The Next 10x: Lemonade's Investor Day 2024

Good morning. Thanks to everyone present, both in person here in New York and from around the world. We value your time, we value your interest in Lemonade, and we hope these will be amply rewarded during the course of the next couple of hours. I'm going to start by zooming out and try to put Lemonade's ambition and opportunity in its broadest possible context, and then zoom in a bit from there. But let's start, as I say, with a big zoom out. Picture the world spends more money on insurance than just about anything else. More money on insurance than on artificial intelligence, than on automotive, cloud computing. Entire defense budgets don't amount to how much we spend on insurance. Oil and gas as a sector is smaller than insurance. Semiconductors, software, the list goes on. In short, insurance is a prize worth fighting for, and we'll try and make the case today that it's a prize that is up for grabs now. I say that notwithstanding the fact that the incumbents, the reigning insurers, have been on top for centuries and they have massive heft. They do, oftentimes sometimes closer to $200 billion a year in revenue. But longevity should never be confused for immortality. And I actually think that insurance may be the most disruptable industry on the planet. I say that because of structural changes that the world has gone through. Insurers forged in a bygone era are structurally disadvantaged in the age of the machine. Their assets suddenly reveal themselves to be liabilities. 40,000 agents—is that good in the age of the app-based direct-to-consumer distribution? Their cultures developed over centuries for legacy preservation suddenly appear maladapted when what we really need is business transformation. And their legacy systems behave a lot more like black holes that devour time and cash than what they need, which is black boxes that make everything faster and cheaper. Which brings us to Lemonade's founding thesis. Our thesis is very simple: it is that a new kind of insurance company built from scratch, legacy-free, on AI as a core component, a plank from day one, will enable us to delight consumers, quantify risk, and collapse costs in a way that no other structure allows you to do. Lemonade was founded to do exactly that. By the end of this morning, I hope you will find that proposition investable. Let's begin. And I'd like to begin with two things that have changed since we met in this room on this feed two years ago, almost to the day, for our very first Investor Day. They're pretty simple. Today, as compared to two years ago, LMND represents far less downside and far, far more upside. On the downside, a couple of years ago there were questions hovering in the air: what's the liquidity risk for Lemonade? This past quarter, we contributed $48 million to our cash balance. But two years ago, in the same quarter, we lost $63 million. Now, that $111 million swing is not just a change in degree, it's a change in kind. Since we last met, we have shifted from being a company that burns cash to one that generates cash. If ever there was a concern about our liquidity and our ability to continue as a going concern, there no longer is. There were question marks in the air a couple of years ago when, in the same quarter, we reported a 94% loss ratio. Does Lemonade really get insurance? Can they master the art and science of loss ratios in insurance? Well, just a couple of weeks ago, we reported a 73, smack bang in the middle of where we guided to, where we want to be. 21 points reduced over the course of two years. If it's not unprecedented, it's close to that. If questions hovered in the air a couple of years ago about 'do these guys get insurance?', I think we can lay those concerns to rest as well. And we laid out some pretty ambitious plans. We showed you models for multi-year compound growth and all different goodness—cash flow positivity—and people had questions about 'can they pull off what they're telling us?' Folks, two years on, we've done everything that we said and then some. And Tim will cover some of that later. But let me just say: we've been a public company for 17 quarters. For 17 out of 17 quarters, we have delivered on the guidance that we've given or handily beaten it. So if there were concerns about the execution machine that is Lemonade, I think these are materially derisked or entirely put to bed. And then there's the upside. This time two years ago, we spoke about a 20% CAGR going forward. Today, we're going to update that to 30% more growth. This time last year, we spoke about certain efficiency metrics that we thought AI would deliver for us. AI has been moving much faster than we anticipated, and the dividends from AI are much greater and more dramatic, and you'll see that in spades. And I would put it to you that LMND on a risk-reward basis has never been more affordable than it is right now. So some things have changed: less risk, more reward. But those changes themselves are really byproducts of something incredibly steady, bankable, something that hasn't changed. And I'll go through a few of those things because the trajectories are not new; the impact is. The trajectories are constant. What you're seeing on the screen right now is our in-force premium—those are the tall columns that you see—and at the bottom, the small line is our operating expenses. This dates back not just two years ago but since our IPO. Our business has grown sixfold since our IPO. But if I look at two years ago, we had just completed the