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美國
證券交易委員會
華盛頓特區20549
表格 10-Q
(標記一個)
x
根據1934年證券交易法第13或15(d)條款的季度報告。
截至2024年6月30日季度結束 2024年9月30日
o
根據1934年證券交易法第13或15(d)條款的過渡報告
從___________________到___________________的過渡期間
委員會檔案編號: 001-39367
Lemonade, Inc.
(根據其組織憲章規定的正式名稱)
特拉華州32-0469673
(依據所在地或其他管轄區)
的註冊地或組織地點)
(國稅局雇主識別號碼)
識別號碼)
Crosby街5號,3樓
紐約, 紐約
10013
(總部辦公地址)(郵政編碼)
(844) 733-8666
(註冊人電話號碼,包括區號)
無可奉告
(如與上次報告不同,列明前名稱、前地址及前財政年度)
根據法案第12(b)條規定註冊的證券:
每種類別的名稱交易標的(s)每個註冊交易所的名稱
普通股票,
$0.00001每股面值
LMND紐約證券交易所
股票認購權證LMND.WS紐約證券交易所美國
請用核取符號指示是否公司已於過去12個月(或需提交此類報告的較短期間)依據1934年證券交易法第13條或第15(d)條的規定提交所有報告;並且公司過去90天一直受到此類提交要求的約束。  x    否 ☐
請勾選以下選項,指示在上述12個月(或該註冊者需要提交此類文件的較短期間)是否已經以電子方式提交了根據S-t法規(本章第232.405條)需要提交的互動式數據文件。  xo
請勾選指示登記者是否為大型快速提交人、快速提交人、非快速提交人、較小的報告公司或新興成長型公司。請參閱交易所法規120億2條,了解「大型快速提交人」、「快速提交人」、「較小的報告公司」和「新興成長型公司」的定義。
大型加速歸檔人x  加速檔案提交者o
非加速歸檔人o  較小報告公司o
新興成長型企業o
如果是新興成長公司,請勾選指示,如果登記人已選擇不遵守根據《交易所法》第13(a)條規定提供的任何新的或修訂後的財務會計標準的擴展過渡期。o
在核准書上打勾表示公司是否為殼公司(如交易所法規定的第1202條所定義)。 是ox
截至2024年10月30日,登記人持有 71,404,540 股普通股,每股面額為$0.00001,流通中。



目錄
頁面
第一部分。
项目1。
2024年9月30日和2023年3個和9個月份總 截至2024年和2023年9月30日的 簡明綜合損益表(未經審核)
项目2。
项目3。
项目4。
第二部分。
项目1。
项目1A。
项目2。
项目3。
项目4。
项目5。
其他信息
第6項。


1


關於前瞻性聲明的注意事項
本季度10-Q表格中的這份「季度報告」包含前瞻性陳述。我們打算這些前瞻性陳述受到1933年證券法第27A條和1934年證券交易法第21E條中有關前瞻性陳述的安全港條款的保護。除本報告中包含的歷史事實陳述外,所有其他陳述,包括但不限於有關我們未來營運和財務狀況的陳述,我們吸引、保留和擴大客戶群的能力,我們在經營和維持業務模式方面的能力,我們維護和增強品牌和聲譽的能力,我們有效管理業務增長的能力,季節趨勢對我們營運業績的影響,我們實現每位客戶更大價值的能力,我們在行業中有效競爭的能力,我們所在市場未來表現,我們維持再保險合同的能力,以色列及周邊地區不斷發展的衝突的影響,以及管理層對未來業務運營和資本支出的計劃和目標,均為前瞻性陳述。這些陳述涉及已知和未知的風險、不確定因素和其他重要因素,可能導致我們的實際結果、表現或成就與前瞻性陳述所表達或暗示的任何未來結果、表現或成就有很大不同。
在某些情況下,您可以通過“可能”、“將”、“應該”、“期望”、“計劃”、“預期”、“可能”、“打算”、“目標”、“項目”、“考慮”、“相信”、“估計”、“預測”、“潛在”或“繼續”等術語來識別前瞻性陳述,或這些術語的否定形式或其他類似表達。本季度報告中的前瞻性陳述僅為預測。我們在很大程度上基於我們對可能影響我們業務、財務狀況和營運結果的未來事件和財務趨勢的當前期望和預測來制定這些前瞻性陳述。這些前瞻性陳述僅代表本季度報告日期的觀點,受到一些重要因素的影響,這些因素可能導致實際結果與前瞻性陳述中存在顯著差異,包括:
我們有虧損的歷史,並且未來可能無法實現或維持盈利能力。
我們的成功和業務成長能力取決於保留和擴大客戶群。如果我們未能增加新客戶或保留現有客戶,我們的業務、營業收入、營運結果和財務狀況可能受到損害。
「檸檬水」品牌可能不會像現有品牌那樣廣為人知,或者該品牌可能會失去光榮。
否認索賠或我們未能準確及及時支付索賠可能對我們的業務、財務狀況、營運結果和前景產生重大負面影響。
我們未來的營業收入增長和前景取決於從每位用戶獲得更大價值。
在目前水準和價格下,再保險可能無法獲得,這可能限制我們撰寫新業務的能力,並影響我們的資本需求。此外,再保險會使我們面臨交易對手風險,並且可能無法充分保護我們免受損失影響,這可能對我們的營運業績和財務狀況產生重大不利影響。
我們有限的營運歷史使得評估我們目前業務表現、業務模式的實施以及未來展望變得困難。
我們可能無法有效管理我們的成長。
我們自有的人工智能etf算法可能無法正常運作或符合我們的預期,這可能導致我們撰寫不應撰寫的保單,不當定價這些保單,或支付我們客戶提出的索賠金。
在我們經營的保險行業板塊中,激烈的競爭可能會對我們達成或提升盈利能力產生負面影響。
若我們未能保持風險資本水平符合要求,可能會影響我們的保險子公司保持來進行業務的監管機構權限。
2


如果我們無法擴大我們的產品供應,將對未來增長的前景造成不利影響。
我們業務模式的新穎性使其效果難以預測,並容易受到意外後果的影響。
我們可能被迫修改或取消我們的Giveback,這可能會削弱我們的業務模式,並對我們的營運和財務狀況產生重大不利影響。
監管機構可能會限制我們發展或實施我們專有的人工智能etf演算法的能力,並/或可能消除或限制我們專有技術的保密性,這可能對我們的財務控制項和運營結果產生重大不利影響。
現有及新的法規或法律要求可能影響我們與客戶溝通的方式,進而對我們的業務模式、財務狀況和營運成果產生重大不利影響。
保險業務,包括租房、房屋、寵物和汽車保險市場,過去具有循環特性,我們可能會遇到保險容量過剩和不利的保費率時期,這可能對我們的業務產生不利影響。
我們依賴人工智能、遙感技術、手機科技和我們的數位平台來收集數據,用於評估我們的保險政策定價和核保、管理索賠和客戶支援,以及改善業務流程,在法律或監管要求禁止或限制我們收集或使用這些數據的條件下,可能會對我們的業務、財務狀況、營運成果和前景產生重大不利影響。
我們可能需要額外資本來發展業務,這些資本可能無法按照我們接受的條件提供,甚至可能根本無法取得。
我們系統、網站或應用程式中的安全事故或真實或被認為存在的錯誤、故障或臭蟲可能損害我們的業務運作,導致個人客戶資訊的損失,損害我們的聲譽和品牌,並危害我們的業務和營運結果。
我們會定期接受主要州保險監管機構的審查,可能導致不利的審查結果並需要採取補救措施。此外,在我們有執照運營的其他州的保險監管機構也可能進行審查或其他針對性調查,同樣可能導致不利的審查結果並需要採取補救措施。
如果我們無法準確承擔風險並向客戶收取具競爭性但有利可圖的費率,我們的業務、營運結果和財務狀況將會受到不利影響。.
我們的產品開發週期複雜且需經過監管機構批准,我們可能在從新產品產生任何收入之前,承擔重大支出。
我們在美國的擴張以及任何未來的國際擴張策略將使我們面臨額外的成本和風險,而我們的計劃可能不會成功。
我們受到廣泛的保險行業板塊監管。
州保險監管機構對於保險控股公司系統的企業風險新增了報告要求,我們作為一家保險控股公司必須遵守。
嚴重天氣事件和其他災難,包括氣候變化和全球大流行病的影響,本質上是不可預測的,可能對我們的財務結果和財務狀況產生重大不利影響。
氣候風險,包括與轉型為低碳經濟所造成的中斷相關的風險,可能對我們的業務、營運結果和財務狀況產生不利影響。
對環保母基事項的越來越嚴格審查、行動和投資者、客戶、監管機構、我們的員工和其他利益相關者對我們提出的期望可能會給我們帶來額外成本,影響我們對資本的取得或使我們面臨新的或額外的風險。
3


我們與元創協定可能不會如預期那樣運作,而如果未能如期運作,可能會對我們的財務控制項和營運結果造成負面影響。
我們預計業務運作的結果將會在每季度和每年都出現波動。此外,我們的營運結果和運營指標可能會受季節性和波動性影響,這可能導致我們每季度收入和營運結果出現波動或對我們業務前景的看法產生變化。
我們依賴客戶和第三方的數據來定價和核保我們的保險政策,處理索賠並最大程度地實現自動化,這些數據的不可用或不準確可能會限制我們產品的功能性並干擾我們的業務。
我們的經營成果和財務狀況可能因為用於評估和預測我們對災難損失風險的分析模型受限而受到負面影響。
我們實際發生的損失可能會超過我們的損失和損失調整費用儲備,這可能對我們的財務狀況和營運結果產生重大不利影響。
我們的保險子公司受最低資本和盈餘要求的規範,如果我們未能滿足這些要求,可能會受到監管機構的制裁。
我們受州保證基金的評估和其他附加費以及強制性的州保險機構的影響,這可能影響我們實現盈利能力。
作為一家公共利益公司,我們專注於特定公益目的,並為社會產生積極影響,可能對我們的財務表現造成負面影響。
我們在以色列進行某些業務,因此我們的業績可能會受到以色列及周邊地域板塊內的政治、經濟和軍工不穩定的影響。
根據我們截至2023年12月31日的財政年度年度報告中"風險因素"和"財務狀況與營運結果的管理層討論和分析"部分所描述的因素以及本季度報告中的內容。
您應該完整閱讀此季度報告和我們在此季度報告中參考的文件,並明白我們的實際未來結果可能與我們的預期有重大差異。在這份季度報告中,我們透過這些警語聲明限定所有我們的前瞻性陳述。除非適用法律要求,否則我們沒有計劃公開更新或修訂此處所包含的任何前瞻性陳述,無論是因為有任何新情報、將來事件、情況變更等原因。在本季度報告中,除非另有指示或情況要求,"lemonade","公司","我們","我們的","我們的"及"我們"指的是Lemonade, Inc.及其子公司,包括Lemonade保險公司,Lemonade保險 中介有限責任公司和Metromile有限責任公司。
您可以在哪里找到更多資訊?
投資者和其他人應留意我們可能使用我們的網站 (https://https://investor.lemonade.com/home/default.aspx),我們在X(前身為Twitter)的公司賬戶(@Lemonade_Inc),以及LinkedIn (@Lemonade-Inc) 作為披露信息的手段,並遵守我們根據FD法規的披露義務。我們透過這些渠道發布的信息可能被視為重要。因此,除了查閱我們的新聞稿、SEC文件和公共電話會議記錄,投資者還應監控這些渠道。我們網站和社交媒體渠道的內容並不屬於本季度報告的一部分。
4

目錄
第一部分 - 財務資訊
第1項。基本報表。
檸檬公司及其子公司
縮表合併資產負債表
(除股票及每股數額外,數字以百萬美元表示)

截至日期
九月三十日,12月31日,
20242023
(未經查核)
資產
投資
持有至到期投資,按公允價值列示為可供出售金融資產(攤銷成本:$607.0 百萬美元和632.0 截至2024年9月30日和2023年12月,資產分別為...百萬。
$609.7 $627.4 
短期投資(成本:$...百萬,分別截至2024年9月30日和2023年12月。31.1 百萬美元和45.8 截至2024年9月30日和2023年12月,資產分別為...百萬。
31.1 45.8 
總投資640.8 673.2 
現金、約略等同於現金及受限制的現金337.8 271.5 
保險費應收款,減除$...百萬的信用損失准備。2.8 百萬美元和2.5 截至2024年9月30日和2023年12月31日,資產分別為百萬美元。
297.7 222.0 
再保險可收回款項189.9 138.4 
預付再保險保費254.7 196.3 
推迟的获得成本11.9 8.8 
物業及設備,扣除折舊後淨值16.0 17.4 
無形資產15.8 22.9 
商譽19.0 19.0 
其他資產39.4 63.8 
資產總額$1,823.0 $1,633.3 
負債及股東權益
未支付損失和損失調整費用$294.2 $262.3 
未賺取的保費453.8 353.7 
應付貿易款項1.0 0.6 
用於再保險合同的基金持有189.3 128.8 
递延给付佣金58.9 41.4 
再保賠付款41.9 23.2 
融資協議下的借款
67.4 14.9 
其他負債及應計費用123.5 99.5 
總負債1,230.0 924.4 
承諾和事後負債(註15)
股東權益
0.010.00001 每股面額為 200,000,000 授權股份為 71,378,67870,163,703 自2024年9月30日及2023年12月31日期間,已發行並流通的股份分別如下
  
資本公積額額外增資1,861.9 1,814.5 
累積赤字 (1,268.8)(1,096.6)
累積其他全面損失(0.1)(9.0)
股東權益總額593.0 708.9 
負債總額及股東權益合計$1,823.0 $1,633.3 
備註說明是未經審計的縮表基本報表的組成部分。

5


樂檸檬公司及其子公司
綜合損益及營業收入簡明合併財務報表 (未經核數)
(金額以百萬美元計,除每股股份和每股金額外)
(未經查核)
截至9月30日的三個月截至9月30日的九個月
2024202320242023
營業收入
净赚取保费$95.7 $86.6 $269.4 $231.3 
转分保佣金收入24.0 16.7 61.5 51.4 
淨投資收益8.9 7.0 24.6 17.6 
佣金与其他收入8.0 4.2 22.2 14.0 
營業總收入136.6 114.5 377.7 314.3 
費用
損失及損失調整費用,淨額77.9 75.9 214.3 215.4 
其他保險費用19.8 15.1 55.9 43.7 
銷售和市場推廣費用51.4 24.4 118.6 77.4 
科技發展21.9 21.8 64.0 67.7 
總務與行政31.4 36.9 91.0 100.3 
總費用202.4 174.1 543.8 504.5 
收入稅前虧損(65.8)(59.6)(166.1)(190.2)
所得稅支出1.9 1.9 6.1 4.3 
淨損失$(67.7)$(61.5)$(172.2)$(194.5)
其他全面損失,扣除稅後淨額
固定到期投资未实现收益
5.4 2.9 7.4 10.1 
外币翻译调整3.1 (1.0)1.5 (1.6)
全面損失$(59.2)$(59.6)$(163.3)$(186.0)
每股數據:
每股普通股股东的基本和稀释后净亏损$(0.95)$(0.88)$(2.44)$(2.80)
加權平均每股普通股-基本和稀釋71,138,070 69,753,576 70,716,140 69,542,342 

