Lemonade, Inc. Price & Performance (LMND)

Good morning, and welcome to Lemonade's Fourth Quarter twenty twenty Earnings Call. Joining us on our call today, we have Daniel Schreiber, CEO and Co Founder Shai Wininger, President and Co Founder Tim Bigsby, Chief Financial Officer.

A letter to shareholders covering the company's fourth quarter twenty twenty four financial results is available on our Investor Relations website at investor.lemonade.com Lemonade.

Before we begin, I would like to remind you that management's remarks on call may contain forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by these forward looking statements as a result of various important factors.

Including those discussed in the Risk Factors section of our Q3 twenty twenty three Form 10 Q filed with the SEC on 10/31/2024, and our other filings with the SEC.

Any forward looking statements made on this call represent our views only as of today, and we undertake no obligation to update them.

We will be referring to certain non GAAP financial measures on today's call. Including adjusted EBITDA, adjusted free cash flow and adjusted gross profit. Which we believe may be important to investors to assess our operating performance. Reconciliations of our non GAAP financial measures to the most directly comparable GAAP financial measures included in the letter to shareholders. Our letter to shareholders also includes information about our key performance indicators. Including customers, in force premium, Premium for Customer, annual dollar retention, gross earned premium, gross loss ratio, gross loss ratio ex cat trailing twelve month loss ratio and net loss ratio. And a definition of each metric why each is useful to investors and how we use each to monitor and manage our business. With that, I'll turn the call over to Daniel for some opening remarks. [indiscernible] Good morning. Thank you for joining us to discuss Lemonade's results for Q4 twenty twenty four. Across the full gamut of our KPIs, the fourth quarter was comfortably our best quarter ever.

Rounding out a very strong 2024 itself our best year so far. Q4 saw continued accelerating growth ending the year at 26% IFP growth marking our fifth consecutive quarter of accelerating top line growth. Nor did our top line come at the expense of our bottom line. Besting our own prior guidance and expectations, Q4 delivered adjusted free cash flow of $27,000,000 our strongest ever. This ensured that 2024 overall was our first cash flow positive year This is a key milestone for obvious reasons, and we are thrilled to cross it a full year ahead of expectations. Underpinning this result was our loss ratio, TTM or trailing twelve month basis, The more steady and dependable metric we ended the year at 73% gross loss ratio right where we want it to be and 12 points improved Year over year, powering significant margin expansion. Our results for the quarter at 63% is our best result ever and by some margin. We're obviously pleased with this result, particularly against the backdrop of notably active and inflationary pressures. Accelerating top line growth and gross margin expansion is an attractive combination. Yielding outstanding gross profit growth rates. Our gross profit doubled year over year to $167,000,000 again a record high for Lemonade.

Below the gross profit line, we continue to deliver considerable operating leverage with operating expenses excluding growth spend declining in inflation adjusted terms in 2024 as compared to 2023.

The upside of these trends in Q4 excluding gross spend, we were EBITDA positive for the first time The fact that reinforces our confidence and I trust yours too [indiscernible] to profitability. Looking ahead to 2025, we expect more of the same. We'll grow the business while scaling the operation. Our guidance for 2025 contemplates IFP growth of 28%, a sustained acceleration towards our target cruising velocity in the 30s is expected next year. With our loss ratio, we're now within our target range and a plan to continue delivering operational efficiencies, we expect to see sustained positive adjusted free cash flow and for the full year of 2025. Are notable, particularly given our plans to ramp growth spend by approximately 40% year over year, in addition to the expected impact from the devastating California fires. All told, while the California fires took an unbearable toll on the communities Los Angeles, We are gratified that our people, technologies and financials all prove themselves true to the moment. To give you more color on these fires, our response to them and the impact on us, let me hand over to Shay. Shay, Thanks, Daniel.

