Lemonade Inc. (NYSE:LMND) saw its shares fall 13.9% in U.S. premarket trading on Wednesday, declining to $53.50, after the insurtech company reported second-quarter results that surpassed its own outlook but left its full-year guidance unchanged. The market reaction underscores lingering unease regarding the composition of the company's revenue growth and its implications for risk and profitability.
Total revenue for the quarter soared 79% year over year to $294.4 million, while gross earned premium rose 32% to $332.4 million. However, the revenue figure represented 88.6% of gross earned premium, a sharp increase from 65.0% in the same period a year ago—a 23.5 percentage point shift. This change is largely attributed to Lemonade's revised reinsurance structure, which allows the company to retain a greater share of premiums. While this boosts reported revenue quickly, it also exposes the company to higher claims risk.
Strong Operating Metrics, but Net Loss Narrowly Improves
President and co-founder Shai Wininger described the quarter as running “on all cylinders,” highlighting a 60% gross loss ratio and a record-low 5% loss-adjustment-expense ratio. Gross profit increased 76% to $113.2 million, and the adjusted EBITDA loss narrowed by 54% to $18.7 million, compared with a loss of $40.9 million a year earlier.
Despite these improvements, the net loss declined by only $500,000 to $43.4 million. Growth-related spending rose nearly 30% to $64.4 million, and expenses from executive equity awards totaled $6.5 million. The company's cash conversion also weakened: adjusted free cash flow fell to $18.8 million from $25 million in the prior year. This figure included $26.8 million in net borrowings through a financing agreement; without that, free cash flow was negative $8 million. Operating cash flow turned negative $3.4 million, compared with positive $5.5 million a year earlier.
Guidance Bridge: Revenue Raised, Profit Target Unchanged
The guidance update illustrates why the robust quarter did not prompt broader upgrades. Lemonade raised its full-year revenue guidance by $17 million to a range of $1.214–$1.220 billion and increased its gross earned premium forecast by $5 million to $1.374–$1.378 billion. However, the company left its year-end premium target and adjusted EBITDA loss range unchanged at $(51)–$(47) million.
For the third quarter, Lemonade projects revenue between $323 million and $326 million and an adjusted EBITDA loss of $20 million to $23 million, citing sequential increases in growth-related expenses. Management indicated on the call that these ranges imply adjusted EBITDA could turn positive by approximately $8 million in the fourth quarter—marking the company's first quarter of positive results by that metric.
Reinsurance Changes and Risk Exposure
Lemonade's updated reinsurance arrangement reduces the quota-share cession to around 18%, down from 20%. The structure provides up to $40 million in catastrophe recovery per event, with a $100 million total cap and additional named-storm coverage. Retaining more premiums boosts revenue in the near term but heightens vulnerability to extreme weather events and potential pricing missteps.
Investors remain cautious about the sustainability of the revenue growth trajectory and the path to profitability. The company's ability to achieve its fourth-quarter adjusted EBITDA target will depend on maintaining cost controls following the planned rise in third-quarter expenses.
Lemonade is scheduled to host its next major investor event on November 17 in New York, where it plans to provide updates on growth, strategy, and its artificial intelligence systems.