備註說明是未經審計的縮表基本報表的組成部分。

6


檸檬公司及其子公司
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
($ in millions, except share amounts)
(Unaudited)
Common StockAdditional Paid-In CapitalAccumulated DeficitAccumulated Other Comprehensive (Loss) IncomeTotal Stockholders' Equity
SharesAmount
Balance as of December 31, 2023
70,163,703 $ $1,814.5 $(1,096.6)$(9.0)$708.9 
Exercise of stock options and distribution of restricted stock units314,385 — 0.1 — — 0.1 
Stock-based compensation— — 14.9 — — 14.9 
Net loss— — — (47.3)— (47.3)
Other comprehensive loss
— — — — (0.2)(0.2)
Balance as of March 31, 202470,478,088 $ $1,829.5 $(1,143.9)$(9.2)$676.4 
Exercise of stock options and distribution of restricted stock units343,693 —  — —  
Exercise of warrant shares
181,081 — — — — — 
Stock-based compensation— — 15.4 — — 15.4 
Net loss— — — (57.2)— (57.2)
Other comprehensive income
— — — — 0.6 0.6 
Balance as of June 30, 202471,002,862 $ $1,844.9 $(1,201.1)$(8.6)$635.2 
Exercise of stock options and distribution of restricted stock units375,816 — 0.1 — — 0.1 
Stock-based compensation— — 16.9 — — 16.9 
Net loss— — — (67.7)— (67.7)
Other comprehensive income
— — — — 8.5 8.5 
Balance as of September 30, 2024
71,378,678 $ $1,861.9 $(1,268.8)$(0.1)$593.0 
Balance as of December 31, 2022
69,275,030 $ $1,754.1 $(859.7)$(27.6)$866.8 
Exercise of stock options and distribution of restricted stock units174,318 — 0.1 — — 0.1 
Stock-based compensation— — 15.4 — — 15.4 
Net loss— — — (65.8)— (65.8)
Other comprehensive income
— — — — 5.3 5.3 
Balance as of March 31, 202369,449,348 $ $1,769.6 $(925.5)$(22.3)$821.8 
Exercise of stock options and distribution of restricted stock units218,828 — 0.3 — — 0.3 
Stock-based compensation— — 14.8 — — 14.8 
Net loss— — — (67.2)— (67.2)
Other comprehensive income
— — — — 1.3 1.3 
Balance as of June 30, 202369,668,176 $ $1,784.7 $(992.7)$(21.0)$771.0 
Exercise of stock options and distribution of restricted stock units241,180 — 0.1 — — 0.1 
Stock-based compensation— — 15.4 — — 15.4 
Net loss— — — (61.5)— (61.5)
Other comprehensive income— — — — 1.9 1.9 
Balance as of September 30, 2023
69,909,356 $ $1,800.2 $(1,054.2)$(19.1)$726.9 
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
7

Table of contents
LEMONADE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in millions)
(Unaudited)
Nine Months Ended September 30,
20242023
Cash flows from operating activities:
Net loss$(172.2)$(194.5)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization15.3 15.2 
Stock-based compensation47.2 45.6 
Amortization of premium on bonds
(4.5)(1.3)
Provision for bad debt7.9 6.0 
Asset impairment charge
0.3 3.7 
Changes in operating assets and liabilities:
Premium receivable(83.6)(49.6)
Reinsurance recoverable(51.5)12.2 
Prepaid reinsurance premium(58.4)(33.1)
Deferred acquisition costs(3.1)(1.2)
Other assets24.4 5.0 
Unpaid loss and loss adjustment expense31.9 (1.1)
Unearned premium100.1 67.6 
Trade payables0.4 1.6 
Funds held for reinsurance treaties60.5 (4.9)
Deferred ceding commissions17.5 (0.6)
Ceded premium payable18.7 17.9 
Other liabilities and accrued expenses23.9 8.5 
Net cash used in operating activities(25.2)(103.0)
Cash flows from investing activities:
Proceeds from short-term investments sold or matured64.6 115.2 
Proceeds from bonds sold or matured269.9 300.0 
Cost of short-term investments acquired(49.0)(71.5)
Cost of bonds acquired(241.2)(288.8)
Purchases of property and equipment(6.2)(6.8)
Net cash provided by investing activities38.1 48.1 
Cash flows from financing activities:
Proceeds from borrowings under financing agreement
70.5 9.3 
Payments on borrowings under financing agreement
(18.0)(1.6)
Proceeds from stock exercises0.2 0.5 
Net cash provided by financing activities52.7 8.2 
Effect of exchange rate changes on cash, cash equivalents and restricted cash0.7 (1.7)
Net increase (decrease) in cash, cash equivalents and restricted cash
66.3 (48.4)
Cash, cash equivalents and restricted cash at beginning of period271.5 286.5 
Cash, cash equivalents and restricted cash at end of period$337.8 $238.1 
Supplemental disclosure of cash flow information:
Cash paid for income taxes$2.0 $0.6 
Cash paid for interest expense on borrowings under financing agreement
$2.4 $0.1 
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
8


LEMONADE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.Nature of the Business
Lemonade, Inc. is a public benefit corporation organized under Delaware law on June 17, 2015. It provides certain personnel, facilities and services to each of its subsidiaries (together with Lemonade, Inc., the “Company”), all of which are 100% owned, directly or indirectly, by Lemonade, Inc. For the list of the Company's US and EU subsidiaries and for more complete descriptions and discussions, see Note 1 - Nature of the Business, of the audited consolidated financial statements and related notes thereto for the year ended December 31, 2023 as included in the Company's Annual Report on Form 10-K (the "Annual Report on Form 10-K").
2.    Basis of Presentation
The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and include the accounts of the Company and its wholly-owned subsidiaries and a variable interest entity for which the Company is deemed to be the primary beneficiary. All material intercompany transactions and balances have been eliminated upon consolidation. All foreign currency amounts in the condensed consolidated statement of operations and comprehensive loss have been translated using an average rate for the reporting period. All foreign currency balances in the condensed consolidated balance sheet have been translated using the spot rate at the end of the reporting period. All figures expressed, except share amounts, are in U.S. dollars in millions.
Risk and Uncertainties
Lemonade, Inc. conducts certain of its operations in Israel. The evolving conflict in Israel and surrounding region has increased global economic and political uncertainty. There is still uncertainty regarding the extent to which the war and its broader macroeconomic implications will impact our operations in Israel. The Company will continue to evaluate the extent to which this may impact our business, financial condition, or results of operations.
Unaudited interim financial information
In the opinion of the Company, the accompanying unaudited condensed consolidated financial statements contain all adjustments, consisting of only normal recurring adjustments, necessary for the fair presentation of its financial position and its results of operations, changes in stockholders’ equity and cash flows. The condensed consolidated balance sheet at December 31, 2023 was derived from the audited annual financial statements and does not contain all of the footnote disclosures from the audited annual financial statements of the Company. The accompanying unaudited condensed consolidated financial statements and related financial information should be read in conjunction with the audited consolidated financial statements and the related notes thereto for the fiscal year ended December 31, 2023 as included in the Company’s Annual Report on Form 10-K.
3.Use of Estimates
The preparation of the condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. On an ongoing basis, the Company’s management evaluates estimates, including those related to contingent assets and liabilities as of the date of the consolidated financial statements as well as the reported amounts of revenue and expense during the reporting period. Such estimates are based on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities at the dates of the condensed consolidated financial statements, and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates. Significant estimates reflected in the Company’s condensed consolidated financial statements include, but are not limited to, reserves for loss and loss adjustment expense, reinsurance recoverable on unpaid losses and valuation allowance on deferred tax assets.

9


4.Summary of Significant Accounting Policies
Cash, cash equivalents and restricted cash
The following represents the Company’s cash, cash equivalents and restricted cash as of September 30, 2024 and December 31, 2023:
September 30,December 31,
20242023
Cash and cash equivalents$329.8 $264.5 
Restricted cash8.0 7.0 
Total cash, cash equivalents and restricted cash$337.8 $271.5 
Cash and cash equivalents consist primarily of bank deposits and money market accounts with maturities of three months or less at the date of acquisition and are stated at cost, which approximates fair value. The Company’s restricted cash primarily relates to insurance policy premiums collected by the Company that it holds in a segregated cash account for transmittal to the underwriting carrier, or settlement of insurance related claims. The carrying value of restricted cash approximates fair value. The Company also has restricted cash relating to security deposits for certain office leases.
New Accounting Pronouncements
Recently Issued Accounting Pronouncement Pending Adoption
In November 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update (“ASU”) 2023-07, Segment Reporting - Improvements to Reportable Segment Disclosures, requiring disclosure of significant expenses for each reportable segment and amount regularly provided to the Chief Operating Decision Maker ("CODM") and included in the reported measure(s) of the segment profit or loss. This ASU also clarifies that single reportable segment entities are subject to the required disclosures in its entirety under Accounting Standards Codification ("ASC") Topic 280, Segment Reporting. The ASU does not change the identification and determination of its operating segments, aggregation of operating segments or application of quantitative thresholds to determine its reportable segments. This ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Amendments in the ASU apply retrospectively to all periods presented in the financial statements unless impracticable to do so. The Company is currently evaluating the impact of this standard.
In December 2023, the FASB issued ASU 2023-09, Income Taxes - Improvement to Income Tax Disclosures, requiring enhancements and further transparency to certain income tax disclosures, most notably the tax rate reconciliation and income taxes paid. This ASU is effective for annual periods beginning after December 15, 2024 on a prospective basis and retrospective application is permitted. The Company is currently evaluating the impact of this standard.
There are no other new accounting standards identified and not yet implemented that are expected to have a material effect on the Company's consolidated financial statements.
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5.    Investments
Unrealized gains and losses
The following tables present cost or amortized cost and fair values of investment in fixed maturities as of September 30, 2024 and December 31, 2023 ($ in millions):
Cost or Amortized CostGross
Unrealized
Fair
Value
GainsLosses
September 30, 2024
Corporate debt securities$501.5 $3.3 $(1.3)$503.5 
U.S. Government obligations87.2 0.6  87.8 
Asset-backed securities18.3 0.1  18.4 
Total$607.0 $4.0 $(1.3)$609.7 
December 31, 2023
Corporate debt securities$453.6 $1.3 $(5.0)$449.9 
U.S. Government obligations176.8 0.4 (1.3)175.9 
Asset-backed securities1.6   1.6 
Total$632.0 $1.7 $(6.3)$627.4 

Gross unrealized losses for fixed maturities was $1.3 million as of September 30, 2024 and $6.3 million as of December 31, 2023. Gross unrealized gains and losses were recorded as a component of accumulated other comprehensive loss.
Contractual maturities of bonds
The following table presents the cost or amortized cost and estimated fair value of investments in fixed maturities as of September 30, 2024 by contractual maturity ($ in millions). Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
September 30, 2024
Cost or
Amortized
Cost
Fair Value
Due in one year or less$224.8 $224.4 
Due after one year through five years382.2 385.3 
Due after five years through ten years  
Due after ten years  
Total$607.0 $609.7 
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Net investment income
Details of the Company's net investment income is as follows ($ in millions):
Three Months Ended September 30,Nine Months Ended September 30,
2024202320242023
Interest on cash and cash equivalents$2.0 $0.8 $5.8 $3.0 
Fixed maturities6.5 5.0 17.7 11.9 
Short-term investments0.5 1.3 1.3 3.0 
Total9.0 7.1 24.8 17.9 
Investment expense0.1 0.1 0.2 0.3 
Net investment income$8.9 $7.0 $24.6 $17.6 

Investment gains and losses
The Company had a pre-tax net realized capital gains of less than $0.1 million for the three and nine months ended September 30, 2024 and pre-tax net realized capital losses of $0.7 million for the three and nine months ended September 30, 2023, which were included in "Commission and other income" in the consolidated statements of operations and comprehensive income.
Aging of gross unrealized losses
The following table presents the gross unrealized losses and related fair values for the Company’s investment in fixed maturities, grouped by duration of time in a continuous unrealized loss position as of September 30, 2024 and December 31, 2023 ($ in millions):
Less than 12 Months12 Months or MoreTotal
Fair ValueGross Unrealized LossesFair ValueGross Unrealized LossesFair ValueGross Unrealized Losses
September 30, 2024
Corporate debt securities$73.3 $(0.5)$63.9 $(0.8)$137.2 $(1.3)
U.S. Government obligations6.1  8.3  14.4  
Asset-backed securities4.0    4.0  
Total$83.4 $(0.5)$72.2 $(0.8)$155.6 $(1.3)
Less than 12 Months12 Months or MoreTotal
Fair ValueGross Unrealized LossesFair ValueGross Unrealized LossesFair ValueGross Unrealized Losses
December 31, 2023
Corporate debt securities$89.0 $(1.2)$178.3 $(4.0)$267.3 $(5.2)
U.S. Government obligations79.6 (0.2)57.7 (0.9)137.3 (1.1)
Asset-backed securities  0.2  0.2  
Total$168.6 $(1.4)$236.2 $(4.9)$404.8 $(6.3)


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As of September 30, 2024, 97 of the securities held were in an unrealized loss position. Investments in fixed maturities with gross unrealized losses for twelve months or more was $0.8 million and $4.9 million as of September 30, 2024 and December 31, 2023, respectively. The Company determined that unrealized losses on fixed maturities were primarily due to the interest rate environment, and not credit risk related to the issuers of these securities. The Company does not intend to sell these investments in fixed maturities, and it is not more likely than not that the Company will be required to sell these investments in fixed maturities before recovery of the amortized cost basis. No allowance for credit losses related to any of these securities was recorded for the three and nine months ended September 30, 2024. The Company does not measure an allowance for credit losses on accrued interest receivable and would instead write off accrued interest receivable at the time an issuer defaults or is expected to default on payments.
Restricted investments
Restricted investments are held in a trust account securing the Company’s insurance subsidiary's contractual obligations under the Property Catastrophe Excess of Loss reinsurance contract with a captive in Bermuda (see Note 7) which will not be released until the underlying risks have expired or have been settled. Restricted investments include certain investments in debt securities and short-term investments of $80.2 million as of September 30, 2024 and $82.2 million as of December 31, 2023.
6.     Fair Value Measurements
The following tables present the Company’s fair value hierarchy for financial assets and liabilities measured as of September 30, 2024 and December 31, 2023 ($ in millions):

