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(Mark One)
For the quarterly period ended September 30, 2022
For the transition period from ___________________ to ___________________
Commission File Number: 001-39367
Lemonade, Inc.
(Exact Name of Registrant as Specified in Its Charter)
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
5 Crosby Street, 3rd Floor
New York, New York
(Address of principal executive offices)(Zip Code)
(844) 733-8666
(Registrant’s telephone number, including area code)
(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 November 8, 2022, the registrant had 69,163,813 shares of common stock, $0.00001 par value per share, outstanding.

Table of Contents
Item 1.
Item 2.
Item 3.
Item 4.
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.


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.

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, our telematics based pricing model, 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, telematics, mobile technology and our digital platforms 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 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 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.
Combining the businesses of Lemonade and Metromile may be more difficult, costly or time-consuming than expected and the combined company may fail to realize the anticipated benefits of the mergers, which may adversely affect the combined company’s business results and negatively affect the value of the company’s common stock.
The combined company may not be able to retain customers, which could have an adverse effect on the combined company’s business and operations. Third parties may terminate or alter existing contracts or relationships with Lemonade or Metromile.

The combined company may be exposed to increased litigation, which could have an adverse effect on the combined company’s business and operations.
The insurance business, including the market for renters, homeowners, pet and automobile 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.
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 has 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 the ability of our stockholders 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 (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.

Item 1. Financial Statements.
($ in millions, except share and per share amounts)

As of
September 30,December 31,
Fixed maturities available-for-sale, at fair value (amortized cost: $722.2 million and $696.8 million as of September 30, 2022 and December 31, 2021, respectively)
$693.1 $691.4 
Short-term investments (cost: $143.1 million and $110.4 million as of September 30, 2022 and December 31, 2021, respectively)
142.8 110.4 
Total investments835.9 801.8 
Cash, cash equivalents and restricted cash225.0 270.6 
Premium receivable, net of allowance for credit losses of $2.7 million and $1.6 million as of September 30, 2022 and December 31, 2021, respectively
187.7 127.0 
Reinsurance recoverable136.3 89.8 
Prepaid reinsurance premium181.6 149.6 
Deferred acquisition costs7.6 6.2 
Property and equipment, net19.1 11.7 
Intangible assets35.7 0.6 
Other assets73.1 53.2 
Total assets$1,712.9 $1,510.5 
Liabilities and Stockholders' Equity
Unpaid loss and loss adjustment expense$220.6 $97.9 
Unearned premium294.1 207.7 
Trade payables1.5 1.0 
Funds held for reinsurance treaties131.7 103.1 
Deferred ceding commission43.0 36.5 
Ceded premium payable24.9 18.7 
Other liabilities and accrued expenses90.3 57.4 
Total liabilities806.1 522.3 
Contingencies (Note 15)
Stockholders' equity
Common stock, $0.00001 par value, 200,000,000 shares authorized; 69,120,346 and 61,660,996 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively
Additional paid-in capital1,738.1 1,553.5 
Accumulated deficit (796.0)(561.9)
Accumulated other comprehensive loss(35.3)(3.4)
Total stockholders' equity906.8 988.2 
Total liabilities and stockholders' equity$1,712.9 $1,510.5 

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


($ in millions, except share and per share amounts)
Three Months Ended
September 30,
Nine Months Ended
September 30,
Net earned premium$50.6 $21.5 $109.2 $51.6 
Ceding commission income16.9 12.3 46.4 31.9 
Net investment income2.6 0.6 4.7 1.0 
Commission and other income3.9 1.3 8.0 2.9 
Total revenue74.0 35.7 168.3 87.4 
Loss and loss adjustment expense, net53.3 17.5 105.8 47.0 
Other insurance expense12.1 6.3 30.9 16.3 
Sales and marketing35.8 42.2 111.1 104.4 
Technology development21.4 14.3 56.1 35.4 
General and administrative40.5 19.6 91.1 49.5 
Total expense163.1 99.9 395.0 252.6 
Loss before income taxes(89.1)(64.2)(226.7)(165.2)
Income tax expense2.3 2.2 7.4 5.8 
Net loss$(91.4)$(66.4)$(234.1)$(171.0)
Other comprehensive loss, net of tax
Unrealized loss on investments in fixed maturities(5.0)(0.8)(23.8)(1.2)
  Foreign currency translation adjustment(1.5) (8.1)(0.5)
Comprehensive loss$(97.9)$(67.2)$(266.0)$(172.7)
Per share data:
Net loss per share attributable to common stockholders—basic and diluted$(1.37)$(1.08)$(3.69)$(2.80)
Weighted average common shares outstanding—basic and diluted66,877,100 61,580,145 63,482,945 61,086,238 

