Q2 2025 Earnings Call Transcript

Good morning or good afternoon, and welcome to today's Lemonade Q2 2025 Earnings Call. My name is Adam, and I'll be your operator for today. I will now hand over to the Lemonade team to begin.

Good morning, and welcome to Lemonade's Second Quarter 2025 Earnings Call. Joining us on our call today, we have Daniel Schreiber, CEO and Co-Founder; Shai Wininger, President and Co-Founder; Tim Bixby, Chief Financial Officer; and Nick Stead, SVP Finance. A letter to shareholders covering the company's second quarter 2025 financial results is available on our Investor Relations website at lemonade.com/investor. I would like to remind you that management's remarks made 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 February 26, 2025, 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, including adjusted EBITDA, adjusted free cash flow and adjusted gross profit, which we believe may be important to investors to assess our operating performance. Reconciliations of our 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 performance indicators, including customers, in force premium, premium per customer, annual dollar retention, gross earned premium, gross loss ratio, gross loss ratio ex-CAT, trailing 12-month loss ratio and net loss ratio, and 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 for some opening remarks.

Good morning, and thank you for joining us to discuss Lemonade's results for the second quarter of 2025. And it's a pleasure to report that really across all of our key metrics, our financial performance in the quarter was excellent. On the top line, we delivered our seventh consecutive quarter of IFP growth acceleration with 29% year-on-year growth. And concurrently, our gross loss ratio for the second quarter was 67%, 12 points improved relative to Q2 of last year. And this brings our trailing 12-month gross loss ratio to 70%, our best results ever and squarely within the healthy range of our business model.

It is worth noting that just 1 year ago, our IFP was growing at 22% and our trailing 12-month gross loss ratio was 79%. And while neither metric was too shabby, 12 months on both have improved dramatically. This, I believe, is a clear testament to our ability to leverage AI to pinpoint target risks with accuracy and deliver profitable growth concurrently. As a result of these dynamics, our gross profit grew by over 100% in the second quarter, and our gross margin at 39% is among the highest we've ever recorded.

And what's more, the growth of our top line eclipsed any growth in our underlying expense structure. And as a result, we saw strong adjusted free cash flow generation of $25 million, more than a tenfold increase relative to the second quarter of 2024. In recent quarters, we have been highlighting Lemonade Car' progress. And in Q2, we continue to see that momentum build. Through the first half of the year, car' growth has significantly exceeded our original financial plan.

It has now crossed $150 million of in force premium and continuing to grow. Product enhancements have fueled conversion rate gains and geographic expansion has been another tailwind. Concurrent with that it's important to note that our car gross loss ratio has improved dramatically, with Q2 result of 82%, marking a 13-point improvement relative to last year. Switching gears, we recently announced the renewal of our reinsurance program at similar terms to the expiring program with one important exception, which is that we reduced the scope of our quota share program from 55% to 20%.

It is worth underscoring this decision was solely of our making. The confidence to make such a move directly stems from our multiyear track record of improving loss ratios as key products and geographies have become more mature and predictable. In his remarks a bit later on this call, Tim will walk you through a couple of important related nuances on the capital efficiency and accounting. But before that, let me hand off to Shai for an update on our European business.

Shai?

Thanks, Daniel. Before I get to Europe, I wanted to highlight a couple of updates to our new Investor Relations website, which can be valuable for those new to the Lemonade story. This morning, we've added an investor presentation as well as a handy spreadsheet with key financial metrics. We hope you will find these helpful.

We first launched Lemonade in Europe, in Germany in 2019, and now service over 250,000 customers across 4 key European markets: the U.K., Netherlands, France, and Germany; and 2 products, renters and homeowners. Europe is of growing importance for a few reasons. It yields a diversification benefit to our growth with notably lower CAT exposure and a flexible regulatory environment. In the past few quarters, we've really seen our European business come into its own and is now a meaningful driver of growth for the organization.

We concluded Q2 with $43 million Europe IFP, which represents over 200% growth, our eighth consecutive quarter of triple-digit growth and our fourth consecutive quarter of growth rate acceleration. I'm pleased to report that the story in Europe is very similar to what Daniel highlighted in our car business. Growth acceleration has been paired with improvement in underwriting performance. We saw an 83% gross loss ratio in the second quarter, 15% improved relative to last year and roughly 20 points better than where our U.S. business was at a similar scale.

