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Lemonade Financial shares slip following disappointing Q1 guidance but keep it on the radar for a bounce

AInvestTuesday, Feb 27, 2024 7:54 pm ET
2min read

$LMND(LMND)

Lemonade Inc. (LMND), a technology-driven insurance company, recently reported its earnings for the fourth quarter (Q4) of the year. While the company's results surpassed analyst expectations in terms of earnings per share (EPS), its guidance for the upcoming quarters and fiscal year 2024 fell short of consensus estimates.

Shares of LMND rallied from $17 last Thursday to $21.94 into today"s close. The guidance disappointed investors who expected the insurance company to have a big quarter as companies have lamented all earnings season long about the impact of rising insurance costs. The failure to deliver led to some profit-taking in the after hours. 

LMND released its financial results for Q4 2023, reporting a loss of $0.61 per share, compared to the consensus of ($0.80). Revenues increased by 30.7% year-over-year to $115.5 million, surpassing the $111.71 million consensus. Lemonade saw notable growth in its in-force premium (IFP), which increased by 20% year-on-year to reach $747 million.

Despite the better-than-expected performance in Q4, Lemonade issued downside guidance for the first quarter (Q1) of 2024.  The company expects revenue to be between $111-113 million, compared to the $119.77 million consensus. For FY24, Lemonade expects revenue to be between $505-510 million, compared to the $520.94 million consensus. 

This growth trajectory is encouraging for Lemonade, as it marks the first time in the company's history that its top and bottom lines have shown simultaneous improvement. One particular area of success for Lemonade was its gross profit, which climbed by 165% year-on-year. This increase led to a doubling of the gross profit margin, reaching 29%. 

Furthermore, the company managed to reduce its operating expenses by 5% compared to the previous year. In terms of cash flow, Lemonade achieved a noteworthy milestone. The company's cash and investments totaled $945 million, marking its first organic entry into net cash flow positive territory.

Lemonade expects accelerating top-line growth and an improving bottom line in 2024. The company is on track to turn cash flow positive during 2025 and Adjusted EBITDA positive during 2026. 

The company has made significant progress in improving its gross loss ratio, with a 12-point improvement year-on-year and a 6-point improvement sequentially, bringing the loss ratio back into the 70s for the first time in over two years. The TTM loss ratio provides a more stable measure of the company's performance by neutralizing predictable and unpredictable reversals. 

It's worth noting that the company acknowledges potential challenges and anticipates some fluctuations on its path to profitability. While its gross loss ratio showed a remarkable 12-point year-on-year improvement, the company advises caution,suggesting that further progress may take time. Lemonade recognizes that its quarterly loss ratios can sometimes deliver misleading signals.

In conclusion, Lemonade has demonstrated strong top-line growth and improving bottom-line performance in Q4 2023. The company expects further growth and improvement in the coming quarters, with a focus on turning cash flow positive during 2025 and Adjusted EBITDA positive during 2026. Overall, Lemonade's financial report for Q4 2023 reflects the company's progress towards profitability and beyond. While there may be bumps along the way, the company remains committed to its targets and continues to make strides in improving its loss ratio and bottom line.


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