Here's our initial take on Lemonade's (LMND 1.67%) fiscal 2025 first-quarter financial report.
Key Metrics
| Metric | Q1 2024 | Q1 2025 | Change | vs. Expectations |
|---|---|---|---|---|
| Revenue | $119.1 million | $151.2 million | 27% | Beat |
| Earnings per share | -$0.67 | -$0.86 | -28% | Beat |
| In-force premiums | $794 million | $1.0 billion | 26% | n/a |
| Gross loss ratio | 79% | 78% | 100 bp | n/a |
Lemonade Navigates Through Turbulence
Lemonade lost less money than expected in the first quarter, beating Wall Street's expectations for both revenue and earnings per share. The company continues to spend big on growth, but that spending is paying off, with in-force premiums topping the $1 billion threshold and up 26% year over year.
Lemonade's customer count increased by 21% to 2.5 million, and the company is showing signs of growing that customer relationship over time. Premium per customer was up 4% to $396.
Of course, Lemonade has a long history of being able to attract customers. The question for investors is how well the company can underwrite that insurance business. We're seeing progress here too: Lemonade's gross loss ratio -- a measure of what's left of premiums after claims have been paid -- improved by 100 basis points to 78%.
That's above the company's long-term goal of 75% (lower numbers are better), but the first-quarter figure includes a 16-point hit due to the California wildfires. Insurance is volatile by nature, and results fall after big disasters trigger payouts. Lemonade's relatively strong performance during what should have been a difficult period for insurers is a reason for optimism.
Overall, Lemonade's trailing-12-month gross loss ratio remained flat from the prior quarter, at 73%.
Lemonade also continues to invest in future growth. Growth spending, including sales and marketing expenses, nearly doubled to $38.1 million in the quarter.
NYSE: LMND
Key Data Points
Immediate Market Reaction
Lemonade shares were down 18% year to date heading into earnings, but investors liked what they saw from the results. Lemonade shares were up about 8% in premarket trading ahead of the open.
What to Watch
Lemonade is a work in progress. The results are moving in the right direction, but the company still has a way to go to become a mature, profitable insurance company. Adjusted free cash flow and cash flow from operations were both negative in the quarter.
The company reiterated its guidance for positive adjusted free cash flow in 2025 despite the wildfire impact. That number includes borrowings and arguably is not really "free" cash flow, but nevertheless, Lemonade should be commended for weathering a major natural disaster with its full-year guidance intact.
We're still a long way off from nonadjusted positive earnings and cash flow. But with each quarter, Lemonade is slowly building its case as a candidate for inclusion in a well-diversified, risk-tolerant portfolio.
