page
	Cautionary Note Regarding Forward-Looking Statements	2
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements
	Condensed Consolidated Balance Sheets at June 30, 2024 (Unaudited) and December 31, 2023	5
	Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited) for the Three and Six Months Ended June 30, 2024 and 2023	6
	Condensed Consolidated Statements of Changes in Stockholders’ Equity (Unaudited) for the Six Months Ended June 30, 2024 and 2023	7
	Condensed Consolidated Statements of Cash Flows (Unaudited) for the Six Months Ended June 30, 2024 and 2023	8
	Notes to Condensed Consolidated Financial Statements (Unaudited)	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	46
Item 4.	Controls and Procedures	47
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	48
Item 1A.	Risk Factors	48
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	48
Item 3.	Defaults Upon Senior Securities	48
Item 4.	Mine Safety Disclosures	48
Item 5.	Other Information	49
Item 6.	Exhibits	50
	Signatures	51

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, our ability to maintain reinsurance contracts, the impact of the evolving conflict in Israel and surrounding region 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.

•Reinsurance may be unavailable at current levels and prices, which may limit our ability to write new business and impact our capital needs. Furthermore, reinsurance subjects us to counterparty risk and may not be adequate to protect us against losses, which could 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.

•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.

•Intense competition in the segments of the insurance industry in which we operate could negatively affect our ability to attain or increase profitability.

•Failure to maintain our risk-based capital at the required levels could adversely affect the ability of our insurance subsidiaries to maintain regulatory authority to conduct our business.

•If we are unable to expand our product offerings, our prospects for future growth may be adversely affected.

•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.

•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.

•Existing and 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.

•The insurance business, including the market for renters, homeowners, pet and car 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 rely on artificial intelligence, telematics, mobile technology and our digital platforms to collect data 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 prohibit or restrict our ability to collect or use this data could thus materially and adversely affect our business, financial condition, results of operations and prospects.

•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 regulators, 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.

•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.

•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.

•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.

•Climate risks, including risks associated with disruptions caused by the transition to a low-carbon economy, could adversely affect our business, results of operations and financial condition.

•Increasing scrutiny, actions and changing expectations from investors, clients, regulators and our employees and other stakeholders with respect to environmental, social and governance ("ESG") matters may impose additional costs on us, impact our access to capital, or expose us to new or additional risks.

•Our agreement with General Catalyst may not function as expected, and its failure to do so could adversely impact our financial condition and results of operations.

•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 subsidiaries are 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 affect our ability to achieve 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.

•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 surrounding 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, 2023 (the "Annual Report on Form 10-K") and 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. In this Quarterly Report, unless we indicate otherwise or the context requires, "Lemonade," the “Company," "we," "our," "ours" and "us" refer to Lemonade, Inc. and its consolidated subsidiaries, including Lemonade Insurance Company, Lemonade Insurance Agency, LLC, and Metromile, LLC.

Where You Can Find More Information

Investors and others should note that we may use our website (https://https://investor.lemonade.com/home/default.aspx), our company account on X (formerly Twitter) (@Lemonade_Inc), and LinkedIn (@Lemonade-Inc) as a means of disclosing information and for complying with our disclosure obligations under Regulation FD. The information we post through these channels may be deemed material. Accordingly, in addition to reviewing our press releases, SEC filings, and public conference calls, investors should monitor these channels. The contents of our website and social media channels are not part of this Quarterly Report on Form 10-Q.

Table of contents

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
	June 30,		December 31,
	2024		2023
	(Unaudited)
Assets
Investments
Fixed maturities available-for-sale, at fair value (amortized cost: $540.5 million and $632.0 million as of June 30, 2024 and December 31, 2023, respectively)	$	537.2	$	627.4
Short-term investments (cost: $44.0 million and $45.8 million as of June 30, 2024 and December 31, 2023, respectively)	44.0		45.8
Total investments	581.2		673.2
Cash, cash equivalents and restricted cash	349.7		271.5
Premium receivable, net of allowance for credit losses of $2.5 million and $2.5 million as of June 30, 2024 and December 31, 2023, respectively	259.7		222.0
Reinsurance recoverable	203.0		138.4
Prepaid reinsurance premium	218.2		196.3
Deferred acquisition costs	11.2		8.8
Property and equipment, net	16.3		17.4
Intangible assets	18.2		22.9
Goodwill	19.0		19.0
Other assets	37.4		63.8
Total assets	$	1,713.9	$	1,633.3

Liabilities and Stockholders' Equity
Unpaid loss and loss adjustment expense	$	282.2	$	262.3
Unearned premium	397.6		353.7
Trade payables	0.6		0.6
Funds held for reinsurance treaties	157.3		128.8
Deferred ceding commission	46.3		41.4
Ceded premium payable	29.6		23.2
Borrowings under financing agreement	43.9		14.9
Other liabilities and accrued expenses	121.2		99.5
Total liabilities	1,078.7		924.4
Commitments and Contingencies (Note 15)

Stockholders' equity
Common stock, $0.00001 par value, 200,000,000 shares authorized; 71,002,862 and 70,163,703 shares issued and outstanding as of June 30, 2024 and December 31, 2023, respectively	—		—
Additional paid-in capital	1,844.9		1,814.5
Accumulated deficit	(1,201.1)		(1,096.6)
Accumulated other comprehensive loss	(8.6)		(9.0)
Total stockholders' equity	635.2		708.9
Total liabilities and stockholders' equity	$	1,713.9	$	1,633.3

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

LEMONADE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

($ in millions, except share and per share amounts)

(Unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
Revenue
Net earned premium	$	89.3	$	76.5	$	173.7	$	144.7
Ceding commission income	16.5		17.5		37.5		34.7
Net investment income	8.1		5.6		15.7		10.6
Commission and other income	8.1		5.0		14.2		9.8
Total revenue	122.0		104.6		241.1		199.8

Expense
Loss and loss adjustment expense, net	70.5		75.9		136.4		139.5
Other insurance expense	18.8		15.0		36.1		28.6
Sales and marketing	36.8		24.8		67.2		53.0
Technology development	21.2		24.1		42.1		45.9
General and administrative	29.8		30.7		59.6		63.4
Total expense	177.1		170.5		341.4		330.4
Loss before income taxes	(55.1)		(65.9)		(100.3)		(130.6)
Income tax expense	2.1		1.3		4.2		2.4
Net loss	$	(57.2)	$	(67.2)	$	(104.5)	$	(133.0)