September 30, 2024
Level 1Level 2Level 3Total
Financial Assets:
Corporate debt securities$ $503.5 $ $503.5 
U.S. Government obligations 87.8  87.8 
Asset-backed securities 18.4  18.4 
Fixed maturities$ $609.7 $ $609.7 
Short term investments 31.1  31.1 
Total$ $640.8 $ $640.8 
Financial Liabilities:
Warrant Liability (1)
$ $ $ $ 
December 31, 2023
Level 1Level 2Level 3Total
Financial Assets:
Corporate debt securities$ $449.9 $ $449.9 
U.S. Government obligations 175.9  175.9 
Asset-backed securities 1.6  1.6 
Fixed maturities $ $627.4 $ $627.4 
Short term investments 45.8  45.8 
Total$ $673.2 $ $673.2 
Financial Liabilities:
Warrant Liability (1)
$ $ $ $ 
(1) Fair value of Public and Private warrant liability amounted to less than $0.1 million as of both September 30, 2024 and December 31, 2023.
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The fair value of all different classes of Level 2 fixed maturities and short-term investments are estimated by using quoted prices from a third-party valuation service provider to gather, analyze and interpret market information and derive fair values based upon relevant methodologies and assumptions for individual instruments.
There were no transfers between Level 1, Level 2, or Level 3 during the three and nine months ended September 30, 2024 and for the year ended December 31, 2023.
Warrant liability
Public and private warrants were assumed from Metromile Inc. ("Metromile") as part of the acquisition in July 2022, and these warrants do not meet the criteria for equity treatment and are recorded as a liability and presented under "Other liabilities and accrued expenses" on the consolidated balance sheets. These warrants are measured at fair value on a recurring basis at the end of each reporting period, with changes in fair value recognized and presented under "General and administrative expenses" in the consolidated statements of operations and comprehensive loss.
The public warrants liability is classified as Level 1 for fair value hierarchy disclosure purposes as of September 30, 2024, due to the use of an observable market quote in an active market, following the listing of the public warrants in the New York Stock Exchange American in March 2023. The private warrants liability is classified as Level 2 as the Company utilizes the observable prices of the public warrants in deriving the value of the private placement warrants. The change in fair value of the Public and Private warrant liability amounted to less than $0.1 million as of both September 30, 2024 and December 31, 2023.
7.    Unpaid Loss and Loss Adjustment Expense
The following table presents the activity in the liability for unpaid loss and loss adjustment expense ("LAE") for the nine months ended September 30, 2024 and 2023 ($ in millions):
September 30,
20242023
Unpaid loss and LAE at beginning of period$262.3 $256.2 
Less: Reinsurance recoverable at beginning of period (1)
120.2 124.6 
Net unpaid loss and LAE at beginning of period142.1 131.6 
Add: Incurred loss and LAE, net of reinsurance, related to:
Current year220.6 219.0 
Prior years(6.3)(3.6)
Total incurred214.3 215.4 
Deduct: Paid loss and LAE, net of reinsurance, related to:
Current year138.7 133.4 
Prior years63.5 71.6 
Total paid202.2 205.0 
Unpaid loss and LAE, net of reinsurance recoverable, at end of period154.2 142.0 
Reinsurance recoverable at end of period (1)
140.0 113.1 
Unpaid loss and LAE, gross of reinsurance recoverable, at end of period$294.2 $255.1 

(1) Reinsurance recoverable in this table includes only ceded unpaid loss and LAE.
Unpaid loss and LAE includes anticipated salvage and subrogation recoverable.

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Considerable variability is inherent in the estimate of the reserve for losses and LAE. Although management believes the liability recorded for losses and LAE is adequate, the variability inherent in this estimate could result in changes to the ultimate liability, which may be material to stockholders' equity. Additional variability exists due to accident year allocations of ceded amounts in accordance with the reinsurance agreements, which is not expected to result in any changes to the ultimate liability. Other factors that can impact loss reserve development may also include trends in general economic conditions, including the effects of inflation. The Company had favorable development on net loss and LAE reserves of $6.3 million for the nine months ended September 30, 2024, and favorable development on net loss and LAE reserves of $3.6 million for the nine months ended September 30, 2023. The favorable loss development of $6.3 million is primarily due to better than expected loss reserve emergence on homeowners multi-peril and pet lines of business, offset by the impact of an extra-contractual car claim liability related to pre-acquisition Metromile. No additional premiums or returned premiums have been accrued as a result of prior year effects.

For the nine months ended September 30, 2024, current accident year incurred loss and LAE included $5.0 million from hurricane Helene and $4.0 million from hurricane Beryl. For the nine months ended September 30, 2023, current accident year incurred loss and LAE included $10.0 million from winter storm Elliott and $3.5 million from the hail storm that impacted customers in Texas. The net incurred loss and LAE represent the Company's best estimates based upon information available as of September 30, 2024 and 2023.
In the ordinary course of business, the Company cedes losses and LAE to reinsurance companies. These arrangements reduce the net loss potentially arising from large or catastrophic risks. Certain of these arrangements consist of excess of loss and catastrophe contracts, which protect against losses exceeding stipulated amounts. The ceding of risk through reinsurance does not relieve the Company from its obligations to policyholders. The Company remains liable with respect to losses and LAE ceded in the event that any reinsurer does not meet obligations assumed under the reinsurance agreements. The Company does not have any significant unsecured aggregate recoverable for losses, paid and unpaid including Incurred But Not Reported ("IBNR"), loss adjustment expenses, and unearned premium with any individual reinsurer.
The Company maintains proportional reinsurance contracts which cover all of the Company's products and geographies, and transferred, or “ceded,” a specified percentage of the premium to reinsurers ("Proportional Reinsurance Contracts"). The Company also opted to manage the remaining percentage of the business with alternative forms of reinsurance through non-proportional reinsurance contracts ("Non-Proportional Reinsurance Contracts").
The Company maintains proportional reinsurance contracts which provide protection on covered risks. The Company agreed to the terms of a reinsurance program effective July 1, 2023 through June 30, 2024 which included Whole Account Quota Share Reinsurance Contracts by and among the Company, Lemonade Insurance Company ("LIC"), Metromile Insurance Company ("MIC") and Lemonade Insurance N.V. ("LINV"), and each of Hannover Ruck SE, MAPFRE Re, and Swiss Reinsurance America Corporation (collectively referred to as “Reinsurers”) ("Reinsurance Program"). Under the Reinsurance Program, which covers all products and geographies, the Company transfers, or "cedes," a share of premium to the Reinsurers. In exchange, these Reinsurers pay the Company a ceding commission on all premiums ceded to the Reinsurers, in addition to funding the corresponding claims, subject to certain limitations, including but not limited to, the exclusion of hurricane losses, and a limit of $5,000,000 per occurrence for non-hurricane catastrophe losses. The overall share of proportional reinsurance under the Reinsurance Program is approximately 55% of premium. The Per Risk Cap across the contracts is $750,000. Additionally, the contracts are subject to loss ratio caps and variable ceding commission levels, which align the Company's interests with those of its Reinsurers, and is settled primarily on a funds-withheld basis. The Reinsurance Program was renewed effective July 1, 2024 and will expire on June 30, 2025, with similar terms to the contracts that expired on June 30, 2024, except for the limit per occurrence for non-hurricane catastrophe losses which increased to $10,000,000.

LIC and LINV entered into a Property Per Risk Excess of Loss Reinsurance Contract with a panel of reinsurance companies (the "PPR Contract"), and LIC entered into an Automatic Facultative Property Per Risk Excess of Loss Reinsurance Contract with Arch Re (the "Automatic Facultative PPR Contract"), each effective from July 1, 2023 until June 30, 2024. Under the PPR Contract, claims in excess of $750,000 are 100% ceded up to a maximum recovery of $2,250,000, subject to certain limitations. The PPR Contract was renewed at similar terms effective July 1, 2024 and will expire on June 30, 2025. The Automatic Facultative PPR Contract, in which claims in excess of $3,000,000 are 100% ceded with a potential recovery of at least $10,000,000, subject to certain limitations, expired on June 30, 2024, and was not renewed.

15


MIC entered into a Quota Share reinsurance agreement effective January 1, 2022 and expired on June 30, 2023 Under the terms of the agreement, the Company ceded 30% of premiums and losses to reinsurers.

The Company also entered into a reinsurance program to protect against catastrophe risk in the U.S. that exceed $80,000,000 in losses effective July 1, 2022 and expired on June 30, 2023.

The Company entered into an Excess of Loss ("XOL") Reinsurance Contract through a captive in Bermuda in which the Company has variable interest, primarily to cover catastrophe risk over the initial $50,000,000 limit for each loss occurrence, and further subject to a limit of $80,000,000 for each loss occurrence and in aggregate, primarily on property and auto business underwritten by LIC. This XOL reinsurance contract became effective July 1, 2023 and expired on June 30, 2024. The Company renewed the XOL reinsurance contract, effective July 1, 2024 through June 30, 2025 at similar terms and was expanded to include risks written by MIC.

The Company is also exposed to some risks from MIC ceded through the Quota Share ("QS") Reinsurance Contract which is retained in an offshore captive subsidiary, Lemonade Re SPC. This QS reinsurance contract became effective July 1, 2023 and shall remain in force for an indefinite period until terminated by either party.

Through the offshore captives, the Company is exposed to the risk of natural catastrophe events and other covered risks under the reinsurance contracts from policies underwritten by LIC and MIC.

8.    Borrowings under Financing Agreement

On June 28, 2023, the Company entered into a Customer Investment Agreement (the “Agreement”), with GC Customer Value Arranger, LLC (a General Catalyst company) ("GC"). Under the Agreement, up to $150 million of financing will be provided for the Company’s sales and marketing growth efforts. The Agreement has a commitment period of 18 months which expires on December 31, 2024 ("Original Commitment End Date"). Under the Agreement, subject to certain terms and conditions specified therein, at the start of each growth period, an Investment Amount of up to 80% of the Company’s growth spend (the "Investment Amount") will be advanced by GC. During each growth period, the Company will repay each Investment Amount including a 16% rate of return based upon an agreed schedule. Once fully repaid, the Company will retain all future reference income related to each respective Investment Amount.

On January 8, 2024, the Company entered into an Amended and Restated Customer Investment Agreement under which GC will provide up to an additional $140 million of financing to the Company from the Original Commitment End Date through December 31, 2025 for sales and marketing growth efforts. This was further amended and restated in April 2024 and June 2024 to clarify certain provisions with no changes to material terms and conditions (collectively, the "Amended and Restated Agreement"). The Amended and Restated Agreement as of June 2024 contains standard customary representations, warranties and covenants by the parties, and will continue in effect unless terminated by any party pursuant to its terms.

As of September 30, 2024, the Company had $67.4 million of outstanding borrowings under financing agreement. The Company incurred interest expense of $1.8 million and $3.4 million for the three and nine months ended September 30, 2024, respectively, and such interest is included in “General and administrative expense” in the consolidated statements of operations and comprehensive income.

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9.    Other Liabilities and Accrued Expenses
Other liabilities and accrued expenses as of September 30, 2024 and December 31, 2023 consist of the following ($ in millions):
September 30,December 31,
20242023
Ceding commission payable$23.5 $13.9 
Lease liabilities21.4 28.2 
Uncertain tax position17.9 13.3 
Accrued advertising costs15.8 6.2 
Employee compensation7.5 8.4 
Premium taxes payable6.1 5.9 
Accrued professional fees5.7 5.0 
Payable to carriers4.9 2.0 
Advance premium3.9 3.4 
Reinsurance payable1.9 0.8 
Income taxes payable1.8 1.2 
Other payables13.1 11.2 
Total $123.5 $99.5 

10.    Stockholders’ Equity

Common stock

The Company's certificate of incorporation, as amended and restated, authorized the Company to issue 200,000,000 shares of par value $0.00001 per share common stock. The voting, dividend and liquidation rights of the holders of the Company’s common stock is subject to and qualified by the rights, powers and preferences of the holders of the preferred stock. There were 71,378,678 and 70,163,703 total issued and outstanding shares as of September 30, 2024 and December 31, 2023, respectively.

The Company in 2020 made a contribution of 500,000 issued shares of common stock to the Lemonade Foundation, a related party (Note 14), of which 400,000 shares were owned as of both September 30, 2024 and December 31, 2023.

Undesignated Preferred Stock

The Company's certificate of incorporation, as amended and restated, authorized the Company to issue up to 10,000,000 shares of undesignated preferred stock, par value $0.00001 per share. As of both September 30, 2024 and December 31, 2023, there were no shares of undesignated preferred stock issued or outstanding.

Warrants

The Company in 2022 entered into an omnibus agreement (the “Omnibus Agreement”) and a warrant agreement (the “Warrant Agreement” and, together with the Omnibus Agreement, the “Agreements”) with Chewy Insurance Services, LLC (the “Warrantholder”) in connection with the execution of an agency agreement on the same date between the Company, Lemonade Insurance Agency, LLC, Lemonade Insurance Company and the Warrantholder. In connection with the Agreements, the Company is authorized to issue to the Warrantholder 3,352,025 shares of the Company’s common stock underlying the warrant with an exercise price of $0.01 per share, which will vest in installments, in increasing amounts over a period of five years. The Warrant Agreement allows the Company to cancel unvested warrant shares which are subject to certain vesting events and thresholds.

