Earnings Call: Q2 2021

Aug 5, 2021

Hello, everyone, and thank you for joining the Lemonade Inc Q2 2021 Earnings Conference Call. My name is Will, and I will be moderating the call today. I now have the pleasure of handing the call over to Elle Wisney Levy from Lemonade. Please go ahead. Good morning, and welcome to Lemonade's 2nd quarter 2021 earnings call. My name is Yael Wissner Lavi, and I am the VP Communications at Lemonade. Joining me today to discuss our results are Neal Shriver, Co CEO and Co Founder Shai Whininger, Co CEO and Co Founder and Tim Dixie, our Chief Financial Officer. A letter to shareholders covering the company's Q2 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 section of our Form 10 ks 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 to 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. I'm happy to be able to report on another quarter of strong advances along our key performance indicators. As compared to Q2 2020, our top line In force premium or IFP grew 91% to $297,000,000 For the 2nd consecutive quarter, this represents an accelerating rate of year over year growth. Premium per customer also increased at an accelerated rate to 29% year on year as recent product launches continue to bolster our economics. Our IFP growth rates to reflect our decision to lean in. Earlier in the year, we spoke about compelling unit economics giving us confidence to ramp up growth investment levels and that's exactly what we've done. For the 4th consecutive quarter, we have sequentially increased our investments in marketing. I expect this theme of leaning in to continue through the second half of twenty twenty one As long as we're able to acquire business at an attractive LTV to CAC ratio, we'll continue to put our foot to the gas. Tim will elaborate on our expected numbers shortly. I wanted to provide an update on our reinsurance program. In Q1 2021, our business encountered a cat, That's a catastrophe event, which exerts more pressure on our gross loss ratio than any other before it, the Texas freeze. We were able to effectively endure this pressure due to the outstanding reinsurance program we implemented in Q3 of 2020. A 75% proportional or quota share reinsurance program. As a result, our bottom line was shielded from 75% of the impact of the Texas freeze. In this hypergrowth stage of our business, our proportional reinsurance program is especially helpful. Not only does it reduce our volatility exposure, but it enables us to be capital light as it relates to regulatory surplus requirements. However, over time as the business matures and our With respect to volatility declines, we anticipate a gradual reduction of the proportion of our business that we seed. When we entered into our current reinsurance program a year ago, we locked in 55 of the 75 points for a 3 year term with the remaining 20 points up for renewal each year. Having just completed the 1st annual renewal process, we are pleased to share that we were able Similar financial terms on the portion of the quota share that we renewed. Consistent with my earlier comment, we made a modest reduction In the scope of our quota share program stepping down from 75% to 70%. Put differently, we renewed 15 of the 20 points that were up for renewal. I've spent time in prior quarters speaking about the product diversification at Lemonade, a critically important aspect of our strategy that Shay will elaborate on in a moment. But I wanted to share an update on another important aspect of our business mix, geographic diversification. Today, at least one lemonade product is available for purchase in each of the 50 U. S. States and we continue to push towards being able to service 100% of our customers' insurance needs regardless of where they live. We recently made a meaningful progress in the pursuit of this goal with the launch of our Renters insurance product in Florida. The renters insurance market in Florida is large. In fact, it's the 4th largest market in the nation as measured by total gross written premium. By first focusing on renters insurance in Florida, we will be able to fine tune our approach in a risky cat state before we develop our homeowners product in that market. We look forward to bringing the Lemonade renters experience to Floridians and anticipate our product suite in this stage will expand over time. As a tech enabled business, we've been uniquely perhaps able to address markets across continents. To date, our investments have been heavily lopsided in the favor of the United States as that's been where we've seen the most compelling unit economics. In response to favorable recent trends around improving conversion rates and steadily declining loss ratios that we're observing in Europe, We started investing more meaningfully in R and D in the continent. We anticipate this will lead to a step change in growth investment levels in the continent in 2022 and beyond and we'll certainly keep you posted. And with that, let me hand over to Shay for some more updates on our product. Over to you, Shay. Thank you, Daniel. Last quarter, we announced the upcoming launch of Lemonade Car. And it's been gratifying to see how much our community, shareholders and customers alike share our In the intervening months, we've made real strides on all aspects of our car road map, including products and technology, recruiting and regulatory approvals. On the product and technology front, We've completed the development from scratch of an end to end digital first car policy management system. In