First, let me say our hearts go out to those affected by the California wildfires We extend our deepest sympathies for those who have suffered from this terrible event. I'm proud to report that the Lemonade team did an incredible job handling this catastrophe. By helping hundreds of policyholders and their families on the ground. We used our AI platform and well trained team to deliver an unprecedented level of service quality. Settling hundreds of claims in real time, even as the fires raged on. You'll find more detail [indiscernible] Including some incredible feedback received from affected customers who spoke about their great Lemonade experience during a very difficult time. This event and our team's response to it points to the efforts made to create systems that allow a seamless collaboration between humans and machines. Working together to care for people at their time of greatest need. It's really the essence of why Lemonade exists. I'll leave the full coverage of the impact of the California fires for the next quarter's earnings report. But what I can already say is that our cautious underwriting Product and geographic diversification and strong reinsurance programs all positioned us well for moments like these.

Indeed, some of the market share base loss assumption calculations done by some investors and analysts yielded the loss estimate for Lemonade well north of $200,000,000 That's about five times higher than our actual experience on a gross loss basis. These events are expected to lead to approximately $20,000,000 EBITDA impact overall. We are able to achieve this outcome due to our conservative homeowners underwriting strategy and the gradual removal of higher risk homeowners policies from our book. We expect to continue to see AI driven efficiency gains this year. When excluding the impact of the California fires, our EBITDA guidance reflects approximately a twenty five year over year improvement even as we expect our business to grow by 28%. With that, let me turn over the call to Tim to cover our financial results and guidance in more detail. [indiscernible] [indiscernible] I'll review highlights of our Q4 results and provide our expectations for Q1 and the full year 2025 and then we'll take some questions. In short, our Q4 financial results were exemplary across the board and kept a very strong year for Lemonade Lemonade. We remain very much on track with our ambitious goals for positive EBITDA by the end of next year loss ratio tracking to target consistently accelerating top line growth with little change in fixed overhead expenses, and very favorable cash flow dynamics, Q4 brought our best ever loss ratio helping to drive a near doubling of gross profit in 2024.

In force premium grew 26% to $944,000,000 while customer account increased by 20% to $2,400,000 Premium per customer increased 5% versus the prior year to $388 driven primarily by rate increases. Annual dollar retention or ADR was 86% down one percentage point since this time last year. This slight sequential decline and year on year decline is not unexpected. Given our efforts to reduce less profitable portions of our home book in the second half of the 2024. These efforts likely dampened our ADR by about three percentage points. We Gross earned premium in Q4 increased 25% as compared to the prior year to $226,000,000 in line with IFP growth. Revenue in Q4 increased 29% from the prior year to $149,000,000 The growth in revenue was driven by the increase in gross earned premium a slightly higher effective seating commission rate, under our quota share reinsurance structure and a 32% increase in investment income. Our gross loss ratio was 63% for Q4, as compared to 77% In Q4 twenty twenty three, 2024. Excluding the total impact of cats in Q4, was roughly one percentage point, our gross loss ratio ex cat was 62%.

Total gross prior period development had a roughly 5% favorable impact with a negligible portion of that driven by CAT we saw this favorable prior period development across all products with the exception of our pet product line. On a net basis, prior period development had a roughly 7% favorable impact of which approximately 1% was from CAT. Trailing twelve months or TTM loss ratio was about 73% or 12 points better year on year. And four points better sequentially. All of these insurance metrics and more are included in our insurance supplement that you'll find at the end of our shareholder letter. Gross profit increased 90% as compared to the prior year driven primarily by premium growth and significant loss ratio improvement. While adjusted gross profit increased 88% driven by premium growth and loss ratio improvement. Operating expense excluding loss and loss adjustment expense increased 38 percent $124,000,000 in Q4, as compared to the prior year, driven primarily an increase in gross spend. Other insurance expense grew 35% in Q4 versus [indiscernible] slightly ahead of the growth of earned premium. Total sales and marketing expense increased by $23,000,000 or 95%, primarily due to increased growth spend of approximately $23,000,000 and a modest customer support expense increase.