17


11.    Stock-based Compensation
Share option plans
2020 Incentive Compensation Plan
On July 2, 2020, the Company’s board of directors adopted and the Company’s stockholders approved the 2020 Incentive Compensation Plan (the “2020 Plan”), which became effective immediately prior to the effectiveness of the registration statement for the Company’s initial public offering ("IPO") in 2020. The 2020 Plan provides for the issuance of incentive stock options, non-qualified stock options, stock awards, stock units, stock appreciation rights and other stock-based awards.
The number of shares initially reserved for issuance under the 2020 Plan is 5,503,678 shares, inclusive of available shares previously reserved for issuance under the 2015 Incentive Share Option Plan, as amended and restated on September 4, 2019 (the “2015 Plan”). In addition, the number of shares reserved for issuance under the 2020 Plan is subject to increase for awards previously issued under the 2015 Plan which are forfeited or lapse unexercised. Annually, on the first day of each calendar year beginning on January 1, 2021 and ending on and including January 1, 2030, the reserve will be increased by an amount equal to the lesser of (A) 5% of the shares outstanding (on an as-converted basis) on the last day of the immediately preceding fiscal year and (B) such smaller number of shares as determined by the Company’s board of directors, provided that no more than 3,650,000 shares may be issued upon the exercise of incentive stock options. On January 1, 2024, the 2020 Plan share pool was increased by 3,508,185 shares, equal to 5% of the aggregate number of outstanding common stock as of December 31, 2023. As of September 30, 2024, there were 5,005,622 shares of common stock available for future grants.
2020 Employee Stock Purchase Plan
On July 2, 2020, the Company's board of directors adopted and the Company's stockholders approved the 2020 Employee Stock Purchase Plan (the "2020 ESPP"), which became effective immediately prior to the effectiveness of the registration statement for the Company's IPO in 2020. The total shares of common stock initially reserved for issuance under the 2020 ESPP is limited to 1,000,000 shares. In addition, the number of shares available for issuance under the 2020 ESPP will be increased on January 1 of each calendar year beginning in 2021 and ending in and including 2030, by an amount equal to the lesser of (A) 1,000,000 shares, (B) 1% of the shares outstanding on the final day of the immediately preceding calendar year and (C) such smaller number of shares as is determined by the board of directors. The board of directors or a committee of the board of directors will administer and will have authority to interpret the terms of the 2020 ESPP and determine eligibility of participants. On January 1, 2024, there was no increase in the 2020 ESPP share pool. As of September 30, 2024, there were no shares of common stock issued under the 2020 ESPP.
2015 Incentive Share Option Plan
In July 2015, the Company adopted the 2015 Incentive Share Option Plan ("2015 Plan"). The 2015 Plan has been amended and restated from time to time to increase the number of shares reserved for grant and to enable the grant of options to employees of the Company’s subsidiaries. Under the 2015 Plan, options to purchase common stock of the Company may be granted to employees, officers, directors and consultants of the Company. Each option granted can be exercised for one share of common stock of the Company. Options granted to employees generally vest over a period of no more than four years. The options expire ten years from the date of grant.
Pursuant to the 2015 Plan, the Company had reserved 7,312,590 shares of common stock for issuance. Effective immediately upon the approval of the 2020 Plan, the remaining shares of common stock available for future grant under the 2015 Plan were transferred to the 2020 Plan. As of September 30, 2024, there were no shares of common stock available for future grant under the 2015 Plan. Subsequent to the approval of the 2020 Plan, no additional grants will be made under the 2015 Plan and any outstanding awards under the 2015 Plan will continue with their original terms.

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Assumed Share Option Plans
As part of the acquisition of Metromile in 2022, the Company assumed the Metromile 2011 Incentive Stock Plan ("2011 Plan") and Metromile 2021 Incentive Stock Plan ("2021 Plan") (collectively referred to as "Assumed Plans"). The Company assumed equity awards of 404,207 which were granted from the respective Assumed Plans and will be settled in the Company's common stock. The remaining unallocated shares reserved under both 2011 Plan and 2021 Plan were canceled and no new awards will be granted under these Assumed Plans.
Options granted to employees and non-employees
The fair value of each option granted for the nine months ended September 30, 2024 and 2023 is estimated on the date of grant using the Black-Scholes model based on the following assumptions:
Nine Months Ended September 30,
20242023
Weighted average expected term (years)5.86.0
Risk-free interest rate4.1%4.2%
Volatility77%74%
Expected dividend yield0%0%
Expected volatility is calculated based on implied volatility from market comparisons of certain publicly traded companies and other factors. The expected term of options granted is based on the simplified method, which uses the midpoint between the vesting date and the contractual term in accordance with ASC Topic 718, “Compensation — Stock Compensation”. The risk-free interest rate is based on observed interest rates appropriate for the term of the Company’s stock options. The dividend yield assumption is based on the Company’s historical and expected future dividend payouts and may be subject to substantial change in the future.
The following tables summarize activity of stock options and restricted stock units ("RSUs"):
Stock options
Number of
Options
Weighted-
Average
Exercise
Price
Weighted-Average Remaining Contractual Term (Years)Aggregate Intrinsic Value
($ in millions)
Outstanding as of December 31, 2023
9,595,257$37.26 7.21$10.30 
Granted1,206,367 $15.94 
Exercised(33,361)$5.58 
Canceled/Forfeited
(420,702)$40.48 
Outstanding as of September 30, 2024
10,347,561$34.74 6.90$11.44 
Options exercisable as of September 30, 2024
5,555,349$29.99 5.93$9.69 
Options unvested as of September 30, 2024
4,792,212$40.26 8.02$1.75 

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Restricted Stock Units
Number of SharesWeighted Average
Grant Date
Fair Value
Outstanding as of December 31, 2023
3,568,735 $18.76 
Granted2,107,790 $16.66 
Vested(1,000,533)$19.64 
Canceled/Forfeited
(353,080)$17.15 
Outstanding as of September 30, 2024
4,322,912 $17.63 
Stock-based compensation expense
Stock-based compensation expense from stock options and RSUs, including equity awards from the Assumed Plans as discussed above and warrants (Note 10), are included and classified in the condensed consolidated statements of operations and comprehensive income as follows ($ in millions):
Three Months Ended September 30,Nine Months Ended September 30,
2024202320242023
Loss and loss adjustment expense, net$0.5 $0.8 $1.5 $2.2 
Other insurance expense0.7 0.6 1.9 1.6 
Sales and marketing (1)
3.0 1.9 7.6 4.6 
Technology development6.6 6.4 19.4 19.4 
General and administrative6.1 5.7 16.8 17.8 
Total stock-based compensation expense$16.9 $15.4 $47.2 $45.6 
(1) Includes compensation expense related to warrant shares of $2.0 million and $4.5 million for the three and nine months ended September 30, 2024, respectively and $0.9 million and $1.5 million for the three and nine months ended September 30, 2023.
Stock-based compensation expense classified by award type are included in the condensed consolidated statements of operations and comprehensive income as follows ($ in millions):
Three Months Ended September 30,Nine Months Ended September 30,
2024202320242023
Stock options$7.7 $9.1 $22.5 $29.4 
RSUs7.2 5.4 20.2 14.7 
Warrant shares2.0 0.9 4.5 1.5 
Total stock-based compensation expense$16.9 $15.4 $47.2 $45.6 
The total unrecognized expense granted to employees and non-employees outstanding at September 30, 2024 was $43.7 million for the stock options and $71.3 million for the RSUs, with a remaining weighted-average vesting period of 1.0 years for the stock options and 1.4 years for the RSUs.

20


Warrants
In connection with the Warrant Agreement as discussed in Note 10, the Company is authorized to issue 3,352,025 warrant shares with a grant date fair value of $20.37 that will vest in installments on a yearly basis in increasing amounts for a period of five years. The Company recognized compensation expense related to these equity-classified warrants in the amount of $2.0 million and $4.5 million for the three and nine months ended September 30, 2024, respectively, and $0.9 million and $1.5 million for the three and nine months ended September 30, 2023, respectively. Compensation expense is recognized over the vesting period, for each of the installments, in increasing amounts over five years and presented under “Sales and marketing expense” in the consolidated statements of operations and comprehensive income. There were 181,191 warrant shares which vested in April and were exercised as of September 30, 2024. Total unrecognized compensation expense related to these warrants for the remaining vesting period amounted to $61.3 million as of September 30, 2024.

12.    Income Taxes
The consolidated effective tax rate was (3.7)% and (2.3)% for the nine months ended September 30, 2024 and 2023, respectively. The change in effective tax rate over the two periods was predominantly reflective of the change in profit before tax of the Company's foreign jurisdictions, change in valuation allowance and change in uncertain tax positions relating to transfer pricing methodology.
The Company's unrecognized tax benefits related to tax positions, excluding penalty and interest amounted to $17.1 million and $10.9 million as of September 30, 2024 and 2023, respectively. The increase was primarily driven by the transfer pricing methodology. Interest and penalties related to unrecognized tax expense (benefits) are recognized in income tax expense, when applicable. Interest and penalties amounted to $0.8 million and $0.3 million as of September 30, 2024 and 2023, respectively. The Company's management believes it is reasonably possible that the unrecognized tax benefits could increase within the next 12 months.

13.    Net Loss per Share
Basic and diluted net loss per share attributable to common stockholders was calculated as follows:
Three Months Ended September 30,Nine Months Ended September 30,
2024202320242023
Numerator:
Net loss attributable to common stockholders ($ in millions)$(67.7)$(61.5)$(172.2)$(194.5)
Denominator:
Weighted average common shares outstanding — basic and diluted71,138,07069,753,57670,716,14069,542,342
Net loss per share attributable to common stockholders — basic and diluted$(0.95)$(0.88)$(2.44)$(2.80)
The Company’s potentially dilutive securities, which include stock options, unvested RSUs and warrants for common stock, have been excluded from the computation of diluted net loss per share as the effect would be anti-dilutive. Therefore, the weighted average number of common shares outstanding used to calculate both basic and diluted net loss per share attributable to common stockholders is the same. The Company excluded the following potential common shares, presented based on amounts outstanding at each period end, from the computation of diluted net loss per share attributable to common stockholders for the periods indicated because including them would have had an anti-dilutive effect.
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Nine Months Ended September 30,
20242023
Options to purchase common stock10,347,561 9,722,479 
Unvested restricted stock4,322,912 3,339,772 
Warrants for common stock (1)
412,969 412,969 
Total15,083,442 13,475,220 
(1) Each outstanding warrant of Metromile assumed by the Company converted automatically into warrants denominated in the Company's common stock with the number of warrants and exercise price adjusted based on the exchange ratio of 0.05263.

14.    Related Party Transactions
The Company’s Chief Executive Officer and President, both of whom are also members of the Company’s board of directors, are the two sole members of the board of directors of the Lemonade Foundation. The Company contributed 500,000 shares of common stock with a fair market value of $24.36 per share (Note 10), of which 400,000 shares were owned by the Lemonade Foundation as of September 30, 2024 and December 31, 2023. There were no outstanding amounts due to or from the Lemonade Foundation as of September 30, 2024 and December 31, 2023.

15.    Commitments and Contingencies
Litigation
The Company is occasionally a party to routine claims or litigation incidental to its business. The Company records accruals for loss contingencies with these legal matters when it is probable that a liability will be incurred, and the amount of the loss can be reasonably estimated.
The Company has a potential liability claim exposure related to Metromile for which the Company has determined that a liability associated with this matter is probable and can be reasonably estimated, and therefore has recorded a liability for this matter in accordance with ASC Topic 450, Contingencies ("ASC 450"). The Company will continue to monitor all legal issues and assess whether to accrue liability in accordance with ASC 450 based on new information and as further developments arise.
Charges and guarantees
The Company provided guarantees in an aggregate amount of $2.7 million as of September 30, 2024 and $2.7 million as of December 31, 2023 with respect to certain office leases.
Sublease
In June 2024, the Company entered into a sublease agreement for a portion of its office space in New York which commenced in June 2024 and will end in November 2025. The Company recorded an impairment charge related to the sublease of $0.3 million which reduced Right-of-Use ("RoU") assets and the related furniture and equipment and leasehold improvements, as of September 30, 2024.
In September 2023, the Company entered into a sublease agreement for its San Francisco office space which commenced in October 2023 and will end in November 2026. The Company recorded an impairment charge related to the San Francisco office sublease of $3.7 million for both the three and nine months ended September 30, 2023 which reduced the carrying value of the RoU assets and the related leasehold improvements by $2.6 million and $1.1 million as of September 30, 2023, respectively.
The impairment charges are presented under “General and administrative expenses” in the consolidated statements of operations and comprehensive income. The Company estimated the fair value of the RoU assets based on the net present value of the sublease rental income through the lease expiration date of the head lease.
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16.    Geographical Breakdown of Gross Written Premium
The Company has a single reportable segment and offers insurance coverage under the homeowners multi-peril, inland marine, general liability and private passenger auto lines of business. Gross written premium includes direct and assumed premium related to car insurance policies written in Texas, in connection with our fronting arrangement with a third party carrier in Texas. Gross written premium by jurisdiction are as follows ($ in millions):
Three Months Ended September 30,Nine Months Ended September 30,
2024202320242023
JurisdictionAmount% of GWPAmount% of GWPAmount% of GWPAmount% of GWP
California$60.8 22.6 %$52.7 24.8 %$171.4 24.5 %$144.2 25.8 %
Texas38.2 14.2 %33.7 15.8 %104.1 14.9 %91.2 16.3 %
New York28.6 10.6 %23.1 10.9 %72.4 10.3 %61.4 11.0 %
Illinois13.2 4.9 %10.9 5.1 %33.8 4.8 %27.0 4.8 %
New Jersey13.0 4.8 %10.7 5.0 %33.4 4.8 %28.5 5.1 %
Washington11.0 4.1 %7.2 3.4 %28.1 4.0 %19.4 3.5 %
Colorado8.7 3.2 %6.6 3.1 %22.8 3.3 %16.4 2.9 %
Georgia8.0 3.0 %6.6 3.1 %20.4 2.9 %17.0 3.0 %
Pennsylvania7.6 2.8 %6.2 2.9 %18.8 2.7 %14.9 2.7 %
Arizona6.3 2.3 %4.8 2.3 %17.0 2.4 %13.5 2.4 %
All other73.5 27.5 %50.3 23.6 %178.5 25.4 %125.2 22.5 %
$268.9 100.0 %$212.8 100.0 %$700.7 100.0 %$558.7 100.0 %

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes and other information included elsewhere in this Quarterly Report, Annual Report on Form 10-K, and in our other filings with the Securities and Exchange Commission ("SEC"). The discussion and analysis below includes forward-looking statements that are subject to risks, uncertainties and other factors described in the "Risk Factors" section of this Quarterly Report and our Annual Report on Form 10-K that could cause actual results to differ materially from such forward-looking statements. Additionally, our historical results are not necessarily indicative of the results that may be expected for any period in the future.
Our Business
Lemonade is rebuilding insurance from the ground up on a digital substrate and an innovative business model. By leveraging technology, data, artificial intelligence, contemporary design, and social impact, we believe we are making insurance more delightful, more affordable, and more precise. To that end, we have built a vertically-integrated company with wholly-owned insurance carriers in the United States and Europe, including the United Kingdom, and the full technology stack to power them.
A brief chat with our bot, AI Maya, is all it takes to get covered with renters, homeowners, pet, car or life insurance, and we expect to offer a similar experience for other insurance products over time. Claims are filed by chatting with another bot, AI Jim, who pays claims in as little as two seconds. This breezy experience belies the extraordinary technology that enables it: a state-of-the-art platform that spans from marketing to underwriting, customer care to claims processing, finance to regulation. Our architecture melds artificial intelligence with the human kind, and learns from the prodigious data it generates to become even better at delighting customers and evaluating risks.
In addition to digitizing insurance end-to-end, we also reimagined the underlying business model to minimize volatility while maximizing trust and social impact. To lessen the volatility inherent in an industry directly impacted by the weather, we utilize several forms of reinsurance, with the goal of dampening the impact on our gross margin. The result is that excess claims are generally offloaded to reinsurers, while excess premiums can be donated to nonprofits selected by our customers as part of our annual "Giveback". These two ballasts, reinsurance and Giveback, reduce volatility, while creating an aligned, trustful, and values-rich relationship with our customers.
Customer Investment Agreement

On June 28, 2023, we entered into a Customer Investment Agreement (the “Agreement”), with GC Customer Value Arranger, LLC (a General Catalyst company) ("GC"). Under the Agreement, up to $150 million of financing will be provided for our sales and marketing growth efforts. The Agreement has a commitment period of 18 months which expires on December 31, 2024 ("Original Commitment End Date"). Under the Agreement, subject to certain terms and conditions specified therein, at the start of each growth period, an Investment Amount of up to 80% of our growth spend (the "Investment Amount") will be advanced by GC. During each growth period, we will repay each Investment Amount including a 16% rate of return, based upon an agreed schedule. Once fully repaid, we will retain all future reference income related to each respective Investment Amount.

