Lemonade (LMND +2.60%) is a pioneer in using artificial intelligence to process insurance claims. When it first debuted on the market in July 2020, there was a lot of excitement in those post-COVID days when tech stocks surged.
But then reality set in, and investors realized it would be a while before this fintech start-up would turn a profit.
Six years later, those days are upon us. In its second-quarter letter to shareholders, management said Lemonade anticipates positive adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) in the fourth quarter of 2026. This would be the first-ever quarter of positive adjusted EBITDA for Lemonade. The firm projects about $8 million in adjusted EBITDA in Q4.
Image source: Getty Images.
In the second quarter, Lemonade posted a net adjusted EBITDA loss of $19 million, about 54% better than the $41 million net loss in the same quarter a year ago. In the third quarter, Lemonade reported a $20 million to $23 million net loss before breaking through with $8 million in positive adjusted EBITDA in Q4.
For the full fiscal year, Lemonade projects a net loss of $47 million to $51 million. But in 2027, CEO Daniel Schreiber said the company expects positive adjusted EBITDA for the full year.
All systems go
The earnings improvement is fueled by rapid revenue growth and improved underwriting results. In Q2, revenue soared 79% to $294 million, buoyed by a 32.4% spike in in-force premiums (IFPs) to $1.4 billion. It marks the 11th consecutive quarter that IFPs has increased.
This is significant because IFPs represent basically the amount of money paid to Lemonade in active insurance policies. This rose because the number of customers increased by 23% to 3.3 million, and the amount of premiums each customer paid rose by 8% to $433 per customer. Rising IFPs typically translate to higher revenue.
NYSE: LMND
Key Data Points
Lemonade also reported its best-ever loss adjustment expense ratio of 5%. This measures the amount of money it spends to handle, investigate, and process each claim. The 5% ratio is almost half of the 9% industry average. The efficiency stems from Lemonade's AI model, which has lower overhead when processing claims.
These results stem from strong underwriting, driven by AI models and algorithms that have proven effective at assessing risk.
$10 billion in IFPs by 2034
In its outlook, Lemonade expects revenue to grow another 10% in Q3 to $323 million to $326 million. For the full year, the company anticipates about $1.2 billion in revenue, up 63% from $738 million in 2025.
IFPs are targeted to rise another 7% in Q3 and projected to hit about $1.635 billion in fiscal 2026, at the midpoint of the range. That would represent about 32% IFP growth in 2026.
Longer term, Lemonade is targeting $10 billion in IFPs by 2034. That would represent a compound annual growth rate of about 25%, which seems reasonable given its current trajectory. And its path to profitability looks clear, given its growth and efficiency, but investors will certainly be watching the next two quarters to see if it can hit that mark.
