Lemonade’s Post

Transcript

Welcome back to Fast Money and Earnings Alert on Lemonade shares jumping after the low-cost insurer reported a smaller loss than expected, the Fintech giving shareholders encouragement about cash flow in the role AI is playing in its business. Lemonade CEO Daniel Schreiber joins us before the conference call, which is scheduled for tomorrow morning. Daniel, great to have you with us. Great to be with you. Thank you. The, the stock is up 8 1/2 percent. I'm just wondering, you know, in terms of of offering low cost insurance, you're not making money right now. So are you just sort of eating the cost in order to gain market share versus competitors? No, no, not at all. Every policy that we sell by law has to be profitable. So the marginal profit is significant. In the results that we just published a few minutes ago, we said that not only is our book growing, which speaks to what you just asked me, but also our gross profit has grown dramatically. In fact, we've doubled, more than doubled our gross profit year on year and our losses are therefore shrinking. They shrank by a third in the results that we just published. So you're seeing us sell more and more products, all of them marginally profitable, the more we sell, the more profitable we get and we expect to break into cash flow positivity before the year is out. Can you talk to me about the guidance that you issued for Q2 because it does look on the surface at the very least that it is below what the Street was expecting in terms of revenues as well as your EBITDA loss? Yeah. So we've actually raised guidance for the year across all key metrics. So everything is entirely on plan. But during Q2, we do intend to continue to invest in growth perhaps more than the market expected. So we've been not merely growing fast, but accelerating growth. We went from 18 to 19 to 20 this quarter, 22%. We're going to continue that trend line all the way up into the higher 20s throughout the year and hopefully higher than that beyond. So this is all part of the plan we need to grow into profitability. Insurance is not a business that is profitable at sub-scale levels of growth is a key condition to that profitability that we expect to get to as I say before the year is out on a cash flow basis. Mr. Schreiber, it's Karen Feinerman. Thanks for being on today. So we hear a lot about other insurance companies really sort of stepping back from offering some products and just being unable with some of the extreme weather situations to know what they're underwriting. And so are you able to cherry pick or how is it that you feel comfortable expanding your business? Hey, Karen. So the bounding thesis of Lemonade was very much in line with your question or the premise behind it, which is that you build an insurance company from scratch on a digital substrate using AI as a foundational tool. And we've been doing that since 2015 when we founded the company. Things are going to look different and insurance is a business that is all about pricing and selling probability theory, it's statistical. So machine learning and the tools of modern technology are really transformative for the foundations of insurance. So yes where other insurers see crude groupings of policyholders and are unable to see the nuances between them. We have orders of magnitude more insight almost X-ray vision relative to incumbency and therefore ability to price differentially and choose who we underwrite with far greater precision perhaps than the industry is used to by historical standards. How much better does your profitability get as AI improves and what sort of trajectory do you look at in terms of the improvement of AI that you need to see in order for it to actually impact your profitability or revenue and ow much does it cost you to get there because I think what streets worried about that. Yeah. So we've already seen or been able to demonstrate quite a lot of it. Just this quarter, we announced, as I say, 22% growth, but an 11% decrease in head count. Our OpEx is unmoved in two years even as we've doubled our book. So you are seeing in the number the dramatic impact of the automation that AI has done for us. 98% of our policies are sold by AI, 50% of our claims are handled start to finish without any human intervention whatsoever, consumers of course delighted, they get a claim paid in three seconds. They're not missing the human, but the cost just absolutely collapse and we're seeing that in our numbers as I say, doubling the business in two years, trebling the gross profit whereas OpEx not moving an inch over those same two years. Daniel, we gotta let you go. Fascinating to hear about your business. Appreciate your time. And I appreciate yours. Thank you so much. Daniel Trevor of Lemonade, which is up about 60% over the past 12 months. Interesting business model, very interesting. And as as a much smaller player than the rest of the group, he he had me at AI. He mentioned it a bunch of times and and there are people who screen for how much more efficiently efficient you could run an insurance business. This what 50% of my handle without human beings. I'm not a fan of human beings. I like this stock. I literally got on before the show and just for just to see. How it worked. Yeah. Got a quote for home insurance in less than 5 minutes. Well, you own like 15 homes. No. So, man, you know, I just got a confirmation. Exaggerating. She's a mogul. I I. You know, the loss ratios require reinvestment and a lot of the technology that makes them so, so different. There's a a view out there. It's gonna be tough to get to scale, but it's fascinating what they're doing. There's no question it remove the humans all day long.