Lemonade (LMND) Q2 Revenue Jumps 35%

Lemonade (LMND -6.34%), a digital-first insurance company known for its use of artificial intelligence (AI) to automate policy sales and claims, reported results for Q2 2025 on August 4, 2025. The company delivered faster GAAP revenue growth than expected, with revenue (GAAP) of $164.1 million versus analyst estimates of $160.77 million. Adjusted gross profit (non-GAAP) of $65.6 million was up sharply from last year, and the gross loss ratio—a key measure of insurance profitability—improved to 67%. Earnings per share (GAAP) narrowed to ($0.60), which was better than the ($0.81) GAAP net loss per share result in Q2 2024. Overall, this marked one of the company’s strongest periods for growth, with rising metrics in both its car and European insurance businesses, although customer retention trends and significant changes to its reinsurance strategy remain closely watched areas.

Source: Analyst estimates provided by FactSet. Management expectations based on management's guidance, as provided in Q1 2025 earnings report.

Inside Lemonade’s Business and Strategic Focus

Lemonade is a tech-driven insurance platform offering renters, homeowners, car, pet, and life insurance. Its main operations use AI “agents” to guide customers through buying insurance and filing claims. The company says that AI handles the vast majority of its interactions, aiming to reduce operating costs and greatly speed up typical insurance transactions.

The business prioritizes digital innovation and a customer-friendly approach. Some features, such as its “Giveback” program and certified B Corporation status, are designed to align the company’s interests with those of policyholders. Key focuses in recent years have included expanding into new lines such as car insurance, scaling the European segment, refining its approach to reinsurance (a risk-sharing tool with other insurers), and leveraging technology to improve profitability and operating efficiency.

Quarterly Highlights and Financial Developments

Lemonade delivered 35% year-over-year GAAP revenue growth, driven in part by growth in gross earned premium, which reached $252.3 million. Gross earned premium is the earned portion of gross written premium and is a non-GAAP metric. In force premium, representing the annualized value of all current policies, reached $1.08 billion, a 29% year-over-year increase in in force premium, and total customer count reached nearly 2.7 million.

The company posted an improved gross loss ratio (GAAP) of 67%, down from 79% in Q2 2024. Gross loss ratio is a key insurance metric that measures losses and claim expenses as a percentage of premiums earned. Adjusted gross profit (non-GAAP) nearly doubled year-over-year, as adjusted gross profit margin (non-GAAP) expanded to 40%. Cash generation improved, with adjusted free cash flow reaching $25.0 million, up from $2.4 million in Q2 2024.

Performance varied by insurance line. The car insurance segment’s gross loss ratio (GAAP) dropped to 82%, down from 95% in Q2 2024, and car insurance in force premium grew by 21.9% year-over-year. The European operation stood out, with in force premium up over 200% year-over-year to $43 million. and loss ratios improving by 15 points to the low 80s. This rapid growth came alongside disciplined spending, with the company reporting that, excluding acquisition-related growth spending, underlying operating expenses were flat or down over the past 10 quarters through Q1 2025.

The company’s expense structure in Q1 2025 reflects aggressive customer growth. Operating expenses grew 21%, almost entirely due to a 93% jump in marketing and growth investments. Excluding these growth costs, operating expenses actually decreased by 2%. Net loss (GAAP) narrowed to ($43.9 million), a marked improvement from last year. However, annual dollar retention (ADR)—a metric reflecting the percent of premium dollars retained over twelve months—remained at 84%, flat sequentially and down four points year over year. The company attributed this to proactive “pruning” of unprofitable accounts. A major strategy shift was announced in the reinsurance program: Lemonade reduced the portion of premiums reinsured from 55% to 20% for the reinsurance program year starting July 1, 2025. This means more risk (and revenue) is now retained directly, which the company expects will boost top-line revenue and gross profit in coming periods.

Product Lines and Segment Performance

Lemonade’s insurance lines include homeowners multi-peril (covering property losses and liability), pet insurance, car insurance, and its European business—which primarily offers renters and homeowners coverage. Average premiums per customer are highest for car insurance at $1,895, followed by pet insurance at $742. Segment data show homeowners gross loss ratio at 60%, pet at 70%, car at 82%, and Europe at 83%—each showing year-over-year improvements. Notably, new experiments with telematics (vehicle data collection) in car insurance have boosted conversion rates by approximately 60% in Q1 2025 compared to the Q4 2024 baseline, and over 20% of new customers originated from Europe.

The European segment’s rapid expansion—Europe IFP grew over 200% year-over-year to $43 million, and improving loss ratios (gross loss ratio in the low 80s, 15 points improved year-over-year)—underscore its significance as a growth driver. The company says its European business “delivers double the amount of new business per dollar of growth spend” compared to the US when similarly sized. In car insurance, the firm continues to expand into new states, with recent launches in Colorado and Indiana, and expects further state launches to increase its US auto market coverage from the current 40%.

There were no new dividends announced. LMND does not currently pay a dividend.

Looking Ahead: Outlook and Investor Considerations

Lemonade raised its guidance for full-year 2025 revenue to a range of $710 million to $715 million, up from its earlier guidance of $661 million to $663 million. For Q3 2025, it expects revenue between $183 million and $186 million, and adjusted EBITDA (non-GAAP) losses between ($37 million) and ($34 million). The company’s long-term roadmap continues to target adjusted EBITDA breakeven by the end of FY2026.

Management highlighted that revenue growth rates would likely outpace premium growth over the next several quarters, including throughout 2025, as the new reinsurance structure takes effect. There was no new or updated dividend guidance. Key priorities for upcoming quarters will be continued improvement in loss ratios and retention rates, monitoring the impact of reduced reinsurance, and successfully scaling recently launched products and markets. LMND does not currently pay a dividend.

Revenue and net income presented using U.S. generally accepted accounting principles (GAAP) unless otherwise noted.