all aspects of our product strategy, we stay true to our values and prioritize delivery of a delightful customer experience that is simple, fast and automated where possible. We use telematics data to develop a nuanced and segmented pricing structure that will provide a great price for safe drivers and ensure we build a strong low risk book of business. The Lemonade car team continues to grow considerably. We recruited some of the best talent in the industry to lead our car insurance operations And are staffing up our customer facing teams in preparation for launch. And now, I'd like to update you on the mix of products that are currently live. As we look ahead to the long term, we expect our product mix to continue to gradually shift and increasingly diversify. While we love renters as a great point of entry to Lemonade, we continue to invest in other product verticals that provides large and growing addressable markets, cross sell opportunity to existing customers and incremental on ramps to the Lemonade experience. This mix shift is in full effect with our non renters product accounting for roughly half of our new business for the 2nd consecutive quarter. Today, for the first time, We are pleased to provide a product breakdown of our total book of business. A year ago, at Q2 2020, Renters represented about 75% of our ISP, with homeowners accounting for the balance. By the end of Q1 'twenty one, The renters' share was 56%, with homeowners representing 30%, Pest 13% and life accounting for the remainder. As we look ahead, I'd expect this mix shift dynamic to continue through the rest of 2021 and beyond. We expect to periodically update the mix breakdown when we believe it is helpful to understand our product growth and strategy results. I'd like to make a short comment on the performance of one of our lines of business that recently celebrated the major milestone. At the end of Q2 2020, Lemonade Pet turned 1 year old. At 13% of the book, That has well exceeded our internal expectations. And notably, we've seen great success selling to both new and existing lemonade customers. As it relates to new customers, compelling LTV to cash ratios have enabled us to quickly ramp up spend volume The targets new to Lemonade Pet customers. Pet has been a great case study that demonstrates the willingness of our existing customers to purchase additional Lemonade policies. We've made tens of thousands of pet cross sells. Those cross sells currently make up about 30% of our total pet IFP. All in all, a terrific first year for our pet coverage. And with that, let me hand over to Tim for a bit more detail around our financial results and outlook. Tim? Great. Thanks, Chai. I'll give a bit more color on our Q2 results as well as expectations for the Q3 and the full year 2021, and then we'll take your questions. We had another strong quarter of growth driven by additions of new customers as well as a continued increase in premium per customer. In force premium grew 91% in Q2 as compared to Q2 in the prior year to $296,800,000 We believe that this metric captures the full scope of our top line growth before the impact of reinsurance and regardless of the timing of customer acquisition during the quarter. Premium per customer increased 29% versus the prior year to $2.46 This increase was driven by a combination of increased value of policies over time as well as mix shift toward higher value homeowner and pet policies. Roughly 3 quarters of the growth in premium per customer in Q2 was driven by product mix shift, including cross sales and the remaining 1 quarter from increased coverage levels and pricing. Gross earned premium in Q2 increased 90% as as compared to the prior year to $66,900,000 in line with the increase in in force premium. With the impact of the Texas freeze behind us, our gross loss ratio was 74% for Q2 2021, in line with our target range. This result is 7 percentage points higher than Q2 2020 and this increase is primarily driven by the impact of our rapidly growing new business lines. Early in their lemonade lifecycles, new products tend to demonstrate higher loss ratios and the relatively more mature rest of the book. Operating expenses excluding loss and loss adjustment expense increased 126% in Q2 as compared to the prior year. And this was primarily driven by 100 and 6% increase in sales and marketing spend as a result of leaning into advertising and growth investment. We also continue to add new Lemonade team members in all areas of the company in support of customer and premium growth and both current and future product launches And thus saw increases in each of the other expense lines. Global headcount grew 97% Versus the prior year to 749 with a greater growth rate in customer facing departments and in product development teams. Net loss was $55,600,000 in Q2 as compared to the $21,000,000 we reported in the Q2 of 2020, While adjusted EBITDA loss was $40,400,000 in Q2 as compared to $18,200,000 in the Q2 of 2020. Our total cash, cash equivalents and investments ended the quarter of roughly $1,200,000,000 reflecting primarily The net proceeds from our January follow on offering of approximately $640,000,000 partially offset By the use of cash for operations of $57,000,000 since year end 2020. And with these goals and metrics in mind, I'll outline our specific financial expectations for the Q3 as well as an updated full year view of 2021. For the Q3, we expect in force premium at September 30 of between 330 $6339,000,000 gross earned premium between $76,500,000 $77,500,000 Revenue between $32,500,000 $33,500,000 adjusted EBITDA loss of between $55,000,000 $52,000,000 And stock based compensation expense of approximately $15,000,000 and capital expenditures of approximately $3,000,000 And for the full year 2021, we expect in force premium at December 31 of between $380,000,000 $384,000,000 Gross earned premium between $286,000,000 $288,000,000 revenue between 100 and 20 $3,000,000 $125,000,000 and adjusted EBITDA loss between $173,000,000 $169,000,000 Stock based compensation expense of approximately $50,000,000 and capital expenditures of approximately $11,000,000 in the year. And as a reminder, please note that GAAP accounting rules are such that ceded premiums are excluded from GAAP revenue. As a result of the change in our reinsurance structure effective last July 1, to significant proportional reinsurance, our year over year revenue and gross Margin comparisons are not directly comparable. Accordingly, we published in force premium and gross earned premium as metrics that we believe are very useful to analysts and Investors because both capture the overall growth trajectory of the business before the impact of reinsurance. And with that, I would like to turn the call back over to Daniel to address some questions from our shareholders. Daniel? Thanks, Tim. As is our practice, we will now turn to questions most upvoted by our shareholders through the SAID platform. And the first comes from Dean Tse, Who asked about innovations and developments in the pipeline. Well, Dean, a lot of our engineering and product team are working on new products and such as KAR that we have spoken about and that certainly requires intense levels of development and work. But I'm not telling you that product innovation, product iteration enhancements and innovations are day to day Bread and butter for us. It's really part of our DNA and it never stops. In fact, for existing products that are already live, we push Into live production dozens of iterations a day. So there is a continuous innovation cycle in all of our products continuous improvement. Our data scientists are continuously monitoring our data streams and training and retraining our models. Our product teams are continuing to take part of our processes that are managed by people and to automate them. And something that was not spoken about previously, but in a few weeks we'll be shipping a brand new app experience. And this really reflects the monumental changes that our business has gone through in the past year. Just over a year ago, we were a mono line business Just in the homeowner space, of course, now we have that and we have Pet and we have Life and Cars imminent. So we're redesigning the app experience pretty dramatically to allow customers to manage all of the different products That Lemonade in a pretty seamless way and to navigate between the insurance policies, allowing them to update coverages, file claims and get more products And with a simple tap. Hopefully, Deane, that gives you a sense of what we're working on. The next The question comes from Rolando Gee. Rolando asked about breakeven and how we will fund the next leg of our growth. Well, Orlando, we don't put a hard date on this, but we are not expecting to achieve cash flow positivity And in the next couple of years, these are this is a time when there's tremendous opportunity for us to make investments now that we believe will reward us in the long term. So we think about breakeven as something in the medium term rather than in the next couple of years. We spoke about this a bit in our letter as well. In the near term, we're not going to be optimizing for EBITDA, Rather we're trying to maximize profitable growth as measured by lifetime value of our customers and we Keep monitoring that every dollar that we invest is generating new customers or new products that will be long term profitable, but Really the emphasis is on long term. And in terms of funding all of that growth, We believe we are likely able to fund the business to breakeven with the cash already on our balance sheet. So we're in a very strong cash position today. And as we model out The tremendous growth opportunities that we see in front of us, we do think that the cash on hand will suffice to get us through that hyper growth and to ultimately to profitability and cash flow positivity. Thaddeus H. Asked when we expect the auto insurance product to launch and what effect We believe bundling will have on homeowners insurance. Well, Thaddeus, we spoke about launch time earlier on the call, but I'm glad you raised this. We are very hopeful and we're quite optimistic that the car home bundling will be a significant driver of value Going forward. And to date, despite our meaningful success in renters and homeowners insurance, we've really been Selling these products with one hand tied behind our back because it's very common practice for customers to bundle home and car, Something that our competitors are able to offer and that to date we've not been able to. So adding car products should 1, enable us to improve homeowners and renters conversion rates and retention rates and accelerate that business growth and 2, Dramatically improve the lifetime value of existing Lemonade customers who then have will have the option of adding a car policy. As we've said in the past, we think our existing customers are probably spending over $1,000,000,000 today on car insurance with other Insurers, we'd like to believe that they'd rather spend that with Lemonade, but