Lemonade Gains 10%+ After Hours on Narrower-Than-Expected Q3 Loss

Lemonade, the innovative technology-powered insurance company, has seen a significant boost in its stock price, surging over 10% after hours following the release of its Q3 financial results. The company's narrower-than-expected loss has sparked investor confidence, highlighting Lemonade's strong fundamentals and growth potential.

Lemonade's Q3 loss was narrower than expected due to several factors. The company's top line grew 24% year-over-year (YoY), with In Force Premium reaching $889 million. This robust revenue growth, coupled with a 71% increase in gross profit and an 8-point improvement in gross profit margin, contributed to the better-than-expected results. Additionally, Lemonade's net cash flow (NCF) was positive at $48 million, driven by a $16 million positive cash flow from operations. The company's ability to maintain sustainable NCF positivity exiting the year also contributed to the narrower loss.


Lemonade's Q3 performance compared favorably to previous quarters in terms of loss ratio and gross profit margin. The company reported a gross loss ratio of 73%, a notable 10-point improvement YoY, and a trailing twelve months (TTM) gross loss ratio of 77%, 11 points better than the prior year. This marks the fifth consecutive quarter of sequential improvement. Gross profit margin increased by 8 points YoY to 27%. Compared to Q3 2023, Lemonade's loss ratio improved by 16 points (from 89% to 73%), and gross profit margin increased by 6 points (from 21% to 27%).


Lemonade's growth in In Force Premium and revenue significantly impacted its overall financial performance in Q3. In Force Premium grew 24% YoY to $889 million, while revenue grew 19%. This growth, coupled with a 10-point improvement in gross loss ratio, drove a 71% increase in gross profit to $38 million and a 27% increase in gross profit margin to 27%. Despite increased operating expenses, primarily due to accelerated growth spend, Lemonade generated $48 million in net cash flow, reiterating its expectation of sustainable NCF positivity exiting the year.


Lemonade's increased investment in growth spend, up $27 million (27%) year-on-year, primarily drove a $26 million (27%) increase in operating expenses. Despite this, operating expenses excluding growth spend remained unchanged, indicating effective cost control. The additional spend resulted in an Adjusted EBITDA loss of ($49) million, 22% larger than last year, primarily due to the nearly 3x increase in growth spend. Despite the loss, it was narrower than expected, contributing to Lemonade's 10%+ after-hours gain.

Lemonade's strong Q3 performance, marked by significant growth and improved profitability, has bolstered investor confidence in the company's long-term prospects. The narrowing loss, driven by robust revenue growth and improved loss ratios, demonstrates Lemonade's ability to execute on its strategic initiatives. As the company continues to invest in growth and expand its customer base, investors can expect Lemonade to maintain its momentum and deliver strong returns in the future.