Other comprehensive loss, net of tax
Unrealized gain on investments in fixed maturities	1.3		1.2		2.0		7.2
Foreign currency translation adjustment	(0.7)		0.1		(1.6)		(0.6)
Comprehensive loss	$	(56.6)	$	(65.9)	$	(104.1)	$	(126.4)

Per share data:
Net loss per share attributable to common stockholders—basic and diluted	$	(0.81)	$	(0.97)	$	(1.48)	$	(1.92)

Weighted average common shares outstanding—basic and diluted	70,721,227		69,534,731		70,502,856		69,434,971

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

LEMONADE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

($ in millions, except share amounts)

(Unaudited)


	Common Stock		Additional Paid-In Capital			Accumulated Deficit		Accumulated Other Comprehensive (Loss) Income		Total Stockholders' Equity
		Shares			Amount

Balance as of December 31, 2023		70,163,703	$	—		$	1,814.5	$	(1,096.6)	$	(9.0)	$	708.9
Exercise of stock options and distribution of restricted stock units		314,385	—			0.1		—		—		0.1
Stock-based compensation		—	—			14.9		—		—		14.9
Net loss		—	—			—		(47.3)		—		(47.3)
Other comprehensive loss		—	—			—		—		(0.2)		(0.2)
Balance as of March 31, 2024		70,478,088	$	—		$	1,829.5	$	(1,143.9)	$	(9.2)	$	676.4
Exercise of stock options and distribution of restricted stock units		343,693	—			—		—		—		—
Exercise of warrant shares		181,081	—			—		—		—		—
Stock-based compensation		—	—			15.4		—		—		15.4
Net loss		—	—			—		(57.2)		—		(57.2)
Other comprehensive income		—	—			—		—		0.6		0.6
Balance as of June 30, 2024		71,002,862	$	—		$	1,844.9	$	(1,201.1)	$	(8.6)	$	635.2








Balance as of December 31, 2022	69,275,030	$	—	$	1,754.1	$	(859.7)	$	(27.6)	$	866.8

Exercise of stock options and distribution of restricted stock units	174,318	—		0.1		—		—		0.1
Stock-based compensation	—	—		15.4		—		—		15.4
Net loss	—	—		—		(65.8)		—		(65.8)
Other comprehensive income	—	—		—		—		5.3		5.3
Balance as of March 31, 2023	69,449,348	$	—	$	1,769.6	$	(925.5)	$	(22.3)	$	821.8
Exercise of stock options and distribution of restricted stock units	218,828	—		0.3		—		—		0.3
Stock-based compensation	—	—		14.8		—		—		14.8
Net loss	—	—		—		(67.2)		—		(67.2)
Other comprehensive income	—	—		—		—		1.3		1.3
Balance as of June 30, 2023	69,668,176	$	—	$	1,784.7	$	(992.7)	$	(21.0)	$	771.0

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

Table of contents

LEMONADE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

($ in millions)

(Unaudited)


	Six Months Ended June 30,
	2024		2023
Cash flows from operating activities:
Net loss	$	(104.5)	$	(133.0)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	10.2		10.2
Stock-based compensation	30.3		30.2
Amortization of premium on bonds	(2.8)		—
Provision for bad debt	5.3		3.9
Asset impairment charge	0.3		—
Changes in operating assets and liabilities:
Premium receivable	(43.0)		(22.1)
Reinsurance recoverable	(64.6)		(7.6)
Prepaid reinsurance premium	(21.9)		(2.1)
Deferred acquisition costs	(2.4)		0.3
Other assets	26.4		5.2
Unpaid loss and loss adjustment expense	19.9		(0.6)
Unearned premium	43.9		27.9
Trade payables	—		(0.4)
Funds held for reinsurance treaties	28.5		(6.7)
Deferred ceding commissions	4.9		1.9
Ceded premium payable	6.4		0.8
Other liabilities and accrued expenses	21.6		(4.6)
Net cash used in operating activities	(41.5)		(96.7)
Cash flows from investing activities:

Proceeds from short-term investments sold or matured	44.0		63.2
Proceeds from bonds sold or matured	219.6		216.0
Cost of short-term investments acquired	(41.7)		(52.2)
Cost of bonds acquired	(125.7)		(218.0)
Purchases of property and equipment	(4.0)		(4.6)
Net cash provided by investing activities	92.2		4.4
Cash flows from financing activities:
Proceeds from borrowings under financing agreement	39.7		—
Payments on borrowings under financing agreement	(10.7)		—
Proceeds from stock exercises	0.1		0.3
Net cash provided by financing activities	29.1		0.3
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(1.6)		(0.7)
Net increase (decrease) in cash, cash equivalents and restricted cash	78.2		(92.7)
Cash, cash equivalents and restricted cash at beginning of period	271.5		286.5
Cash, cash equivalents and restricted cash at end of period	$	349.7	$	193.8

Supplemental disclosure of cash flow information:
Cash paid for income taxes	$	1.2	$	0.3
Cash paid for interest expense on borrowings under financing agreement	$	1.3	$	—

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

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 and for more complete descriptions and discussions, see Note 1 - Nature of the Business, of the audited consolidated financial statements and related notes thereto for the year ended December 31, 2023 as included in the Company's Annual Report on Form 10-K (the "Annual Report on Form 10-K").

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 and a variable interest entity for which the Company is deemed to be the primary beneficiary. 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 condensed consolidated 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

Lemonade, Inc. conducts certain of its operations in Israel. The evolving conflict in Israel and surrounding region has increased global economic and political uncertainty. There is still uncertainty regarding the extent to which the war and its broader macroeconomic implications will impact our operations in Israel. The Company will continue to evaluate the extent to which this may impact our business, financial condition, or results of operations.

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, 2023 was derived from the audited annual financial statements and does not contain all of the footnote disclosures from the audited annual financial statements of the Company. 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, 2023 as included 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 consolidated 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 recoverable on unpaid losses and valuation allowance on deferred tax assets.

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 June 30, 2024 and December 31, 2023:


	June 30,		December 31,
	2024		2023
Cash and cash equivalents	$	343.2	$	264.5
Restricted cash	6.5		7.0
Total cash, cash equivalents and restricted cash	$	349.7	$	271.5

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 primarily relates to insurance policy premiums collected by the Company that it holds in a segregated cash account for transmittal to the underwriting carrier, or settlement of insurance related claims. The carrying value of restricted cash approximates fair value. The Company also has restricted cash relating to security deposits for certain office leases.

