While Lemonade is still burning cash and reported a net loss on the bottom line of its third-quarter income statement, the insurtech expects both situations to reverse by year-end 2026.
The cash situation, in fact, will turn around by year-end 2025, Daniel Schreiber, co-CEO of Lemonade reported on an earnings conference call, echoing statements made by other executives and included in the shareholder letter accompanying third-quarter financial results. “We expect to become cashflow positive by end of year 2025 and to reach that point with hundreds of millions of unencumbered dollars in the bank.
“We expect to become adjusted EBITDA positive by year end 2026,” he added.
In Lemonade’s financial reports, “adjusted EBITDA losses” are net earnings (or losses) before interest, taxes, depreciation, and amortization adjusted for a few other items—the most significant of which is stock-based compensation expense. In third-quarter 2023, the “adjusted EBITDA loss” figure was $40.2 million. The unadjusted bottom-line net loss figure (after taxes) was $61.5 million in the quarter.
Both figures were improved from third-quarter 2022 (33% lower net loss and 39% lower adjusted EBITDA loss), as the gross loss ratio improved 11 points to 83, operating expenses shrank 11%, and gross earned premiums jumped 27% to $173.2 million.
Through nine months, adjusted EBITDA was $143.7 million in the red, and the net loss figure was $194.5 million. For the full year, Lemonade is guiding toward an adjusted EBITDA loss figure in the $186-$188 million loss range.
While Schreiber started the call by saying that Lemonade is generally “very pleased” with results—”top line, bottom line, and intervening lines”—an analyst asked the management team for more detail on what exactly what changed to give them confidence that the company will be cash flow and EBITDA positive sooner than previously expected.
In short, there was just has more clarity around rate approvals and loss ratio trends, said Tim Bixby, Lemonade’s chief financial officer.
“Enough time has passed and enough rate has earned in—and enough rates have been approved where we just have much more clarity on how that loss ratio is likely to play out,” he said, referring to the time elapsed since Lemonade last provided projections from its models. “There are certain aspects of loss ratio that you can’t know,” the CFO said, referring to weather. “But [on] the pieces that we can know—the dollars earned in and the dollars expected to earn in and the rate approvals, we just have four, almost five more quarters of data,” he said, referring to the rate piece as “a key driver” of the profit projections.
Notably, Co-CEO Shai Wininger also shared breaking news on a rate approval in California, reporting that California approved a 51% rate increase for Lemonade’s auto insurance yesterday. Wininger announced the approval as he responded to investor concerns about the performance of Lemonade car. The rate hike “is especially significant as approximately 50% of our car premium comes from California,” he said. “As these new rates earn in, we expect to become rate adequate. We believe that this can yield a healthy loss ratio, allowing us to grow car faster in the coming years,” he said.
The Lemonade letter of shareholders released on Thursday does not reveal line-by-line detail on loss ratios, stating only that improvements in the auto loss ratio lag behind other products.