Lemonade slows growth to avoid squeezing markets for fresh funds

Upstart insurtech  Lemonade will slow growth to ensure investors need not pony up more funds at higher cost just to keep operations moving, management said in comment to its Q2 earnings.

"We’re not changing course - we’re changing pace," management said of plans to "moderate our growth and hiring pace."

"We will continue to execute on our strategy, just at a moderated clip" which, for the sake of achieving scale, management still believes is "double digit .. for as far as the eye can see."

The goal: to avoid asking investors for fresh funding just as the cost of capital has jumped "by about one order of magnitude."

"We plan to manage our capital to achieve profitability without requiring a further infusion of capital," management said of outlook.

More capital may eventually be needed, but Lemonade will foreswear reaching for it at current prices.

Earnings targets have been firmed in turn. EBITDA losses are expected to peak during the current quarter and improve thereafter. The 2022 consolidated EBITDA losses should now hit a range of $240-245 million, $25 to 40 million below prior guidance, even after adding in recently acquired and EBITDA-losing unit Metromile just days ago.

For the second quarter, Lemonade suffered a 22% increase in net losses to $67.9 million, bringing the cumulative YTD loss to $142.7 million.

Q2 adjusted EBITDA losses of $50.3 million were up 24.5% from the prior year period and brought the year-to-date sum to $107.7 million.

Business growth appeared robust. The end-period customer count is up 31% and in-force premium has grown by 54% year on year in Q2 to $458 million. Management bragged it had taken 23% of Q2 sales from cross-sells and upsells. Premium per customer of $290 was up 18% year on year.

A Q2 gross loss ratio of 86% was said to "still show the strains of inflation," but was still down from 96% in Q4 2021 and 90% in Q1 2022.

"We expect this favorable trend to continue across our pre-Metromile product lines in the coming quarters," management said.

But the impact of Metromile will not be so entirely favourable. The new business has suffered "a few quarters of elevated loss ratios" and will add about 3 to 5 pps to the Lemonade loss ratio in the coming periods.

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