This performance is powered by structural cost advantages driven by our AI platform. One great example of this is a technology we call LoCo, our LLM-first no-code insurance application builder. With LoCo, we can rapidly build new products, launch new regions, iterate on pricing and underwriting, and experiment with various dynamic experiences all in hours instead of weeks and without touching any code. LoCo is a powerful platform that enables us to manage our multi-continent insurance company with unmatched efficiency.

Where our competitors have large local teams on the ground in the regions they operate and with each region having its own specific legacy infrastructure, our proprietary technology enables us to expand our geographical footprint with unmatched velocity and limited incremental overhead. We are clearly in the early innings of our European journey at Lemonade, but believe Europe is positioned to remain a key engine of rapid profitable growth for years to come. With that, I'll hand it off to Tim, who will cover our financial performance and outlook.

Great. Thanks, Shai. I'll review highlights of our Q2 results and provide our expectations for Q3 and the full year 2025, and then we'll take some questions. In short, our Q2 financial results were exemplary across the board.

We remain very much on track with our ambitious goals for positive EBITDA by the end of next year, loss ratio tracking to target, consistently accelerating top line growth with little change in fixed overhead expenses and favorable cash flow dynamics. In force premium grew 29% to just above $1 billion, while customer count increased by 24% to 2.7 million. Premium per customer increased 4% versus the prior year to $402, driven primarily by rate increases. Annual dollar retention or ADR was 84%, flat as compared to the prior quarter, and continuing to show modest downward pressure as a result of our continuing effort to improve the profitability of our home book through targeted non-renewals.

We expect ADR to normalize and resume improvement over the coming quarters. Gross earned premium in Q2 increased 26% as compared to the prior year to $252 million, in line with IFP growth. Revenue in Q2 increased 35% from the prior year to $164 million. The growth in revenue was driven by the increase in gross earned premium, a slightly higher effective ceding commission rate under our quota share reinsurance and a 16% increase in investment income.

Our gross loss ratio was 67% for Q2 as compared to 79% in Q2 2024 and 94% in Q2 2023. Excluding the total impact of CATs in Q2, roughly 7 percentage points, our gross loss ratio ex-CAT was 60%. Total gross prior period development had a roughly 3% favorable impact, 5% from non-CAT, offset by 2% unfavorable from CAT. We saw this favorable prior period development across all products, with the exception of Pet, with the largest impact in our homeowners multi-peril business. On a net basis, prior period development was in line with gross, including non-CAT and CAT breakdown.

Prior year development, which is reported on a net basis, was about $2.2 million favorable in the quarter and about $12.6 million favorable year-to-date. Trailing 12 months or TTM loss ratio was about 70% or 9 points better year-on-year. All of these insurance metrics and more are included in our insurance supplement that you'll find at the end of our shareholder letter. Gross profit increased 109% as compared to the prior year, while adjusted gross profit increased 96%, both driven primarily by premium growth and significant loss ratio improvement.

Operating expenses, excluding loss and loss adjustment expense, increased 21% to $129 million in Q2 as compared to the prior year, driven primarily by an increase in gross spend and the impact of the **$12 million onetime benefit from a tax refund**. Other insurance expense grew 14% in Q2 versus the prior year at roughly half the growth rate of earned premium. Total sales and marketing expense increased by $23 million or 62%, primarily due to increase in growth spend of approximately $24 million. Total growth spend in the quarter was $50 million, roughly double the $26 million in the prior year quarter.

We continue to utilize our synthetic agents growth funding program and have continued to finance 80% of our growth spend. As a reminder, you'll see 100% of our growth spend flow through the P&L, while the impact of the growth mechanism is visible on the cash flow statement and the balance sheet. And our net financing to date is about $124 million as of June 30. Technology development expense was up just 6% year-on-year to $22 million, while G&A expense decreased 13% as compared to the prior year to $22 million, primarily due to a onetime tax refund of about $12 million. Personnel expense and head count control continue to be a high priority.

