Lemonade, Inc. (LMND) Q2 2021 Earnings Call Transcript

Lemonade, Inc. (LMND -1.93%)
Q2 2021 Earnings Call
Aug 05, 2021, 8:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Hello, everyone, and thank you for joining the Lemonade, Inc. Q2 2021 earnings conference call. My name is Will, and I will be moderating the call today. [Operator instructions] I now have the pleasure of handing the call over to Yael Wissner-Levy from Lemonade.

Please go ahead.

Yael Wissner-Levy -- Vice President of Communications

Good morning and welcome to Lemonade's second-quarter 2021 Earnings Call. My name is Yael Wissner-Levy, and I am the VP of communications at Lemonade. Joining me today to discuss our results are Daniel Schreiber, co-CEO and co-founder; Shai Wininger, co-CEO and co-founder; and Tim Bixby, our chief financial officer. A letter to shareholders covering the company's second-quarter 2021 financial results is available on our Investor Relations website, investor.lemonade.com.

Before we begin, I would like to remind you that management's remarks on this 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 Form 10-K filed with the SEC on March 8, 2021, 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, such as adjusted EBITDA and adjusted gross profit, which we believe may be important to investors to assess our operating performance.

Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures are included in our letter to shareholders. Our letter to shareholders also includes information about our key operating metrics, including 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, who will begin with a few opening remarks. Daniel?

Daniel Schreiber -- Chief Executive Officer and Co-Founder

Good morning. I'm happy to be able to report on another quarter of strong advances along our key performance indicators. As compared to Q2 2020, our top line in-force premium, or IFP, grew 91% to $297 million. For the second consecutive quarter, and this represents an accelerating rate of year-over-year growth.

Premium per customer also increased at an accelerated rate to 29% year on year as recent product launches that continue to bolster economics. Our IFP growth rates reflect our decision to lean in. Earlier in the year, we spoke about compelling unit economics giving us confidence to ramp up growth and investment levels, and that's exactly what we've done. For the fourth consecutive quarter, we have sequentially increased our investments in marketing.

I expect that this theme of learning in to continue through the second half of 2021. As long as we're able to acquire business at an attractive LTV to CAC ratio, we'll continue to put our foot to the gas. Tim will then elaborate on the expected numbers shortly. I wanted to provide an update on our reinsurance program.

In Q1 2021, our business encountered a CAT, a catastrophe event, which exerts pressure on our gross loss ratio than any other before it, the Texas Freeze. We were able to effectively endure this pressure due to the outstanding reinsurance program we implemented in Q3 of 2020, a 75% proportional or quota share reinsurance program. As a result, our bottom line was shielded from 75% of the impact of the Texas Freeze. In this hyper-growth stage of our business, our proportional reinsurance program is especially helpful.

And not only does it reduce our volatility exposure, but it enables us to be capital-light as it relates to the regulatory surplus of requirements. However, over time, as the business matures and our expected volatility declines, we anticipate a gradual reduction of the proportion of our business that we seed. When we entered into the current reinsurance program a year ago, we locked in 55 of the 75 points for a three-year term with our remaining 20 points up for renewal each year. Having just completed the first annual renewal process, we are pleased to share that we were able to secure similar financial terms on just the portion of our quota share that we renewed.

Consistent with my earlier comment, we made a modest reduction in the scope of our quota share program, stepping down from 75% to 70%. Put differently, we renewed 15 of the 20 points that were up for renewal. I have spent time in prior quarters of -- speaking about the product diversification at Lemonade, a critically important aspect of our strategy that Shai will elaborate on in a moment. So I wanted to share an update on another important aspect of our business mix, geographic diversification.

Today, at least one Lemonade product is available for purchase in each of the 50 U.S. states, and we continue to push toward being able to service 100% of our customers' insurance needs regardless of where they live. We recently have made a meaningful progress in our pursuit of this goal in the launch of our renters insurance product in Florida. The renters insurance market in Florida is large.

And in fact, it's the fourth largest market in the nation, as measured by total gross written premium. By first focusing on renters insurance in Florida, we will be able to fine-tune our approach in a risky CAT state before we can develop the homeowners product in our market. We look forward to bringing the Lemonade renters experience to Floridians and anticipate our product suite in the state will expand over time. As a tech-enabled business, we've been, uniquely perhaps, able to address markets across the continent.