that option has not been available. In fact, We encouraged to see that on Google Lemonade Car or Lemonade Car Insurance has consistently ranked as one of the top three search terms associated with our company and that's been true for years even before we spoke about this as a product And we think this may be an indicator of the pent up demand that we will hopefully unleash with the launch of Lemonade With that, let me turn the call back over to the operator, so we can take some questions from our friends on the street. Thank you. Thank you very much. From Morgan Stanley. Your line is now open. Please go ahead. Thank you. Good morning, everybody. First question, Tim, I think you mentioned the loss ratio as compared to last year and you said specifically because of rapidly growing new business lines. And so I think I specifically heard you say that as compared to just new business. So how should we think about the direction of your Gross loss ratio, knowing that you're going to get a lot of new business because you're growing so much, and then also with the kind of continued shift in your mix of business that you've been alluding to as well. So the direction of the gross loss ratio from here, I guess, is the question. And remind us because you mentioned the target, remind us what your target is on that? Sure. So happy to hey, Mike. So I would think of the loss ratio as sort of short term Volatility versus sort of long term target and long term achievement. So in the short term, what we're seeing more of this quarter and a trend I would expect To perhaps continue is a somewhat upward pressure on loss ratio as a result of some over performance in some ways of our new product growth. And so as we've moved through the course of this year, I think you've seen our top line expectations in terms of in force premium And gross earned premium increased as we move through the course of the year. And much of that increase in that added optimism is driven by our newer Expanded homeowners coverage, the pet product and the newer products tend to have a somewhat higher loss ratio. They're earlier in their Sort of development phase, the maturity phase as compared to renters. And so these are sort of opposing forces as our book of business balances as the mix shift Continues to as the mix continues to shift towards the newer products, in the short term, you'll it's not unexpected that you see a higher Somewhat higher loss ratio. But over the longer term, as those newer products mature, we would expect to see the same dynamic we've seen in renters, which is a loss ratio that improves over time. Now this is not a dynamic that will end in the short term. We've talked quite a bit about our Investments in a pending car launch. Car will be new. It will be it's clearly one of the largest markets In terms of the size of the addressable market. And so there will likely be that same dynamic of upward pressure in the short term as we Kind of step, make our first steps into auto. Over the longer term though, our targets remain the same. I would think of it in the low 70s, 70% to 75% loss ratio absent major cats It's still our target and our long term target and our long term expectation. Car, I don't want to underestimate the impact of car. It's One of the most dynamic markets, one of the highest potential markets for us as Daniel and Shay outlined. But with that, we'll come some complexity and we'll learn our way through it. And I I think if you look back at our previous product launches, we've demonstrated a pretty solid ability to Optimizing those early months quarters and car may take a little bit longer as we step into it, but I would expect the same dynamic to play out in in terms of loss ratio. Okay. Thank you. That's very helpful. Kind of a quick numbers question, probably still for you too, Tim. On your guidance for the adjusted EBITDA, it looks a little lumpy as we get to Q4Q, I'm not sure if I'm reading that right, but it looks like there's a big drop off more so in 3Q and a kind of rebound In 4Q. Am I seeing that right if I look at your guidance numbers? And if so, kind of what's behind that more of a drop off in the 3rd quarter Relative to other quarters of the year. Yes. I think you're seeing that right. There's a couple of dynamics happening there. So Q3, as You know, it's historically been our strongest seasonal quarter, the most added customers, added growth, added premium tends to come in the 3rd quarter. That is moderating somewhat because the newer products, pet insurance, for example, is a little less seasonal, but we still see that dynamic. So we've got a pretty clear line of sight visibility into the coming quarter. We're a month in and so I think the Q3 guidance represents That high level of visibility. Now because we're guiding for the full year, we're there's obviously implied guidance for Q4. Q4, there's a little more uncertainty. So we're investing significantly to gear up for the pending car launch. We don't have a hard date to be disclosed Not yet. So there's a little more uncertainty about Q4 in terms of what that spending pace will play out to be. So I would think of the Q3 guidance is in line with our confidence and approach we've seen in prior quarters. And then Q4, We'll come back in 90 days and update and have a much clearer or somewhat clearer view of how we think growth investment will play out, how we think the KAR investment work is going and update the Q4 at that time. Okay. Thanks. One more for now, if I could. Speaking of KAR, how much of your you're