Total head count is up slightly about 5% as compared to the prior year at 1,274, while the top line FP grew fully 29%. Net loss was $44 million in Q2 or a loss of about $0.60 per share as compared to a net loss of $57 million or $0.81 per share in the prior year. Our adjusted EBITDA loss was $41 million in Q2 versus $43 million in the prior year. Our total cash, cash equivalents, and investments ended the quarter at approximately $1.03 billion, up $11 million versus year-end 2024.

With these metrics in mind, I'll outline our specific financial expectations for the third quarter and the full year. From a gross spend perspective, we expect to invest roughly $47 million in Q3 to generate profitable customers with a healthy lifetime value. We expect Q4 spend at a level similar to the Q1 rate and thus totaling roughly $173 million for the full year. This expected quarterly spend pattern is similar to prior years.

For the third quarter of 2025, we expect in force premium at September 30 of between $1.144 billion and $1.147 billion, gross earned premium of $267 million to $269 million, revenue between $183 million and $186 million, and an adjusted EBITDA loss of between $37 million and $34 million. Stock-based compensation expense, we expect to be approximately $17 million and a weighted average share count of approximately 74 million shares. For the full year, we expect in force premium at December 31 of between $1.213 billion and $1.218 billion, gross earned premium between $1.036 billion and $1.039 billion, revenue between $710 million and $715 million, and an adjusted EBITDA loss between $140 million and $135 million.

Stock-based compensation for the full year, we expect to be approximately $61 million and a weighted average share count for the full year of approximately 74 million shares. Finally, I wanted to make a couple of comments on the reinsurance transition as a follow-up to Daniel's earlier remarks. First, the transition from 55% to 20% quota share does not happen overnight. Each program is risk attaching, which means it covers policies written between July 2025 and June 2026, such that we expect the transition to unfold over several quarters on our P&L in a roughly linear fashion.

By Q3 2026, we expect to be ceding roughly 20% of premium. And in the second half of 2025, we expect to cede roughly 45% due to those transition dynamics. Second, a reduction in our quota share program does increase our revenue retention but has no impact on IFP. As a result, we are about to enter a period during which revenue growth rates are expected to outpace IFP growth rates.

And finally, all else equal, less quota share increases regulatory capital needs. However, with an improved loss ratio and the expanded use of our wholly owned captive, we are able to offset these pressures such that there is no material change in our capital planning. We have included a slide within the insurance supplement to our Q2 shareholder letter that covers some of these dynamics in a bit more detail. With that, I would like to pass over to Nick to answer some questions for our retail investors.

Nick?

Thanks, Tim. We'll now turn to our shareholders' questions submitted through the Say platform. Paper Bag asked, what is your plan with synthetic agents going forward? Will you continue using synthetic agent funding in 2026 and beyond or stop at the end of 2025?

Great question. Thanks, Paper Bag. The synthetic agents program has worked precisely as intended when we launched it nearly 2 years ago and has enabled us to drive growth acceleration in a capital-light manner. In 2023, we deployed $55 million on growth.

In 2025, we expect to more than triple our total growth spend to $170 million now with an 80% advance from our synthetic agents. And while we do pay our synthetic agent a 16% IRR, the impact on our unit economics is transformational. The IRR on our growth spend is around 50% without the synthetic agent, and that doubles to roughly 100% with the partnership in place. There is a model live on our Investor Relations site posted alongside the materials from our 2024 Investor Day that covers these mechanics in more detail.

The net impact of inflows and outflows to and from the synthetic agent leaves us with $124 million outstanding on the balance sheet at the end of the second quarter. We have already announced the 2026 renewal of our synthetic agent agreement with another $200 million of capital available to fund growth investment in 2026. At each renewal, we evaluate all strategic options available to us and we'll continue to do so. But in the near and medium term, we expect to continue to expand this partnership. Emmanuel asked, what is the largest impediment right now, stopping Lemonade from releasing Car to more states?

We are currently live with our Car product in 10 states and address roughly 50% of the U.S. car insurance market, a vast market opportunity relative to our current scale. That has been increasing with 2 state launches, Colorado and Indiana, in the past few months. We have plans to continue to increase our nationwide coverage and expect to launch multiple additional states through the end of 2026, such that our 50% coverage metric is notably increased. As we look to the state launch road map, several factors guide us.

We evaluate the market opportunity, existing Lemonade customer penetration, and the regulatory landscape. Also, new state launches typically involve higher loss ratios as getting a new state online requires rate adjustments post launch and naturally brings a new business penalty impact. So we manage that strategically as well. I should note that at most other insurance companies, it takes considerable internal resources to launch a new state.