New Accounting Pronouncements

Recently Issued Accounting Pronouncement Pending Adoption

In November 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update (“ASU”) 2023-07, Segment Reporting - Improvements to Reportable Segment Disclosures, requiring disclosure of significant expenses for each reportable segment and amount regularly provided to the Chief Operating Decision Maker ("CODM") and included in the reported measure(s) of the segment profit or loss. This ASU also clarifies that single reportable segment entities are subject to the required disclosures in its entirety under Accounting Standards Codification ("ASC") Topic 280, Segment Reporting. The ASU does not change the identification and determination of its operating segments, aggregation of operating segments or application of quantitative thresholds to determine its reportable segments. This ASU is effective for fiscal years beginning after December 15, 2023 and interim periods beginning after December 15, 2024. Amendments in the ASU apply retrospectively to all periods presented in the financial statements unless impracticable to do so. The Company is currently evaluating the impact of this standard.

In December 2023, the FASB issued ASU 2023-09, Income Taxes - Improvement to Income Tax Disclosures, requiring enhancements and further transparency to certain income tax disclosures, most notably the tax rate reconciliation and income taxes paid. This ASU is effective for fiscal years beginning after December 15, 2024 on a prospective basis and retrospective application is permitted. The Company is currently evaluating the impact of this standard.

There are no other new accounting standards identified and not yet implemented that are expected to have a material effect on the Company's consolidated financial statements.

5. Investments

Unrealized gains and losses

The following tables present cost or amortized cost and fair values of investment in fixed maturities as of June 30, 2024 and December 31, 2023 ($ in millions):


	Cost or Amortized Cost		Gross Unrealized				Fair Value
			Gains		Losses
June 30, 2024
Corporate debt securities	$	438.8	$	0.3	$	(3.2)	$	435.9
U.S. Government obligations	88.9		—		(0.4)		88.5
Asset-backed securities	12.8		—		—		12.8

Total	$	540.5	$	0.3	$	(3.6)	$	537.2

December 31, 2023
Corporate debt securities	$	453.6	$	1.3	$	(5.0)	$	449.9
U.S. Government obligations	176.8		0.4		(1.3)		175.9
Asset-backed securities	1.6		—		—		1.6

Total	$	632.0	$	1.7	$	(6.3)	$	627.4

Gross unrealized losses for fixed maturities was $3.6 million as of June 30, 2024 and $6.3 million as of December 31, 2023. 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 June 30, 2024 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.


	June 30, 2024
	Cost or Amortized Cost		Fair Value
Due in one year or less	$	175.5	$	173.9
Due after one year through five years	365.0		363.3
Due after five years through ten years	—		—
Due after ten years	—		—
Total	$	540.5	$	537.2

Net investment income

Details of the Company's net investment income is as follows ($ in millions):


	Three Months Ended June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
Interest on cash and cash equivalents	$	2.2	$	1.0	$	3.7	$	2.2
Fixed maturities	5.6		4.0		11.4		6.9
Short-term investments	0.4		0.7		0.8		1.7
Total	8.2		5.7		15.9		10.8
Investment expense	0.1		0.1		0.2		0.2
Net investment income	$	8.1	$	5.6	$	15.7	$	10.6

Investment gains and losses

The Company had a pre-tax net realized capital gain of less than $0.1 million for the three and six months ended June 30, 2024 and a pre-tax net realized capital loss of less than $0.1 million for the three and six months ended June 30, 2023, which were included in "Commission and other income" in the consolidated statements of operations and comprehensive income.

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 June 30, 2024 and December 31, 2023 ($ in millions):


	Less than 12 Months				12 Months or More				Total
	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses




June 30, 2024
Corporate debt securities	$	163.0	$	(0.9)	$	145.9	$	(2.3)	$	308.9	$	(3.2)
U.S. Government obligations	40.8		(0.2)		22.0		(0.2)		62.8		(0.4)
Asset-backed securities	9.9		—		—		—		9.9		—

Total	$	213.7	$	(1.1)	$	167.9	$	(2.5)	$	381.6	$	(3.6)


	Less than 12 Months				12 Months or More				Total
	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses




December 31, 2023
Corporate debt securities	$	89.0	$	(1.2)	$	178.3	$	(4.0)	$	267.3	$	(5.2)
U.S. Government obligations	79.6		(0.2)		57.7		(0.9)		137.3		(1.1)
Asset-backed securities	—		—		0.2		—		0.2		—


Total	$	168.6	$	(1.4)	$	236.2	$	(4.9)	$	404.8	$	(6.3)

As of June 30, 2024, 241 of the securities held were in an unrealized loss position. Investments in fixed maturities with gross unrealized losses for twelve months or more was $2.5 million and $4.9 million as of June 30, 2024 and December 31, 2023, respectively. 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 investments in fixed maturities, and it is not more likely than not that the Company will be required to sell these investments 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 and six months ended June 30, 2024. 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.

Restricted investments

Restricted investments are held in a trust account securing the Company’s insurance subsidiary's contractual obligations under the Property Catastrophe Excess of Loss reinsurance contract with a captive in Bermuda (see Note 7) which will not be released until the underlying risks have expired or have been settled. Restricted investments include certain investments in debt securities and short-term investments of $84.5 million as of June 30, 2024.

6. Fair Value Measurements

The following tables present the Company’s fair value hierarchy for financial assets and liabilities measured as of June 30, 2024 and December 31, 2023 ($ in millions):


	June 30, 2024
	Level 1		Level 2		Level 3		Total
Financial Assets:
Corporate debt securities	$	—	$	435.9	$	—	$	435.9
U.S. Government obligations	—		88.5		—		88.5
Asset-backed securities	—		12.8		—		12.8

Fixed maturities	$	—	$	537.2	$	—	$	537.2
Short term investments	—		44.0		—		44.0
Total	$	—	$	581.2	$	—	$	581.2

Financial Liabilities:
Warrant Liability (1)	$	—	$	—	$	—	$	—


	December 31, 2023
	Level 1		Level 2		Level 3		Total
Financial Assets:
Corporate debt securities	$	—	$	449.9	$	—	$	449.9
U.S. Government obligations	—		175.9		—		175.9
Asset-backed securities	—		1.6		—		1.6

Fixed maturities	$	—	$	627.4	$	—	$	627.4
Short term investments	—		45.8		—		45.8
Total	$	—	$	673.2	$	—	$	673.2

Financial Liabilities:
Warrant Liability (1)	$	—	$	—	$	—	$	—

(1) Fair value of Public and Private warrant liability amounted to less than $0.1 million as of June 30, 2024 and December 31, 2023.