Metromile acquisition, which is the single kind of jump that you see. Everything else is very steady as she goes. You'll see that two years ago we reported roughly $600 million in in-force premium. Two years later, just shy of $900 million, almost a 50% growth in a two-year period. What happened to the corresponding costs? Expenses, folks, they declined. This time two years ago, we reported $87 million of operating expenses net of growth spend—will come back to that later. This quarter, you look at the underlying cost structure of Lemonade: it is smaller than it was when we were far smaller ourselves. There's some magic happening here of us being able to grow dramatically while keeping expenses absolutely flat. This geometric shape—technically it's called angle rays, I'm told—this shape is the most compact, visual, and perhaps memorable point I want to make today, and you'll see it recurring throughout our presentations. I hope you take away many facts and figures and insights from the different presentations and different angles that we deliver, but the principles captured in this image will underlay them all: grow the business, scale the operation. This is the shape of our expense ratio. Some of you will remember I showed this image, this cartoon, a couple of years ago to explain our expense ratio: this image of a young girl struggling under the weight of a backpack and then growing into it. And really, the point I was making then is that our fixed costs are fine; they're not going to grow. We are going to grow into them. The denominator will take care of the expense ratio. That's exactly what happened. Our expenses have not shifted, but our business has grown. Growth for us is the gift that keeps on giving. So if two years ago we were uncomfortably burdened by our cost structure, today we're much more comfortable with it. And two years from now, when we're profitable, it will be a breeze to walk around with this backpack. The same geometry, the same shape underpins our gross profit. And this is interesting: I spoke about a 50% growth in our top line, but our gross profit has 3x during that time. 3x increase in gross profit without any movement on their expense structure. This is somewhat gravity-defying. As fast as a business has been growing, our profitability has been outpacing it dramatically. And all of that has led to this line, which is our EBITDA margin—our EBITDA over gross earned premium. This, in the most literal sense, is our path to profit. Our EBITDA margin today is more than twice as good as it was when we last met. It has been improving for about five years at a rate of almost 10% a year, plus or minus, and it's been improving pretty much like clockwork. In 2021, we told our investor community that we expected to be EBITDA profitable in 2026. We're still saying that now, and you can see the milestones along the way, the dependability, the bankability of our performance as we near that. I've been showing you two-year horizons. I've shrunk it down to one year because a year ago we started reaccelerating our business, and this line shows you our acceleration curve as well. Q3 of last year, we grew 18%, then 19, then 20, then 22. This last quarter, 24. The quarter we're in right now, we've guided to 26% growth. That's pretty rapid acceleration. How often do you see rapid acceleration and expenses staying flat to declining? In the years ahead, we expect that to continue. 2025 will grow faster than 2024. 2026 will grow faster than 2025 as we grow into that 30% CAGR. You might not hit that entirely in 2025, but from 2026 onwards, we expect to be at that cruising altitude. The upshot is that we're cash flow positive. We had guided to being cash positive in mid-2025. I can tell you now that 2024 will be cash flow positive as a year as a whole, and we will be cash flow positive in Q3 by any metric: operating cash flow, free cash flow, net cash flow, you name it, it was positive in Q3. What's next? Well, with cash flow materially behind us, we're going to be focusing, as we continue to do what we're doing, on EBITDA profitability in 2026, net profit in 2027, and massive profitability thereafter. These are all milestones on our way to the 10x. They are all byproducts of maintaining that shape as we 10x. They inexorably follow from us continuing to do what we've been doing. Which is why we're going to maintain that shape. We're going to keep doing what we're doing: accelerate top line, hold expense line, wash, rinse, and repeat. So while the strategy, the geometry, the physics of our business is unchanging, notably our product mix has continuously shape-shifted in order to match the stage of the business. And as we go from $1 billion to $10, we will see that change manifest pretty powerfully as well. Most notably, while renters and pet were able to propel us to $1 billion, car has to start revving up in order to propel us from $1 to $10. We bought Metromile, as I say, two years ago, and we've been busy absorbing all of their data, all of their experience. It's been a huge unlock for a lot of what you're going to see in my presentation and ones that follow. But we have not rushed to scale this business. We have been biding our time. We have been building, experimenting, tinkering, and perfecting. While Lemonade Car has played a supporting role in our financials to date, it has been primary in our investments for some years now. Behind the scenes, we have invested far more in car—more engineers, more insurance specialists, more product and design people, more data scientists—than