But with LoCo, as Shai covered earlier in his remarks, we have substantially reduced the amount of work required by our insurance and product teams to do so, allowing our teams to shift to more impactful initiatives while maintaining our targeted pace of state launches. Emmanuel also asked, does the team believe that even with all of the developments in AI that they are ahead of other AI-first companies in terms of the effectiveness and efficiency of the models? Well, the short answer is yes, we do think so. And you're right, Emmanuel, to focus on AI-first companies as we believe the gap between us and incumbent insurers who are built on legacy systems is very likely to expand as AI development accelerates.

We have been AI native since day 1. Relative to new upstarts, that 10 years in market gives us a real data edge, thousands of A/B tests, 10 million driving trips, millions of customer interactions and claims. When it comes to data, there's really no shortcut to that type of depth and scale. By the time generative AI really accelerated in 2023 and onwards, we already had AI embedded across the tech stack with terabytes of proprietary data flowing through the system. We stand apart from incumbents with a single AI system that connects every aspect of the business and from upstarts with the depth and breadth of proprietary data that feeds it.

So we believe we're really the only full stack multiline insurance company with the tech stack and data to fully capture AI's potential. And this is playing out in our business outcomes. Our proprietary telematics pricing model now outperforms the off-the-shelf product that many competitors rely on. And over the last 2 years, our overall gross loss ratio improved by 27 points, while IFP grew by nearly 60% during the same period, clear evidence that our AI flywheel advantage is compounding.

For additional reading on this, I suggest you check out Daniel's recent Lemonade Turns 10 blog post and the investor presentation just posted to our Investor Relations site this morning to learn more about how AI drives our business performance. With that, I'll pass it over to the moderator, and Daniel and Tim will take some questions from the Street.

And our first question comes from Jason Helfstein from Oppenheimer.

Just a few questions around the reinsurance and the reinsurance change because I know a lot of clients have some questions there. So obviously, you're holding more risk, but there is no free lunch. Maybe just talk a little more about the structures you have in place, the way you can manage risk and if there's ways to -- how you manage -- just the different ways that you can now manage the risk. And then there's like a follow-up to that, does this reflect some kind of step function in the company's ability to manage risk?

So like why now, I guess, is the question, right? So first is, structurally, how you plan on managing it going forward as this evolves? Two, why now? And then I guess the third is you did say revenue will outpace IFP, especially through this transition.

But how should we think about gross profit relative to IFP growth?

Jason, it is a significant change. It's been -- I guess the only constant here that we've been, every couple of years, stepping down the amount of quota share reinsurance since IPO from 75% down to 55%, now to 20%. So in that sense, it's a continuation. But nevertheless, a drop from 55% to 20% is significant, and I think worth spending another few minutes on.

The first thing that I'd highlight though, and then I will hand over to Tim to add a bit more color on some of these points, but quota share for us was not predominantly about risk management at all. We can use reinsurance to serve different goals. We have actually other policies in place that do manage risk concentration. So you see when a CAT hits, for example, like the one that hit in Q1 in the California fires, and you saw that our gross loss ratio was much worse than our net loss ratio.

That wasn't the quota share that was helping. Quota share, in theory, will produce very similar gross and net loss ratios because you cede X percent of premiums and you cede the same X percent of claims. At first approximation, the gross and the net should be similar. If anything, because some CAT events are excluded from the quota share agreement, you might see slightly worse net than gross loss ratios in quota share.

In fact, we saw significantly better net loss ratios, and that was because of other policies that we have in place about risk concentration covering losses beyond a certain dollar amount or too many losses in a particular quadrant or something like that. So we have various policies. Those continue. The policies that we have in place that are helping us protect against risk concentration are not being materially changed.

Quota share was in place, as I say, not predominantly as a tool of risk management, but much more so as a tool for capital management. The regulators require that we set aside a certain percentage of our premiums. There's kind of a rule of thumb of 3:1. But when the insurance entities are fast growing and loss-making, it can be more cumbersome still. And once you cede those premiums to quota share partners, it is really their capital rather than yours and their cost of capital are lower.