To date, our investments have been heavily lopsided in the favor of the United States as that's been where we've seen the most compelling unit economics. In response to favorable recent trends around improving conversion rates and then steadily declining loss ratios we're observing in Europe, we started investing more meaningfully in R&D in the continent. We anticipate this will lead to a step change in our growth investments in the continent in 2022 and beyond, and we'll certainly keep you posted. And so with that, let me hand over to Shai for some more updates on our product.

Over to you, Shai.

Shai Wininger -- President, Chief Operating Officer, and Co-Founder

Thank you, Daniel. Last quarter, we announced the upcoming launch of Lemonade car, and it's been gratifying to see how much our community, shareholders and customers alike, share our excitement. In the intervening months, we've made real strides on all aspects of our car roadmap, including our products and technology, recruiting, and regulatory approvals. On the product and technology front, we completed the development from scratch of end-to-end, digital-first car policy management system.

In all aspects of our product strategy, so we stayed true to our values and prioritized delivery of a delightful customer experience that is simple, fast and automated, where possible. We use telematics data to develop a nuanced and our segmented pricing model -- structure will provide a great price for safe drivers and ensure we build a strong, low-risk book of business. The Lemonade Car team continues to grow considerably. We recruited some of our best and talented in the industry to lead our car insurance operations, and are staffing up our customer-facing teams in preparation for launch.

And now I'd like to update you on the mix of products that are currently live. So as we look ahead for the long term, we expect our product mix to continue to gradually shift and increasingly diversify. While we love renters as a great point of entry to Lemonade, we continue to be able to invest in other product verticals that provide large and growing addressable markets, cross-sell opportunities to existing customers and incremental on-ramps for the Lemonade experience. This mix shift is in full effect with our nonrenters products accounting for roughly half of our new business for the second consecutive quarter.

Today, for the first time, we are pleased to provide a product breakdown of the total book of business. A year ago, at Q2 2020, renters represented about 75% of our IFP with homeowners accounting then for the balance. By the end of Q1 '21, the renters share was 56% with homeowners representing 30%; Pet, 13%; and life accounting for the remainder. As we look ahead, I'd expect this mix shift dynamics to continue for the rest of '21 and beyond.

We expect to periodically update this mix breakdown when we believe it is helpful to understand our product growth and strategy results. I'd like to make a short comment on the performance of one of our lines of business that recently celebrated a major milestone. At the end of Q2 2020, Lemonade Pet turned one year old. At 13% of book, Pet has well exceeded the internal expectations.

And notably, we've seen great success selling to both new and existing Lemonade customers. As it relates to new customers, comparing the LTV to CAC ratios, we have -- this enabled us to quickly ramp up spend volume that targets new to Lemonade Pet customers. Pet has been a great case study that demonstrates the willingness of our existing customers to purchase additional Lemonade policies. We've made tens of thousands of Pet cross-sells, and those cross-sells currently make up the -- about 30% of our total Pet IFP.

All in all, a terrific first year for our Pet coverage. And with that, let me hand over to Tim for a bit more detail around our financial results and outlook. Tim?

Tim Bixby -- Chief Financial Officer

Great. Thanks, Shai. I'll give a bit more color on our Q2 results as well as expectations for the third quarter and the full-year 2021, and then we'll take your questions. We had another strong quarter of growth driven by additions of some new customers as well as a continued increase in premium per customer.

In-force premium grew 91% in Q2 as compared to Q2 in the prior year to $296.8 million. And we believe this metric captures the full scope of our top-line growth before the impact of reinsurance and regardless of the timing of customer acquisition during the quarter. Premium per customer has increased 29% versus the prior year to $246. This increase was driven by a combination of increased value of our policies over time as well as our mix shift toward higher-value homeowner and Pet policies.

Roughly three quarters of the growth in premium per customer in Q2 was driven by a product mix shift, including the cross-sells and the remaining one quarter from increased coverage levels and pricing. Gross earned premium in Q2 increased 90% as compared to the prior year to $66.9 million, in line with the increase in, in-force premium. With the impact of the Texas Freeze that's behind us, our gross loss ratio was 74% for Q2 2021, in line with our target range. This is the result, 7 percentage points higher than Q2 2020.