On January 8, 2024, we entered into an Amended and Restated Customer Investment Agreement where GC will provide up to an additional $140 million of financing for our sales and marketing growth efforts beginning from the Original Commitment End Date through December 31, 2025. This was further amended and restated in April 2024 and June 2024 to clarify certain provisions with no changes to material terms and conditions (collectively, the "Amended and Restated Agreement"). The Amended and Restated Agreement as of June 2024 contains standard customary representations, warranties and covenants by the parties, and will continue in effect unless terminated by any party pursuant to its terms.

As of September 30, 2024, we had $67.4 million of outstanding borrowings under the Agreement. We incurred interest expense of $1.8 million and $3.4 million for the three and nine months ended September 30, 2024, respectively and such interest is included in “General and administrative expense” in the unaudited condensed consolidated statements of operations and comprehensive income.
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Key Factors and Trends Affecting our Operating Results
Our financial condition and results of operations have been, and will continue to be, affected by a number of factors, including the following:
Seasonality
Seasonal patterns can impact both our rate of customer acquisition and the incurrence of claims and losses.
Based on historical experience, existing and potential customers move more frequently in the third quarter, compared to the rest of the calendar year. As a result, we may see greater demand for new or expanded insurance coverage, and increased online engagement resulting in proportionately more growth during the third quarter. We expect that as we grow our customers, expand geographically, and launch new products, the impact of seasonal variability on our rate of growth may decrease.
Additionally, seasonal weather patterns impact the level and amount of claims we receive. These patterns include hurricanes, wildfires, and coastal storms in the fall, cold weather patterns, and changing home heating needs in the winter, and tornados and hailstorms in the spring and summer. The mix of geographic exposure and products within our customer base impacts our exposure to these weather patterns.

See “Risk Factors — Risks Relating to our Industry — Severe weather events and other catastrophes, including the effects of climate change and global pandemics, are inherently unpredictable and may have a material adverse effect on our financial results and financial condition.” in our Annual Report on Form 10-K.
Current Macroeconomic Environment
General economic inflation has increased and there is a risk of inflation remaining elevated for an extended period. We anticipate the effects of inflation impacting our investment portfolio, pricing of our products and in estimating reserves for unpaid claims and claim expenses. The actual effects of the current and potential future increase in inflation on our results remains to be unknown and cannot be estimated with precision.
We conduct certain of our operations in Israel and therefore our results may be adversely affected by political, economic and military instability and conflict in Israel and the surrounding region. This evolving conflict has increased global economic and political uncertainty. There is still uncertainty regarding the extent to which the war and its broader macroeconomic implications will impact our operations in Israel. We will continue to evaluate the extent to which this may impact our business, financial condition, or results of operations. These and other uncertainties could result in changes to our current expectations.
See "Risk Factors — Risks Relating to Our BusinessWe conduct certain of our operations in Israel and therefore our results may be adversely affected by political, economic and military instability in Israel and the surrounding region." in our Annual Report on Form 10-K.

Reinsurance

We obtain reinsurance to help manage our exposure to property and casualty insurance risks. Although our reinsurance counterparties are liable to us according to the terms of the reinsurance policies, we remain primarily liable to our policyholders as the direct insurers on all risks reinsured, see "Risk Factors - Risks Relating to Our Business" and "Risks relating to our Industry" in our Annual Report on Form 10-K. As a result, reinsurance does not eliminate the obligation of our insurance subsidiaries to pay all claims, and we are subject to the risk that one or more of our reinsurers will be unable or unwilling to honor its obligations, that the reinsurers will not pay in a timely fashion, or that our losses are so large that they exceed the limits inherent in our reinsurance contracts, each of which could have a material effect on our results of operations and financial condition. Furthermore, reinsurance may be unavailable at current levels and prices, which may limit our ability to write new business.

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We maintain proportional reinsurance contracts which cover all of the Company's products and geographies, and transferred, or “ceded,” a specified percentage of the premium to reinsurers ("Proportional Reinsurance Contracts"). We also opted to manage the remaining percentage of the business with alternative forms of reinsurance through non-proportional reinsurance contracts ("Non-Proportional Reinsurance Contracts").
Our proportional reinsurance contracts provides 55% protection on covered risks. We agreed to the terms of our reinsurance program effective July 1, 2023 through June 30, 2024 which includes Whole Account Quota Share Reinsurance Contracts by and among the Company, Lemonade Insurance Company ("LIC"), Metromile Insurance Company ("MIC") and Lemonade Insurance N.V. ("LINV"), and each of Hannover Ruck SE, MAPFRE Re, and Swiss Reinsurance America Corporation (collectively referred to as “Reinsurers”) ("Reinsurance Program"). Under the Reinsurance Program, which covers all products and geographies, the Company transfers, or "cedes," a share of premium to the Reinsurers. In exchange, these Reinsurers pay us a ceding commission on all premiums ceded to the Reinsurers, in addition to funding the corresponding claims, subject to certain limitations, including but not limited to, the exclusion of hurricane losses, and a limit of $5,000,000 per occurrence for non-hurricane catastrophe losses. The overall share of proportional reinsurance under the Reinsurance Program is approximately 55% of premium. The Per Risk Cap across the contracts is $750,000. Additionally, the contracts are subject to loss ratio caps and variable ceding commission levels, which align our interests with those of its Reinsurers. We renewed the Reinsurance Program effective July 1, 2024 and will expire on June 30, 2025, with similar terms to the contracts that expired on June 30, 2024, except for the limit per occurrence for non-hurricane catastrophe losses which increased to $10,000,000.
LIC and LINV entered into a Property Per Risk Excess of Loss Reinsurance Contract with a panel of reinsurance companies (the "PPR Contract"), and LIC entered into an Automatic Facultative Property Per Risk Excess of Loss Reinsurance Contract with Arch Re (the "Automatic Facultative PPR Contract"), each effective from July 1, 2023 until June 30, 2024. Under the PPR Contract, claims in excess of $750,000 are 100% ceded up to a maximum recovery of $2,250,000, subject to certain limitations. The PPR Contract was renewed at similar terms effective July 1, 2024 through June 30, 2025. The Automatic Facultative PPR Contract, in which claims in excess of $3,000,000 are 100% ceded with a potential recovery of at least $10,000,000, subject to certain limitations, expired on June 30, 2024, and was not renewed.

MIC entered into a Quota Share reinsurance agreement effective January 1, 2022 and expired on June 30, 2023. Under the terms of the agreement, the Company ceded 30% of premiums and losses to reinsurers.

We also entered into a reinsurance program to protect against catastrophe risk in the U.S. that exceed $80,000,000 in losses effective July 1, 2022 and expired on June 30, 2023.

We also entered into an Excess of Loss Reinsurance Contract (the "XOL reinsurance contract") through a captive in Bermuda in which we have a variable interest, primarily to cover catastrophe risk over the initial $50,000,000 limit for each loss occurrence, and further subject to a limit of $80,000,000 for each loss occurrence and in aggregate, primarily on property and car business underwritten by LIC. This XOL reinsurance contract became effective July 1, 2023 and expired on June 30, 2024. We have renewed the XOL reinsurance contract effective July 1, 2024 and will expire on June 30, 2025, at similar terms and is expanded to include risks written by MIC.

We are also exposed to some risks from MIC ceded through the Quota Share Reinsurance Contract (the "QS reinsurance contract") which is retained in a captive subsidiary, Lemonade Re SPC in the Cayman Islands. This QS reinsurance contract became effective July 1, 2023, and shall remain in force for an indefinite period until terminated by either party.

Through our captives, we are exposed to the risk of natural catastrophe events and other covered risks under the reinsurance agreements from assumed risks from policies underwritten by both LIC and MIC.
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Components of our Results of Operations
Revenue
Gross Written Premium
Gross written premium is the amount received, or to be received, for insurance policies written by us during a specific period of time without reduction for premiums ceded to reinsurers. Gross written premium includes direct and assumed premium. We began assuming premium related to car insurance policies written in Texas in December 2022, in connection with our fronting arrangement with a third party carrier in Texas. We also include gross written premium from the sale of pay-per-mile car insurance policies within the United States following the Metromile Acquisition in July 2022. The volume of our gross written premium in any given period is generally influenced by new business submissions, binding of new business submissions into policies, renewals of existing policies, and average size and premium rate of bound policies.
Ceded Written Premium
Ceded written premium is the amount of gross written premium ceded to reinsurers. We enter into reinsurance contracts to limit our exposure to potential losses as well as to provide additional capacity for growth. Ceded written premium is earned over the reinsurance contract period in proportion to the period of risk covered. The volume of our ceded written premium is impacted by the level of our gross written premium and any decision we make to increase or decrease reinsurance limits, retention levels, and co-participation. Our ceded written premium can also be impacted significantly in certain periods due to changes in reinsurance agreements. In periods where we start or stop ceding a large volume of our premium, ceded written premium may increase or decrease significantly compared to prior periods and these fluctuations may not be indicative of future trends.
Gross Earned Premium
Gross earned premium represents the earned portion of our gross written premium. Gross earned premium includes direct and assumed premium. Our insurance policies generally have a term of one year and premium is earned pro rata over the term of the policy. In addition, we also include earned premiums from the pay-per-mile car insurance policies which are written for six-month terms. Premium for the policy provides a base rate per month for the entire policy term upon binding of the policy plus a per-mile rate multiplied by the miles driven each day (based on data from the telematics device, subject to a daily maximum).
Ceded Earned Premium
Ceded earned premium is the amount of gross earned premium ceded to reinsurers.
Net Earned Premium
Net earned premium represents the earned portion of our gross written premium, less the earned portion that is ceded to third-party reinsurers under our reinsurance agreements. Premium is earned pro rata over the term of the policy, which is generally one year. Net earned premium from the pay-per-mile car insurance policies is earned over the term of the policy which is written for six-month terms.
Ceding Commission Income
Ceding commission income is commission we receive based on the premium ceded to third-party reinsurers to reimburse us for acquisition and underwriting expenses. We earn commissions on reinsurance premium ceded in a manner consistent with the recognition of the earned premium on the underlying insurance policies, on a pro-rata basis over the terms of the policies reinsured. The portion of ceding commission income which represents reimbursement of successful acquisition costs related to the underlying policies is recorded as an offset to other insurance expense.
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Net Investment Income
Net investment income represents interest earned from fixed maturity securities, short term and other investments, net of investment fees paid to the Company's investment manager. Our cash and invested assets are primarily fixed maturity securities, and may also include cash and cash equivalents, equity securities, and short-term investments. The principal factors that influence net investment income are the size of our investment portfolio and the yield on that portfolio. As measured by amortized cost (which excludes changes in fair value, such as changes in interest rates), the size of our investment portfolio is mainly a function of our invested equity capital along with premium we receive from our customers less payments on customer claims. Over time, we expect that net investment income will represent a more meaningful component of our results of operations.
Commission and Other Income
Commission income consists of commissions earned for policies placed with third-party insurance companies where we have no exposure to the insured risk. Such commission is recognized on the effective date of the associated policy which is when the performance obligation is completed. Other income primarily consists of fees collected from policyholders relating to installment premiums. These fees are recognized at the time each policy installment is billed. Other income also includes net realized gains or losses from the sale of investments and sublease income.
Expense
Loss and Loss Adjustment Expense, Net
Loss and loss adjustment expense ("LAE"), net represent the costs incurred for losses net of amounts ceded to reinsurers. We enter into reinsurance contracts to limit our exposure to potential losses as well as to provide additional capacity for growth. These expenses are a function of the size and term of the insurance policies we write and the loss experience associated with the underlying risks. Loss and LAE are based on an actuarial analysis of the estimated losses, including losses incurred during the period and changes in estimates from prior periods. Loss and LAE may be paid out over a period of years. Certain policies we write are subject to catastrophe losses. Catastrophe losses are losses resulting from events involving claims and policyholders, including earthquakes, hurricanes, floods, storms, terrorist acts or other aggregating events that are designated by internationally recognized organizations, such as Property Claims Services, that track and report on insured losses resulting from catastrophic events.
Other Insurance Expense
Other insurance expense consists primarily of amortization of commissions and premium taxes incurred on the successful acquisition of business written on a direct basis, and credit card processing fees not charged to our customers. Other insurance expense also includes employee compensation, including stock-based compensation and benefits, of our underwriting teams as well as allocated occupancy costs and related overhead based on headcount. Other insurance expense is offset by the portion of ceding commission income which represents reimbursement of successful acquisition costs related to the underlying policies.
Sales and Marketing
Sales and marketing includes third-party marketing, advertising, branding, public relations and sales expenses. Sales and marketing also includes associated employee compensation and benefits, including employee and non-employee stock- based compensation and benefits, as well as allocated occupancy costs and related overhead based on headcount. Sales and marketing costs are expensed as incurred.
We plan to continue to invest in sales and marketing to attract and acquire new customers and increase our brand awareness. We expect that, in the long-term, our sales and marketing costs will decrease as a percentage of revenue as we continue to drive customer acquisition efficiencies and as the proportion of renewals to our total business increases.

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Technology Development
Technology development consists of employee compensation, including stock-based compensation and benefits, and expenses related to vendors engaged in product management, design, development and testing of our websites and products. Technology development also includes allocated occupancy costs and related overhead based on headcount. We expense technology development costs as incurred, except for costs that are capitalized related to internal-use software development projects and subsequently depreciated over the expected useful life of the developed software.
We expect to continue to incur product technology development costs, a portion of which will be capitalized, to continue to grow in the foreseeable future as we identify opportunities to invest in the development of new products and internal tools and enhancement of our existing products and technologies that we believe will drive the long-term profitability of the business.
General and Administrative
General and administrative includes employee compensation, including stock-based compensation and benefits for executive, finance, accounting, legal, business operations, and other administrative personnel. In addition, general and administrative includes outside professional services, non-income based taxes, insurance, charitable donations, bad debt expense and allocated occupancy costs and related overhead based on headcount. Depreciation and amortization expense, interest expense on borrowings under the financing agreement, and non-recurring items, if any, are also recorded as a component of general and administrative.
We expect to continue to incur incremental general and administrative costs to support our global operational growth and enhancements to support our reporting and planning functions.
We have incurred and expect to continue to incur significant additional general and administrative expense as a result of operating as a public company, including expenses related to compliance with the rules and regulations of the SEC and the listing standards of the New York Stock Exchange and New York Stock Exchange American, additional corporate, director and officer insurance expenses, greater investor relations expenses and increased legal, audit and consulting fees.
Income Tax Expense
Our provision for income taxes consists primarily of foreign income taxes related to income generated by our subsidiaries organized under the laws of the Netherlands and Israel. As we expand the scale of our international business activities, any changes in the U.S. and foreign taxation of such activities may increase our overall provision for income taxes in the future.
We have a valuation allowance for our U.S. deferred tax assets, including federal and state net operating losses and capital losses. We expect to maintain this valuation allowance until it becomes more likely than not, that the benefit of our federal and state deferred tax assets will be realized through expected future taxable income in the United States.