in any other line of our business. By 2025, during the upcoming year, we think we will be feature complete. We'll never rest on our laurels; we'll keep developing stuff. But we will get to the point where we feel that this is ready for prime time, that we can start really growing aggressively, and that will happen as the year progresses. What do you need to know? All of that tinkering, all of that building, all of those investments—what's important for you to take away from what I'm saying? Lemonade Car promises to have an unrivaled experience at unbeatable prices. Now you might say, 'Unrivaled experience, okay, Lemonade has always had an unrivaled experience.' Let's focus in a minute on that unbeatable price. And in a sense, it's what we've done already for other products. We launched renters insurance in 2016 with a promise of killer prices, monthly subscriptions. It's been our most well-performing campaign pretty much ever since. We haven't always waved the flag of being a price leader, but it has always been part of what you are reasonably entitled to expect from Lemonade. So let's touch on a couple of things around these killer prices for car. The first is why are we motivated to have killer prices? And this may be self-evident, but our empirical results have shown that a 10-point change in price can yield a 50% all the way up to a 150% change in conversion. This is an incredibly price-elastic, incredibly price-sensitive market. Being able to get to price leadership has massive dividends for whoever can pull it off. Okay, you say, 'I get the motivation, that's pretty clear. But Lemonade's car business is roughly a $100 million business today. GEICO and Progressive are like $50, $60 billion businesses today. So the guys you're going up against are 500 times your size. How can you possibly hope to outprice them?' Fair enough. I want to talk to you about three things that we have that nobody else has in car insurance: telematics—and those of you who think 'well, everybody has telematics,' I'll address that later. On telematics, we have it; nobody else does. Take my word for it for a minute, suspend disbelief, I'll make my point later. Distribution: we have unique distribution advantages that Maya will talk about. So I'm going to talk about telematics, Maya about distribution, and the way we use AI to automate across our business will yield tremendous cost savings in the car insurance space that is oftentimes very, very costly. So I said I'm going to talk about telematics. Let me dive in. The way most of you have your car insurance priced is based on proxies. Insurers don't really know how you drive, so they look at your gender, your marital status, your education level, in most states your credit score. These are kind of disappointing ways to price how somebody drives. Under that kind of lens, humanity looks like much of a muchness, very much alike. Under this crude lens, diverse people are combined in this low-resolution image. I kind of end up with this two-dimensional outline of a humanoid or a cardboard cutout. That's the best you can do when you're using things like your gender and your age to price insurance. Telematics changes the game in dramatic fashion. At least the Lemonade version of telematics: it's not a low-resolution 2D cutout, it's the full HD, it's the 4K, it's the 8K. In a very deep and real sense, it's virtual reality. Because at high fidelity, with precision instruments, we capture every mile driven, near every foot or inch driven, every tap of the brake, every swerve of the steering wheel, every time somebody texts while driving. Marital status, credit scores—they don't hold a candle to the kind of insights that we glean. What's that got to do with killer prices? Everything. So let's have a look. Some illustrative data here. I've charted here 100 people who are being priced as cardboard cutouts. And no wonder they have roughly similar, on average, proxies, and therefore they end up with roughly similar average prices. The average price is $2,348, a national average price pretty much, and there is some variation but not much. Now, the actual variation of these self-same drivers as captured by telemetry would make that curve look more like this. People are wildly different in how they drive. Gender doesn't begin to capture that. So Jill should actually be paying $600 more than average. You can see she's got that phone in her hand. She may look good by way of her proxies, but she's a distracted driver. Telemetry will pick that up. The cardboard cutout misses it entirely. On the other hand, Jack, who's a young driver and maybe his proxies aren't so great, is actually a cautious person. The true price for Jack should be $400 lower than the average. Both of these are entirely missed by the bulk of the industry. Now, to put some proportionality around this: about a third of drivers are worse than average. They're the ones who ruin it for everyone else. The problem is that traditional methods can't identify them, so we price them as average. When Jill comes to Lemonade, she will not be delighted with the price she gets. She will tweet out that this is not unbeatable price, this isn't killer prices, it's so much, it's 20% more expensive than what I got quoted at GEICO or Progressive or State Farm. And she's right. We're able to identify that she's a worse-than-average risk. She's better off being mispriced as average elsewhere. Good riddance. That will manifest itself as negative selection for our competitors. Jack, on the other hand, is one of a huge cohort. In fact, Jack is the majority. Two-thirds of people are subsidizing one-third. Again, insurers just can't identify them as such. Jack comes to Lemonade. We see how he drives. We give him a 17% discount, a rate commensurate with the risk. He saves $400. He feels like he got killer prices. Welcome on board, Jack. That's exactly what positive selection looks like. All told, our telematics can lower premiums by about 15% for two-thirds of customers. This is not a niche play. This is the big game. This is the game. If 15% has a ring to it, it's because somebody built a $40-50 billion business promising that they could save you 15% in 15 minutes, mind you. But we'll leave that one aside. 