And this increase is primarily driven by the impact of our rapidly growing new business lines. Early in their Lemonade life cycles and new products tend to demonstrate higher loss ratios than the relatively more mature rest of the book. Operating expenses, excluding loss and loss adjustment expense, increased 126% in Q2 as compared to the prior year. And this was also primarily driven by 106% increase in sales and the marketing spend as a result of leaning into advertising and growth investment.

We also continue to add new Lemonade team members in all areas of the company, in support of customer and premium growth, in both current and future product launches that saw increases in each of the other expense lines. Global headcount grew 97% versus the prior year to about 749 with a greater growth rate in customer-facing departments and in product development teams. Our net loss was $55.6 million in Q2 as compared to the $21 million we reported in the second quarter of 2020 while adjusted EBITDA loss was $40.4 million in Q2 as compared to the $18.2 million in the second quarter of 2020. Total cash, cash equivalents, and investments have ended in the quarter at roughly $1.2 billion, reflecting primarily the net proceeds from our January follow-on offering of approximately $640 million, partially offset by our use of cash in operations of $57 million since year-end 2020.

And with these goals and metrics in mind, I'll now outline specific financial expectations for the third quarter as well as an updated full-year view of 2021. For the third quarter, we expect in-force premium at September 30th of between $336 million and $339 million; gross earned premium between $76.5 million and $77.5 million; revenue between $32.5 million and $33.5 million; adjusted EBITDA loss of between $55 million and $52 million; and stock-based compensation expense of approximately $15 million; and capital expenditures of approximately $3 million. And for the full-year 2021, we expect in-force premium at December 31 of between $380 million and $384 million; gross earned premium of between $286 million and $288 million; revenue between $123 million and $125 million; an adjusted EBITDA loss between $173 million and $169 million; stock-based compensation expense of approximately $50 million; and capital expenditures of approximately $11 million in the year. So as a reminder, please note, GAAP accounting rules are such that exceded premiums are excluded from GAAP revenue as a result of the change in our reinsurance structure effective last July 1st to significant proportional reinsurance, our year-over-year revenue and the gross margin comparisons are not really directly comparable.

Accordingly, we publish in-force premium and gross earned premium as metrics that we believe are very useful to analysts and investors because both capture the overall growth trajectory of the business before the impact of our insurance. And with that, I would like to turn the call back over to Daniel to address some questions from our shareholders. Daniel?

Daniel Schreiber -- Chief Executive Officer and Co-Founder

Thanks, Tim. As is our practice, we will now turn to questions most upvoted by our shareholders through the same platform and the first comes from Dean C., who asked about innovations and developments in the pipeline. Well, Dean, a lot of our engineering and product teams are working on new products and -- such as car that we have spoken about, and that certainly required intense levels of development and work. But I must tell you that product innovation, product iteration enhancements, and innovations are day-to-day bread and butter for us.

It's really part of our DNA and it never stops. In fact, for some existing products that are already live, we push into live production dozens of iterations a day. So there is a continuous innovation cycle in all of our products and continuous improvement. Our data scientists are continuously monitoring our data streams and training and retraining our models.

And so our product teams are continuing to take part of our processes that are managed by people and to automate them. And this is something we've not spoken about previously, but in a few weeks, we'll be shipping a brand new app experience. And this really reflects the monumental changes that our business has gone through in the past year. So just about a year ago, we were a monoline business, just in the homeowner space.

Of course, now we have that and we have Pet and we have Life and Car is imminent. So we're redesigning the app experience pretty dramatically to allow customers to manage all of their different products at the Lemonade in a pretty seamless way and to navigate between the insurance policies, allowing them to update coverages for our claims and get more product with a simple tap. So hopefully, Dean, that gives you a sense of what we're working on. The next question comes from Rolando G.

Rolando asked about our breakeven and how we will fund the next leg of our growth. Well, Rolando, we don't put a hard date on this, but we are not expecting to achieve cash flow positivity in the next couple of years. This is a time when there's tremendous opportunity for us to make investments now that, we believe, will reward us then in the long term. So we think about breakeven as something in the medium term rather than in the next couple of years.