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Key Operating and Financial Metrics
We regularly review a number of metrics, including the following key operating and financial metrics, to evaluate our business, measure our performance, identify trends in our business, prepare financial projections and make strategic decisions. We believe these non-GAAP and operational measures are useful in evaluating our performance, in addition to our financial results prepared in accordance with U.S. Generally Accepted Accounting Principles ("U.S. GAAP"). See “—Non-GAAP Financial Measures” for additional information on non-GAAP financial measures and a reconciliation to the most directly comparable financial measures prepared in accordance with U.S. GAAP.
The following table sets forth these metrics as of and for the periods presented:
Three Months Ended September 30,Nine Months Ended September 30,
2024202320242023
($ in millions, except
Premium per customer)
($ in millions, except
Premium per customer)
Customers (end of period)2,313,113 1,984,154 2,313,113 1,984,154 
In force premium (end of period)$889.1 $719.0 $889.1 $719.0 
Premium per customer (end of period)$384 $362 $384 $362 
Annual dollar retention (end of period)
87 %85 %87 %85 %
Total revenue$136.6 $114.5 $377.7 $314.3 
Gross earned premium$213.1 $173.2 $600.9 $491.3 
Gross profit$37.5 $21.9 $103.0 $50.5 
Adjusted gross profit$38.6 $24.9 $108.7 $62.1 
Net loss$(67.7)$(61.5)$(172.2)$(194.5)
Adjusted EBITDA$(49.0)$(40.2)$(125.9)$(143.7)
Gross profit margin27 %19 %27 %16 %
Adjusted gross profit margin28 %22 %29 %20 %
Ratio of Adjusted Gross Profit to Gross Earned Premium18 %14 %18 %13 %
Gross loss ratio73 %83 %77 %88 %
Net loss ratio81 %88 %80 %93 %

Customers
We define customers as the number of current policyholders underwritten by us or placed by us with third-party insurance partners (who pay us recurring commissions) as of the period end date. A customer that has more than one policy counts as a single customer for the purposes of this metric. We view customers as an important metric to assess our financial performance because customer growth drives our revenue, expands brand awareness, deepens our market penetration, creates additional upsell and cross-sell opportunities, and generates additional data to continue to improve the functioning of our platform.
In Force Premium
We define in force premium ("IFP"), as the aggregate annualized premium for customers as of the period end date. At each period end date, we calculate IFP as the sum of:
i)In force written premium — the annualized premium of in force policies underwritten by us; and
ii)In force placed premium — the annualized premium of in force policies placed with third party insurance companies for which we earn a recurring commission payment. In force placed premium currently reflects approximately 2% of IFP.
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The annualized value of premiums is a legal and contractual determination made by assessing the contractual terms with our customers. The annualized value of contracts is not determined by reference to historical revenues, deferred revenues or any other U.S. GAAP financial measure over any period. IFP is not a forecast of future revenues nor is it a reliable indicator of revenue expected to be earned in any given period. We believe that our calculation of IFP is useful to analysts and investors because it captures the impact of growth in customers and premium per customer at the end of each reported period, without adjusting for known or projected policy updates, cancellations, rescissions, and non-renewals. We use IFP because we believe it gives our management useful insight into the total reach of our platform by showing all in force policies underwritten and placed by us. Other companies, including companies in our industry, may calculate IFP differently or not at all, which reduces the usefulness of IFP as a tool for comparison.
Premium per customer
We define premium per customer as the average annualized premium customers pay for products underwritten by us or placed by us with third-party insurance partners. We calculate premium per customer by dividing IFP by customers. We view premium per customer as an important metric to assess our financial performance because premium per customer reflects the average amount of money our customers spend on our products, which helps drive strategic initiatives.
Annual Dollar Retention
We define Annual Dollar Retention ("ADR"), as the percentage of IFP retained over a twelve month period, inclusive of changes in policy value, changes in number of policies, changes in policy type, and churn. To calculate ADR we first aggregate the IFP from all active customers at the beginning of the period and then aggregate the IFP from those same customers at the end of the period. ADR is then equal to the ratio of ending IFP to beginning IFP. Beginning in the third quarter of 2023, ADR included Metromile. We believe that our calculation of ADR is useful to analysts and investors because it captures our ability to retain customers and sell additional products and coverage to them over time. We view ADR as an important metric to measure our ability to provide a delightful end-to-end customer experience, satisfy our customers’ evolving insurance needs and maintain our customers’ trust in our products. Our customers become more valuable to us every year they continue to subscribe to our products. Other companies, including companies in our industry, may calculate ADR differently or not at all, which reduces the usefulness of ADR as a tool for comparison.
Gross Earned Premium
Gross earned premium is the earned portion of our gross written premium. Gross earned premium includes direct and assumed premium. We also began assuming premium related to car insurance policies written in Texas in December 2022, in connection with our fronting arrangement with a third party carrier in Texas.
We use this operating metric as we believe it gives our management and other users of our financial information useful insight into the gross economic benefit generated by our business operations and allows us to evaluate our underwriting performance without regard to changes in our underlying reinsurance structure. See “— Components of Our Results of Operations — Revenue — Gross Earned Premium.”
Unlike net earned premium, gross earned premium excludes the impact of premiums ceded to reinsurers, and therefore should not be used as a substitute for net earned premium, total revenue, or any other measure presented in accordance with U.S. GAAP.
Gross Profit
Gross profit is calculated in accordance with U.S. GAAP as total revenue less loss and loss adjustment expense, net, other insurance expense, and depreciation and amortization (allocated to cost of revenue).
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Adjusted Gross Profit
We define adjusted gross profit, a non-GAAP financial measure, as:
Gross profit, excluding net investment income, interest income and other income, interest expense, and net realized gains and losses on sale of investments, plus
Employee-related expense, plus
Professional fees and other, plus
Depreciation and amortization (allocated to cost of revenue).
See “— Non-GAAP Financial Measures” for a reconciliation of total revenue to adjusted gross profit.
Adjusted EBITDA
We define adjusted EBITDA, a non-GAAP financial measure, as net loss excluding the impact of income tax expense, depreciation and amortization, stock-based compensation, interest income, interest expense, net investment income, net realized gains and losses on sale of investments, change in fair value of warrants liability, amortization of fair value adjustment on insurance contract intangible liability relating to the Metromile Acquisition, and other non-cash adjustments and other transactions that we consider to be unique in nature. See “— Non-GAAP Financial Measures” for a reconciliation of net loss to adjusted EBITDA in accordance with U.S. GAAP.
Gross Profit Margin
We define gross profit margin, expressed as a percentage, as the ratio of gross profit to total revenue.
Adjusted Gross Profit Margin
We define adjusted gross profit margin, a non-GAAP financial measure, expressed as a percentage, as the ratio of adjusted gross profit to total revenue. See “— Non-GAAP Financial Measures.”
Ratio of Adjusted Gross Profit to Gross Earned Premium
We define Ratio of Adjusted Gross Profit to Gross Earned Premium, a non-GAAP financial measure, expressed as a percentage, as the ratio of adjusted gross profit to gross earned premium. Our Ratio of Adjusted Gross Profit to Gross Earned Premium provides management with useful insight into our operating performance. See “— Non-GAAP Financial Measures.”
Gross Loss Ratio
We define gross loss ratio, expressed as a percentage, as the ratio of losses and loss adjustment expense to gross earned premium.
Net Loss Ratio
We define net loss ratio, expressed as a percentage, as the ratio of losses and loss adjustment expense, less amounts ceded to reinsurers, to net earned premium.

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Results of Operations
Comparison of the Three Months Ended September 30, 2024 and 2023
Three Months Ended September 30,
20242023Change% Change
($ in millions)
Revenue
Net earned premium$95.7 $86.6 $9.1 11 %
Ceding commission income24.0 16.7 7.3 44 %
Net investment income8.9 7.0 1.9 27 %
Commission and other income8.0 4.2 3.8 90 %
Total revenue136.6 114.5 22.1 19 %
Expense
Loss and loss adjustment expense, net77.9 75.9 2.0 %
Other insurance expense19.8 15.1 4.7 31 %
Sales and marketing51.4 24.4 27.0 111 %
Technology development21.9 21.8 0.1 — %
General and administrative31.4 36.9 (5.5)(15 %)
Total expense202.4 174.1 28.3 16 %
Loss before income taxes(65.8)(59.6)(6.2)10 %
Income tax expense1.9 1.9 — — %
Net loss$(67.7)$(61.5)$(6.2)10 %

Net Earned Premium

Net earned premium increased $9.1 million, or 11%, to $95.7 million for the three months ended September 30, 2024 compared to the three months ended September 30, 2023, primarily due to the earning of increased gross written premium and the impact of our reinsurance program to ceded written premium under our Proportional Reinsurance Contracts as discussed above under "Reinsurance."
Three Months Ended September 30,
20242023Change% Change
($ in millions)
Gross written premium$268.9 $212.8 $56.1 26 %
Ceded written premium(153.4)(118.0)(35.4)30 %
Net written premium$115.5 $94.8 $20.7 22 %
Gross written premium increased $56.1 million, or 26%, to $268.9 million for the three months ended September 30, 2024 compared to the three months ended September 30, 2023. The increase was primarily due to a 17% increase in net added customers year over year driven by the success of our digital advertising campaigns and partnerships. We also continued to expand our geographic footprint and product offerings. In addition, we also saw a 6% increase in premium per customer year over year due to an increasing prevalence of multiple policies per customer, growth in the overall average policy value, and continued shift in the mix of underlying products toward higher value policies. Assumed premium related to car insurance policies written in Texas through our fronting arrangement with a third party carrier in Texas also contributed to the increase in gross written premium during the period.

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Ceded written premium increased $35.4 million, or 30%, to $153.4 million for the three months ended September 30, 2024 compared to the three months ended September 30, 2023, primarily due to growth in business across all products and the impact of our reinsurance agreements. Under our proportional reinsurance program, our overall share is approximately 55% of premium and are subject to loss ratio caps and variable commission. Other non-proportional reinsurance contracts were renewed with terms similar to the expired contracts. See "Reinsurance" above for further information.

Net written premium increased $20.7 million, or 22%, to $115.5 million for the three months ended September 30, 2024 compared to the three months ended September 30, 2023 due to factors noted above.

The table below shows the amount of premium we earned on a gross and net basis. Ceded earned premium as a percentage of gross earned premium increased to 55% for the three months ended September 30, 2024, as compared to 50% for the three months ended September 30, 2023 primarily due to the impact of reinsurance terms under the proportional reinsurance contracts as discussed above.

Three Months Ended September 30,
20242023Change% Change
($ in millions)
Gross earned premium$213.1 $173.2 $39.9 23 %
Ceded earned premium(117.4)(86.6)(30.8)36 %
Net earned premium$95.7 $86.6 $9.1 11 %

Ceding Commission Income
Ceding commission income increased $7.3 million, or 44%, to $24.0 million for the three months ended September 30, 2024 compared to the three months ended September 30, 2023, consistent with the increase in ceded earned premium during the period.
Net Investment Income
Net investment income increased $1.9 million, or 27% to $8.9 million for the three months ended September 30, 2024 compared to the three months ended September 30, 2023. The increase was primarily driven by the diversification of the Company's investment portfolio with higher returns, offset by investment expenses of $0.1 million. We mainly invest in cash, money market funds, U.S. Treasury bills, corporate debt securities, asset-backed securities, notes and other obligations issued or guaranteed by the U.S. Government.
Commission and Other Income
Commission and other income increased $3.8 million, or 90%, to $8.0 million for the three months ended September 30, 2024 compared to the three months ended September 30, 2023, primarily due to growth in premiums placed with third-party insurance companies during the period, installment fees and sublease income from our New York and San Francisco office space.
Loss and Loss Adjustment Expense, Net
Loss and LAE, net increased $2 million, or 3%, to $77.9 million for the three months ended September 30, 2024 compared to the three months ended September 30, 2023. The increase was in line with growth in premium, increased claim costs and the impact of an extra-contractual car claim liability related to pre-acquisition Metromile, offset by reserve releases due to better than expected loss reserve emergence on homeowners multi-peril and pet lines of business. Net incurred losses during the third quarter of 2024 also included $5.0 million from hurricane Helene and $4.0 million from hurricane Beryl.
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Other Insurance Expense
Other insurance expense increased $4.7 million, or 31%, to $19.8 million for the three months ended September 30, 2024 compared to the three months ended September 30, 2023 consistent with growth in earned premium. Amortization of deferred acquisition costs, net of ceding commissions increased $1.3 million, or 54% as compared to the three months ended September 30, 2023. Professional fees and other services increased $1.3 million, or 29%, as compared to the three months ended September 30, 2023 primarily in support of growth and expansion initiatives. Credit card processing fees increased $1.1 million, or 31%, as compared to the three months ended September 30, 2023 as a result of the increase in customers and associated premium.
Sales and Marketing
Sales and marketing expense increased $27.0 million, or 111%, to $51.4 million for the three months ended September 30, 2024 compared to the three months ended September 30, 2023 primarily due to brand and performance advertising, which is the largest component of our sales and marketing expenses. Expense related to advertising, other customer acquisition channels and partner payments increased $25.9 million, or 185%, as compared to the three months ended September 30, 2023. Compensation expense related to the warrant shares increased $1.1 million, or 122%, as compared to the three months ended September 30, 2023.
Technology Development
Technology development expense increased $0.1 million, or less than 1%, to $21.9 million for the three months ended September 30, 2024 compared to the three months ended September 30, 2023. Employee-related expense, including stock-based compensation, and net of capitalized costs for the development of internal-use software, increased $0.3 million, or 2%, as compared to the three months ended September 30, 2023. Hosting and development costs decreased $0.3 million or 13%, as compared to the three months ended September 30, 2023.
General and Administrative
General and administrative expense decreased $5.5 million, or 15%, to $31.4 million for the three months ended September 30, 2024 compared to the three months ended September 30, 2023. During the third quarter of 2023, we recognized an asset impairment on the right-of-use asset related to the San Francisco office in the amount of $3.7 million and an accrual for a potential liability claim of $3.0 million related to Metromile. Employee-related expense, including stock-based compensation, increased $0.4 million, or 3%, as compared to three months ended September 30, 2023. Legal, accounting and other professional fees decreased $0.5 million, or 20%, compared to three months ended September 30, 2023. Bad debt expense increased by $0.5 million or 24%, as compared to three months ended September 30, 2023.
Income Tax Expense
Income tax expense remained at $1.9 million for the three months ended September 30, 2024 and three months ended September 30, 2023.
Net Loss
Net loss increased $6.2 million, or 10%, to $67.7 million for the three months ended September 30, 2024 compared to the three months ended September 30, 2023 due to the factors described above.
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Comparison of the Nine Months Ended September 30, 2024 and 2023
Nine Months Ended September 30,
20242023Change% Change
($ in millions)
Revenue
Net earned premium$269.4 $231.3 $38.1 16 %
Ceding commission income61.5 51.4 10.1 20 %
Net investment income24.6 17.6 7.0 40 %
Commission and other income22.2 14.0 8.2 59 %
Total revenue377.7 314.3 63.4 20 %
Expense
Loss and loss adjustment expense, net214.3 215.4 (1.1)(1 %)
Other insurance expense55.9 43.7 12.2 28 %
Sales and marketing118.6 77.4 41.2 53 %
Technology development64.0 67.7 (3.7)(5 %)
General and administrative91.0 100.3 (9.3)(9 %)
Total expense543.8 504.5 39.3 %
Loss before income taxes(166.1)(190.2)24.1 (13 %)
Income tax expense6.1 4.3 1.8 42 %
Net loss$(172.2)$(194.5)$22.3 (11 %)
Net Earned Premium
Net earned premium increased $38.1 million, or 16%, to $269.4 million for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 primarily due to the earning of increased gross written premium and the impact of our reinsurance program to our ceded written premium as discussed above under "Reinsurance."
Nine Months Ended September 30,
20242023Change% Change
($ in millions)
Gross written premium$700.7 $558.7 $142.0 25 %
Ceded written premium(389.4)(293.4)(96.0)33 %
Net written premium$311.3 $265.3 $46.0 17 %
Gross written premium increased $142.0 million, or 25%, to $700.7 million for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023. The increase was primarily due to a 17% increase in net added customers year over year driven by the success of our digital advertising campaigns and partnerships. We also continued to expand our geographic footprint and product offerings. We also saw a 6% increase in premium per customer year over year primarily due to an increasing prevalence of multiple policies per customer, growth in the overall average policy value, and continued shift in the mix of underlying products toward higher value policies. Assumed premium related to car insurance policies written in Texas from our fronting arrangement with a third party carrier in Texas also contributed to the increase in gross written premium during the period.
Ceded written premium increased $96.0 million, or 33%, to $389.4 million for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 primarily due to growth in business across all products and the impact of our reinsurance agreements. Under our proportional reinsurance program, our overall share is approximately 55% of premium and are subject to loss ratio caps and variable commission. Other non-proportional reinsurance contracts were renewed with terms similar to the expired contracts. See "Reinsurance" above for further information.

