Lemonade (LMND) Q1 2025: Car Outpaces 40% of Book, Cross-Sell Jumps 100% as AI Drives Cost Leverage
Lemonade’s first quarter showcased accelerating top-line growth, with the car segment now outpacing the rest of the business and cross-sell volumes doubling year over year. AI-driven cost discipline and product innovation delivered margin resilience despite California wildfire headwinds, while management reaffirmed its path to EBITDA breakeven and raised revenue guidance. Investors should watch for continued cross-sell gains, telematics rollout, and the impact of auto tariffs as Lemonade leans into its data-first advantage.
Summary
- Car Segment Momentum: Car’s in-force premium growth outpaced the rest of the business, signaling a strategic inflection point.
- AI-Driven Cost Efficiency: Fixed costs declined as the book grew 65% over 10 quarters, highlighting operational leverage.
- Cross-Sell Acceleration: Cross-sell volume doubled year over year, with half of new car sales now sourced from existing customers.
Performance Analysis
Lemonade delivered its sixth consecutive quarter of accelerating top-line growth, with in-force premium (IFP) up 27% year over year and customer count rising 21% to 2.5 million. Premium per customer increased 4%, primarily from rate actions. Revenue climbed 27%, supported by premium growth and higher investment income. Gross earned premium rose 24% to $234 million. Notably, operating expenses (excluding growth spend) remained flat or declined in real terms over the past 10 quarters, even as the book expanded by more than 65%—a testament to the company’s AI-driven automation and cost control.
Wildfire losses in California weighed on gross loss ratio, which reached 78% for the quarter (16 points attributable to catastrophe). However, the trailing 12-month gross loss ratio remained stable at 73%, within target range. Adjusted gross profit improved 25% year over year despite catastrophe impact. Growth spend nearly doubled to $38 million, supporting customer acquisition and brand investment, while headcount growth was kept to just 2%. Lemonade ended the quarter with $996 million in cash and investments, reinforcing balance sheet resilience.
- Car Outpaces Core: For the first time, car’s IFP growth exceeded the rest of the book, with geographic expansion to Colorado pushing coverage past 40% of the U.S. auto market.
- Cross-Sell Engine: Cross-sell volumes more than doubled, and half of new car sales originated from existing Lemonade customers, up from one-third previously.
- Loss Ratio Management: Despite catastrophe headwinds, prior period development was favorable across all products except pet, and car loss ratios are expected to improve as cohorts season.
Revenue guidance was raised following the Q1 beat, though management maintained a conservative stance on EBITDA guidance amid tariff and inflation uncertainty. Growth spend is expected to remain elevated in Q2 and Q3 before moderating in Q4.
Executive Commentary
"When you see a top line surging by two-thirds, even as fixed costs stay flat or fall, what you're seeing is AI hard at work. For us, AI was never a fashionable acronym to roll out on earning calls. It's always been core to our culture, to our differentiation, and to our strategy, and its power is increasingly apparent in our P&L."
Daniel Schreiber, CEO & Co-founder
"Gross earned premium in Q1 increased 24% as compared to the prior year, to $234 million in line with IFP growth. Revenue in Q1 increased 27% from the prior year to $151 million. The growth in revenue was driven by the increase in gross earned premium, a slightly higher effective seeding commission rate under our quota share reinsurance, and a 26% increase in investment income."
Tim Bixby, Chief Financial Officer
Strategic Positioning
1. Car Business as Growth Catalyst
Lemonade Car, auto insurance product, achieved a pivotal milestone as its in-force premium growth outpaced the rest of the portfolio for the first time. This acceleration is underpinned by proprietary LTV (lifetime value) and telematics models, which allow for precision pricing and automated underwriting, especially for safe younger drivers. Geographic expansion continued with the Colorado launch, bringing coverage to over 40% of the U.S. auto market and nearly 60% of the existing customer base. Management sees a large cross-sell opportunity among 2.5 million non-car customers who spend over $3 billion annually on auto insurance.
2. AI-Driven Operating Leverage
AI is core to Lemonade’s business model, enabling scalable automation that compresses fixed costs as the business grows. Over the past 10 quarters, fixed costs have declined in real terms while the premium book expanded by 65%. This structural efficiency is visible in cost containment and margin resilience, even as growth spend increases. The company’s real-time AI LTV model dynamically allocates acquisition spend across channels and products, optimizing for long-term profitability.