So we saw quota share predominantly as a tool for managing that aspect of our business, remaining capital-light through quota share. As the last few quarters came in and we have consistently lowered and stabilized our trailing 12-month loss ratio, I mean 67% this past quarter, trailing 12 months, which I think is the more dependable metric, if you like, less volatile, less given to the vicissitudes of a particular event. 70% trailing 12-month loss ratio is simply fantastic and perfectly aligned with our long-term goals. And what that has meant is that our insurance entities have moved from being loss-making to profit-making.

Rather than consuming capital, they are generating capital. And that is something that changed over the course of the last few quarters as we indeed became cash flow positive, we reported a $25 million adjusted cash flow this past quarter, a tenfold increase year-on-year. It is that more than anything else that's allowing us to take on board less or to utilize less quota share reinsurance. And of course, our quota share partners have been stellar.

They've been amazing. They've been with us from the get-go. They are the biggest and most trusted names in the industry. But as you say, no free lunches.

When you engage in quota share reinsurance, you are really margin stacking. You are giving up part of your business. You're getting the gains that I outlined before, predominantly capital efficiency, but you are sacrificing some of your EBITDA. And you really want to use, or we really want to use as little of that as we need given our capital requirements.

So that more than anything else is what's changed. We've moved from being businesses that are draining cash to those that are generating cash. Low loss ratios have changed the capital requirements significantly in those entities, and that is what is allowing us to be less dependent on quota share, and we made those adjustments. Tim, anything you want to add?

Yes. Just a couple of points on the second part of your question, Jason. One of note is that before we even get to our reinsurance structure, we do take advantage of one of our assets, which is our ability to grow at a very healthy clip, but be very selective about the risks that we take in the business that we write. And so in some ways, we enforce our own level of reinsurance by writing in certain areas of risk and not writing in others.

Our risk in Florida, for example, is quite limited relative to a typical incumbent. Our experience in the California fire CAT of Q1 was -- before we even got to reinsurance -- relatively limited because we're choosy about the level of risk we take in terms of high-value homes. And so that's a layer that sort of underpins our reinsurance. Then we layer on reinsurance, of course.

The bulk of the reinsurance structure at renewal remains unchanged. The quota share change in terms of its cede ratio was notable. Everything else is more or less in place and continuing. So we have protection against concentrated losses.

We have protection against single large losses in our PPR and our FC coverage, and those continue and were renewed at similar structural impact as in the past. With regard to the impact on gross profit and revenue, a couple of things. We included a pretty straightforward example of what $1,000 of premium would look like under the old structure and now under the new structure and how it flows through each of the key P&L items -- line items. I would urge you to kind of look at that in the back of the shareholder letter today.

And I think that will be helpful to sort of navigate how the model is expected to evolve, particularly over the coming 4 quarters as the change in the ceding ratio comes more into play. At a very high level, the impact on revenue is greater than the impact on gross profit. Gross profit for many quarters has grown at a very healthy clip, well ahead of the top line growth of IFP and premium, and that's because of -- you're combining 2 elements there. You're combining the benefit of growth as well as the benefit of significant loss ratio improvement.

And so those dynamics will continue, but our loss ratio now that it's nicely in our target range, those shifts will be somewhat less than they have been over the past few years, and that's good news. Revenue, on the other hand, will be a little more -- will grow at a faster pace, again, as the reinsurance change rolls in. And again, you should see those dynamics in the example that we shared.

The next question comes from Tommy McJoynt from KBW.

Thomas Mcjoynt-Griffith: Maybe to simplify the previous question in response, Tim, I think a couple of years ago, you guys put out a slide, an illustrative slide showing the premium leverage that you could write at. Do you have an update on what sort of premium leverage on a gross basis you can write at and then how that changes under this new reinsurance structure?

Sure. I think you're referring to some comments we've made from time to time regarding the capital surplus requirements relative to the premium we can write. Is that the crux of the question, I think?

Thomas Mcjoynt-Griffith: That's right.

So you're correct to sort of trace the history a bit. When we shifted to a more material quota share reinsurance structure several years ago, one of the primary benefits, as Daniel noted, was a capital surplus benefit. Since then, a few things have happened. Our volatility has decreased.