Net written premium increased $46.0 million, or 17%, to $311.3 million for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 due to factors noted above.

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The table below shows the amount of premium we earned on a gross and net basis. Ceded earned premium as a percentage of gross earned premium slightly increased to 55% for the nine months ended September 30, 2024, as compared to 53% for the nine months ended September 30, 2023 consistent with the total participation under the proportional reinsurance program.

Nine Months Ended September 30,
20242023Change% Change
($ in millions)
Gross earned premium$600.9 $491.3 $109.6 22 %
Ceded earned premium(331.5)(260.0)(71.5)28 %
Net earned premium$269.4 $231.3 $38.1 16 %

Ceding Commission Income
Ceding commission income increased $10.1 million, or 20%, to $61.5 million for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023, consistent with the increase in ceded earned premium..
Net Investment Income
Net investment income increased $7.0 million, or 40%, to $24.6 million for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023. The increase was primarily driven by the diversification of the Company's investment portfolio with higher returns offset by investment expenses of $0.2 million. We mainly invest in cash, money market funds, U.S. Treasury bills, corporate debt securities, asset-backed securities, notes and other obligations issued or guaranteed by the U.S. Government.
Commission and Other Income
Commission and other income increased $8.2 million, or 59%, to $22.2 million for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023, due to growth on premium placed with third-party insurance companies during the period, installment fees and sublease income from our New York and San Francisco office space.
Loss and Loss Adjustment Expense, Net
Loss and LAE, net decreased $1.1 million, or 1%, to $214.3 million for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023. The decrease was primarily due to improvement in overall loss ratio driven by reduced impact of catastrophe events, reserve releases due to better than expected loss reserve emergence on homeowners multi-peril and pet lines of business, and reduction in loss adjustment expenses. Incurred loss and LAE also included an extra-contractual car claim liability related to pre-acquisition Metromile. Net incurred losses during the third quarter of 2024 also included $5.0 million from hurricane Helene and $4.0 million from hurricane Beryl.
Other Insurance Expense
Other insurance expense increased $12.2 million, or 28%, to $55.9 million for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023. Professional fees and other services increased $3.5 million, or 26%, as compared to the nine months ended September 30, 2023, primarily in support of growth and expansion initiatives. Credit card fees also increased $3.2 million, or 33%, as compared to the nine months ended September 30, 2023, as a result of the increase in customers and associated premium. Employee-related expense, including stock-based compensation, increased $2.9 million, or 22%, as compared to the nine months ended September 30, 2023. Amortization of deferred acquisition costs, net of ceding commissions increased $2.7 million, or 38%, as compared to the nine months ended September 30, 2023.

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Sales and Marketing
Sales and marketing expense increased $41.2 million, or 53%, to $118.6 million for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023. Expense related to advertising, other customer acquisition channels and partner payments increased $40.5 million, or 90%, as compared to the nine months ended September 30, 2023. Compensation expense related to the warrant shares increased $3.0 million, or 200%, as compared to the nine months ended September 30, 2023. Employee-related expense, including stock-based compensation, decreased by $3.8 million, or 15% as compared to the nine months ended September 30, 2023.
Technology Development
Technology development expense decreased $3.7 million, or 5%, to $64.0 million for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023. Employee-related expense, including stock-based compensation, net of capitalized costs for the development of internal-use software, decreased $2.3 million, or 4%, as compared to the nine months ended September 30, 2023. Hosting and development costs also decreased by $0.7 million, or 10%, as compared to the nine months ended September 30, 2023.
General and Administrative
General and administrative expense decreased $9.3 million, or 9%, to $91.0 million for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023. During the third quarter of 2023, we recognized an asset impairment on the right-of-use asset related to the San Francisco office in the amount of $3.7 million and an accrual for a potential liability claim of $3.0 million related to Metromile. Employee-related expense, including stock-based compensation, decreased by $2.4 million, or 6%, as compared to the nine months ended September 30, 2023. Insurance expense decreased $2.1 million, or 48% compared to the nine months ended September 30, 2023. Bad debt expense increased $1.9 million, or 32% compared to the nine months ended September 30, 2023.
Income Tax Expense
Income tax expense increased $1.8 million, or 42%, to $6.1 million for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 due to change in transfer pricing methodology and uncertain tax position.
Net Loss
Net loss decreased $22.3 million, or 11%, to $172.2 million for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 due to the factors described above.
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Non-GAAP Financial Measures

The non-GAAP financial measures below have not been calculated in accordance with U.S. GAAP and should be considered in addition to results prepared in accordance with U.S. GAAP and should not be considered as a substitute for, or superior to, U.S. GAAP results. In addition, adjusted gross profit and adjusted gross profit margin, ratio of adjusted gross profit to gross earned premium, and adjusted EBITDA should not be construed as indicators of our operating performance, liquidity or cash flows generated by operating, investing and financing activities, as there may be significant factors or trends that they fail to address. We caution investors that non-GAAP financial information, by its nature, departs from traditional accounting conventions. Therefore, its use can make it difficult to compare our current results with our results from other reporting periods and with the results of other companies.
Our management uses these non-GAAP financial measures, in conjunction with U.S. GAAP financial measures, as an integral part of managing our business and to, among other things: (i) monitor and evaluate the performance of our business operations and financial performance; (ii) facilitate internal comparisons of the historical operating performance of our business operations; (iii) facilitate external comparisons of the results of our overall business to the historical operating performance of other companies that may have different capital structures and debt levels; (iv) review and assess the operating performance of our management team; (v) analyze and evaluate financial and strategic planning decisions regarding future operating investments; and (vi) plan for and prepare future annual operating budgets and determine appropriate levels of operating investments.
Adjusted Gross Profit and Adjusted Gross Profit Margin
We define adjusted gross profit, a non-GAAP financial measure, as gross profit excluding net investment income, interest income and other income, and net realized gains and losses on sale of investments, plus fixed costs and overhead associated with our underwriting operations including employee-related expense, professional fees and other, and depreciation and amortization allocated to cost of revenue, and other adjustments that we would consider to be unique in nature. After these adjustments, the resulting calculation is inclusive of only those variable costs of revenue incurred on the successful acquisition of business and without the volatility of investment income. We use adjusted gross profit as a key measure of our progress towards profitability and to consistently evaluate the variable contribution to our business from underwriting operations from period to period.
We define adjusted gross profit margin, a non-GAAP financial measure, expressed as a percentage, as the ratio of adjusted gross profit to total revenue.
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The following table provides a reconciliation of total revenue and gross profit margin to adjusted gross profit and the related adjusted gross profit margin, respectively, for the periods presented:

Three Months Ended September 30,Nine Months Ended September 30,
2024202320242023
($ in millions)
Total revenue$136.6 $114.5 $377.7 $314.3 
Adjustments:
Loss and loss adjustment expense, net$(77.9)$(75.9)$(214.3)$(215.4)
Other insurance expense(19.8)(15.1)(55.9)(43.7)
Depreciation and amortization(1.4)(1.6)(4.5)(4.7)
Gross profit$37.5 $21.9 $103.0 $50.5 
Gross profit margin (% of total revenue)27 %19 %27 %16 %
Adjustments:
Net investment income$(8.9)$(7.0)$(24.6)$(17.6)
Interest income and other income
(2.7)(0.7)(7.2)(2.2)
Employee-related expense5.5 4.6 16.0 13.1 
Professional fees and other5.8 4.5 17.0 13.6 
Depreciation and amortization1.4 1.6 4.5 4.7 
Adjusted gross profit$38.6 $24.9 $108.7 $62.1 
Adjusted gross profit margin (% of total revenue)28 %22 %29 %20 %
Ratio of Adjusted Gross Profit to Gross Earned Premium
We define the Ratio of Adjusted Gross Profit to Gross Earned Premium as the ratio of adjusted gross profit to gross earned premium. The Ratio of Adjusted Gross Profit to Gross Earned Premium measures the relationship between the underlying business volume and gross economic benefit generated by our underwriting operations, on the one hand, and our underlying profitability trends, on the other. We rely on this measure, which supplements our gross profit ratio as calculated in accordance with U.S. GAAP, because it provides management with insight into our underlying profitability trends over time.

We use gross earned premium as the denominator in calculating this ratio, which excludes the impact of premiums ceded to reinsurers, because we believe that it reflects the business volume and the gross economic benefit generated by our underlying underwriting operations, which in turn are the key drivers of our future profit opportunities. We exclude the impact of ceded premiums from the denominator because ceded premiums can change rapidly and significantly based on the type and mix of reinsurance structures we use and, therefore, add volatility that is not indicative of our underlying profitability. For example, a shift to a proportional reinsurance arrangement would result in an increase in ceded premium, with offsetting benefits to gross profit from ceded losses and ceding commissions earned, resulting in a nominal overall economic impact. This shift would result in a steep decline in total revenue with a corresponding spike in gross margin, whereas we expect that the Ratio of Adjusted Gross Profit to Gross Earned Premium would remain relatively unchanged. We expect our reinsurance structure to evolve along with our costs and capital requirements, and we believe that our reinsurance structure at a given time does not reflect the performance of our underlying underwriting operations, which we expect to be the key driver of our costs of reinsurance over time.


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On the other hand, the numerator, which is adjusted gross profit, includes the net impact of all reinsurance, including ceded premiums and the benefits of ceded losses and ceding commissions earned. Because our reinsurance structure is a key component of our risk management and a key driver of our profitability or loss in a given period, we believe this is meaningful.

Therefore, by providing this Ratio of Adjusted Gross Profit to Gross Earned Premium for a given period, we are able to assess the relationship between business volume and profitability, while eliminating the volatility from the cost of our then-current reinsurance structure, which is driven primarily by the performance of our insurance underwriting platform rather than our business volume.
The following table sets forth our calculation of the Ratio of Adjusted Gross Profit to Gross Earned Premium for the periods presented:
Three Months Ended September 30,Nine Months Ended September 30,
2024202320242023
($ in millions)
Numerator: Adjusted gross profit$38.6 $24.9 $108.7 $62.1 
Denominator: Gross earned premium$213.1 $173.2 $600.9 $491.3 
Ratio of Adjusted Gross Profit to Gross Earned Premium18 %14 %18 %13 %

Adjusted EBITDA
We define adjusted EBITDA, a non-GAAP financial measure, as net loss excluding income tax expense, depreciation and amortization, stock-based compensation, interest expense, interest income and others, net investment income, net realized gains and losses on sale of investments, change in fair value of warrants liability, amortization of fair value adjustment on insurance contract intangible liability relating to the Metromile Acquisition, and other non-cash adjustments and other transactions that we would consider to be unique in nature. We exclude these items from adjusted EBITDA because we do not consider them to be directly attributable to our underlying operating performance. We use adjusted EBITDA as an internal performance measure in the management of our operations because we believe it gives our management and other customers of our financial information useful insight into our results of operations and our underlying business performance. Adjusted EBITDA should not be viewed as a substitute for net loss calculated in accordance with U.S. GAAP, and other companies may define adjusted EBITDA differently.
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The following table provides a reconciliation of adjusted EBITDA to net loss for the periods presented:
Three Months Ended September 30,Nine Months Ended September 30,
2024202320242023
($ in millions)
Net loss$(67.7)$(61.5)$(172.2)$(194.5)
Adjustments:
Income tax expense1.9 1.9 6.1 4.3 
Depreciation and amortization5.1 5.0 15.3 15.2 
Stock-based compensation (1)
16.9 15.4 47.2 45.6 
Interest expense
1.7 — 3.4 — 
Interest income and others
(1.8)(0.5)(4.9)(2.0)
Net investment income(8.9)(7.0)(24.6)(17.6)
Change in fair value of warrants liability— — — (0.3)
Amortization of fair value adjustment on insurance contract intangible liability relating to the Metromile acquisition(0.1)(0.2)(0.3)(1.1)
Other adjustments (2) (3)
3.9 6.7 4.1 6.7 
Adjusted EBITDA$(49.0)$(40.2)$(125.9)$(143.7)
(1) Includes compensation expense related to warrant shares of $2.0 million and $4.5 million for the three and nine months ended September 30, 2024, respectively, and $0.9 million and $1.5 million for the three and nine months ended September 30, 2023.
(2) Includes impairment charge of $3.7 million related to the San Francisco office sublease (refer to Note 15 of the unaudited condensed consolidated financial statements) and $3.0 million accrual for a potential liability claim, both related to Metromile, for the three and nine months ended September 30, 2023.
(3) Includes $3.9 million extra-contractual car claim liability related to pre-acquisition Metromile, and impairment charge of $0.3 million related to a portion of the New York office sublease (refer to Note 15 of the unaudited condensed consolidated financial statements), net of gain on termination of lease for the three and nine months ended September 30, 2024.