The fair value of all 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 the three and six months ended June 30, 2024 and for the year ended December 31, 2023.

Warrant liability

As part of the acquisition of Metromile, Inc. ("Metromile") in July 2022, public and private warrants were assumed from Metromile. These warrants do not meet the criteria for equity treatment and are recorded as a liability and presented under "Other liabilities and accrued expenses" on the consolidated balance sheets. These warrants are measured at fair value on a recurring basis at the end of each reporting period, with changes in fair value recognized and presented under "General and administrative expenses" in the consolidated statements of operations and comprehensive loss.

The public warrants liability is classified as Level 1 for fair value hierarchy disclosure purposes as of June 30, 2024, due to the use of an observable market quote in an active market, following the listing of the public warrants in the New York Stock Exchange American in March 2023. The private warrants liability is classified as Level 2 as the Company utilizes the observable prices of the public warrants in deriving the value of the private placement warrants. The change in fair value of the Public and Private warrant liability amounted to less than $0.1 million as of June 30, 2024 and December 31, 2023.

7. 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 six months ended June 30, 2024 and 2023 ($ in millions):


	June 30,
	2024		2023
Unpaid loss and LAE at beginning of period	$	262.3	$	256.2
Less: Reinsurance recoverable at beginning of period (1)	120.2		124.6
Net unpaid loss and LAE at beginning of period	142.1		131.6
Add: Incurred loss and LAE, net of reinsurance, related to:
Current year	145.0		140.8
Prior years	(8.6)		(1.3)
Total incurred	136.4		139.5
Deduct: Paid loss and LAE, net of reinsurance, related to:
Current year	82.1		75.0
Prior years	51.9		59.7
Total paid	134.0		134.7

Unpaid loss and LAE, net of reinsurance recoverable, at end of period	144.5		136.4
Reinsurance recoverable at end of period (1)	137.7		119.2
Unpaid loss and LAE, gross of reinsurance recoverable, at end of period	$	282.2	$	255.6

(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 the 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 $8.6 million for the six months ended June 30, 2024, and favorable development on net loss and LAE reserves of $1.3 million for the six months ended June 30, 2023. The favorable loss development of $8.6 million is primarily due to better than expected loss reserve emergence on property and pet lines of business. No additional premiums or returned premiums have been accrued as a result of prior year effects.

In the ordinary course of business, the Company cedes losses and LAE to other reinsurance companies. These arrangements reduce the net loss potentially arising from large or catastrophic risks. Certain of these arrangements consist of excess of loss and catastrophe contracts, which protect against losses exceeding stipulated amounts. The ceding of risk through reinsurance does not relieve the Company from its obligations to policyholders. The Company remains liable with respect to losses and LAE ceded in the event that any reinsurer does not meet obligations assumed under the reinsurance agreements. The Company does not have any significant unsecured aggregate recoverable for losses, paid and unpaid including Incurred But Not Reported ("IBNR"), loss adjustment expenses, and unearned premium with any individual reinsurer.

The Company maintains proportional reinsurance contracts which cover all of the Company's products and geographies, and transferred, or “ceded,” a specified percentage of the premium to reinsurers ("Proportional Reinsurance Contracts"). In exchange, these reinsurers paid a ceding commission for every dollar ceded, in addition to funding all of the corresponding claims at the same specified percentage as applied to premium. The Company also opted to manage the remaining percentage of the business with alternative forms of reinsurance through non-proportional reinsurance contracts ("Non-Proportional Reinsurance Contracts").

The Company maintains proportional reinsurance contracts which provides 55% protection on covered risks. The Company agreed to the terms of a reinsurance program effective July 1, 2023 through June 30, 2024 which included Whole Account Quota Share Reinsurance Contracts by and among the Company, Lemonade Insurance Company ("LIC"), Metromile Insurance Company ("MIC") and Lemonade Insurance N.V. ("LINV"), and each of Hannover Ruck SE, MAPFRE Re, and Swiss Reinsurance America Corporation (collectively referred to as “Reinsurers”) ("Reinsurance Program"). Under the Reinsurance Program, which covers all products and geographies, the Company transfers, or "cedes," a share of premium to the Reinsurers. In exchange, these Reinsurers pay the Company a ceding commission on all premiums ceded to the Reinsurers, in addition to funding the corresponding claims, subject to certain limitations, including but not limited to, the exclusion of hurricane losses, and a limit of $5,000,000 per occurrence for non-hurricane catastrophe losses. The overall share of proportional reinsurance under the Reinsurance Program is approximately 55% of premium. The Per Risk Cap across the contracts is $750,000. Additionally, the contracts are subject to loss ratio caps and variable ceding commission levels, which align the Company's interests with those of its Reinsurers, and is settled on a funds-withheld basis. The Reinsurance Program was renewed effective July 1, 2024 and will expire on June 30, 2025, with similar terms to the contracts that expired on June 30, 2024, except for the limit per occurrence for non-hurricane catastrophe losses which increased to $10,000,000.

LIC and LINV entered into a Property Per Risk Excess of Loss Reinsurance Contract with a panel of reinsurance companies (the "PPR Contract"), and LIC entered into an Automatic Facultative Property Per Risk Excess of Loss Reinsurance Contract with Arch Re (the "Automatic Facultative PPR Contract"), each effective from July 1, 2023 until June 30, 2024. Under the PPR Contract, claims in excess of $750,000 are 100% ceded up to a maximum recovery of $2,250,000, subject to certain limitations. The PPR Contract was renewed at similar terms effective July 1, 2024 and will expire on June 30, 2025. The Automatic Facultative PPR Contract, in which claims in excess of $3,000,000 are 100% ceded with a potential recovery of at least $10,000,000, subject to certain limitations, expired on June 30, 2024, and was not renewed.

MIC entered into a Quota Share reinsurance agreement effective January 1, 2022 and expired on June 30, 2023 Under the terms of the agreement, the Company ceded 30% of premiums and losses to reinsurers.

The Company also entered into a reinsurance program to protect against catastrophe risk in the U.S. that exceed $80,000,000 in losses effective July 1, 2022 and expired on June 30, 2023.

