Lemonade, an insurtech selling home, renters and now pet insurance, lost money in its 2020 second quarter, according to its first earnings disclosure as a public company.
That’s not a surprise, as the strategy for the startup insurer that was launched in 2016 has been to focus primarily on raising money first and then build scale. In turn, that scale is designed to enable broader product reach and the ability to generate revenue growth, with profits eventually to come. Lemonade’s management team said the New York-based company has made progress in that regard, even in the face of COVID-19.
“We’re heartened by the resilience, our team, our company and our business demonstrated in the second quarter,” CEO Daniel Schreiber said during the company’s inaugural quarterly investor call on Aug. 12.
The New York-based startup lost $21 million, or $1.77 per share in the 2020 second quarter, compared to a $23.1 million, or $2.09 per share loss in the 2019 second quarter.
At the same time, its gross earned premium of $35.3 million during Q2 was $19.3 million higher than the same period a year ago. Similarly, gross written premium was $46.7 million during the quarter, up from $25.4 million in Q2 2019. Net written premium hit $40.7 million in the quarter, compared with $22.7 million last year. Net earned premium surpassed $29 million, up from $13.3 million in the same, year-ago quarter.
Lemonade touted significant customer gains in its investor call as well as its shareholder letter. The insurer said its in force premium came in at $155.1 million during the 2019 second quarter, 115 percent higher than a year ago. That’s thanks to an 84 percent year-over-year increase in customers and a 17 percent hike in premium per customer. The insurer said its customer count is now at 814,160 as of the end of the 2020 second quarter.
While the COVID-19 pandemic has harmed the bottom line for many property/casualty insurers, Lemonade said the crisis has left it relatively unscathed.
Lemonade said total operating expenses, excluding loss and loss adjustment expense reached 12 percent higher to $30.1 million in the second quarter, versus just under $27 million in the 2019 second quarter. The insurer said it increased spending during the quarter on technology and general/administrative expenses due to hiring and also more customers. This was offset by lower sales and marketing expenses as the pandemic. Overall, Lemonade said its operating expenses came in “somewhat lower than expected” for the quarter, as it proactively delayed further hiring and slashed growth spending, particularly early in the quarter, due to COVID-19 uncertainty.
Later in the quarter, Lemonade said it resumed accelerated hiring and growth investment, and expects the trend to continue in the 2019 second half.
“The quarter had a happy ending …,” Schreiber said.
Analyst Morgan Stanley noted that the company’s combined ratio and adjusted profit margin both improved more than it had expected, and that the pandemic did not harm results as initially feared.
Lemonade gave Q3 guidance that includes in force premium as of Sept. 30 of $170 million -$175 million, gross earned premium of $37 million to $39 million. Full year guidance includes $190 million to $195 million of in force premium as of Dec. 31, revenue of $86 million to $88 million and an adjusted EBITDA loss of between $106 million to $109 million.
Morgan Stanley said those estimates were close to its prior forecasts “but likely a disappointment to investors hoping for strength in 2Q 20 results to continue.” At the same time, Morgan Stanley noted Lemonade will shift savings from its Q2 spending slowdown into growth investments for the second half.
Overall, Morgan Stanley said Lemonade is well positioned for the increased of digital technology in light of the ongoing pandemic.
“The pandemic has accelerated digitalization in numerous aspects of life, including insurance, making Lemonade’s purely direct offering even more attractive,” Morgan Stanley said.
Policyholders at Lemonade often choose a giveback clause when they sign up, requiring a percentage of leftover money to be given to a cause or nonprofit they choose. The insurer noted in its shareholder letter that the 2020 giveback surpassed $1.1 million (larger than the three previous years combined) and was donated to 34 nonprofit organizations.
Lemonade’s IPO raised $308 million on July 2, vastly exceeding analyst’s expectations. Its stock price soared on that initial day by nearly 140 percent, closing at $69.41. While the price has dipped a bit since then, it closed at $63.22 at the end of trading on Aug. 14, up nearly 6.7 percent and still significantly higher than its initial IPO target range of $23 to $26 per share.
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