15% is a game changer. It's how leadership is established in this market. Okay, I said I was going to come back to this. Doesn't everyone do telematics? Hasn't it been around since the '90s? Didn't Progressive invent it? Fair enough. Let me take you through this one bit at a time and try to unpack it. Does everyone do telematics? Well, it really depends on how you're using those words. What does 'do' mean and what does 'telematics' mean? I'll show you three or four vantage points onto that. Let's just start with how many companies are actually doing telematics. Data on this is a little bit sparse. The Wall Street Journal did a big cover story on this three years ago, and they claimed that less than 4% of policies in the US use telematics. I've seen five and six. It's been growing. I've rounded it up to nine. I don't know what the precise number is, but we are 10 times more in terms of our telematics use than the industry average. Now, among incumbents, there are some who in some channels do better than 9%, some who do worse. Fine. But taken as a whole, broad strokes, Lemonade is 10x on telematics than the whole industry. Not 10%, 10x. But honestly, this is just the beginning. Because what we mean by telematics changes, what we mean by 'do' changes. But what we mean by telematics changes because those telematics policies of our competitors aren't continuously in use. Those 9% invariably will run telematics for you for two weeks, three weeks, four weeks, and then stop. The Progressive program is called Snapshot because they take a snapshot. They price you and they're done. So when somebody else says they're doing telematics, best case they mean we're doing it for a couple of weeks, pricing you, and then we discontinue it. That's not what Lemonade means when we say telematics. For us, for 92% of our business, it is continuously generating and streaming data on how you're driving. This isn't a 10x, this is a 100x for the rest of the industry. Why is this so meaningful? Two things. First is on price. It is true that you get some good data in those first 30 days, and it's better than nothing at all. But it's nowhere near as good as continuous telematics. I can tell you empirically from our data: the telematics score for the median user changes as much as 23% between when those 30 days are up and when the first year is up. 23% is huge in a market as sensitive as ours. 23%. And then there's the claims. If you don't use continuous telematics, then at the moment of impact, when an accident happens, you know nothing. You're back to old-school ways of adjudicating a claim. In our case, it's radically different. We have in your car streaming in real time, high fidelity, high precision instruments measuring everything that you did at that moment of impact. And we get the impact dynamics, we get the location and the timing of the accident, we get the speed and the direction, and we can do a lot with that. First of all, we can help you. Your phone will jump up: 'Have you had an accident? Do you need us to send help?' Secondly, 'Do you want us to start a claim for you?' And when you do start a claim, we already have so much of the information that we radically reduce fraud. Think how many lies you can tell when we have that level of X-ray into how you're driving. And we radically reduce the time and the cost of adjudicating your claim. There's one more layer in which when we say telematics, we mean something different to everybody else. Lemonade's telematics is proprietary. We are a data science company. What I'm doing here is I'm normalizing the no-telematics approach. So if you look along the horizontal axis, we're moving from low risk to high risk, and the vertical axis is showing the system's ability to match and to detect the fact that the risk has changed. Now, I'm somewhat artificially flatlining as a baseline those cardboard cutouts, the proxy. So I'm holding that flat in order to show you the relative strength of different systems. Traditional telematics, the industry standard telematics—I'm not talking now about whether it's continuous or not, I'm talking about the data science behind it. If you have an insurance company and you now want to know somebody tapped the brake, what risk does that represent? How should I translate that into rates? What does that even mean? Mapping behavior onto risk is a data science, machine learning, deep learning challenge. To the best of my knowledge, there is only one incumbent in the country out of tens if not hundreds who are using telematics that have done this hard work themselves. Everybody else uses the same off-the-shelf lookup table that we started with as well. So we have a pretty good sense of how good or limited it is. And it does show you some lift. So it is better at detecting low risks, better at detecting high risks than my baseline. But let me layer on top