Total gross spend in the quarter was $36,000,000 more than double the 13,000,000 in the prior quarter. Full year growth spend more than doubled in 2024 from $55,000,000 to $122,000,000 We continue to utilize our synthetic agents growth funding program and have continued to finance 80% of our growth spend. As a reminder, you'll see 100% of our growth spend flows through the P and L as always. While the impact of the growth mechanism is visible on the cash flow statement and the balance sheet. And the net financing to date is about $83,000,000 as of December 31. Technology development expense was up just 3% year on year to $22,000,000 while G and A expense increased 16% as compared to the prior year. To $34,000,000 primarily due to increasing interest expense from our financing agreements Personnel expense and headcount control continue to be a high already Total headcount is down about 2% as compared to the prior year, at twelve thirty five while the top line AFP again grew fully 26%. Net loss was $30,000,000 in Q4 or a loss of $0.42 per share. As compared to a net loss of $42,000,000 or $0.61 per share in the prior year.

Adjusted EBITDA loss was $24,000,000 in Q4 versus an EBITDA loss of $29,000,000 in the prior year. Our total cash equivalents and investments ended the quarter at approximately $1,000,000,000 up $42,000,000 versus the prior quarter. And up 76,000,000 for the full year. Showing a continuing positive net cash flow trend. With these metrics in mind, I'll outline our specific financial expectations for the first quarter and the full year 2025. From a growth spend perspective, we expect to invest roughly $35,000,000 in Q1, to generate profitable customers with a healthy lifetime value. This amount will likely increase in both Q2 and Q3 and then may decline somewhat in Q4. To a level [indiscernible] to the Q1 gross spend rate. Totaling roughly $165,000,000 for the year. This expected quarterly spend pattern is similar to what we've seen in prior years. For the first quarter of twenty twenty five, we expect in force premium of between $997,000,000 and $1,000,000,000 gross earned premium of between $229,000,000 and $231,000,000 Revenue between $143,000,000 and $145,000,000 and adjusted EBITDA loss of between $49,000,000 and $46,000,000 This does include an approximately $20,000,000 expected impact from the California wildfires. Without that fire impact, that guidance would be as a result about $20,000,000 better.

Stock based compensation expense of approximately $18,000,000 capital expenditures of approximately $2,000,000 and a weighted average share count of approximately 73,000,000 shares. And for the full year, 2025, we expect in force premium at year end of between 1.203 and $1,208,000,000 gross earned premium of between $1,025,000,000 and $1,028,000,000 Revenue between $655,000,000 and $657,000,000 and adjusted EBITDA loss of between $140,000,000 is also includes that same $20,000,000 is expected to be a headwind from the California wildfires mentioned in the Q1 figures. Also expect stock based compensation expense for the full year of approximately $60,000,000 capital expenditures of approximately $10,000,000 and a weighted average share count for the full year of approximately 74,000,000 shares. And with that, I would like to hand things back over to Shy. To answer some questions from our retail investors. Thanks, Tim.

We'll now turn to our shareholders' questions submitted through the safe platform. There were several questions about our car business including our strategy to convert car customers from our waitlist expected loss ratios for new car customers, our go to market strategy multi line customer rate in the future, and the impact of self driving cars on our business.

Let me try to tackle all of these together.

We spoke about our car strategy in great detail in November So I would invite you to kindly check our presentations, specifically those delivered by Dan Car insurance is indeed of top strategic priority at the moment. And is expected to be a significant growth engine in the next phase.

With unparalleled telematics technology and adoption, we are at the cutting edge of precision car insurance. The essence of our growth strategy is that our best in class first party data will enable us to offer unbeatable prices for the customers we want. And it is absolutely true that we possess a structural tailwind in the form of our waitlist. And well over 2,000,000 active customers.

We expect this will enable us to grow the car business with efficiency levels unavailable to our competitors. I do think it's important to highlight that our car product is currently only available in eight states. And we expect to begin ramping that up considerably through 2025 and 2026.

Something that will be needed before we can fully tap that 2,000,000 plus pool of customers.

There are exciting early indications in experiments we're running that prove our thesis We're seeing considerable conversion rate unlocks alongside attractive new customer lifetime loss ratios. It is early days on some of those tests and we expect to cover these topics in more detail in upcoming quarters. As for some of the more future oriented elements of the question, we don't see any reason why we shouldn't be able to realize best in plus multi line customer rates in the long term. By delivering a truly delightful insurance experience, our goal is to capture maximum wallet share across our customers' insurance needs. As for self driving cars, we are keeping a close eye on this.

