Lemonade Shows Strong Growth & Improving Fundamentals
Taking a Look at Lemonade's (LMND) Earnings Results.
Lemonade (LMND) kicked off 2025 with a solid Q1 that showed strong growth and continued progress toward profitability. The digital insurer hit a major milestone, over $1B of in-force premium (IFP), while keeping loss ratios in check despite a significant CAT impact. Below I will break down the key highlights & what they mean for investors.
Key Highlights:
Accelerating Growth: IFP grew 27% YoY to $1.008B, and revenue likewise rose 27% YoY to $151M. This marks LMND’s sixth consecutive quarter of accelerating top-line growth, as the company crossed the $1B IFP milestone just 8.5 years after writing its first policy.
Loss Ratios Improving: The trailing-twelve-month (TTM) GLR held at 73%, comfortably within their target range. Q1’s GLR was 78%, roughly flat vs. 79% a year ago but up significantly from last quarter at 63%. Excluding CAT losses, the underlying loss ratio was about 59% in Q1, a very healthy level that highlights the improving quality of LMND’s book.
Wildfire Impact: The California wildfires in early 2025 were a real stress test. They added roughly 16 points to Q1’s loss ratio and resulted in about a $22M unfavorable hit to Q1 financials. Even so, LMND’s conservative underwriting and reinsurance mitigated the damage. Management noted the wildfire experience validated their strategy (diversified product mix, ample reinsurance), with many claims paid quickly and within policy limits to help customers.
Operating Efficiency: Excluding “growth” marketing spend, their operating expenses remained essentially flat, even as revenue and IFP grew 27%. This speaks to strong operating leverage, the company’s AI-driven platform is scaling policy volumes without a commensurate rise in costs. Sales and marketing (“growth spend”) did nearly double to $38M as LMND invests in expansion, but importantly 80% of that customer acquisition cost is financed via their Synthetic Agents program. The upshot is they can drive growth while preserving cash, as evidenced by positive cash flow metrics (more on that below).
Adjusted EBITDA on Track: Adjusted EBITDA came in at –$47M for Q1, in line with guidance that had factored in the wildfire impact. Excluding the $22M CAT hit, the underlying EBITDA loss would have been much smaller. Looking ahead, losses are expected to shrink: Q2 guidance calls for an adjusted EBITDA loss of $41M–$44M, an improvement from Q1, and management reiterated full-year EBITDA guidance (a loss of $135–$140M for 2025). In other words, each quarter should see sequential improvement as LMND grows into its expense base. Notably, the company affirmed it still plans to reach EBITDA breakeven by end of 2026, consistent with prior targets.
Cash Flow & Runway: Perhaps most encouraging, management reiterated its goal of positive adjusted FCF in 2025, even after absorbing Q1’s CAT costs. In fact, if not for the wildfire and related California FAIR Plan charges, Q1 would have been FCF+. The balance sheet remains strong with $996M of cash/investments on hand at quarter’s end, only $25M lower than last quarter despite the CAT losses. This ample cash cushion gives them years of runway, and management expects cash burn to continue declining with improving underwriting and operating leverage. They’ve guided to their second consecutive year of positive adjusted FCF in 2025, which implies the business will no longer be consuming cash on an annual basis moving forward.
Lemonade Car Gaining Traction
One of the standout themes this Q was the momentum in Lemonade Car, the company’s newer auto insurance line. Launched at the end of 2021, Lemonade Car is now hitting its stride:
Fastest Growing Line: For the first time, Car’s in-force premium growth outpaced the rest of LMND’s business on a sequential basis. In-force auto premium jumped 10% QoQ (versus 5%–6% for the overall book), signaling that the engine is starting to rev, if you will. Auto now makes up an increasing share of LMND’s $1B premium base.
Bundling & Cross-Sell: LMND is successfully cross-selling auto policies to its existing customers (renters, homeowners, pet insurance clients). In fact, the team doubled its cross-sale volume YoY by optimizing bundling flows. With a 2.5 million customer pool (who spend $3B+ annually on auto insurance elsewhere), tapping into that base is a huge opportunity. The early results show that bundling multiple policies (renters + car) not only boosts policy count but likely improves retention as well.