The Company entered into an Excess of Loss ("XOL") Reinsurance Contract through a captive in Bermuda in which the Company has variable interest, primarily to cover catastrophe risk over the initial $50,000,000 limit for each loss occurrence, and further subject to a limit of $80,000,000 for each loss occurrence and in aggregate, primarily on property and auto business underwritten by LIC. This XOL reinsurance contract became effective July 1, 2023 and expired on June 30, 2024. The Company renewed the XOL reinsurance contract, effective July 1, 2024 through June 30, 2025 at similar terms and was expanded to include risks written by MIC.

The Company is also exposed to some risks from MIC ceded through the Quota Share ("QS") Reinsurance Contract which is retained in an offshore captive subsidiary, Lemonade Re SPC. This QS reinsurance contract became effective July 1, 2023 and shall remain in force for an indefinite period until terminated by either party.

Through the offshore captives, the Company is exposed to the risk of natural catastrophe events and other covered risks under the reinsurance contracts from policies underwritten by LIC and MIC.

8. Borrowings under Financing Agreement

On June 28, 2023, the Company entered into a Customer Investment Agreement (the “Agreement”), with GC Customer Value Arranger, LLC (a General Catalyst company) ("GC"). Under the Agreement, up to $150 million of financing will be provided for the Company’s sales and marketing growth efforts. The Agreement has a commitment period of 18 months which expires on December 31, 2024 ("Original Commitment End Date"). Under the Agreement, subject to certain terms and conditions specified therein, at the start of each growth period, an Investment Amount of up to 80% of the Company’s growth spend (the "Investment Amount") will be advanced by GC. During each growth period, the Company will repay each Investment Amount including a 16% rate of return based upon an agreed schedule. Once fully repaid, the Company will retain all future reference income related to each respective Investment Amount.

On January 8, 2024, the Company entered into an Amended and Restated Customer Investment Agreement under which GC will provide up to an additional $140 million of financing to the Company from the Original Commitment End Date through December 31, 2025 for sales and marketing growth efforts. This was further amended and restated in April 2024 and June 2024 to clarify certain provisions with no changes to material terms and conditions (collectively, the "Amended and Restated Agreement"). The Amended and Restated Agreement as of June 2024 contains standard customary representations, warranties and covenants by the parties, and will continue in effect unless terminated by any party pursuant to its terms.

As of June 30, 2024, the Company had $43.9 million of outstanding borrowings under financing agreement. The Company incurred interest expense of $1.0 million and $1.5 million for the three and six months ended June 30, 2024, respectively, and such interest is included in “General and administrative expense” in the consolidated statements of operations and comprehensive income.

9. Other Liabilities and Accrued Expenses

Other liabilities and accrued expenses as of June 30, 2024 and December 31, 2023 consist of the following ($ in millions):


	June 30,		December 31,
	2024		2023
Ceding commission payable	$	25.4	$	13.9
Lease liabilities	23.4		28.2
Uncertain tax position	16.4		13.3
Accrued advertising costs	11.1		6.2
Employee compensation	7.5		8.4
Premium taxes payable	5.0		5.9
Advance premium	4.5		3.4
Accrued professional fees	4.4		5.0
Reinsurance payable	4.3		0.8
Income taxes payable	2.0		1.2


Other payables	17.2		13.2
Total	$	121.2	$	99.5

10. Stockholders’ Equity

Common stock

The Company's certificate of incorporation, as amended and restated, authorized the Company 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. There were 71,002,862 and 70,163,703 total issued and outstanding shares as of June 30, 2024 and December 31, 2023, respectively.

The Company in 2020 made a contribution of 500,000 issued shares of common stock to a related party, the Lemonade Foundation (see Note 14), of which 400,000 shares were owned as of both June 30, 2024 and December 31, 2023.

Undesignated Preferred Stock

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 June 30, 2024 and December 31, 2023, there were no shares of undesignated preferred stock issued or outstanding.

Warrants

The Company in 2022 entered into an omnibus agreement (the “Omnibus Agreement”) and a warrant agreement (the “Warrant Agreement” and, together with the Omnibus Agreement, the “Agreements”) with Chewy Insurance Services, LLC (the “Warrantholder”) in connection with the execution of an agency agreement on the same date between the Company, Lemonade Insurance Agency, LLC, Lemonade Insurance Company and the Warrantholder. In connection with the Agreements, the Company is authorized to issue to the Warrantholder 3,352,025 shares of the Company’s common stock underlying the warrant with an exercise price of $0.01 per share, which will vest in installments, in increasing amounts over a period of five years. The Warrant Agreement allows the Company to cancel unvested warrant shares which are subject to certain vesting events and thresholds.

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 initial public offering ("IPO") in 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, 2024, the 2020 Plan share pool was increased by 3,508,185 shares, equal to 5% of the aggregate number of outstanding common stock as of December 31, 2023. As of June 30, 2024, there were 5,734,296 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 in 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 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, 2024, there was no increase in the 2020 ESPP share pool. As of June 30, 2024, 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 June 30, 2024, 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.

Assumed Share Option Plans

As part of the acquisition of Metromile in 2022, the Company assumed the Metromile 2011 Incentive Stock Plan ("2011 Plan") and Metromile 2021 Incentive Stock Plan ("2021 Plan") (collectively referred to as "Assumed Plans"). The Company assumed equity awards of 404,207 which were granted from the respective Assumed Plans and will be settled in the Company's common stock. The remaining unallocated shares reserved under both 2011 Plan and 2021 Plan were canceled and no new awards will be granted under these Assumed Plans.

Options granted to employees and non-employees

The fair value of each option granted for the six months ended June 30, 2024 and 2023 is estimated on the date of grant using the Black-Scholes model based on the following assumptions:


	Six Months Ended June 30,
	2024	2023
Weighted average expected term (years)	5.7	6.0
Risk-free interest rate	4.3%	3.8%
Volatility	77%	72%
Expected dividend yield	0%	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 Topic 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"):

Stock options


	Number of Options	Weighted- Average Exercise Price		Weighted-Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value
					($ in millions)
Outstanding as of December 31, 2023	9,595,257	$	37.26	7.21	$	10.30
Granted	782,107	$	16.07
Exercised	(29,473)	$	4.85
Canceled/Forfeited	(359,326)	$	39.74
Outstanding as of June 30, 2024	9,988,565	$	35.60	7.05	$	10.99
Options exercisable as of June 30, 2024	5,156,136	$	30.11	6.05	$	9.60
Options unvested as of June 30, 2024	4,832,429	$	41.47	8.11	$	1.39

