Lemonade, Inc.

Good morning and welcome to the Lemonade Incorporated fourth quarter 2020 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Elle Wisner-Levy, Vice President of Communications. Please go ahead.

Good morning and welcome to Lemonade's fourth quarter 2020 earnings call. My name is Yael Wissner-Levy and I am the Vice President of Communications at Lemonade. Joining me today to discuss our results are Daniel Schreiber, CEO and co-founder, Shai Winninger, President, COO and co-founder, and Tim Bixby, our Chief Financial Officer. A letter to shareholders covering the company's fourth quarter 2020 financial results is available on our investor relations website, investor.lemony.com. Before we begin, I would like to remind you that management's remarks on this call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those discussed in the risk factors section of our final prospectus filed with the SEC on January the 14th, 2021, pursuant to rule 424B4 and our other filings with the SEC. Any forward-looking statements made on this call represent our views only as of today, and we undertake no obligation to update them. We will be referring to certain non-GAAP financial measures on today's call, such as adjusted EBITDA and adjusted gross profit, which we believe may be important to investors to assess our operating performance. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures are included in our letter to shareholders. Our letter to shareholders also includes information about our key operating metrics, including a definition of each metric, why each is useful to investors, and how we use each to monitor and manage our business. With that, I'll turn the call over to Daniel, who will begin with a few opening remarks. Daniel?

Good morning. Our fourth quarter saw continued progress along our key performance indicators, evidencing both quantitative and qualitative advances. As compared to Q4 2019, we saw our enforced premium grow by 87%, our adjusted gross profit by 86%, and our losses per dollar of gross earned premium roughly halved. Tim will elaborate on all our numbers shortly. But as strong as these metrics may be, the qualitative changes run deeper than the numbers suggest. The main thing I'd like to highlight is that we have fully transitioned from a monoline business as we were at our IPO a short few months ago, to offering three highly differentiated products that span property insurance for homes to health insurance for pets to life insurance for humans. During this transition, we've learned several things of note. The first is that our brand and technology are highly extensible. If there was any question about whether these could extend to higher value and higher complexity products, There really no longer is. They do. The second is that our customers want to buy multiple products from Lemonade. About half of our pet policies and half of our life policies have been bought by existing Lemonade customers with far-reaching implications for lifetime value and dollar retention. The third is that new products create new on-ramps to Lemonade. In the fourth quarter, more than 40% of our sales and new product sales were not renters' policies, demonstrating that our high-value products are not only destinations for upsells, but destinations in their own right. They are entry points to lemonade, and this expands our total available market while lowering our customer acquisition costs. In general, our customer journey has progressed from a relatively linear roadmap, where customers join as young renters and graduate to become homeowners, to a far more multidimensional map with an array of on-ramps and intersections. This is great news for both customer acquisition costs and lifetime value of our customers. It's a level of symbiosis that we theorized about, that we aspired to, and it's heartening to see it play out even better in practice than the theory had projected. All these learnings have emboldened us to continue down this road, indeed to double down on it, and we plan to keep launching products until we have catered to the totality of our customers' needs. I say we plan to, but in truth, we're beyond just planning. We haven't shared this before. but we actually have more people working on our next major yet to be announced product today than we have working on our homeowners or our renters or our pet or our life products. I look forward to the day in the not too distant future when I'll be able to share the reason for my excitement with a little less cloak and dagger. In the meantime, a few more points worth highlighting. One is that our 2020 annual loss ratio was 71% as compared to 79% in the prior year. We've now seen an incredibly healthy loss ratio for the year, as well as healthy loss ratios across all four quarters and all four seasons, affording confidence that even as we grow fast, we are growing profitably. Of course, we will see occasional spikes in our loss ratio. though our reinsurance will mute the impact of these on the bottom line. And in this context, I want to say a few words about the Texas freeze in Q1. When Q3 saw unprecedented wildfires and hurricanes, we took pride in the fact that our cautious underwriting meant that the impact of these catastrophes on our book of business was disproportionately light. Now, hurricanes and wildfires do follow a probability distribution, and that allowed us to manage our exposures there. The Texas freeze that happened this month was different. It was a black swan event. Few models predicted this unique weather pattern, and none predicted the massive loss of power that the freeze engendered, nor the massive loss of drinking water that the loss of power triggered. These compounding catastrophes came without warning and impacted the entire state, a state where a quarter of our customers live. For these reasons, it quickly became the largest catastrophe we as a company have ever contended with, and it tested both our people and our financial model in important ways. I'm happy to tell you that both held up exceedingly well. We will provide a lot more color and detail when we report our Q1 results, But I'll share that we saw many thousands of claims in a space of just a few days and that our team worked night and day and successfully remained incredibly responsive and helpful despite the extraordinary surge. Being there for our customers in such trying circumstances is exactly the promise of Lemonade, and I'm proud that we were able to live up to this promise. As for our financial model, it too weathered the storm very well. While our gross loss ratio will spike in Q1, our reinsurance structures are playing their designated role. And as our guidance for Q1 indicates, we do not expect the Texas freeze to have a material adverse impact on our financials in 2021. And with that, let me hand over to Shai for some product updates. Shai, over to you.