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


($ in millions, except share amounts)
Common StockAdditional Paid-In CapitalAccumulated DeficitAccumulated Other Comprehensive (Loss) IncomeTotal Stockholders' Equity
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 
Exercise of stock options and distribution of restricted stock units108,838 — 0.4 — — 0.4 
Stock-based compensation— — 13.9 — — 13.9 
Net loss— — — (67.9)— (67.9)
Other comprehensive loss— — — — (10.0)(10.0)
Balance as of June 30, 202261,867,577 $ $1,582.5 $(704.6)$(28.8)$849.1 
Issuance of common stock from acquisition of Metromile (Note 5)6,901,934 — 137.7 — — 137.7 
Exercise of stock options and distribution of restricted stock units350,835 — 2.3 — — 2.3 
Stock-based compensation— — 15.6 — — 15.6 
Net loss— — — (91.4)— (91.4)
Other comprehensive loss— — — — (6.5)(6.5)
Balance as of September 30, 202269,120,346 $ $1,738.1 $(796.0)$(35.3)$906.8 
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 $22.8 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 
Exercise of stock options162,024 — 1.7 — — 1.7 
Stock-based compensation— — 11.9 — — 11.9 
Net loss— — — (55.6)— (55.6)
Other comprehensive loss— — — — (0.1)(0.1)
Balance as of June 30, 202161,532,127 $ $1,525.9 $(425.2)$0.9 $1,101.6 
Exercise of stock options and distribution of restricted stock units83,497 — 0.9 — — 0.9 
Stock-based compensation— — 12.7 — — 12.7 
Net loss— — — (66.4)— (66.4)
Other comprehensive income— — — — (0.8)(0.8)
Balance as of September 30, 202161,615,624 $ $1,539.5 $(491.6)$0.1 $1,048.0 
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

($ in millions)
Nine Months Ended
September 30,
Cash flows from operating activities:
Net loss$(234.1)$(171.0)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation6.8 2.5 
Stock-based compensation43.6 30.7 
Amortization of discount on bonds5.9 (1.5)
Provision for bad debt6.4 3.8 
Changes in operating assets and liabilities:
Premium receivable(49.8)(46.9)
Reinsurance recoverable(32.2)(21.8)
Prepaid reinsurance premium(32.1)(58.9)
Deferred acquisition costs(1.4)(2.5)
Other assets(5.1)(15.0)
Unpaid loss and loss adjustment expense46.5 27.7 
Unearned premium71.5 79.4 
Trade payables(0.3)1.6 
Funds held for reinsurance treaties28.6 35.0 
Deferred ceding commissions6.5 13.7 
Ceded premium payable(5.8)11.8 
Other liabilities and accrued expenses10.6 16.7 
Net cash used in operating activities(134.4)(94.7)
Cash flows from investing activities:
Acquisition of business, net of cash acquired98.8  
Proceeds from short-term investments sold or matured150.0  
Proceeds from bonds sold or matured90.0 7.9 
Cost of short-term investments acquired(118.3)(107.5)
Cost of bonds acquired(119.4)(700.1)
Purchases of property and equipment(7.5)(7.4)
Net cash provided by (used in) investing activities93.6 (807.1)
Cash flows from financing activities:
Proceeds from Follow-on Offering, net of underwriting discounts and commissions
and offering costs
Proceeds from stock exercises3.3 8.7 
Net cash provided by financing activities3.3 649.0 
Effect of exchange rate changes on cash, cash equivalents and restricted cash(8.1)1.0 
Net decrease in cash, cash equivalents and restricted cash(45.6)(251.8)
Cash, cash equivalents and restricted cash at beginning of period270.6 571.4 
Cash, cash equivalents and restricted cash at end of period$225.0 $319.6 
Supplemental disclosure of cash flow information:
Cash paid for income taxes$3.4 $2.1 
Non-cash transactions:
Warrants assumed from acquisition of Metromile$0.8 $ 
The accompanying notes are an integral part of the 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 the Company. Although the Company did not see a material impact on its results of operations for the three and nine months ended September 30, 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 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 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.


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 September 30, 2022 and December 31, 2021:
September 30,December 31,
Cash and cash equivalents$222.0 $270.6 
Restricted cash3.0  
Total cash, cash equivalents and restricted cash$225.0 $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 Tempe, Arizona and San Francisco, California. The carrying value of restricted cash approximates fair value.
Deferred offering costs
The Company capitalized 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 were recorded as a reduction to the carrying value of stockholders' equity, 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 the Company of $114.6 million. Deferred offering costs from the Follow-on Offering amounted to $0.4 million.
Recently adopted accounting pronouncements
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 the 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 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, as a result of the adoption.

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 sheets. 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 2016-13, Financial Instruments - Credit Losses ("Topic 326"): Measurement of Credit Losses on Financial Instruments ("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.
Certain accounts in the prior period financial statements were reclassified to conform with the current period presentation.