And we spoke about this a bit in our letter as well. In the near term, we're not going to be optimizing for EBITDA. Rather, we're trying to maximize profitable growth as measured by I think the lifetime value of our customers. We keep monitoring every dollar that we invest in that is generating new customers on new products that will be long term and profitable.

But really, the emphasis is on long term. And in terms of funding all of that growth, we believe we are likely able to fund the business to breakeven with cash already on our balance sheet, so we're in a really strong cash position today. And as we model out the tremendous growth opportunities that we see in front of us, we do think that the cash on hand will suffice to get us through that hyper growth and too ultimately to profitability and cash flow positivity. Thadeus H.

asked when we expect the auto insurance product to launch and what effect we believe bundling will have on homeowners insurance. Well, Thadeus, we spoke about this launch time earlier on the call, but I'm still glad you raise this. We are very hopeful and we are quite optimistic that the Car-Home bundling will be a significant driver of value going forward. To date, despite our meaningful success in our renters and the homeowners insurance that we've really been selling these products with one hand tied behind our back because it's a very common for -- a common practice for customers to bundle home and car, something that our competitors are able to offer and that to date we've not been able to.

So adding car products should, one, enable us to improve homeowners and renters conversion rates and retention rates and accelerate the business growth; and then two, to dramatically improve the lifetime value of existing Lemonade customers who then will have the option of adding a car policy. So as we've said in the past, we think our existing customers are probably spending over $1 billion today on car insurance with other insurers. We'd like to believe that they'd rather spend that with Lemonade, but that option has not been available. And in fact, we're encouraged to see that on Google, Lemonade Car or Lemonade Car Insurance has consistently ranked in the -- as one of -- top 3 searches associated with our company.

Been true for years, even before when we spoke about this as a product. And we also think that this may be an indicator of the pent-up demand that we will, hopefully, unleash with the launch of Lemonade Car. And with that, let me turn the call back over to the operator so we can take some questions from our friends on the Street. Thank you.

Questions & Answers:

Operator

[Operator instructions] Our first question comes from Michael Phillips from Morgan Stanley. Your line is now open. Please go ahead.

Michael Phillips -- Morgan Stanley -- Analyst

Thank you. Good morning, everybody. First question to Tim, I think, you mentioned the loss ratio as compared to last year and you said specifically because of rapidly growing new business lines. And so I think I specifically say -- heard you say that as compared to just new business, so how should we think about the direction of your gross loss ratio, knowing that you're going to get a lot of new business because you're growing so much, and then also with the kind of the continued shift in your mix of business that you've been alluding to as well.

So the direction of the gross loss ratio from here, I guess, is the question. And remind us, because you mentioned the target, can you remind us what your target is on that?

Tim Bixby -- Chief Financial Officer

Sure. So happy to, Mike. So we think of the loss ratio as sort of short-term volatility versus sort of long-term target and long-term achievement. So in the short term, what we're seeing more of this quarter and a trend I would expect this perhaps to continue is a somewhat upward pressure on loss ratio as a result of some overperformance in some ways of our new product growth.

And so as we've moved over the course of this year, I think you've seen our top line expectations in terms of in-force premium and gross earned premium increase as we move through the course of this year. And much of the increase and that we've -- the added optimism is driven by our newer products, expanded homeowners' coverage, the Pet product. And the newer products tend to have a somewhat higher loss ratio. They're earlier in their sort of development phase, their maturity phase, as compared to renters.

And so really, these are just sort of opposing forces as our book of business balances, as the mix shift continues to then -- and as the mix continues to shift toward the newer products. In the short term, you'll -- it's not unexpected that you see to be -- and somewhat higher loss ratio. But over the longer term, as those newer products mature, we would expect to see the same dynamic we've seen in renters which is a loss ratio that improves over time. Now this is not a dynamic that will end in the short term.

And we've talked often -- quite a bit about the investments pending car launch. Car will be new. It will be -- it's clearly one of the largest markets in terms of the size of the addressable market. And so there will likely be that same dynamic of upward pressure in the short term as we kind of step -- make it our first steps into auto.

Over the longer term though, our targets remain the same. I would think of it in the low 70s, 70% to 75% loss ratio. Absent major CACs, it's still our target and the long-term target prospects -- and of our long-term expectation. Car, I don't want to underestimate the impact of car.

