Lemonade, Inc.

Good morning and welcome to the Lemonade, Inc. fourth quarter and full year 2021 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 a question. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Yael Wisner-Levy, Vice President of Communications at Lemonade. Please go ahead. Good morning, and welcome to Lemonade's fourth quarter and full year 2021 earnings call. My name is Yael Wisner-Levy, and I am the VP Communications at Lemonade. Joining me today to discuss our results are Daniel Schreiber, co-CEO and co-founder, Shai Winninger, co-CEO and co-founder, and Tim Bixby, chief financial officer. A letter to shareholders covering the company's fourth quarter and full year 2021 financial results is available on our investor relations website, investor.lemonade.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 Reform 10-K, filed with the SEC on March 8, 2021, 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, and thanks for joining us this morning to review our Q4 results, wrap up 2021, and share our plans for the year ahead. 2021 was a very productive year for us, and we ended it materially larger, more diversified, and strategically stronger than ever. The year kicked off with a substantial capital raise that set our business up for years of sustained growth, and, indeed, we ended Q4 with 100% revenue growth and with over $1 billion in cash. Simultaneously, we diversified our book by scaling our younger and higher premium products, while using our expanded portfolio to increase bundling and upselling across the book. These resulted in our largest ever annual jump in premium per customer. We also began and completed the development of Lemonade Car, a monumental undertaking, as well as signing a deal to acquire Metromile, and with it the data, talent, and technology needed to propel Lemonade Car forward. What a difference 12 months can make. And now to 2022. This year will shift much of our firepower to the next phase of our growth. Our longstanding two pronged strategy has been to win with technology and to grow with our customers. That is to build a digital native company on the premise that an insurance company built on a technological foundation will be able to service customers and quantify risk with a degree of precision and at a level of automation unavailable to incumbents. And secondly, to engage customers when they're young, delight them with a cocktail of a value, values, and fabulous experience, and then grow with them by offering them all the upgrades and coverages that they will naturally grow into as they go through predictable lifecycle events. These two pillars, winning with technology and growing with customers, have guided us since our inception, and our experience to date has only served to strengthen our conviction that in choosing these pillars, we chose well. As we enter 2022, we find ourselves in an enviable position. Having launched pet, life, and car in the past 18 months, we believe we have achieved a critical mass in both our technology and our product portfolio. Of course, we have ambitious plans for new products and new technologies for years to come. But for the first time, both pillars are now sufficiently complete to be built upon. This enables us to shift resources from making technology and products to harnessing our technology and products in new ways. That means leveraging our technology to lower our expense ratio through automation and our loss ratio through machine learning, while growing our CAC to LTV ratio through cross-selling and bundling. None of this is entirely new. We've been investing in graduation and automation and precision for years, but we're on the cusp of a changing degree that we expect will amount to a change in kind. When we were a monoline business, cross-selling and bundling, perhaps the biggest LTV unlocks, were not really available to us, and our technology investments were largely consumed by building products. The balance will now shift, and we expect that over the coming quarters and years, this shift will take our business to new levels of efficiency, growth, and profitability. One upshot is that we project that 2022 will be our year of peak losses, with our EBITDA improving in each subsequent year. All good strategies require focused investments in order to achieve true differentiation from the competition. And we believe that five years post-launch, our investments have yielded structural differences between us and the rest of the industry, and that these set us up very well for the next five years. Take our fellow insurtechs on the one hand. At first approximation, every other insurtech company is a single product business, offering either car or home or life or pet or renter's insurance whereas Lemonade uniquely offers all five on a unified platform. While specialization has its advantages, a monoline strategy increases concentration risk, caps LTV, precludes bundling, forcing customers to engage competitors, and generally it means that growth comes almost exclusively from adding customers rather than from growing with them. In a highly competitive market, these strike us as strategic challenges. Incumbents, on the other hand, have complete insurance product suites but lack the technological foundations needed to massively automate and to move from proxy-based pricing to precision pricing. While the wheels of insurance move slowly, we believe our tech offers Lemonade a strategic advantage that will manifest evermore with every turn of the flywheel. We expect this to express itself in loss ratio and expense ratio trend lines already in the second half of this year. and for this advantage to compound in the years that follow. Of course, we wish both our fellow InsurTechs and more established competitors well. There's enough room for everyone. But for the reasons I outlined, we are increasingly concerned in our multi-product, technology-first strategy. And with that, let me hand over to Shai for some updates on our newest offering, Lemonade Car. Shai.

Thank you, Daniel. In the short time Lemonade Car was available to our customers in the fourth quarter, It brought in three kinds of sales lemonade package during the same period following its launch in Illinois. We're also seeing encouraging bundling dynamics with a majority of lemonade car customers bundling with at least one other lemonade policy. I'm also happy to report that customers are loving lemonade car and we're tracking outstanding NPS for the product across our customer experience and claims. We believe the Taminade car is the most delightful, seamless, fair, and precise offering on the market. As a reminder, we use Telematics to model driving behavior and reward safe drivers with better rates. We also monitor the CO2 emitted by our customers' cars based on their year, model, and driving behavior, and plant trees to help absorb that CO2 over time. Turning to our acquisition of Netromod. We're working closely with regulators toward closing the transaction and still expect to do so in the second quarter. In the subsequent quarters, we'll focus on integrating Metromile's teams, systems, and processes, and also develop and launch a pay-per-mile car product and lemonade infrastructure that is compelling both for new and existing customers. As we've shared previously, we're confident this deal will collapse time, flatten risk, and increase efficiencies for lemonade car. Shifting gears, I'd like to share some thoughts on our loss ratio. Our Q4 21 loss ratio was 96%, up from 77% in the third quarter of 21. A meaningful driver of this increase was a handful of older large losses for which in retrospect we under-reserved. We have a strong record of cautious reserving, but reserving is an imprecise science. and so adverse developments do happen every now and then. Notably, there was no spike in our accident quarter loss ratio during the same period, suggesting no underlying deterioration in the book. Nevertheless, we've seen a few quarters with elevated loss ratios. The underlying cause is the welcome and intentional shift in our business mix, with U.S.-based ventures comprising less than half of the book today compared to about two-thirds a year ago. The lines of business that have captured that share, home and pet, demonstrate higher loss ratios than our more mature stable renters book. We have projects across all of our newer product lines to address underwriting profitability, and these are yielding steady improvements in loss ratios for both pet and home. These improvements have been outpaced by these products' growth, meaning that our aggregate loss ratio has climbed even as our product-specific loss ratios improved. In time, the one should catch up with the other, and we expect loss ratios of all Lemonade products to be below 75% in due course. In the short term, though, our newer products will likely be above this target, even as they trend downwards. This is a natural and temporary cost of scanning new businesses. And with that, over to you, Tim.