What happened

Shares of insurance technology company Lemonade (LMND 0.86%) popped higher on Tuesday after the company reported financial results for the second quarter of 2022. In short, management says there's enough gas in the tank to get where it's going, and investors liked the sound of that. As of 12:30 p.m. ET, Lemonade stock was up 13%.

So what

Lemonade management hammered home a gas-car metaphor in its letter to shareholders. It has spent aggressively in recent years to grow its insurance business and disrupt the incumbents. And grown it has. Lemonade's in-force premium in Q2 was up 54% year over year to $458 million. Its customer base was up 31%, nearly hitting 1.6 million. And its revenue of $50 million was up 77% from last year.

Lemonade has spent money to grow its business because, as management's metaphor explained, "gas" (capital) was cheap. But now that it's getting more expensive to raise capital, management is going to cut back spending. With these cutbacks, the company is "only" expected to lose $240 million to $245 million in adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) -- an improvement of $20 million to $40 million from previous guidance.

As management said, the goal is that "we are never forced to raise capital."

Now what

Lemonade just completed its acquisition of car insurance company Metromile, which should greatly jump-start its efforts there. But more than this, Metromile came with $155 million in cash, bringing Lemonade's total of cash, equivalents, and short-term investments to over $1.1 billion. 

In other words, there is indeed plenty of gas in the tank even with this year's projected losses. Investors should focus on Lemonade's loss ratio going forward because the whole investment thesis hinges on this point. 

Lemonade's software needs to write profitable policies. In Q2, its gross loss ratio of 86% was an improvement from 90% in the first quarter. However, this was up dramatically from its gross loss ratio of 67% in the same quarter last year. It's made recent progress in improving the profitability of its policies, but it still has a long road ahead to get to where it needs to be for this to be a sustainable business model.