It's one of the most dynamic markets, one of the highest potential markets for us is that, as Daniel and Shai outlined, but with that will come some complexity and we'll learn our way through it. And I think that if you look back at our previous product launches, we've demonstrated a pretty solid ability to really optimize in those early months and quarters, and car may just take a little bit longer as we step into it. But I would expect the same dynamic to play out in terms of loss ratio.

Michael Phillips -- Morgan Stanley -- Analyst

OK. Thank you. That's very helpful. Kind of a quick numbers question, probably still for you, too, Tim.

On your guidance for the adjusted EBITDA, it looks a little lumpy as we get through 3Q and 4Q. See if I'm reading that right, but it looks like there's a big drop-off more so in 3Q and then kind of rebound in 4Q. Am I seeing that right? If I look at your guidance numbers, and if so, kind of what's behind that more of a drop-off in the third quarter relative to other quarters in the year?

Tim Bixby -- Chief Financial Officer

Yes. I think you're seeing that right. There's a couple of dynamics happening there. So Q3, as you know, is historically been our strongest seasonal quarter, and that's the most we've added customers, added growth, added premium tends to come in the third quarter.

That is moderating somewhat because the newer products, Pet insurance, so for example, is a little less seasonal, but we still see that dynamic. So we've got a pretty clear line of sight, our visibility into this coming quarter. We're a month in, and so I think the Q3 guidance represents that high level of visibility. So now because of this, we're guiding for the full year, we're -- there's obviously implied guidance for Q4.

Q4, there's a little more uncertainty, and we're investing significantly to gear up to the pending car launch. We don't have a hard date to disclose that yet. So there's a little more uncertainty about Q4 in terms of what that spending pace will play out to be. So I would also think that Q3 guidance is in line with our confidence and approach we've seen in prior quarters.

And then Q4, we'll come back in 90 days and update and have a much, much clearer or a somewhat clearer view of what we think growth investment will then pan out, how we think the car investment work is going and update the fourth quarter at that time.

Michael Phillips -- Morgan Stanley -- Analyst

OK. Thanks. One more for now, if I could. Speaking of car, how much of your -- you're doing a pretty respectful deliberate attempt to get into that and taking your time there and doing the right things, it seems like, so I think that's respectful.

But how much of your entry into that market is a function of -- the kind of the entry is a function of kind of what we see in the overall industry right now which looks like pretty tough because of where loss trends are headed, is that affecting your planned entry right now?

Tim Bixby -- Chief Financial Officer

Not so much. This is a long-term play as with how we think about Lemonade in general. As a long-term play, we're building for if five and 10 years from now. Our view toward car is the same.

We have a significant proportion of our customers who have cars and will insure their cars and will continue to do so. We think if we can bring them a product that is notably distinct in the market and in line with the Lemonade promise that we've delivered with the other products that are already in the market, the short-term trends, we're certainly aware of and not ignoring. But we believe that the more tumultuous the market, the more unpredictable the market, it really benefits the providers, who are more agile, who have the ability to pivot quickly and invest in clever, thoughtful and quick ways. And so while it's a challenging market, we think we are in -- and will be once we launch in a pole position to be able to perform well in what is a trickier market.

Large incumbents have done amazing things over many years, we think we bring an ability to be agile that will put us in a great position.

Michael Phillips -- Morgan Stanley -- Analyst

OK, Tim. Thank you very much.

Operator

Our next question comes from Josh Shanker from Bank of America. Your line is now open. Please go ahead.

Josh Shanker -- Bank of America Merrill Lynch -- Analyst

Yeah. Thank you for taking my question. I was surprised with the statistic that 30% of your Pet premiums are then coming from bundlers. I would have thought that it's a natural companion piece to be a renter, Pet bundler with Lemonade and I think -- and that would be the greatest source of your premium? Can you talk about the marketing agenda and how Lemonade Pet is sold? And do you think this percentage of bundled Pet renters rises over time?

Tim Bixby -- Chief Financial Officer

Yeah, we can see that as a very positive metric. So it's always a big question when you're launching a new product, what proportion will come from existing folks versus new customers. Pet, as you know, in the U.S. is a relatively small market.