Smart Pricing & Underwriting: A big part of Lemonade Car’s value proposition is its telematics and AI-driven pricing. Management highlighted their ability to fine-tune rates using real-time driving data and Lifetime Value (LTV) models. This lets them attract segments like safe younger drivers who are often overcharged by traditional insurers’ broad age-based pricing. By leveraging behavioral data (through its mobile app and “day-zero” telematics experiments), LMND is seeing conversion rates jump and can price risk with precision. These pricing advantages should translate into better loss ratios over time, as the car book matures.
Discipline in Growth: It’s worth noting that auto loss ratios are still elevated (as expected for a young book with many first-term customers), but cohorts are improving with each renewal. The company typically sees a double-digit drop in loss ratio once a new auto customer passes their first annual renewal, a well-known “seasoning” effect in insurance. This gives confidence that today’s losses in Car will normalize as the pool ages. LMND is also expanding Car geographically in a measured way, Q1 saw Colorado launch, bringing Car to over 40% of the US market (and 60% of Lemonade’s customer base). Importantly, expansion is prioritized by profitability and fit, so LMND is balancing growth with careful underwriting.
So, Lemonade Car’s traction is an important signal here. Auto insurance is a huge market and their ability to crack it (through tech-driven pricing and cross-selling to its existing customers) is key to hitting that “cruising velocity” of 30% annual growth that management targets by 2026. Q1’s results suggest Car is on the right track to be a major growth driver.
Valuation
From a valuation standpoint, nothing in Q1 changed my long-term thesis. If anything, the results reinforced it. I continue to estimate Lemonade’s intrinsic value at roughly $73 per share in my base-case scenario. This is derived from a 10-year RDCF model incorporating the company’s growth and margin targets (and it aligns with management’s long-term outlook for 30% growth and improving profitability). At the current stock price in the mid-teens, a $73 valuation implies multi-bagger upside if Lemonade executes as expected.
It’s important to note this is a long-term view. That $73 base case is several times the prevailing market price and factors in steady growth and margin expansion over the next decade. There are bull and bear cases too, my bull case is higher, and my bear case (which assumes growth falters or margins stagnate) is much lower (around the high-teens per share). But as of now, their performance remains squarely on track with the base case assumptions. The company is delivering 27% growth, holding loss ratios near target levels, and steadily approaching cash flow breakeven, all of which reinforces the long-term intrinsic value argument.
My Take
I’m feeling increasingly confident about LMND after Q1. The company delivered exactly what I was looking for: strong growth and evidence that the business model is maturing toward profitability. Hitting 27% revenue/IFP growth at over $1B scale is no small feat, it shows that their products are resonating and that its marketing engine is effective even in a tough economy. More importantly, the underlying loss ratio around 59% (ex-CATs) tells me Lemonade’s AI-driven underwriting is working. They’ve drastically improved from the early days when loss ratios were unsustainably high and the model needed data/refining. Now, with a more diversified mix (pet, auto, renters, etc.), loss ratios are approaching levels of traditional insurers, a critical step toward profitability.
The California wildfire was a real-world trial by fire (pun intended). While it did hurt this quarter’s numbers, I actually view the outcome as a positive sign. Their reinsurance and prudent risk management did their job, the company took a $22M hit but was able to absorb it and still meet guidance. It’s encouraging to see that even in the face of a large, unexpected anomaly CAT-event, their model held up and customers were well taken care of. This builds credibility for their approach to managing risk (which has been a question for some skeptics of the insurtech model).
Cash burn/dilution have been perennial investor concerns with LMND, so it’s great to see progress on that front too. With nearly $1B in cash, plus the expectation of turning cash flow positive by year-end, they should not need to raise capital again to reach profitability. The company has been disciplined with its core operating costs, and now we’re seeing the payoff: as revenue climbs, losses are narrowing. That operating leverage is real.
All that said, I remain balanced in my optimism. They still have work ahead to hit its ambitious long-term goals. The path to sustainable profits will require continued improvement in loss ratios (especially for newer lines like Car) and careful scaling of expenses. There are always execution risks, and insurance is a competitive, regulated industry where things can change fast (whether due to competitors, pricing cycles, or Mother Nature). One quarter is just one data point.
However, with each quarter like this, LMND is earning a bit more investor trust. We’re seeing the thesis play out: consistent growth, improving unit economics, and a clear roadmap to profitability. If the company keeps this up, I suspect the market will eventually bridge the large gap between today’s share price and Lemonade’s intrinsic value. As a long-term investor, I’m happy to continue holding my shares.