Our trailing 12 months loss ratio has come very much in line with our long-term targets. Our book is much more diverse. And we've put in place a couple of structural aids to captive reinsurers that are wholly owned or partially owned that we can now leverage. And the net of all that is our capital planning is substantially unchanged.

How much of that capital surplus benefit we get from quota share versus our own captive entities has shifted somewhat. And so some of the surplus benefit that we give up as a result of the quota share shift, we get to retain more profit, we're able to replace that essentially in whole through our captive reinsurer or captive structures. So net-net, we've talked about a 6:1 target ratio in the past. Historically, we've been above and below that ratio depending on how the loss ratio and the premium growth and some other factors that impact that ratio have changed.

But over the coming several year outlook, that ratio target for us is unchanged.

Thomas Mcjoynt-Griffith: And then I think you made the comment that the insurance entities are -- have gone from a phase of sort of losing negative net income driving losses and sort of capital decreasing to a period of capital generation themselves because of the improvement in the loss ratio. When I look and I sort of reconcile that comment to the consolidated bottom line metrics, whether it be adjusted net income or adjusted EBITDA, that may imply some pretty sizable losses still at the holding company level. So can you just talk about sort of what capital has trended at the holding company level apart from the insurance entities, just as we think about the need for potential more capital at the insurance entities to come from the holding company?

Yes, there is some complexity when you look at each of the parts in isolation. You're correct that the -- particularly LIC, the Lemonade entity is profitable and generating surplus. At a consolidated level is how we kind of manage the overall capital availability. And we've talked historically of apparent capital cushion, which is basically a consolidated level, how much capital remains once we fund the growth plan, once we set aside the required level of capital that we are required today and that we are forecasting to be required based on our growth plans and then what remains basically after satisfying all of those obligations.

And that cushion has been more or less steady for quite some time. We've noted a level of around $200 million. That varies up and down, and that continues to be the level of cushion that we're comfortable with. And so at times, the parent company must fund the reinsurance companies.

Currently, it's the opposite where there's excess surplus being generated at the insurance companies. But the big picture is we've got more than sufficient capital to satisfy all of those needs with cushion left over for opportunities that arise, for weather events that are unpredictable and all the risks that we understand can come our way.

The next question comes from Andrew Andersen at Jefferies.

I heard you talk about OpEx growth and growth spend or OpEx spend. Can you maybe just expand on technology development spend? It was kind of flattish year-over-year and lower as a percentage of premium earned. But I would think as just a tech-forward company, you're still going to be spending a bit. How do you see that kind of going into '25 and '26?

Yes, that's a line where you see really terrific leverage. So when you think about the productivity of that team, it's growing dramatically. Exponentially, it might be a stretch because of a math major, but it is growing significantly. The amount of product and content that's coming out of what's really roughly a fixed team in terms of size and cost continues to increase every day, every week, every month.

And that's a trend that we've seen for some time. If you track our headcount, that's a big part of why we've been able to see actually a decline in total headcount. That doesn't mean there's a decline in hiring. There's natural turnover that happens at a company.

And so we're constantly looking for great skills and assets to bring into the business, and that's something that does not change. But if we can drive and support the kinds of automation that we're seeing now, that tech team, our current tech team has the ability to support a business that's twice as big or 5x as big without significant dollar or cost increases.

Yes. I guess I'd just add, Andrew -- sorry, just to add, we're seeing in our engineering team some things that we spoke about in our Investor Day at length with regard to some of our volume teams, which is that we have capacity working for Lemonade, but it's just not all human. So we're finding that we're able to harness AI in engineering in very powerful ways. You've seen some of the largest tech companies in the world talk about how much of their code is now being written by AI, how much velocity they're able to extract from using these technologies.

So definitely, our output continues to grow even if our human headcount does not.

And then on the auto waitlist, 700,000, I'm not too familiar with what exactly this metric is. Is that states where you plan to be actively writing in the next couple of years? Have you may be done preliminary pricing on the back end of these customers? How could we think of -- if we were to think of that as a submission number, how could we think of perhaps a quote ratio back to it?

Yes. We've seen a tremendous amount of pent-up demand for our car product. We kind of spoke in broad terms about how we're still holding it back a little bit. Shai referenced some of the testing that we're doing about different ways to accelerate its growth.