doing a pretty respectable deliberate A attempt to get into that and taking your time there and doing the right things, it seems like. So that's respectful. But How much of your entry into that market is a function of the timing of the Internet is a function of kind of what we see in the overall industry right now, which Looks like pretty tough because of where loss trends are headed. Is that affecting your planned entry right now? Not so much. This is a long term play. As with how we think about Lemonade in general As a long term play, we're building for 5 10 years from now. Our view towards car is the same. We have A significant proportion of our customers who have cars and will insure their cars and will continue to do so, we think we can bring them A product that is notably distinct in the market and in line with the Lemonade promise that we've delivered with the other products that are already in the market. The short term trends we're certainly aware of and not ignoring. But we believe that The more tumultuous the market, the more unpredictable the market, it really benefits the providers who are more agile, Who have the ability to pivot quickly and invest in clever, thoughtful and quick ways. And while it's a challenging market, we think we are in And will be once we launch in a pole position to be able to perform well in what is a trickier market. Large incumbents Have done amazing things over many years, but we think we bring an ability to be agile that will put us in a great position. Okay, Tim. Thank you very much. Our next question comes from Josh Shankler from Bank of America. Your line is now open. Please go ahead. Yes. Thank you for taking my question. I was surprised with the statistic that 30% of your pet premiums are coming From bundlers, I would have thought that it's a natural companion piece to be a renter pet bundler with Lemonade, and that would be the greatest source of your premium. Can you talk about the marketing agenda and how Lemonade Pet is And do you think this percentage of bundled renters rises over time? Yes, we kind of see that as a very positive metric. So it's always a big question when you launch a new product, what proportion Come from existing folks versus new customers. Pet, as you know, in the U. S. Is a relatively small market. So 2 thirds or more of Folks had a cat or a dog or more, a relatively low percentage of actual insurance. And so I think we've been able to show with 30% of those new sales and we're over performing our expectations in terms of the total In force premium going to Pet. I think that's a very strong number. We'll continue to go after those existing customers. But I think it's a it is much a testament to our ability to bring in new customers with a new product That drove the 70%. That's the other portion of that ratio, as it is about our ability to sell to our existing customers. And we've seen this pattern in the past, something like it's maybe fifty-fifty, maybe it's sixty-forty, pet is now thirty-seventy. That's a good Balanced ratio, hard to say how that will shift over time. I don't expect any radical shifts. And We've got some learnings from that that will carry forward with us as we move into the car launch. And I think in the past you So that renters is around a 65 loss ratio, homeowners is 75. Are those numbers correct that I'm stating? And can you add that loss ratio to that list? No, we actually don't disclose hard loss ratios by product line. We have you're correct directionally. We have Noted that the more mature products have a lower, more optimized loss ratio. So renters are certainly less than the overall Business average homeowners and pet is higher and those vary from quarter to quarter. But again, that's part of The new product penalty as we term it that will likely continue. But we do look at the overall loss ratio of the business to keep that healthy, to keep our reinsurance relationships healthy and vibrant. And so all of that's kind of balanced together and I think the trend lines are quite good. Thank you for the answers. Our next question comes from Andrew Kligerman from Credit Suisse. Your line is now open. Please go ahead. Thank you. Good morning. Question following up on the auto insurance area. In your release, you highlighted that you would not be including any auto insurance in your IFP Key guidance for 2021. So I guess the first part of the question would be, Is that because you actually would expect that this product will get launched in 2022? And secondly, What are some of the steps that you need to accomplish before launching the product? Andrew, good morning. Daniel here. There is some uncertainty around the launch. I saw some questions coming our way And from some of our retail investors as well along the same lines. So happy to address their questions alongside yours in this regard. We have pretty good Control over our own development processes. And the development is going very well. I think actually Perhaps ahead of plan and what we're seeing in terms of the product development is incredibly heartening. It's really quite exciting to see this product in development. We've been pretty engaged with our prospective customers. We've had some 10,000 customers help us in designing the product and prioritizing features and it's coming together in a way that will, I believe, really reward all of our customers' patience. And so The development, I do want to signal to you, is going well, perhaps ahead of schedule and is really quite exhilarating to see. But there are elements