It's a disruption that has the potential to alter how risk is allocated in [indiscernible] Dislocations like these create tremendous innovation opportunities for disruptors that don't have large legacy business to protect We follow these developments with keen interest but that's all I can say on the topic right now.

Moving to the next question. We understand that growth should always come with profitability and care for capital reserves.

In that light, do you see a 30% annual growth as a growth ceiling or could Lemonade Surprise with 40% or 50% growth sometime in the future?

We recently guided to an expected multiyear growth rate in the 30s beginning in 2026.

That is based on what we know today. As we pursue our strategy, it is entirely possible that we may realize unlocks in our unit economics that alter the status quo that can come from multiple places.

Be it cross sell, retention, marketing efficiency or other drivers. Rest assured that we love growth, and we'll leave no stone unturned in our pursuit of sustained acceleration. Similarly, rest assured that we will continue to do so in a long term profitable manner. And with that, let me turn the call back to the operator for more questions from our friends Our first question today comes from Bob Mann from Morgan Stanley.

Bob, your line is now open. Please go ahead.

Hi. Good morning. Hi. So my first question is on the auto market and also your passive profitability Obviously, one of the things you guys talked about is that the the current growing into a personal auto business and then obviously that business is fairly as you expand your business, as you mix more business mix shift can you maybe talk about What is a path to GAAP net income profit going forward And based on the guidance you provided in 2025, you maybe also help us contextualize how that guidance fits into an eventual gap net income profitability.

Sure. A couple thoughts. So I think the general overall path from a product mix standpoint particularly with regard to CAR, was laid out pretty carefully at our Investor Day We're in the process now of shifting from CAR as a declining business in terms of customer account, but a very stable business in force premium, to a point now where our loss ratio is come down significantly. Over the past year. It's not quite at our target, but it's getting awfully close. And so now over the course of 2025, we'll continue to see that shift from a somewhat declining rate of customer count and stable IP to a to a growing customer count. As loss ratio continues to improve. Over the longer term, we laid out a plan where car represented something like 40% of our total book of business in our multiyear long term [indiscernible] So still less than half the business, And at that time, it would be still a very small part of what you're correct is a competitive market. In terms of our path to profit, what we have laid out for almost three years now is [indiscernible] So cash flow positive actually was changed, came in a little bit about a year ahead.

Of our original plans in this past year 2024.

Are still on track as we have been for two plus years to be EBITDA positive exiting 2025.

That will be followed by we expect continuing EBITDA positivity. Positive I'm sorry, I said 2025, 2026, So that is unchanged.

Then GAAP profitability, while we haven't given an exact date because that's a little harder to project. There's a lot of non operating components as you know that come into net loss. We expect it to follow within roughly a year thereafter and that is also unchanged. If car grows somewhat faster, we're still confident in those projections. If car grows somewhat slower, same story. The fundamental the truth of our business model is that our mix of product can shift a fair bit, yet it doesn't fundamentally change the cash flow dynamics. And the long term sort of capital allocation dynamics. And that's something that gives us great confidence and it is really why those projections haven't changed much at all for almost three years.

Okay. No, I really appreciate that. So it sounds like net GAAP income positive exiting 2027 thereabouts, give or take So maybe on the LTV to cash, sorry, go ahead. Yes, that's a fair estimate. Okay, got it. So my follow-up is on that business mix shift and then how you think about LTV to CAC, right? Like currently in your shareholder letter, you're talking about a three:one LTV to CAC. As that business mix does your LTV assumptions change going forward? In other words, that business mix shift will change the three:one to CAC ratio or how should we think about that?