Restricted Stock Units


	Number of Shares	Weighted Average Grant Date Fair Value
Outstanding as of December 31, 2023	3,568,735	$	18.76
Granted	1,626,823	$	16.30
Vested	(628,605)	$	19.89
Canceled/Forfeited	(237,903)	$	16.61
Outstanding as of June 30, 2024	4,329,050	$	17.75

Stock-based compensation expense

Stock-based compensation expense from stock options and RSUs, including equity awards from the Assumed Plans as discussed above and warrants (Note 10), are included and classified in the condensed consolidated statements of operations and comprehensive income as follows ($ in millions):


	Three Months Ended June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
Loss and loss adjustment expense, net	$	0.5	$	0.7	$	1.0	$	1.4
Other insurance expense	0.6		0.5		1.2		1.0
Sales and marketing (1)	2.6		1.5		4.6		2.7
Technology development	6.4		6.3		12.8		13.0
General and administrative	5.3		5.8		10.7		12.1
Total stock-based compensation expense	$	15.4	$	14.8	$	30.3	$	30.2

(1) Includes compensation expense related to warrant shares of $1.6 million and $2.5 million for the three and six months ended June 30, 2024, respectively and $0.6 million for both the three and six months ended June 30, 2023.

Stock-based compensation expense classified by award type are included in the condensed consolidated statements of operations and comprehensive income as follows ($ in millions):


	Three Months Ended June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
Stock options	$	7.1	$	9.3	$	14.8	$	20.3
RSUs	6.7		4.9		13.0		9.3
Warrant shares	1.6		0.6		2.5		0.6
Total stock-based compensation expense	$	15.4	$	14.8	$	30.3	$	30.2

The total unrecognized expense granted to employees and non-employees outstanding at June 30, 2024 was $47.3 million for the stock options and $72.2 million for the RSUs, with a remaining weighted-average vesting period of 1.0 years for the stock options and 1.4 years for the RSUs.

Warrants

In connection with the Warrant Agreement as discussed in Note 10, the Company is authorized to issue 3,352,025 warrant shares with a grant date fair value of $20.37 that will vest in installments on a yearly basis in increasing amounts for a period of five years. The Company recognized $1.6 million and $2.5 million in compensation expense for the three and six months ended June 30, 2024, respectively and $0.6 million compensation expense was recorded for both three months ended June 30, 2023 and six months ended June 30, 2023, related to these equity-classified warrants. Compensation expense is presented under “Sales and marketing expense” in the consolidated statements of operations and comprehensive income. Total unrecognized compensation expense related to these warrants amounted to $63.3 million as of June 30, 2024, and will be recognized over the vesting period, for each of the installments, in increasing amounts over five years. There were 181,191 warrant shares which vested in April and were exercised as of June 30, 2024.

12. Income Taxes

The consolidated effective tax rate was (4.2)% and (1.8)% for the six months ended June 30, 2024 and 2023, respectively. The change in effective tax rate over the two periods was predominantly reflective of the change in profit before tax of the Company's foreign jurisdictions, change in valuation allowance and change in uncertain tax positions relating to transfer pricing methodology.

The Company's unrecognized tax benefits related to tax positions, excluding penalty and interest amounted to $15.7 million and $9.6 million as of June 30, 2024 and 2023, respectively. The increase was primarily driven by the transfer pricing methodology. Interest and penalties related to unrecognized tax expense (benefits) are recognized in income tax expense, when applicable. Interest and penalties amounted to $0.7 million and $0.1 million as of June 30, 2024 and 2023, respectively. The Company's management believes it is reasonably possible that the unrecognized tax benefits could increase within the next 12 months.

13. Net Loss per Share

Basic and diluted net loss per share attributable to common stockholders was calculated as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
Numerator:
Net loss attributable to common stockholders ($ in millions)	$	(57.2)	$	(67.2)	$	(104.5)	$	(133.0)
Denominator:
Weighted average common shares outstanding — basic and diluted	70,721,227		69,534,731		70,502,856		69,434,971
Net loss per share attributable to common stockholders — basic and diluted	$	(0.81)	$	(0.97)	$	(1.48)	$	(1.92)

The Company’s potentially dilutive securities, which include stock options, unvested RSUs and warrants for common stock, 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.


	Six Months Ended June 30,
		2024	2023
Options to purchase common stock		9,988,565	9,264,477
Unvested restricted stock		4,329,050	3,293,112
Warrants for common stock (1)		412,969	412,969
Total		14,730,584	12,970,558

(1) Each outstanding warrant of Metromile assumed by the Company converted automatically into warrants denominated in the Company's common stock with the number of warrants and exercise price adjusted based on the exchange ratio of 0.05263.

14. Related Party Transactions

The Company’s Chief Executive Officer and President, 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), of which 400,000 shares are owned by Lemonade Foundation as of June 30, 2024 and December 31, 2023. There were no outstanding amounts due to or from the Lemonade Foundation as of June 30, 2024 and December 31, 2023.

15. Commitments and Contingencies

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 a potential liability claim exposure related to Metromile for which the Company has determined that a liability associated with this matter is probable and can be reasonably estimated, and therefore has recorded a liability for this matter in accordance with ASC Topic 450, Contingencies ("ASC 450"). The Company will continue to monitor all legal issues and assess whether to accrue liability in accordance with ASC 450 based on new information and as further developments arise.

Charges and guarantees

The Company provided guarantees in an aggregate amount of $2.7 million as of June 30, 2024 and $2.7 million as of December 31, 2023 with respect to certain office leases.

Sublease

In June 2024, the Company entered into a sublease agreement for a portion of its office space in New York which commenced in June 2024 and will end in November 2025. The Company recorded an impairment charge related to the sublease of $0.3 million which reduced Right-of-Use ("RoU") assets and the related furniture and equipment and leasehold improvements. The impairment charge is presented under “General and administrative expenses” in the consolidated statements of operations and comprehensive income. The Company estimated the fair value of the RoU asset based on the net present value of the sublease rental income through the lease expiration date of the head lease.