of that a real, drawn-to-scale version of Lemonade's own telematics. That's dramatically different. We use the same word 'telematics,' but we mean something quite different. This is born of the benefit of having a single integrated system, having our own data science in-house, not outsourcing our core competencies as the rest of the industry has wanted to do. Note: for many customers here, the delta between no telematics and industry standard telematics is smaller than the delta between industry standard telematics and Lemonade telematics. That's how big the difference is. Combine those: 10 times the usage of telematics, a 100 times the usage of continuous telematics, and a qualitative jump in every data that comes through because we can analyze it, have analyzed it using all of a trillion data points dating back to 2013 when Metromile pioneered this thing. Now, the same guiding principles—we don't always have telematics, but the same philosophy and principle underpin everything that we do at Lemonade. Adena will pepper in an example for our pet insurance product a bit later in the morning. I delayed on car for obvious reasons, but nothing about car is distinct in how we approach the challenges or in our determination to offer unbeatable prices. A concern I often hear when I start talking this way is: 'Okay, what about loss ratios? Don't killer prices sound daunting, scary? Don't they translate into elevated loss ratios? Anybody can grow by selling dollars for 90 cents. Is that what's going on here?' Not by a mile. Let me say two things about this question, and they center around two concepts that I'm going to return to a couple of times this morning: precision and automation. Let's start with precision. Precision is what I was just talking about with telematics: the ability to detect with great precision and differentiate a homogeneous group into its component parts, to see every cell and judge it differently, price it distinctly. Well, if you have that and you use that to lower loss, to lower prices, you do not adversely affect loss ratio. If I take Jack, see him for the risk he is, which means he's a lower risk, and I price him commensurately lower, the loss ratios are maintained. Nothing at all changes other than my conversion goes through the roof, my retention goes through the roof. The loss ratio will be a constant. A perhaps more interesting insight comes to what happens when there's automation in play. What happens when you build your company on AI rather than on humans and you can scale infinitely, as we'll be talking this morning? Because high loss ratios can of course be a signal of bad underwriting. More often, they're not. That's what they are. But they can also be the telltale sign of extraordinary efficiency. Let me show you what I mean. I'm taking here two illustrative companies. One is Lemonade and the other one I'm calling Acme Insurance. And the company on the right, Acme Insurance, is pricing a policy at $2,000—doesn't matter if it's car or home or whatever policy this is—and we're charging 15% less, $1,700. And in my illustrative example, we have a 30% advantage when it comes to automation, so our cost structures are that much more efficient. As I say, illustrative, but I think quite reasonable set of assumptions. I have held the losses constant. I'm making a distinct point to the one I made earlier about ability to detect risks. Here, we're underwriting the identical risk. Both companies are underwriting a risk which is going to cost $1,500 to pay out. Look what happens to the loss ratios. Lemonade's loss ratio here is a 70% in my example. Acme Insurance is 63. If this is the prism through which you look at companies like ours, you'll come off quite disappointed. Our unit economics by this measure look worse than Acme Insurance. We have a higher loss ratio. And even if you look at the combined ratio, they're identical. Best case, you'll say is that they're on par with the rest of the industry. But folks, that is a very misleading conclusion to draw. Unit economics and loss ratios in particular only take you so far. If we're able to price 15% less than the rest of the industry and deliver the same net margins, this is a company on a rocket ship. That's those 15% that can make you into a $50 billion business. The company on the right will have growth dynamics that the rest of the industry don't know, conversion dynamics, retention dynamics that are unmatched. And for you as investors, if you get to choose which of these two companies to invest in, 10 times out of 10 you want to invest in the one with the worst loss ratio on my example here. All told, beware of averages, particularly as we lower prices. Follow the dollars, follow the gross profit. See what the machine is generating in terms of gross profit growth rather than fixating exclusively or even primarily on loss ratios. But it goes deeper. In fact, it goes to the very core of our strategy since our founding. For the very first time, I want to share with you a snapshot of a deck we shared with the team at the very first management meeting back in 2015, just as the company was being founded. It hasn't been changed, it hasn't been doctored. This was the strategy slide. You'll notice a few things. One is we hadn't discovered the color pink quite yet. The other one is that we hadn't realized how dumb it is to try and call ourselves 'the world's first peer-to-peer technology insurance company.' What a mouthful. You'll also notice some other things that have not changed: technology, artificial