5.    Acquisition of Metromile
On July 28, 2022 (the "Acquisition Date"), the Company completed its acquisition of Metromile, Inc. (“Metromile"), a leading digital insurance platform in the United States that offers real-time, personalized auto insurance policies by the mile (the "Metromile Acquisition"). The Company acquired 100% of Metromile's equity through an all-stock transaction based upon the exchange ratio of 0.05263 shares of Lemonade for each outstanding share of Metromile. As a result of the acquisition, Metromile stockholders received 6,901,934 shares of Lemonade's common stock, with minimal cash paid in lieu of fractional shares. In addition, upon closing of the Metromile Acquisition, the Company assumed all outstanding and unexercised options, and outstanding restricted stock units (collectively referred to as "replacement awards") as of the Acquisition Date, which were converted into corresponding awards using the same exchange ratio of 0.05263 and with substantially identical terms and conditions prior to the close of the Metromile Acquisition.

Fair value of consideration transferred for the Metromile Acquisition is as follows ($ in millions):

Metromile issued and outstanding stock exchanged for Lemonade common stock (1)
Contingent consideration (2)
Metromile vested awards exchanged for Lemonade awards (3)
Total Purchase Consideration$137.7 

(1)    The fair value of 6,901,934 shares issued and exchanged for Lemonade common stock was determined based on the closing price at acquisition date of $19.84, and includes a minimal amount of cash paid in lieu of fractional shares.

(2)    Contingent consideration represents Metromile's contingently issuable shares that are convertible into Lemonade common stock in accordance with the exchange ratio as set forth in the merger agreement. In accordance with ASC 805-30-25-5, contingent consideration shall be recognized and measured at fair value as of the Acquisition Date. Given that the contingencies are not probable of being met within the contingency period, no fair value was assessed for these Metromile shares.

(3)    Fair value of replacement awards related to services rendered prior to the acquisition are included as part of purchase consideration. The unvested portion of fair value attributable to these replacement awards of $4.3 million comprised of $0.1 million for assumed options and $4.2 million for assumed restricted stock units ("RSUs"), and associated with future service will be recognized as expense over the future service period.

This Metromile Acquisition increased the Company's geographic footprint as a tech-enabled insurance provider and is expected to accelerate growth of the Lemonade car product, including other product offerings.

The Metromile Acquisition was accounted for as a business combination using the acquisition method of accounting in accordance with ASC 805, Business Combinations (“ASC 805”). The purchase price was allocated to assets acquired and liabilities assumed based on the estimated fair values at the Acquisition Date. The excess of the purchase price over the fair value of the net assets acquired was allocated to goodwill, and will not be deductible for tax purposes. Goodwill from this business combination is primarily attributable to synergies from future expected economic benefits, enhanced revenue growth from expanded capabilities and geographic presence, including cost savings from streamlined operations and enhanced operational efficiencies.


The following table presents the preliminary allocation of purchase consideration recorded on the condensed consolidated balance sheet as of the Acquisition Date ($ in millions):

Assets acquired
Fixed maturities, available for sale, at fair value$1.8 
Short-term investments64.2 
Cash, cash equivalents and restricted cash98.8 
Premiums receivable17.4 
Reinsurance recoverable14.5 
Property and equipment4.6 
Value of business acquired ("VOBA")1.7 
Intangible assets - technology28.0 
Intangible assets - insurance licenses7.5 
Other assets14.7 
Total assets acquired$253.2 
Liabilities assumed
Unpaid loss and loss adjustment expenses$76.3 
Unearned premium15.1 
Trade payables0.8 
Ceded premium payable12.0 
Other liabilities and accrued expenses22.2 
Total liabilities assumed$126.4 
Total identifiable net assets acquired$126.8 
Total purchase consideration$137.7 

Estimated fair values of assets acquired and liabilities assumed from Metromile are subject to change as we obtain additional information, and will be updated and finalized within the measurement period that will not extend beyond 12 months from the Acquisition Date.

The amounts, based on preliminary valuations and subject to final adjustment, allocated to intangible assets are as follows ($ in millions):

Fair ValueWeighted-Average Useful Life
3 to 5 years
Insurance licenses7.5 N/A

The results of operations for Metromile of $15.1 million of revenue and $20.7 million of net loss from the date of the acquisition to the period ended September 30, 2022, have been included within the accompanying consolidated statements of operations and comprehensive loss.


The Company incurred transaction expenses of approximately $7.4 million and $8.4 million for the three and nine months ended September 30, 2022, respectively. These expenses were included in General and administrative expenses within the Company’s consolidated statements of operations and comprehensive loss for the three and nine months ended September 30, 2022, respectively.