So historically, we've seen a a fairly significant mix change in our business. And yet that metric has remained fairly stable. Now part of that is because the way that delivers the highest return. And over time that gives us great flexibility to grow one product versus another, grow one region versus another, or to emphasize one channel versus another. And so some of that is by our choice. We will continue to spend where that overall, LTV to CAC remains in that target range. Now the end customer, the last customer we're acquiring is going to be less than three:one and that's a good thing because because it enables us to test new channels and new geographies and new approaches. But that first customer is much more valuable each quarter as we spend that. And so that three:one has been quite reliable. We did see some exception a year or one point five year ago where our spend rates were somewhat more subdued, they were somewhat lower then your LTV to CAT not surprisingly increases. We saw numbers in the 4s and nearing five. But as we kind of get to our cruising growth rate next year of 30% annual IFP growth.

Or better as we intend We'll continue to sort of track to that three to one level. There's a lot of components as you mentioned that go into that. We're discounting conservatively We factor in the expected losses expected upsell. Our dollar retention is strong. And so all of those are factored into our LTV calculations.

Okay. Thank you. I really appreciate it.

Thank you. The next question comes from Jason Helf from Oppenheimer. Please go ahead. Your line is now open.

Thanks for taking the question. So besides the California fires, any developments in Seattle, say, which was quite robust as far as retail and outlook? So any other developments worth calling out or change to the 2025 strategy And then just two quick housekeeping. Does the disclosure on the California impact include the fair plan assessment? Or could that be incremental to what you've already disclosed then just can you review the timing of rate increases during 2025 to assume they tend to be like more midyear or more evenly spread through the year? Sure.

So let me take a few of those in order, reversed order actually. So rate increases, would expect that to be somewhat [indiscernible] So we're nearing adequacy across almost across the board, but there's still rate to earn in, but I would think of that as more somewhat more smooth over the year. The fair plan is taken into account Just as a reminder, everything related to California is a Q1 event.

Q1 is still in our future, but we do have a lot of data at this point, obviously. And so we've factored in everything we know about and we do know about what we expect the fair plan assessment assessment to be. With regard to the long term plan at Investor Day, I would I give you a headline that everything is exactly on track. And that's a good thing. Q4 came in really nicely. The cat experience was sort of rounded almost a zero, and that's a that is a good result that's somewhat better than or definitely better than expected.

But across the board, we're just seeing nice continued trends that we've seen through most of '24 really strong continuing growth, in European customers, Pat hitting on all cylinders as we spoke about, [indiscernible] even though there's been a customer count change there. And even our ADR in a environment where we were able to mitigate our risk in our home business as we spoke about last year a couple of times, to make sure that when something like the California fires happens that we are not immune to it, but we are conservative and protect from real downsides. Even despite all that, the ADR, as we noted, came in only one point less without those conservative efforts around home that might have been something like three points better as we noted in the letter. So really everything might on track with our detailed analysis in November. Thank you. Thank you. The next question comes from Tommy McJoyink from KBW. Please go ahead. Tommy, your line is now open.

Good morning. Thanks for taking our questions. You've pointed to and well communicated a sizable uplift in the growth spend in 2025 to accelerate IFP growth back toward 30%.

Should we think of the level of growth spend in 2025 as likely to stay roughly the same in in absolute terms in the years beyond 2025 in order to keep that that cruising pace you talked about of 30% IFP growth?

I would expect it to continue to grow in absolute terms, but not to in percentage terms at the magnitude Last year, 'twenty three into 'twenty four and 'twenty four into 'twenty five.

So in absolute terms, we'll grow [indiscernible] the growth rate will decline. And that's really what enables us to kind of keep all of the the parts in balance as we get to that EBITDA breakeven point. When we see LTV to CAC improving or we see some positive impacts and we're able to kind of increase that gross spend.

Proactively.

And we're able to do that. We've done that in the past, but right now that is our assumption based on what we know today.

Got it. Is there not an ability to perhaps keep that growth spend similar and just focus on cross selling existing products? And is there sort of zero growth spend required to to fund growth that's through cross sale.

Short answer is yes. I think that's absolutely true. And over time, that ability to cross sell and and upsell customers and the efficiency of doing that will increase as you go from gone from a million customers to 2,000,000, now we're heading to 3,000,000.

That will only increase over time. Whether we would choose to keep it dead flat at zero, that's a choice we can make. But absolutely that team and that trend you're right on.