Though two-thirds or more of folks have a cat or a dog or more, a relatively low percentage have actual insurance. And so we've been able to show with 30% of those new sales we're overperforming our expectations in terms of the total in-force premium going to Pet. I think that's a very strong number. We'll continue to go after those existing customers but I think it's as much a testament to our ability to bring in new customers with our new product that drove the 70%, that's the other portion of that ratio, as it is about our ability to sell to our existing customers.

And we've seen this pattern in the past, something like it's maybe 50-50, maybe it's 60-40, Pet is now 30-70. That's a good, balanced ratio. It's hard to say how that will shift over time, but I don't expect any radical shifts. And we'll -- we've got some learnings from that, that we'll carry forward with us as we move into the car launch.

Josh Shanker -- Bank of America Merrill Lynch -- Analyst

And I think in the past, you said that renters is around a 65% loss ratio; homeowners, at 75%. Are those numbers correct that I'm saying and can you add Pet loss ratio to that list?

Tim Bixby -- Chief Financial Officer

No. We actually don't disclose the hard loss ratios by product line. We have -- you're correct directionally, we have noted that the more mature products have a lower, more optimized loss ratio. And so renters certainly have less than the overall business average, and homeowners and Pet is higher.

And those vary from quarter to quarter. But again, that's part of the new product penalty, as we term it, that will likely continue. But we do look at the overall loss ratio of the business to keep that healthy and to keep reinsurance relationships healthy and vibrant. And so all of that's kind of balanced together and I think that the trend lines are affected.

Josh Shanker -- Bank of America Merrill Lynch -- Analyst

Thank you for the answers.

Operator

Our next question comes from Andrew Kligerman from Credit Suisse. Your line is now open. Please go ahead.

Andrew Kligerman -- Credit Suisse -- Analyst

Thank you. Good morning. A question following up on the auto insurance area. In your release, you highlighted that you would not include in any auto insurance your IFP guidance for 2021.

And so I guess, the first part of the question would be is that because you actually would expect that this product will get launched in '22? And then secondly, what are some of the steps that you need to accomplish before launching the product?

Daniel Schreiber -- Chief Executive Officer and Co-Founder

Andrew, good morning. Andrew, Daniel here. There is some uncertainty around the launch. I saw some questions coming our way from some of retail investors as well along the same lines, so happy to address those questions alongside yours in this regard.

We have pretty good control of our own development processes and the development is going very well. I think they're actually perhaps ahead of plan, and what we're seeing in terms of the product development is incredibly heartening. It's really quite exciting to see this product in development. We've been pretty engaged with our prospective customers.

We've had 10,000 customers help us in designing the product and prioritizing features and it's coming together in a way that will, I believe, really reward all of our customers' patience. So the development, I do want to signal to you is going well and perhaps ahead of schedule and is really quite exhilarating to see. But there are elements of the product that we don't control, and those are the regulatory approvals. We don't anticipate any problems with that.

It's just hard to time them. And so we do -- and you know we own our own insurance carrier and we have our own licenses, but we do need to go to several states. Not all states required us to get and then to approve us to write car insurance specifically, and we're working through that process. And then all states we have to get rates in forms approved.

That can be a somewhat laborious process at the best of times and oftentimes when it's your first time in filing these, there's slightly more discussion as you establish a baseline with regulators. I suppose my process has been entirely pedestrian, the processes that we need to go through and there's nothing particularly exciting or unusual about them, but they just introduce a degree of unpredictableness or unpredictability or whatever the right way to parse that word is into our launch date. So there's definitely a swing of several months around this question. And so for that reason, we're not giving a specific date.

We did say a few months ago when we announced the product that we're hoping that it will be within the year, we certainly stand by that. And obviously, from all of -- that points to the view that sooner is better than later. But hopefully, the regulatory open gives you a sense of why we're being a little bit ginger-we're addressing this somewhat gingerly because of the uncertainty that's hoisted upon us by the regulators.

Andrew Kligerman -- Credit Suisse -- Analyst

I see. So you -- it sounds like you're happy with what you built, but it's more the regulatory process. And when -- is that right?

Daniel Schreiber -- Chief Executive Officer and Co-Founder

It is.

Andrew Kligerman -- Credit Suisse -- Analyst

OK. And when you said within the year, you mean within 2022 or within 2021, what you were previously saying? Just so I'm clear on that.