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Liquidity and Capital Resources

As of September 30, 2024, we had $329.8 million in cash and cash equivalents, and $640.8 million in investments. From the date we commenced operations, we have generated negative cash flows from operations, and we have financed our operations primarily through private and public sales of equity securities and third party financing. Our principal sources of funds are insurance premiums, investment income, reinsurance recoveries and proceeds from the maturity and sale of invested assets. These funds are primarily used to pay claims, operating expenses and taxes. In June 2023, we entered into an Agreement with GC, where up to $150 million of financing will be provided for our sales and marketing growth efforts through December 31, 2024. The Agreement was amended and restated in January 2024, pursuant to which an additional financing of $140 million will be provided for our sales and marketing growth efforts through December 31, 2025, and was further amended and restated in April 2024 and June 2024 to clarify certain provisions and all material terms and conditions remain unchanged. As of September 30, 2024, we had $67.4 million of outstanding borrowings under the Amended and Restated Agreement with GC. We believe our existing cash and cash equivalents as of September 30, 2024 will be sufficient to meet our working capital, liquidity and capital expenditure needs for at least the next 12 months. This belief is subject, to a certain extent, on general economic, financial, competitive, regulatory and other factors that are beyond our control.

Our cash flows used in operations may differ substantially from our net loss due to non-cash charges or due to changes in balance sheet accounts.

The timing of our cash flows from operating activities can also vary among periods due to the timing of payments made or received. Some of our payments and receipts, including loss settlements and subsequent reinsurance receipts, can be significant. Therefore, their timing can influence cash flows from operating activities in any given period. The potential for a large claim under an insurance or reinsurance contract means that our insurance subsidiaries may need to make substantial payments within relatively short periods of time, which would have a negative impact on our operating cash flows.

We are a holding company that transacts a majority of our business through operating subsidiaries. Consequently, our ability to pay dividends to stockholders, meet debt payment obligations and pay taxes and operating expenses is largely dependent on dividends or other distributions from our subsidiaries and affiliates, whose ability to pay us is highly regulated.

Our U.S. and Dutch insurance company subsidiaries, and our Dutch insurance holding company, are restricted by statute as to the amount of dividends that they may pay without the prior approval of their respective competent regulatory authorities. As of September 30, 2024, cash and investments held by these companies was $556.6 million of which $241.2 million is held as regulatory surplus.

Insurance companies in the United States are also required by state law to maintain a minimum level of policyholder’s surplus. Insurance regulators in the states in which we operate have a risk-based capital standard designed to identify property and casualty insurers that may be inadequately capitalized based on inherent risks of the insurer’s assets and liabilities and its mix of net written premium. Insurers falling below a calculated threshold may be subject to varying degrees of regulatory action. As of September 30, 2024, the total adjusted capital of our U.S. insurance subsidiaries was in excess of its respective prescribed risk-based capital requirements.
The following table summarizes our cash flow data for the periods presented:
Nine Months Ended September 30,
20242023
($ in millions)
Net cash used in operating activities$(25.2)$(103.0)
Net cash provided by investing activities$38.1 $48.1 
Net cash provided by financing activities$52.7 $8.2 

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Operating Activities
Cash used in operating activities was $25.2 million for the nine months ended September 30, 2024, a decrease of $77.8 million from $103.0 million for the nine months ended September 30, 2023. This reflected the $22.3 million decrease in our net loss, primarily offset by changes in our operating assets and liabilities. The decrease in cash used in operating activities from the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 was primarily due to claim payments, settlements with our reinsurance partners, and growth and expansion spend of the Company, offset by collection of premiums and recoveries from reinsurance partners.
Investing Activities
Cash provided by investing activities was $38.1 million for the nine months ended September 30, 2024, primarily due to proceeds from sales and maturities of U.S. government obligations, corporate debt securities, asset-backed securities, short term investments offset by purchases of U.S. government obligations, corporate debt securities, asset-backed securities, short term investments. We also purchased property and equipment during the period.
Cash provided by investing activities was $48.1 million for the nine months ended September 30, 2023, primarily due to proceeds from sales and maturities of U.S. government obligations, corporate debt securities, short term investments offset by purchases of U.S. government obligations, corporate debt securities, short term investments. We also purchased property and equipment during the period.
Financing Activities
Cash provided by financing activities was $52.7 million for the nine months ended September 30, 2024, primarily due to borrowings under the financing agreement offset by principal payments. We also had proceeds from stock option exercises during the period.
Cash provided by financing activities was $8.2 million for the nine months ended September 30, 2023, primarily due to proceeds from stock option exercises.
We do not have any current plans for material capital expenditures other than current operating requirements. There have been no material changes as of September 30, 2024 to our contractual obligations from those described in our Annual Report on Form 10-K. To the extent our future operating cash flows are insufficient to cover our net losses from catastrophic events, we had $970.6 million in cash, cash equivalents and investments available at September 30, 2024. We may also seek to raise additional capital through third-party borrowings, sales of our equity, issuance of debt securities or entrance into new reinsurance arrangements. There can be no assurance that we will be able to raise additional capital on favorable terms or at all.

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Critical Accounting Policies and Estimates
Our consolidated financial statements are prepared in accordance with U.S. GAAP. The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States requires our management to make a number of estimates and assumptions relating to the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the period. We evaluate our significant estimates on an ongoing basis, including, but not limited to, estimates related to unpaid loss and loss adjustment expense, reinsurance assets, intangible assets, goodwill impairment analysis, income tax assets and liabilities, including recoverability of our net deferred tax asset, income tax provisions and certain non-income tax accruals. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates.
Our critical accounting policies are described under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates” in our Annual Report on Form 10-K and the notes to the unaudited interim condensed consolidated financial statements appearing elsewhere in this Quarterly Report. During the nine months ended September 30, 2024, there were no material changes to our critical accounting policies from those discussed in our Annual Report on Form 10-K.

Recently Issued and Adopted Accounting Pronouncements
See “Note 4 — Summary of Significant Accounting Policies” in the notes to the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report for a discussion of new accounting pronouncements.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Market risk is the risk of economic losses due to adverse changes in the estimated fair value of a financial instrument as the result of changes in equity prices, interest rates, foreign currency exchange rates and commodity prices. Our consolidated balance sheets include assets and liabilities with estimated fair values that are subject to market risk, and the primary components of market risk affecting the Company are interest rate risk and credit risk on investments in fixed maturities. The Company does not have equity price risk or exposure to commodity risk. There were no invested assets denominated in foreign currencies.
Overview
The Company’s investment portfolio is primarily fixed income securities issued by the U.S. government and government agencies and corporate issuers with relatively short durations. The investment portfolio is managed in accordance with the investment policies and guidelines approved by the board of directors. The Company’s investment policy and objectives provide a balance between current yield, conservation of capital, and liquidity requirements of the Company’s operations setting guidelines that provide for a well-diversified investment portfolio that is compliant with insurance regulations applicable in the states in which we operate. The policy, which may change from time to time, and is approved by the board of directors and reviewed on a regular basis in order to ensure that the policy evolves in response to changes in the financial markets.
Interest Rate Risk
Interest rate risk is the risk that the Company will incur a loss due to adverse changes in interest rates relative to the interest rate characteristics of interest bearing assets and liabilities. Our fixed maturities portfolio is exposed to interest rate risk. Changes in interest rates have a direct impact on the market valuation of these securities. As market interest rates increase, market value of fixed maturities decrease, and vice versa. Certain of our securities are held in an unrealized loss position, and we do not intend to sell and believe we will not be required to sell any of these securities held in an unrealized loss position before its anticipated recovery. A common measure of the interest sensitivity of fixed maturities is modified duration, a calculation that utilizes maturity, coupon rate, yield and call terms to calculate an average age to receive the present value of all the cash flows generated by such assets, including reinvestment of interest. The longer the duration, the more sensitive the asset is to market interest rate fluctuations. We manage this interest rate risk by investing in securities with relatively short durations. In addition, if a 10% change in interest rates were to have immediately occurred on September 30, 2024, this change would not have a material effect on the fair value of our investments as of that date.
Credit Risk
We are also exposed to credit risk on our investment portfolio and reinsurance recoverable. Credit risk results from uncertainty in a counterparty’s ability to meet its obligations. We monitor our investment portfolio to ensure that credit risk does not exceed prudent levels. The majority of our investment portfolio is invested in high credit quality, investment grade fixed maturity securities. As of September 30, 2024, none of our fixed maturity portfolio was unrated or rated below investment grade. To reduce credit exposure to reinsurance recoverable balances, the Company obtains letters of credit from certain reinsurers that are not authorized as reinsurers under U.S. state insurance regulations. In addition, under the terms of its reinsurance contracts, the Company may retain funds due to reinsurers as security for those recoverable balances. The Company also has reinsurance recoverable balances from reinsurers with all but one having an A.M. Best rating of A (Excellent) or better.
Inflation Risk
Inflationary factors such as increases in overhead costs may adversely affect our operating results. In addition, inflation could lead to higher interest rates which may impact the market value of our investment portfolio. The current short duration of the Company's fixed maturity portfolio minimizes the negative effects of higher interest rates.


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Item 4. Controls and Procedures.
Limitations on Effectiveness of Controls and Procedures
In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our principal executive officer and principal financial officer, evaluated, as of the end of the period covered by this Quarterly Report, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on that evaluation, our principal executive officer and principal financial officer concluded that, as of September 30, 2024, our disclosure controls and procedures were effective at the reasonable assurance level.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter ended September 30, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II—OTHER INFORMATION

Item 1. Legal Proceedings.

The Company is occasionally a party to routine claims or litigation incidental to its business. The Company does not believe that it is a party to any pending legal proceeding that is likely to have a material adverse effect on its business, financial condition or results of operations. See Note 15 to the accompanying unaudited condensed consolidated financial statements for more information
Item 1A. Risk Factors.

The Company's business, results of operations, and financial condition are subject to various risks described in the Company's Annual Report on Form 10-K. There have been no material changes to the risk factors identified in the Company's Annual Report on Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Recent Sales of Unregistered Securities; Purchases of Equity Securities by the Issuer or Affiliated Purchaser
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.

(a)     On October 28, 2024, Mwashuma Nyatta tendered his resignation as a director of Lemonade, Inc. (the “Company”), effective October 31, 2024. Mr. Nyatta serves as a Class I director, member of the Audit Committee and member of the Compensation Committee. Mr. Nyatta’s resignation was not the result of any disagreement with the Company on any matter related to the Company’s operations, policies or practices.
On October 28, 2024, the Board, upon the recommendation of its Nominating and Corporate Governance Committee, appointed Maria Angelidis-Smith to the Board effective October 31, 2024. Ms. Angelidis-Smith will serve as a Class I director for a term expiring at the Company’s annual meeting of stockholders to be held in 2027, until her successor is duly elected and qualified or her earlier death, disqualification, resignation or removal. She was also appointed to serve on the Audit Committee and the Compensation Committee, in each case to replace Mr. Nyatta, effective October 31, 2024.
Ms. Angelidis-Smith is eligible to participate in the Company’s Non-Employee Director Compensation Policy, which provides for: (i) an annual cash retainer of $30,000 for serving on the Board, earned on a quarterly basis; (ii) an annual cash retainer of $5,000 for serving as a member of the Compensation Committee and an annual cash retainer of $7,500 for serving as a member of the Audit Committee, each earned on a quarterly basis; (iii) an initial equity-based award of restricted stock units (the “Initial Award”) in an amount equal to $175,000 that vests in equal annual installments over three years following the grant date, subject to Ms. Angelidis-Smith’s continued service on the Board through each such vesting date; and (iv) following each annual meeting of the Company’s stockholders, an annual equity-based award of restricted stock units in an amount of $150,000 that vests on the first anniversary of the date of grant, subject to Ms. Angelidis-Smith’s continued service on the Board through such vesting date.
Ms. Angelidis-Smith has entered into the Company’s standard indemnification agreement for directors and officers.

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There is no arrangement or understanding pursuant to which Ms. Angelidis-Smith was appointed to the Board. There are no family relationships between Ms. Angelidis-Smith and any director or executive officer of the Company as defined in Item 401(d) of Regulation S-K, and Ms. Angelidis-Smith has no direct or indirect material interest in any transaction or proposed transaction required to be disclosed pursuant to Item 404(a) of Regulation S-K.
(b)    None.
(c)    On August 30, 2024, John Peters, our Chief Insurance Officer, adopted a Rule 10b5-1 trading arrangement that is intended to satisfy the affirmative defense of Rule 10b5-1(c) for the sale of up to 117,955 shares of the Company’s common stock until August 29, 2025. Except for the foregoing, during the three months ended September 30, 2024, no director or officer of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.
49


Item 6. Exhibits.
Exhibit
Number
DescriptionIncorporated by Reference
FormFile No.ExhibitFiling Date
S-4333-2616292.312/14/2021
8-K001-393673.17/10/2020
8-K
001-39367
3.1
12/20/2023
S-1/A333-2390074.16/23/2020
4.2S-1333-2530554.22/12/2021
4.38-K001-394844.19/9/2020
10.1*†
10-Q
001-39367
10.2
7/31/2024
10.2*†
10-Q
001-39367
10.3
7/31/2024
10.3*†
10-Q
001-39367
10.4
7/31/2024
10.4*†
10-Q
001-39367
10.5
7/31/2024
31.1*
31.2*
32.1**
32.2**
101.INS*Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because the XBRL tags are embedded within the Inline XBRL document
101.SCH*Inline XBRL Taxonomy Extension Schema Document
101.CAL*Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE*Inline XBRL Taxonomy Extension Presentation Linkbase Document
104*Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
____________
*    Filed herewith.
**    Furnished herewith.
    Portions of this exhibit have been redacted in compliance with Regulation S-K Item 601(b)(10)(iv).


50


SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Lemonade, Inc.
Date:October 31, 2024By:/s/ Daniel Schreiber
Daniel Schreiber
Chief Executive Officer
Date:October 31, 2024By:/s/ Tim Bixby
Tim Bixby
Chief Financial Officer
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