Okay. And then just last one on the growth spend side. Are you deploying I guess what you're deploying this year? Is it focused on growing in any one particular product line? And do you expect the car side to see an uplift this year.

So a continued gradual shift So I wouldn't think it is like a break in the pattern, but a gradual shift growth drivers over the past year have really been number one, with car stable and renters certainly growing as well, you'll now start to see that shift where car will start to become a bigger percentage of the overall business. Europe continues to do its thing heading towards used to be a couple of percentage points of the business that's probably heading towards something like 5%. So it's starting to become a material driver. Pet, though it's a small business, is growing 25% a year or more as a market. And so that's not something to be ignored. But aggregate, The car market is the biggest and that's that's where you'll see the most fundamental change over two, three, four years In particular?

Got it.

Thank you. The next question comes from Andrew Anderson from Jefferies. Please go ahead. Andrew, your line is now open.

Hey, good morning. Heard you talk about OpEx growth and growth spend or OpEx spend. Can you maybe just expand on technology development spend? It was kind of flattish year over year and lower as a percentage of premium earned, but I would think as just a tech forward company, you're still going to be spending a bit. How do you see that kind of going into 2025 and 2026? Yes, that's a line where you see really terrific leverage. So when you think about productivity of that team, it's growing dramatically. Exponentially might be a stretch because of a math major, but it is growing significantly. The amount of that's coming out of what's really a roughly a fixed team in terms of size and cost continues to increase. Every day, every week, every month. And that's a trend that we've seen for some time. If you track our headcount, that's a big part of why we've been able to see actually a decline in total headcount That doesn't mean there's a decline in hiring. There's natural turnover that happens at a company. So we're we're constantly looking for great skills and assets to bring into the business.

And that's something that does not change. If we can drive and support the kinds of automation that we're seeing now, that tech team, our current tech team has the ability to support a business that's as big or five times as big as big without significant [indiscernible] [indiscernible] Yes. I guess I'd just add, Andrew, Sorry, just to add, we're seeing an engineering team some things that spoke about in our Investor Day at length. With regards to some of our volume teams, which is that we have capacity working for lemonade, but it's just not all human. So we're finding that we're able to harness AI and engineering in very powerful ways. You've seen some of the largest tech companies in the world talk about how much of their code is now being written by AI.

Much of velocity they're able to extract from using these technologies. So Definitely our outputs continues to grow even if our human headcount does not Thanks. And then on the auto waitlist, the 700,000 I'm not too familiar with what exactly this metric is. Is that states where you plan to be actively writing in the next couple of years? Have you maybe done preliminary preliminary pricing on the back end of these customers How could we think of if we were to think of that as a submission number, how could we think of perhaps a quote ratio?

Yes. We've seen a tremendous amount of pent up demand for our core product. We kind of spoke in broad terms about how we're still holding it back a little bit. Shai referenced some of the testing that we're doing about different ways to accelerate its growth. And the early results have been nothing sort of stunning, very, very encouraging to us. But before we unleash rapid growth, we have to make sure that everything is solid. [indiscernible] car growth run away from companies that haven't got all the foundations in place. We're keen to not let that happen to us and therefore we are and being kind of restrained in that sense. The engines are revving, but we're not not putting it into FASGIA fully quite yet. There's so many car metaphors, I should hold myself back, but you get that out there.

And so I think that during the course of this year, we'll see the results of all the different tests that we have running. And as I say, kind of a sneak peek is that we've been going better and faster than we anticipated. But until that happens, until we feel that we could scale this by hundreds of millions of dollars rapidly and ultimately by billions of dollars without it causing a degradation of our underlying business. When we get to that point, you'll see us unleash it, not before that.

We will spend much of 2025 still tinkering in that regard. I'm hopeful that towards the end of the year, we will have passed threshold in different places. To talk about to your question, we are now live in about [indiscernible] comprise roughly 25% of The U. S. Population. That does not overlap necessarily with the 70% waitlist in In fact, it's probably underweighted because people in those states don't have to be on the wait list. They can just buy the product. So there isn't kind of the waitlist is because and predominantly of people in states that want the product and we haven't offered it yet. We will start to add states as we go through this year and next Great. Thank you.