The following unaudited supplemental pro forma combined financial information presents the Company’s results of operations for the three and nine months ended September 30, 2022 and 2021 as if the Metromile Acquisition had occurred on January 1, 2021. The pro forma financial information is presented for comparative purposes only and is not necessarily indicative of the Company’s operating results that may have actually occurred had the Metromile Acquisition been completed on January 1, 2021. In addition, the unaudited pro forma financial information does not give effect to any anticipated cost savings, operating efficiencies or other synergies that may be associated with the acquisition, or any estimated costs that have been or will be incurred by the Company to integrate the assets and operations of Metromile.

Unaudited Pro Forma:
Three Months Ended
September 30, 2022
Nine Months Ended
September 30, 2022
Total Revenue$85.1 $64.2 $221.1 $159.1 
Net loss$(112.2)$(90.6)$(316.8)$(344.7)
The unaudited pro forma financial information reflects pro forma adjustments to present the combined pro forma results of operations as if the acquisition had occurred on January 1, 2021 to give effect to certain events the Company believes to be directly attributable to the acquisition. These pro forma adjustments primarily include:

a net decrease in amortization expense that would have been recognized due to acquired intangible assets;
an increase in the nine months ended September 30, 2022 for acquisition-related transaction costs;
a decrease in operating revenues due to the elimination of deferred revenues and assigned no value at the Acquisition Date;
a decrease to amortization expense due to the elimination of unamortized deferred acquisition costs;
an increase to income due to the adjustment of the loss and loss adjustment expense reserves at fair value; and
an increase in income due to the depreciation of ROU assets and lease expense upon adoption of ASC 842.


6.    Investments
Unrealized gains and losses
The following tables present cost or amortized cost and fair values of investment in fixed maturities as of September 30, 2022 and December 31, 2021 ($ in millions):
Cost or Amortized CostGross
September 30, 2022
Corporate debt securities$597.3 $ $(24.5)$572.8 
U.S. Government obligations120.9  (4.6)116.3 
Municipal securities1.2   1.2 
Asset-backed securities2.8   2.8 
Total$722.2 $ $(29.1)$693.1 
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 
Asset-backed securities    
Total$696.8 $0.1 $(5.5)$691.4 

Gross unrealized losses for fixed maturities was $29.1 million as of September 30, 2022 and $5.5 million as of December 31, 2021. Gross unrealized gains and losses were recorded as a component of accumulated other comprehensive loss.
Contractual maturities of bonds
The following table presents the cost or amortized cost and estimated fair value of investments in fixed maturities as of September 30, 2022 by contractual maturity ($ 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.
September 30, 2022
Cost or
Fair Value
Due in one year or less$251.4 $246.1 
Due after one year through five years470.8 447.0 
Due after five years through ten years  
Due after ten years  
Total$722.2 $693.1 

Net investment income
An analysis of net investment income follows ($ in millions):
Three Months Ended
September 30, 2022
Nine Months Ended
September 30, 2022
Interest on cash and cash equivalents$0.3 $0.1 $0.4 $0.4 
Fixed maturities1.7 0.6 3.7 0.7 
Short-term investments0.7  0.9  
Total2.7 0.7 5.0 1.1 
Investment expense0.1 0.1 0.3 0.1 
Net investment income$2.6 $0.6 $4.7 $1.0 

Investment gains and losses
The Company had pre-tax net realized capital losses of $0.4 million for the nine months ended September 30, 2022. There were no pre-tax net realized capital gains or losses for the three months ended September 30, 2022, and for the three and nine months ended September 30, 2021.
Aging of gross unrealized losses
The following table presents the gross unrealized losses and related fair values for the Company’s investment in fixed maturities, grouped by duration of time in a continuous unrealized loss position as of September 30, 2022 and December 31, 2021 ($ in millions):
Less than 12 Months12 Months or MoreTotal
Fair ValueGross Unrealized LossesFair ValueGross Unrealized LossesFair ValueGross Unrealized Losses
September 30, 2022
Corporate debt securities$198.4 $(7.0)$362.6 $(17.5)$561.0 $(24.5)
U.S. Government obligations36.8 (0.8)79.3 (3.8)116.1 (4.6)
Municipal securities0.6    0.6  
Asset-backed securities2.8    2.8  
Total$238.6 $(7.8)$441.9 $(21.3)$680.5 $(29.1)
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  
Asset-backed securities      
Total$678.1 $(5.5)$0.5 $ $678.6 $(5.5)

Investments in fixed maturities with gross unrealized losses for twelve months or more was $21.3 million and less than $0.1 million for September 30, 2022 and December 31, 2021, respectively.

As of September 30, 2022, 294 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 and nine months ended September 30, 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 September 30, 2022 and December 31, 2021 ($ in millions):

September 30, 2022
Level 1Level 2Level 3Total
Financial Assets:
Corporate debt securities$ $572.8 $ $572.8 
U.S. Government obligations