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, general liability and private passenger auto lines of business. Gross written premium includes direct and assumed premium related to car insurance policies written in Texas, in connection with our fronting arrangement with a third party carrier in Texas. Gross written premium by jurisdiction are as follows ($ in millions):


	Three Months Ended June 30,								Six Months Ended June 30,
	2024				2023				2024				2023
Jurisdiction	Amount		% of GWP		Amount		% of GWP		Amount		% of GWP		Amount		% of GWP
California	$	55.3	24.4	%	$	46.0	25.3	%	$	110.6	25.6	%	$	91.5	26.5	%
Texas	35.9		15.9	%	31.4		17.3	%	65.9		15.3	%	57.5		16.6	%
New York	22.8		10.1	%	19.9		10.9	%	43.8		10.1	%	38.3		11.1	%
Illinois	10.9		4.8	%	9.0		4.9	%	20.6		4.8	%	16.1		4.7	%
New Jersey	10.7		4.7	%	9.2		5.1	%	20.4		4.7	%	17.8		5.1	%
Washington	9.1		4.0	%	6.1		3.4	%	17.1		4.0	%	12.2		3.5	%
Colorado	8.2		3.6	%	5.5		3.0	%	14.1		3.3	%	9.8		2.8	%
Georgia	6.8		3.0	%	5.5		3.0	%	12.4		2.9	%	10.4		3.0	%
Pennsylvania	6.1		2.7	%	4.7		2.6	%	11.2		2.6	%	8.7		2.5	%
Arizona	5.7		2.5	%	4.6		2.6	%	10.7		2.5	%	8.7		2.5	%
All other	54.7		24.3	%	40.0		21.9	%	105.0		24.2	%	74.9		21.7	%
	$	226.2	100.0	%	$	181.9	100.0	%	$	431.8	100.0	%	$	345.9	100.0	%

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes and other information included elsewhere in this Quarterly Report, Annual Report on Form 10-K, and in our other filings with the Securities and Exchange Commission ("SEC"). The discussion and analysis below includes forward-looking statements that are subject to risks, uncertainties and other factors described in the "Risk Factors" section of this Quarterly Report and our Annual Report on Form 10-K that could cause actual results to differ materially from such forward-looking statements. Additionally, our historical results are not necessarily indicative of the results that may be expected for any period in the future.

Our Business

Lemonade is rebuilding insurance from the ground up on a digital substrate and an innovative business model. By leveraging technology, data, artificial intelligence, contemporary design, and social impact, we believe we are making insurance more delightful, more affordable, and more precise. To that end, we have built a vertically-integrated company with wholly-owned insurance carriers in the United States and Europe, including the United Kingdom and the full technology stack to power them.

A brief chat with our bot, AI Maya, is all it takes to get covered with renters, homeowners, pet, car or life insurance, and we expect to offer a similar experience for other insurance products over time. Claims are filed by chatting with another bot, AI Jim, who pays claims in as little as two seconds. This breezy experience belies the extraordinary technology that enables it: a state-of-the-art platform that spans from marketing to underwriting, customer care to claims processing, finance to regulation. Our architecture melds artificial intelligence with the human kind, and learns from the prodigious data it generates to become even better at delighting customers and evaluating risks.

In addition to digitizing insurance end-to-end, we also reimagined the underlying business model to minimize volatility while maximizing trust and social impact. To lessen the volatility inherent in an industry directly impacted by the weather, we utilize several forms of reinsurance, with the goal of dampening the impact on our gross margin. The result is that excess claims are generally offloaded to reinsurers, while excess premiums can be donated to nonprofits selected by our customers as part of our annual "Giveback". These two ballasts, reinsurance and Giveback, reduce volatility, while creating an aligned, trustful, and values-rich relationship with our customers.

Customer Investment Agreement

On June 28, 2023, we entered into a Customer Investment Agreement (the “Agreement”), with GC Customer Value Arranger, LLC (a General Catalyst company) ("GC"). Under the Agreement, up to $150 million of financing will be provided for our sales and marketing growth efforts. The Agreement has a commitment period of 18 months which expires on December 31, 2024 ("Original Commitment End Date"). Under the Agreement, subject to certain terms and conditions specified therein, at the start of each growth period, an Investment Amount of up to 80% of our growth spend (the "Investment Amount") will be advanced by GC. During each growth period, we will repay each Investment Amount including a 16% rate of return, based upon an agreed schedule. Once fully repaid, we will retain all future reference income related to each respective Investment Amount.

On January 8, 2024, we entered into an Amended and Restated Customer Investment Agreement where GC will provide up to an additional $140 million of financing for our sales and marketing growth efforts beginning from the Original Commitment End Date through December 31, 2025. This was further amended and restated in April 2024 and June 2024 to clarify certain provisions with no changes to material terms and conditions (collectively, the "Amended and Restated Agreement"). The Amended and Restated Agreement as of June 2024 contains standard customary representations, warranties and covenants by the parties, and will continue in effect unless terminated by any party pursuant to its terms.

As of June 30, 2024, we had $43.9 million of outstanding borrowings under the Agreement. We incurred interest expense of $1.0 million and $1.5 million for the three and six months ended June 30, 2024, respectively and such interest is included in “General and administrative expense” in the unaudited condensed consolidated statements of operations and comprehensive income.

Key Factors and Trends Affecting our Operating Results

Our financial condition and results of operations have been, and will continue to be, affected by a number of factors, including the following:

Seasonality

Seasonal patterns can impact both our rate of customer acquisition and the incurrence of claims and losses.

Based on historical experience, existing and potential customers move more frequently in the third quarter, compared to the rest of the calendar year. As a result, we may see greater demand for new or expanded insurance coverage, and increased online engagement resulting in proportionately more growth during the third quarter. We expect that as we grow our customers, expand geographically, and launch new products, the impact of seasonal variability on our rate of growth may decrease.

Additionally, seasonal weather patterns impact the level and amount of claims we receive. These patterns include hurricanes, wildfires, and coastal storms in the fall, cold weather patterns, and changing home heating needs in the winter, and tornados and hailstorms in the spring and summer. The mix of geographic exposure and products within our customer base impacts our exposure to these weather patterns.

See “Risk Factors — Risks Relating to our Industry — 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.” in our Annual Report on Form 10-K.

Current Macroeconomic Environment

General economic inflation has increased and there is a risk of inflation remaining elevated for an extended period. We anticipate the effects of inflation impacting our investment portfolio, pricing of our products and in estimating reserves for unpaid claims and claim expenses. The actual effects of the current and potential future increase in inflation on our results remains to be unknown and cannot be estimated with precision.

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, including the evolving conflict in Israel and surrounding region. The conflict between Israel and Hamas, primarily within Gaza, has increased global economic and political uncertainty. There is still uncertainty regarding the extent to which the war and its broader macroeconomic implications will impact our operations in Israel. We will continue to evaluate the extent to which this may impact our business, financial condition, or results of operations. These and other uncertainties could result in changes to our current expectations.