of the product that we don't control and those are the regulatory approvals. We don't anticipate any problems with that. It's just hard to time them. So we do you know we own our own insurance carrier and we have our own licenses, but we do need to go To several states, not all states require this and get them to approve us to write car insurance specifically and we're working through that process. And then in all states, we have to get rates and forms approved. That can be a somewhat laborious process at the best of times and oftentimes when it's your first time And filing these, there's slightly more discussion as you establish a baseline with regulators. So those processes are entirely Pedestrian processes that we need to go through, there's nothing particularly exciting or unusual about them, but they're just introducing a degree of The boldness or unpredictability, whatever the right way to parse that word is, and into our launch dates. So There's definitely a swing of several months around that question. So for that reason, we're not giving a Specific date, we did say a few months ago when we announced the product that we're hoping that it will be within the year. We certainly stand by that. Obviously, from all of our points of view, it's better than later. But hopefully, the regulatory hopefully gives you a sense of why we're being a little bit And ginger we're addressing this somewhat gingerly because of the uncertainty that's hosted upon us by the regulators. I see. So it sounds like you're happy with what you've built, but it's more the regulatory process. And when you is that right? It is. Okay. And when you said within the year, you mean Within 2022 or within 2021, what you were previously saying? Just so I'm clear on that. Yes. The lack of clarity is understandable. It was an ambiguous statement. And I'm going to leave it hanging out there a little bit With that ambiguously unresolved, I'm afraid. Yes, we're really beholden to our regulators and we want to give them the We don't want to tie them down. They don't appreciate us being too firm on dates that are ultimately in their hands and we want to respect that process. So apologies for not being more precise on that. Very fair. And I'll leave it at that. And then just one other question on your life insurance launch. In the release, you mentioned that you came out with it in January. You had a meaningful ad And in the Q2 and currently it's 1% of your business mix at this stage in the game. You also mentioned that you think that it could become a meaningful piece going forward. But does the 1% imply that there are a lot of challenges that it may be difficult to get that number? What are you thinking that might allow for this to become meaningful? Well, the market It's very sizable. So consumers, including our own consumers, are spending a lot of money on this sector. It's tens of 1,000,000,000 of dollars just And term life just in the U. S. Every year. So this is clearly a major potential market for us. And we are seeing it growing. The 1% that we intimated is not what we're seeing in terms of our sales on a daily basis. That percentage is higher. The product is launching 5 years after the other one, so it has to claw its way into a meaningful Percent of the book just because the other products have years of head start on it. So we are seeing the product sell well. We are seeing its growth along the lines that we would have hoped to see. And we are learning how to Sell the product both to existing and to prospective customers. And so actually, I think I would categorize this as something that we're pretty optimistic about. When we announced the product, you may recall a couple of quarters ago, we were very cautious, cognizant of the fact that for other players in this space, Acquiring customers at a profitable level has proven very tricky, and we didn't want to presume that we'll be able to succeed where others have struggled. I think we are more bullish on it now. We're seeing a few months in that we're finding our footings on this product and it's progressing nicely. So I don't want to suggest that there's any problems in this product at all. It's progressing nicely and hopefully will continue to progress in that way. And just one let me sneak one last part to that and then I'm done. The TAM is clearly bigger and perhaps making that market a lot More competitive, but you feel like you're finding pathways to that growth. That's why you're saying you're optimistic despite Greater competition in the life products and maybe some of your other ones right now? Well, what we're seeing a bit like the discussion that we just had around Pet, we're seeing a significant portion of our life sales Are going to existing customers. And one of the big unlocks really for how to sell Term Life Insurance is just to tell it's the people that are already customers of yours that are already trusting of the brand and engaged with you. So Certainly, we're seeing that existing customers are happy to buy Term Life from us. But we are also seeing that we are getting better, and I would say, finding our footing on how to Promote this to new customers as well. I don't want to overstate it. It is early days. We've only been doing this for a couple of months. We are Pretty studious at trying different things. We're still in that trial and error phase. I don't want to overpromise or oversell, But I am signaling that we're seeing an increased degree of confidence relative to how we spoke about this just a couple of months ago. Very