Daniel Schreiber -- Chief Executive Officer and Co-Founder

Yes. The lack of clarity is understandable. It was an ambiguous statement, and I'm going to leave it hanging out there a little bit, with that ambiguously unresolved, I'm afraid. Yes, we're really beholden to our regulators and we really want to give you -- them this -- and we don't want to tie them down.

They don't appreciate us being too firm on the dates that are ultimately in their hands, and we want to respect their process. So apologies for not being more precise on that.

Andrew Kligerman -- Credit Suisse -- Analyst

No, that's very fair. I'll leave it at that. And then just one other question on your life insurance launch. In the release, you mentioned that you came out with it in January, you had a meaningful ad spend in the second quarter.

And currently, it's 1% of your business mix at this stage in the game but you also mentioned that you think that it could become a meaningful piece going forward. But does the 1% imply that there are a lot of challenges and that it may be difficult to get that number? What are you thinking that might allow for this to become meaningful?

Daniel Schreiber -- Chief Executive Officer and Co-Founder

Well, the market is very sizable. So consumers, including our own consumers, are spending a lot of money on this sector. It's tens of billions of dollars, some on term life just in the U.S. every year.

So this is clearly a major potential market for us. And we are also seeing that growing. The 1% that we intimated is not what we're seeing in terms of our sales on a daily basis. That percentage is higher.

The product is launching 5 years after this other one, so it has to claw its way into a meaningful percent of the book just because other products have years of headstart on it. So we are seeing the product sell well. We are seeing growth along these lines that we would have hoped to see, and we are learning that -- to sell the product, both to existing and to prospective customers. So actually, I think that I would categorize this as something that we're pretty optimistic about.

When we announced the product, you may recall, a couple of quarters ago, we were very, very cautious and cognizant of the fact that for other players in this space, acquiring customers at a profitable level has proven very tricky. And we didn't want to presume that we'll be able to be -- to succeed on where others have struggled. I think we are more bullish on it now. We're seeing a few months in that we're finding our footing on this product and it's really progressing now nicely.

So I don't want to suggest that there's any problems in this product at all. It's progressing nicely and, hopefully, will continue to progress in that way.

Andrew Kligerman -- Credit Suisse -- Analyst

And just one -- let me sneak one last part to that, and then I'm done. The TAM is clearly bigger and perhaps making that market a lot more competitive. But do you feel that -- like you're finding pathways to that growth and is that why you're saying you're optimistic despite greater competition in the Life products and maybe some of your other ones right now?

Daniel Schreiber -- Chief Executive Officer and Co-Founder

Well, what we say it's a bit like the discussion that we just had around Pet, we're seeing a significant portion of our Life sales are going into existing customers. And one of the big unlocks really for how to sell term life insurance is to sell it to the people that are really the customers of yours, that are already trusting of the brand and engaged with you. So certainly, we're seeing existing customers who are happy to buy term life from us. But we are also seeing that we are getting better and, as I say, finding our footing on how to promote this to new customers as well.

I don't want to overstate it. It's still early days, and we've only been doing this for a couple of months. We are pretty studious at trying different things. We're still in that trial-and-error phase.

I don't want to overpromise or oversell but I'm signaling we're feeling an increased degree of confidence to -- relative to how we spoke about this just a couple of months ago.

Andrew Kligerman -- Credit Suisse -- Analyst

Very helpful. Thanks so much.

Daniel Schreiber -- Chief Executive Officer and Co-Founder

You're welcome.

Operator

Our next question comes from Ron Josey from JMP. Your line is now open. Please go ahead.

Andrew Boone -- JMP Securities -- Analyst

Hi, guys. It's Andrew Boone on for Ron. Thanks for taking my questions. On the IFP breakdown, you talked about newer distribution channels like, I guess, in the letter -- sorry.

You talked about newer distribution channels, like agent partners and graduates doubling share of homeowner sales year over year. Can you talk about how these other channels are playing out longer term and the lessons you're learning here. And then secondly, on the Florida launch, can you talk about your approach here and just remind us how many states Lemonade offers renters and home, and how you guys are progressing toward kind of national coverage?