Thank you. The next question comes from Katie Sakis from Autonomous Research. Please go ahead, Katie. Your line is now open. Thank you. Good morning. I wanted to go back to the IFP guide.

Thinking about 28% in 2025 relative to the 30% goal rate.

In the shareholder letter, you guys mentioned that you were entering 2025 with rate adequacy across the majority of the portfolio, which to me would kind of imply being in a position that you're ready to grow across the majority of the portfolio. Keeping that in context with the increase in growth spend expected in 2025, what's keeping that IFP growth rate from hitting 30% this year. [indiscernible] Our growth rate as I've [indiscernible] believe it's still true. It's really of our [indiscernible] We can grow faster or slower within a pretty tight range depending on how much growth spend we allocate. And so our goal is to build for the short term and for the long term. And so we could potentially grow faster in the very short term [indiscernible] choices might impinge our ability to grow in 2026 or 2027. They're or over the long term plan. And so we're balancing those two as we allocate capital our growth our top line has accelerated every quarter for six quarters. Our guidance implies growth yet again to roughly 20% IFP growth year on year, right on track with what we highlighted at our Investor Day.

That's just shy of the 30% that we said would be coming as expected in 2026 and beyond.

So all systems are go.

Growth for us is not something that happens to us. We really drive it. And because we want to allocate capital in the most efficient way, for both the short term and the long term and we're tracking not just for growth, we're tracking to breakeven and profitability and beyond. Really gives us comfort that growing 28% versus 25% or 35% is the right range at this time. You look back at our track record over six quarters, you can see a very distinct consistent trend and we expect that trend to continue.

Okay. And then maybe as a follow-up leaning more towards the car side. I mean, we're seeing a lot of incumbents in the market invest quite a bit into growth right now. And I can understand only being in a select handful of states or only 25% of the market today, but I mean, the reality of the matter is that there's only so many cars on the road. In The U. S. And whether or not Lemonade is able to acquire those you guys want to push the growth pedal on the car front right now. So I'm just curious what is giving you guys the confidence that you'll be able to lean in heavily to growth in 2026 and won't be missing much of the consumer shopping behavior we might see in 2025. Hey, Katy. [indiscernible] we gave a bit of color a fair bit of color about this in our strategy November Investor Day. We are not going to compete head on with GEICO, Progressive or State Farm on ad spend and hope to outplay them at the game that they play so very, very well. The way we win is by doing things differently and there's two fundamental ways in which we differ.

One is that we are not a car first So we now have approaching 2,500,000 customers and that's growing fast. Who most of whom need to buy car insurance and to whom we can sell car insurance with no incremental spend. We've been testing for some months, some quarters now, all the different avenues in which to trigger that and we're getting a continuous improvement in our ability to up sell and cross sell car to our existing portfolio But like the second element that I'll talk about in a second, this too requires fine tuning and getting exactly right, getting the pricing exactly right. Playing with the levers of conversion We're seeing tremendous progress and perhaps in our next shareholder letter or shortly we'll give a deep dive insight into all of the progression that we've seen in the coming in the past few months, That is one avenue of growth. The second avenue of growth is going to be getting to the customers that we want at a price that the others cannot reach. And that's really about the use of telematics and squaring some pretty tricky circles in terms of how do you get to them and give them the price that they want at the moment of conversion even before the revenue for those thirty days or so usually needed for telematics to give you a true read on their behavior.

And it is here that we've been doing also a series of really interesting and very, very encouraging experiments will allow us to unleash this growth too over time. So yes, we could just spend our way into competing headlong with the incumbent that's not what we want to do. Reason that we're taking extra few months, extra few quarters to get the pricing, the filings, the messaging the advertising, everything just so is that when we do unleash it, we'll be able to grow it effectively in a profitable way that doesn't that kind of sidesteps the whole rest of the industry is operating. There may be some shop in Daven 25. This is one of the most shop categories in the world. They'll be shopping this year, they'll be shopping next year, they'll be shopping every year and we are growing car this year. Don't get me wrong, it is growing. But it is growing while we are still experimenting and finding the absolute best [indiscernible] When we feel greater confidence, you'll see us take off at a much faster rate, but not beforehand.