3. Cross-Sell and Bundling as Margin Lever
Cross-sell volumes doubled year over year, with half of new car sales now sourced from existing customers. The multi-policy rate is approaching 5%, with management targeting industry parity (teens to 20s percent) over a five-year horizon. Enhanced bundling and optimized onboarding flows are driving conversion and retention, while cross-sell growth supports CAC-free (customer acquisition cost-free) growth and future margin expansion.
4. Rate Adequacy and Product Remixing
Rate actions and portfolio remixing remain central to profitability. Lemonade filed 24 rate changes in Q1 alone, focusing on refining risk-based pricing rather than broad rate increases. Ongoing efforts to “clean the book” by reducing exposure in catastrophe-prone geographies weighed on annual dollar retention (ADR), which dipped to 84%, but also delivered tangible loss mitigation during the California wildfires.
5. Resilient, Diversified Product Mix
Lemonade’s portfolio spans renters, homeowners, pet, life, and car insurance across the U.S. and Europe. The business is diversified across products and geographies, limiting exposure to any single risk factor such as tariffs or wildfires. The quota share reinsurance program provides additional loss protection, and the company’s growing European business is insulated from U.S.-specific headwinds.
Key Considerations
Lemonade’s Q1 saw the convergence of accelerating car momentum, cost discipline, and product innovation, all underpinned by a data-first, AI-driven approach. Investors should focus on the following:
- Car Growth Outpaces Core: Car’s premium growth now leads the portfolio, with geographic expansion and telematics driving conversion.
- Cross-Sell Leverage: Doubling of cross-sell volume and rising multi-policy rates signal early success in bundling strategy.
- AI Operating Leverage: Structural cost control enables margin expansion even as customer acquisition ramps.
- Tariff and Catastrophe Management: Wildfire and tariff headwinds are being offset by rate actions, reinsurance, and risk diversification.
- Retention Dynamics: ADR dipped due to deliberate book remixing, but is expected to stabilize as profitability initiatives mature.
Risks
Key risks include potential inflationary impacts on claims costs, especially if auto tariffs persist or escalate, and ongoing weather-related catastrophes such as wildfires. Retention could remain pressured as Lemonade continues to remix its book for profitability, and rapid car expansion introduces underwriting and loss ratio volatility. Regulatory delays in rate filings and competitive responses in digital insurance also pose execution risk.
Forward Outlook
For Q2 2025, Lemonade guided to:
- In-force premium of $1.061 to $1.064 billion
- Gross earned premium of $246 to $248 million
- Revenue of $157 to $159 million
- Adjusted EBITDA loss of $44 to $41 million
For full-year 2025, management raised revenue guidance to $661 to $663 million, maintained adjusted EBITDA loss guidance of $140 to $135 million, and reiterated its target for EBITDA breakeven by Q4 2026. Management cited ongoing investment in growth, continued car outperformance, and disciplined cost control as drivers of the outlook.
- Elevated growth spend in Q2 and Q3 to support profitable customer acquisition
- Expect ADR to stabilize as book remixing efforts mature
Takeaways
Lemonade’s Q1 results underscore the company’s ability to pair rapid top-line growth with disciplined cost management, powered by AI and data-driven decision-making.
- Car and Cross-Sell Drive Inflection: Car’s outperformance and cross-sell acceleration are set to become increasingly material to growth and margin structure.
- AI Unlocks Operating Leverage: Persistent cost discipline, even as the book scales, validates Lemonade’s automation-first strategy.
- Watch Tariffs and Retention: Investors should monitor the impact of tariffs on auto claims and the stabilization of retention as profitability initiatives play out.
Conclusion
Lemonade’s Q1 2025 performance marked a clear inflection in car growth, cross-sell leverage, and AI-driven cost containment, offsetting catastrophe headwinds and positioning the business for profitable scale. The company’s execution on product, pricing, and automation lays the foundation for sustained growth and eventual EBITDA profitability.
Industry Read-Through
Lemonade’s results reinforce the growing importance of AI-driven underwriting, automation, and telematics across the digital insurance landscape. The company’s ability to scale while compressing fixed costs highlights the disruptive potential of digital-first models, especially as legacy carriers struggle with data integration and cost drag. The surge in cross-sell and bundling demonstrates the strategic value of multi-line engagement, a theme likely to pressure incumbents to accelerate digital transformation and product innovation. The tariff and catastrophe commentary also signals rising volatility in claims costs, underscoring the need for pricing agility and risk diversification across the sector.