Lemonade Inc.’s stock experienced a notable decline of 12.3% in after-hours trading on Tuesday, primarily due to the company’s issuance of soft guidance for the upcoming quarters. This overshadowed its financial results for the second quarter, which included a narrower-than-expected loss and revenue figures that aligned with analyst estimates.
For the second quarter, Lemonade reported a net loss of $57.2 million, equivalent to 81 cents per share. This was a significant improvement from the previous year’s loss of $67.2 million, or 97 cents per share. The company’s revenue rose to $122 million, up from $104.6 million a year ago. This increase in revenue matched the FactSet consensus estimate of $122 million.
In addition to the improvement in net loss and revenue, Lemonade’s In Force Premiums—a key measure of the insurance premiums currently active under its policies—grew by 22%, reaching $839 million. This slightly exceeded the FactSet consensus estimate of $838.50 million. The company’s gross loss ratio, which measures the profitability of its insurance operations, improved by 15 points to 79%, indicating more efficient operations and better risk management.
Despite these positive indicators, Lemonade’s operating costs rose by 13%, amounting to an additional $12 million. This increase was primarily attributed to heightened spending on growth initiatives, reflecting the company’s ongoing investment in expanding its market presence. Nevertheless, Lemonade managed to remain net cash-flow positive for the quarter, a significant achievement in the competitive insurance industry. The company anticipates maintaining positive cash flow moving forward, with the exception of the fourth quarter, when typical seasonal cash-flow patterns are expected to impact its financials.
Lemonade highlighted that it expects familiar seasonal patterns to recur in the third and fourth quarters. Specifically, the company anticipates accelerated growth spending in the third quarter, with expenditures projected to be three times the amount spent in the previous year. This increased spending is aimed at driving further expansion and capturing more market share. Conversely, the fourth quarter is expected to see lower loss ratios, reflecting the typical seasonal trends observed in the insurance sector.
Looking ahead, Lemonade provided guidance for the third quarter and the full year. For the third quarter, the company expects In Force Premiums to range from $875 million to $879 million, representing roughly 22% growth compared to the same period last year. However, this falls short of the FactSet consensus estimate of $898.4 million. Revenue for the third quarter is projected to be between $124 million and $126 million, indicating about 10% growth. This, too, is below the FactSet consensus estimate of $134.9 million.
For the full year, Lemonade forecasts In Force Premiums to be between $940 million and $944 million, reflecting a growth rate of about 26%. This is in line with the FactSet consensus estimate of $942 million. The company expects full-year revenue to range from $511 million to $515 million, slightly below the FactSet consensus of $515.1 million.
While Lemonade’s recent financial results showed significant improvements in key areas such as net loss and revenue, the company’s cautious guidance for the upcoming quarters raised concerns among investors. The projected increases in operating costs and the emphasis on seasonal patterns in cash flow and loss ratios indicate that Lemonade is gearing up for strategic growth with a measured approach. Investors will be closely monitoring Lemonade’s performance in the upcoming quarters to see if the company meets or exceeds its guidance and how it navigates the competitive landscape in the digital insurance market.