See "Risk Factors — Risks Relating to Our Business — 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 surrounding region." in our Annual Report on Form 10-K.

Reinsurance

We obtain reinsurance to help manage our exposure to property and casualty insurance risks. Although our reinsurance counterparties are liable to us according to the terms of the reinsurance policies, we remain primarily liable to our policyholders as the direct insurers on all risks reinsured, see "Risk Factors - Risks Relating to Our Business" and "Risks relating to our Industry" in our Annual Report on Form 10-K. As a result, reinsurance does not eliminate the obligation of our insurance subsidiaries to pay all claims, and we are subject to the risk that one or more of our reinsurers will be unable or unwilling to honor its obligations, that the reinsurers will not pay in a timely fashion, or that our losses are so large that they exceed the limits inherent in our reinsurance contracts, each of which could have a material effect on our results of operations and financial condition. Furthermore, reinsurance may be unavailable at current levels and prices, which may limit our ability to write new business.

We maintained proportional reinsurance contracts which cover all of the Company's products and geographies, and transferred, or “ceded,” a specified percentage of the premium to reinsurers ("Proportional Reinsurance Contracts"). In exchange, these reinsurers paid a ceding commission for every dollar ceded, in addition to funding all of the corresponding claims at the same specified percentage as applied to premium. We opted to manage the remaining percentage of the business with alternative forms of reinsurance through non-proportional reinsurance contracts ("Non-Proportional Reinsurance Contracts").

We maintained proportional reinsurance contracts which provided 55% protection on covered risks. We agreed to the terms of our reinsurance program effective July 1, 2023 through June 30, 2024 which includes Whole Account Quota Share Reinsurance Contracts by and among the Company, Lemonade Insurance Company ("LIC"), Metromile Insurance Company ("MIC") and Lemonade Insurance N.V. ("LINV"), and each of Hannover Ruck SE, MAPFRE Re, and Swiss Reinsurance America Corporation (collectively referred to as “Reinsurers”) ("Reinsurance Program"). Under the Reinsurance Program, which covers all products and geographies, the Company transfers, or "cedes," a share of premium to the Reinsurers. In exchange, these Reinsurers pay us a ceding commission on all premiums ceded to the Reinsurers, in addition to funding the corresponding claims, subject to certain limitations, including but not limited to, the exclusion of hurricane losses, and a limit of $5,000,000 per occurrence for non-hurricane catastrophe losses. The overall share of proportional reinsurance under the Reinsurance Program is approximately 55% of premium. The Per Risk Cap across the contracts is $750,000. Additionally, the contracts are subject to loss ratio caps and variable ceding commission levels, which align our interests with those of its Reinsurers. We renewed the Reinsurance Program effective July 1, 2024 and will expire on June 30, 2025, with similar terms to the contracts that expired on June 30, 2024 except for the limit per occurrence for non-hurricane catastrophe losses which increased to $10,000,000.

LIC and LINV entered into a Property Per Risk Excess of Loss Reinsurance Contract with a panel of reinsurance companies (the "PPR Contract"), and LIC entered into an Automatic Facultative Property Per Risk Excess of Loss Reinsurance Contract with Arch Re (the "Automatic Facultative PPR Contract"), each effective from July 1, 2023 until June 30, 2024. Under the PPR Contract, claims in excess of $750,000 are 100% ceded up to a maximum recovery of $2,250,000, subject to certain limitations. The PPR Contract was renewed at similar terms effective July 1, 2024 through June 30, 2025. The Automatic Facultative PPR Contract, in which claims in excess of $3,000,000 are 100% ceded with a potential recovery of at least $10,000,000, subject to certain limitations, expired on June 30, 2024 and was not renewed.

MIC entered into a Quota Share reinsurance agreement effective January 1, 2022 and expired on June 30, 2023. Under the terms of the agreement, the Company ceded 30% of premiums and losses to reinsurers.

We also entered into a reinsurance program to protect against catastrophe risk in the U.S. that exceed $80,000,000 in losses effective July 1, 2022 and expired on June 30, 2023.

We also entered into an Excess of Loss ("XOL") Reinsurance Contract through a captive in Bermuda in which we have a variable interest, primarily to cover catastrophe risk over the initial $50,000,000 limit for each loss occurrence, and further subject to a limit of $80,000,000 for each loss occurrence and in aggregate, primarily on property and car business underwritten by LIC. This XOL reinsurance contract became effective July 1, 2023 and expired on June 30, 2024. We have renewed the XOL reinsurance contract effective July 1, 2024 and will expire on June 30, 2025 at similar terms and is expanded to include risks written by MIC.

We are also exposed to some risks from MIC ceded through the Quota Share ("QS") Reinsurance Contract which is retained in a captive subsidiary, Lemonade Re SPC in the Cayman Islands. This QS reinsurance contract became effective July 1, 2023 and shall remain in force for an indefinite period until terminated by either party.

Through our captives, we are exposed to the risk of natural catastrophe events and other covered risks under the reinsurance agreements from assumed risks from policies underwritten by both LIC and MIC.

Components of our Results of Operations

Revenue

Gross Written Premium

Gross written premium is the amount received, or to be received, for insurance policies written by us during a specific period of time without reduction for premiums ceded to reinsurance. Gross written premium includes direct and assumed premium. In December 2022, we began assuming premium related to car insurance policies written in Texas, in connection with our fronting arrangement with a third party carrier in Texas. Following the Metromile Acquisition in July 2022, we also include gross written premium fro

Lemonade, Inc. [LMND] Filings
Lemonade, Inc. [LMND-WT] Filings
10-Q	[2024-07-31]
10-Q	[2024-05-01]
10-K	[2024-02-28]
10-Q	[2023-11-03]
10-Q	[2023-08-04]
10-Q	[2023-05-05]
10-K	[2023-03-03]
10-Q	[2022-11-09]
10-Q	[2022-08-09]
10-Q	[2022-05-10]
10-K	[2022-03-01]
10-Q	[2021-11-09]
10-Q	[2021-08-11]
10-Q	[2021-05-12]
10-K	[2021-03-08]
S-1	[2021-01-11]
10-Q	[2020-11-12]
10-Q	[2020-08-12]
S-1	[2020-06-08]

Lemonade, Inc. [LMND] Filings

Lemonade, Inc. [LMND-WT] Filings