helpful. Thanks so much. You're welcome. Our next question comes from Ron Josey from JMP. Your line is now open. Please go ahead. Hi, guys. It's Andrew Boone on for Ron. Thanks for taking our questions. On the IFP breakdown, you talked about newer Distribution channels like I guess in the letter, sorry. You talked about newer distribution channels like agent partners and graduates doubling share of homeowner sales year over year. Can you talk about how these other channels are playing out longer term and the lessons you're learning here? And then secondly, on the Florida launch, Can you talk about your approach here and just remind us how many states Lemonade offers renters and home in? And how you guys are progressing towards kind of national coverage? Thank you. So from I'll take the second one first. From a coverage standpoint, we're licensed in upwards of 90% of the U. S. In homeowners and renters, there's some variation. We're not in actively selling both in every single one of those states, but well above 90 In terms of licensing, well above 80% in terms of actively live selling. With Life, we're in 100%, 51 states, including D. C. So while we don't speak much about Coverage, it's primarily because we're so edging so close to 100%. So we have a couple expansion states left to go with the launch of Florida, which was relatively recent. Every large state is now in play for Lemonade, but there's a handful of smaller states Yes. Yes. So, and if you could clarify your first question a little bit, I think I got most of it, but maybe just give me a Yes. So, in the letter you guys mentioned agent partners and then graduates doubling share of homeowners Yes. As you guys think about kind of other channels playing out longer term, what are the lessons you guys are learning that seems kind of Is it a test or is there something to read in there just on the language? What's yes, can you break that down a little bit more? Yes, I think it's the top lesson I think is patience Because some of these things that we have seen in the numbers take some time to develop. So clearly, graduates or a renter becoming a homeowner is something we've Thought about and encouraged and tried to benefit from since the early days of the business. There's not actually much we can do in terms of You know, facilitating someone to go out and buy a home, but it's something we can make the pathway easier and easier over time. And so what we've seen is A consistent monthly quarterly increase in the proportion not the proportion, but the number of folks who are graduating buying homes and then staying with Lemonade. There's still an awareness challenge that we're getting much better at, but there's still folks who buy a home and don't actually know that Lemonade has coverage. That It was a significant problem in the past. We're getting better at that. That's improving over time. But what we're seeing is over the course of quarters years, this graduate number, if you just look at I have new dollars coming in today or this month or this quarter. That graduate number in terms of premium dollars is now significant. It's a significant contributor. So where a few years ago it was really every dollar we had to pay for, word-of-mouth was limited, that has now shifted where word-of-mouth is strong, graduates are contributing a significant amount. And then the third piece that you mentioned is An area where we're also seeing some interesting developments and that's within an area of a business development group that works on Partnerships and developing different channels, whether it's referral agreements and something we've been talked about on the last couple of Calls is an agent program. Now Lemonade, as you know, is known for not having agents and not paying commissions and those kinds of things. But Leveraging networks that are out there and enabling us to reach customers that are a little trickier to reach through our traditional channels. That's what this group does. And so there's an agent infrastructure that's now bringing business to us that's gone from relatively small A much stronger contributor. So I think it's some of these new channels take quarters or even years To build and now we're seeing the benefit from that. And the mix of new business coming in is becoming much more balanced. The measurement is the same. So we look as much as we can at what we expect Lifetime value to CAC ratio to be in each of these channels and it varies based on these channels. So we're kind of using that same lens to figure out where the best opportunities are. But all that said, the vast majority of the business is still Overwhelmingly direct, which we're very, very good at and continue to optimize, continue to see improvements even in that method of acquiring customers. Tim, is that more of a test channel or is it more mature and could that roll More broadly, just across the platform, just as we think about other lines maturing? I would think of it as complementary. So it's not a core focus of our customer acquisition, but it's complementary. You look at different Channels in different ways. And so it may be somewhat more mature than a test, but I would put it in sort of the complementary bucket. And that's something where we'll deploy dollars, get results and adjusted accordingly. Thank you so much. All right. I think if there are no more questions, we will wrap up the call. So great to catch up with everyone and thank you for your Full questions. And we look forward to seeing you again next quarter. Thanks so much.