And the early results have been nothing sort of stunning. They're very, very encouraging to us. But before we unleash rapid growth, we have to make sure that everything is solid. We've seen car growth run away from companies that haven't got all the foundations in place.

We're keen to not let that happen to us, and therefore, we are being kind of restrained in that sense. So the engines are running, but we're not putting it into first year fully quite yet. There's so many car metaphors. I should hold myself back, but you get that.

And so I think that during the course of this year, we'll see the results of all the different tests that we have running. As I say, kind of a sneak peek is that we've been going better and faster than we anticipated. But until that happens, until we feel that we could scale this by hundreds of millions of dollars rapidly and ultimately by billions of dollars without it causing a degradation of our underlying business. When we get to that point, you'll see us unleash it not before that.

We will spend much of 2025 still tinkering in that regard. I'm hopeful that towards the end of the year, we will have passed that threshold in different places. To tie that back to your question, we are now live in about states that comprise roughly 25% of the U.S. population. That does not overlap necessarily with a 70% waitlist.

In fact, it's probably underweighted because people in those states don't have to be on the waitlist. They can just buy the product. So there isn't kind of the waitlist is because and predominantly of people in states that want the product, and we haven't offered it yet. We will start to add states as we go through this year and accelerate that significantly going into 2026.

The next question comes from Katie Sakys from Autonomous Research.

I wanted to circle back to the IFP guide, which for the full year, it looks like it hasn't changed despite significantly better-than-expected results this quarter. I was wondering if you guys could walk us through the thinking there and any timing considerations to keep in mind as the year progresses? And then sort of as an addendum, how much of the 28% growth that you guys are guiding to for the full year is expected to come from the Car product?

Sure. So in terms of the overall growth, an IFP is really the best measure, most direct measure of that. We grow at a pace of our own choosing. And so while there's some range around the pace of growth, the amount of dollars we spend and the pace at which we spend it really drives that growth number.

So our strategy for the remainder of the year takes into account what happened in Q1. So we've acknowledged the fact that we performed somewhat better on certain metrics. But despite our disclosures around the California wildfires as being separate and different and unique, although which it was, it's part of the business, and it was a cash use, and we have to manage that business. So we're managing the top line. We're managing the bottom line.

We were able to reiterate that we will be EBITDA breakeven at the end of next year, which is a date that hasn't moved since we started speaking about it a few years ago. And so we're managing all of those things and still on track to accelerate the top line growth rate. We could grow faster. This has been true for a very long time.

But growing faster would change the dynamics of the rest of the P&L. And so we approach in sort of a balanced way. So we don't just roll forward the first quarter, but we do take into account the results of the first quarter.

And on the Car piece, how much of the full year growth are you guys currently expecting will come from Car?

So we haven't put out a specific number for good reasons. One is we're very opportunistic, and our LTV models tell us where to go and how fast to go and when to really push the accelerator. But within reason, I would expect a similar dynamic as we saw in Q1 to continue, which is that Car is expected to grow at a faster pace than the rest of the book, and we expect that to continue for quite some time. And if everything stays on track as we expected, I would expect that pace to even accelerate.

But I would expect the themes you saw in Q1 to continue throughout the rest of the year.

The next question and our final question today comes from Tommy McJoynt from KBW.

Thomas Mcjoynt-Griffith: It definitely sounds like the cross-sell opportunity is very important to gain some operating leverage around the growth spend. Perhaps one data point you could share is what percentage of the new car sales that you guys are generating are cross-sales from existing Lemonade customers versus new customers?

Yes. So I think in terms of trends in the quarter, we saw more of our growth coming from cross-sells, more of our growth coming from car. I think if you look at a couple of the metrics, you can see this dynamic. One is our multi-policy rate is increasing, and that's a dynamic that's not solely related to car, but we're now heading towards almost 5% of our customers having multi-policy.

In terms of the cross-sell aspect, something like half of our new sales are now coming -- of car coming from existing customers. That's up. If you look back over a longer period of time, that would have looked more like 1/3. So still plenty of room to grow, but definitely an upward theme. So something on the order of half of those cross-sells coming from existing customers.

And 2.5 million to go, 2.5 million less the ones we have already. So it's a pretty deep pool and a much more efficient way to acquire new business.

That does conclude our Q&A session for today, and that does conclude today's call. Thank you all for joining. You may now disconnect your lines.