All right. Thank you so much. I appreciate the detail.

I could just squeeze one more in. On the $45,000,000 gross loss from the California wildfires, how does that break down between homeowners and renterscondos policies?

Yes. So we had something on the order of $850,000,000 maybe 900 claims At this point, across the two fires, something like 90% of the number of claims were renters claims not Unexpected?

But the dominant share of the dollar impact of the claims was something on the order of 30 or so large home losses. So skewed fairly heavily towards home In terms of the dollar amount, I'd say the three quarters, the majority or more was home driven. Now of course, we do have reinsurance in place that mitigated significantly those losses for most Of those losses above 750,000 And so the reason the difference between our gross and net was quite significant, only a $20,000,000 impact on the bottom line versus 45 gross in the top is a pretty significant difference and that's really driven by that reinsurance all of the different reinsurance structures that we have in place.

Got it. Thanks for the color guys. Thank you. As a reminder, if you would like to ask a question, you may do Our next question comes from Matt O'Neill from FT Partners. Please go ahead, Matt. Your line is now open. Matt O'Neill, your line is now open. Please go ahead.

Apologies. I was on mute there. Thank you for taking the question. I was curious if you guys could elaborate on any changes that you've seen in the car market from the time of the Investor Day, I realize it hasn't been very long, but if there's been any areas where the cross sell and the waitlist build has been incrementally promising or where the sort of macro backdrop has changed with Hey, Matt. So no, in terms of the macro, there's not been any change in the last three months that we aware of in particular. But internally, yes, we've seen continued progress I kind of intimated to this a few minutes ago as well, but on quite a few of the trials that we've been running, things have come in better, faster, more compelling than perhaps we had the confidence to indicate in Investor Day. So things are moving along. At least as well as we had hoped and along several avenues, I think, ahead of where we'd expect it to be at this point.

Understood. And I think I heard an in response before though that we should not get overly excited or build out, overly aggressive growth in either in force premium or number of car customers between now and year end until much of the testing is is really kind of completed. Is that that correct?

I think that's correct. Yes. We've been giving kind of guidance to what we're doing for I guess the last couple of years in terms of reaccelerating growth in terms of getting cash flow positive, EBITDA positive, you can see so many of the building blocks fall into place much as we had promised.

We've seen 26% growth in the outgoing year. 98% growth in gross profit. So and we did encourage our investor to do as we do, which is to monitor our gross profit and preference to our IFP. The top line is wonderful, but some of the things between the top and the bottom line have been moving in even more dramatic fashion. So we've seen 100% growth, ostensibly, in gross profit. We've seen 0% growth or even negative growth in much of our expense line, which has yielded cash flow positivity earlier than expected. But yes, we will grow our top line as well. As we said at the Investor Day, we're giving get into the 30s next year, we'll make it halfway there. This year, we anticipate and we'll update as more information comes in from our various experiments. If we make any changes, we'll of course update you that's how we see it playing out this year at the moment.

Excellent. And if I can just squeeze one more in. On the On the car improvements and the gross loss ratio, to 83%, is there anything particular to call out there and just thinking about the durability of that improvement going forward? Thanks.

Yes, that's a it is a pretty significant improvement as you noted each as you get closer and closer to the rates you filed, the improvements tend to get a little bit Inflation today obviously is radically improved versus a year ago or or two years ago. That said, we are very focused on our ability to keep up pricing needs and inflation impacts and things that are unexpected. I would say that we have a structure and a process and a level of automation today for filings compared to a year or two ago that is night and day. So we are ready for all eventualities in terms of Things that are unexpected, but the things that are known and expected were we're seeing really nice improvement historically And Our ability to deliver a 63% best ever loss ratio is in March, because of that, what we're seeing in even the more challenging of the newer parts of the business like car or otherwise. So I'd expect continued improvement there And if things are unexpected happen, we'll be able to keep up with it or better.

Thank you.

Thank you. That was our final question. So this does conclude today's call. Thank you you all for joining. You may now disconnect your lines.