Tim Bixby -- Chief Financial Officer

So from a -- I'll take the second one first. From a coverage standpoint, we're licensed in upwards of 90% of the U.S. in homeowners and renters. There's some variation.

We're not in -- actively selling both in every single one of those states, but well above 90% in terms of licensing, well above 80% in terms of actively live selling. With Life, we're in 100% of 51 states, including D.C. So while we don't speak much about coverage, it's primarily because we're so -- edging so close to 100%. So we have a couple expansion states left to go.

With the launch of Florida, which was relatively recent, every large state is now in play for Lemonade, but there's a handful of smaller states you have to go. And if you could clarify your first question a little bit. I think I got most of it, but maybe just give me [Inaudible]

Andrew Boone -- JMP Securities -- Analyst

Sure. So in the letter, you guys mentioned agent partners and then graduates doubling share of homeowners year over year. As you guys think about kind of other channels playing out longer term, what are the lessons you guys are learning that seems kind of -- is it a test or is there something to read in there just on the language? What's -- yes, can you break that down a little bit more?

Tim Bixby -- Chief Financial Officer

Yes. I think it's -- the top lesson, I think, is patience, because some of the things that we have seen in the numbers take some time to develop. So clearly, graduates or the renter becoming a homeowner is something we've thought about and encouraged and tried to benefit from here -- the early days of our business. There's not actually much we can do in terms of facilitating someone to go out and buy a home, but it's something we can make the pathway easier and really easier for -- over time.

And so what we've seen is a consistent monthly, quarterly increase in the proportion -- not the proportion, but the number of folks who are graduates buying homes and then staying with Lemonade. There's still an awareness that challenge we're getting much better at, but there's still folks who buy a home and don't actually know that Lemonade has coverage. That was a significant problem in the past. We're getting better at that, that's improving over time but what we're seeing is over the course of quarters and years, this graduate number, if you just look at this pie of dollars coming in today or this month or this quarter, a graduate number in terms of premium dollars is now a significant, a significant contributor.

So a few years ago it was every dollar that we had to pay for, word of mouth was limited, but that has now shifted, where word of mouth is strong, graduates are contributing a significant amount. And then the third piece that you have mentioned is an area where we're seeing some interesting developments. And that's within the area of -- and we have a business development group that works on partnerships and developing different channels, whether it's referral agreements and something we've been able to talk about in the last couple of calls is an agent program. Now Lemonade, as you know, is known for not having agents and not paying commissions and those kinds of things.

But leveraging networks that are out there and enabling us to reach customers who are a little trickier to reach through just traditional channels, and that's what this group does. So there's an agent infrastructure bringing business to us that's gone from relatively only small to a much stronger contributor. And so I think that it's -- some of these new channels take quarters or even years to build and now we're seeing the benefit from that, and the mix of this new business coming in is becoming much more balanced. The measurement is the same.

So we look as much as we can do to -- what we expect in the lifetime value to CAC ratio to be in each of these channels, and it varies based on these channels. So we're kind of using this same lens to figure out where the best opportunities are. But with all that said, the vast majority of our business is still overwhelmingly direct, which we're very, very good at and continue to optimize, and continue to see the improvements even in that method of acquiring customers.

Andrew Boone -- JMP Securities -- Analyst

Is that more of a test channel or is it more mature and could that roll out more broadly just across platforms as we think about other lines maturing?

Tim Bixby -- Chief Financial Officer

I would think of it as complementary. So it's not a core focus of our customer acquisition, but it's complementary. We look at different channels and different ways, and so it might be somewhat more mature than a test, but I would put it in sort of the complementary bucket. And that's something where we'll deploy dollars, get results and adjust accordingly.

Andrew Boone -- JMP Securities -- Analyst

Thank you so much.

Duration: 47 minutes

Call participants:

Yael Wissner-Levy -- Vice President of Communications

Daniel Schreiber -- Chief Executive Officer and Co-Founder

Shai Wininger -- President, Chief Operating Officer, and Co-Founder

Tim Bixby -- Chief Financial Officer

Michael Phillips -- Morgan Stanley -- Analyst

Josh Shanker -- Bank of America Merrill Lynch -- Analyst

Andrew Kligerman -- Credit Suisse -- Analyst

Andrew Boone -- JMP Securities -- Analyst

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