Lemonade Squeezes as Breakeven Date Gets Pulled Closer

Key Points

• Lemonade moved up its cash flow breakeven date to the end of Q4 2024 from its original forecast of the first half of 2025, leaving Q1 2025 to generate positive cash flow.
• Lemonade grew in-force premiums by 22% YoY and customers by 13% YoY to 2,095,275.
• Lemonade claims to be living up to the AI hype as the company lowered its loss ratio by 8% and increased its book by 22% while cutting headcount by 11%.

Artificial intelligence (AI) powered insurance platform Lemonade Inc. NYSE: LMND made headlines on its Q1 2024 earnings release. The company still lost money but revenues jumped 25.1% YoY. Lemonade was able to grow its customers while trimming expenses and costs per claim. The finance sector company also delighted investors by stating the company would become cash flow positive earlier than expected in Q4 2024 compared to the first half of 2025.

Lemonade competes with incumbent insurance giants like Allstate Co. NYSE: ALL and American International Group Inc. NYSE: AIG.

Bundling Plans Compounds Premiums

Lemonade offers renters, homeowners, car, life and pet insurance. It also offers bundled plans that combine various insurance coverage like car + home, car + pet, car + term life, car + renters or home + pet insurance for discounts. Its car insurance comes with free roadside assistance and emergency crash assistance. The interface is simple, and the steps to get a quote are menu-driven, with underwriting and approvals done in minutes. It's a far cry from the traditional meeting with an agent method.

AI Powering Efficiencies

Lemonade claims that its AI-powered platform and infrastructure are more efficient than conventional methods. Leveraging AI optimizes operations and streamlines processes like underwriting, obtaining quotes, filing claims and fraud detection. The technology, flat-fee transparency and focus on customer experience, along with social responsibility like donating unclaimed premiums to charities, appeals to millennials and Gen-Z-ers. AI is used to mitigate risks and deliver superior customer service.

Its loss adjustment expense ratio (LAE) is 7.6% compared to top insurers, around 10%, which is a key efficiency metric. Lemonade reduced its headcount by 11% while boosting total books by 22%.

 Daily Ascending Triangle Pattern

LMND is forming a daily ascending triangle pattern. The ascending trendline commenced off the $15.51 swing low on April 19, 2024, rising on higher lows towards the upper flat-top resistance trendline at $18.47. LMND is compressing between the two trendlines as it gets closer to the apex point. The daily relative strength index (RSI) is relatively flat at the 54 band. Pullback support levels are at $16.56, $15.51, $13.72 and $12.30.

Still Red But Improving

Lemonade reported a Q1 2024 EPS loss of 67 cents, beating consensus estimates by 14 cents. Adjusted EBITDA loss improved 33% YoY to $34 million, while net loss improved 28% to $47 million. Revenues surged 25.1% YoY to $119.1 million, beating $114.13 million consensus estimates. Gross profit climbed 110% YoY while gross profit margin improved 12 bps to 29%. Operating expenses rose 2% YoY.

Its in-force premium (IFR) grew 22% YoY. IFP represents the total amount of insurance premiums collected from active accounts during a specific period. The gross loss ratio improved to 79% from 87% in the year-ago period. Customers grew by 13% YoY to 2,095,275 million.

The company moved the net cash flow breakeven date to Q4 2024 from the originally forecasted first half of 2025. By Q1 2025, Lemonade expects to be generating positive cash flow.

Mixed Guidance for Lemonade 

Lemonade issued downside guidance for Q2 2024 revenues of $118 million to $120 million versus $123.06 million consensus estimates. IFP is expected to be between $839 million to $841 million on June 30, 2024.

Revenues for the full year 2024 are expected to be between $511 million and $515 million, versus $511.40 million in consensus estimates. IFP is expected to be between $940 million and $944 million on Dec. 31, 2024.

CEO Insights

Lemonade CEO and Co-Founder Daniel Schreiber noted that the drop in its loss ratio to 79% indicates that the sophistication and diligence of its rate modeling and filings are bearing fruit. They reflect the accuracy of its claims is strong and getting even stronger. Its growing underwriting precision is resulting in lower frequency claims outright.

Schrieber accelerated cash flow positive date to year’s end. He commented, “This acceleration in our cash flow profitability is made possible by a couple of factors, the most notable being how technology in general and AI, in particular, continue to deliver on the promise at the very core of Lemonade's thesis. This quarter, for example, saw a 22% top-line growth, but only a 2% increase in operating expense and an 11% decrease in headcount, all of these metrics year-on-year.”

Lemonade analyst ratings and price targets are at MarketBeat.