intelligence. Guys, not 2023, 2015. Who was talking about artificial intelligence as the foundation of their business in 2015? And untouchable rates. Those are the points that we laid out from day one. Why? Let me take those one at a time. I'll talk about technology and then I'll explain how I get to untouchable rates. Technology and AI give us two profound advantages. It's a structural advantage, and that structural advantage begets you a competitive advantage. And I'll fly through this part. I hope it's familiar. The structural advantage is that we were built as a tech company. We are vertically integrated. You saw the example now with telematics. We get to do things that others don't get to do, and the whole morning will illustrate the advantages of our system. We've got a single proprietary system that garners and deploys data at every touchpoint with the customers and gets smarter and smarter as it goes. Contrast that with the incumbents. This is a quote from Ajit Jain, the Vice Chairman of Berkshire Hathaway, who owns GEICO. Last year, he said that GEICO has more than 600 legacy systems that don't really talk to one another. That's a structural advantage: building a company from scratch on your own technology as opposed to decades of layering archaeology one on top of the other, systems that don't even correspond to each other. How much can you contend with the AI era if that's how you built your company? And GEICO is considered one of the better companies in the sector. But this is a distinction with a difference. It matters because I'm going back to those two key words. Two things matter in insurance: precision and automation. Precision is the ability to use big data, machine learning, deep learning to quantify risk better than anyone else, to gain dominion over the loss ratio—whether it's determined to be optimal at this level or that level—to own the loss ratio. That's what precision is about. And technology does that better than anything else. And automation, of course, is about technology that allows you to delight consumers with 3-second payment of claims and instant everything and no paperwork. That boosts your brand, and it lowers your cost of acquisition, and it collapses the cost to serve. That's your loss ratio, that's your expense ratio, that's the whole kit and caboodle in insurance. Technology is a structural advantage that manifests as a profound competitive advantage in the two things that matter in insurance. Okay, it does not follow, though, that we have to cash in that advantage as untouchable rates. That's a choice. And I want to explain it. I gave you an example before: Acme Insurance charging $2,000 and us, because we're more efficient, charging $1,700. We don't have to do that. We could charge the same $2,000, get similar growth rates, and just have a real margin-rich business. It's a choice to cash in our technological advantage as margins or growth, and we bias growth. And I want to explain why. You can map out a profit frontier: margins versus growth. Smaller margins make it up on volume. And you can map out what kind of profit potential anywhere along this line will generate the same amount of profit. So at price X, this is the profit pool. If I give those now-famous 15% discount, this is the profit pool. And lo and behold, they are identical. That's the nature of a profit frontier. So at any given scale, we are truly indifferent to whether we make it up on volume or make it up in margins. Our results will look very, very much alike. But while that's true at any point of scale, we are not indifferent to scale. As we scale the business, the profit frontier itself moves. If that was the potential profit at scale X, this is the potential profit at 2X. And this '2' is born of us being a technological company, as having that as our substrate in our DNA. Traditional businesses, traditional architectures enjoy benefits of scale, but they diminish, they taper off. At some scale, you barely feel the advantages of the marginal scaling. Tech companies like ours have the opposite dynamic. For us, the efficiency returns, the savings that we get at scale accelerate; they don't diminish. The more we grow, the more marginally profitable we will be. And that is why, since we're planning for the long term and for maximum profit over time, maximizing the enterprise value, we are going to bias us growth in order to get to levels where we can continuously increase the total profit of the business. Let me try and bring it all together by connecting the dots, and I'll try and create a single image that hopefully coheres in your mind and captures everything that I've been saying. Lemonade is a tech leader in insurance. I think that is inarguably true. Technology begets you two things: precision and automation. And we believe we're well on the way to being leaders in both as a direct result of us being technological leaders. We choose to cash that in as price leadership, which will beget us growth leadership, which will ultimately yield the largest pool of profit we ever could. That, in a nutshell, is our strategy. There's another dynamic at play: that frontier moving because the more scale we get, that compounds our automation advantage, and the more scale we get, that compounds our precision advantage as we get more and more nuanced in our ability to manage our business. So you saw our founding strategy. It is that, and staying true to that has brought us today to being cash flow positive. It is the same strategy that will deliver EBITDA profitability, net profit, and in due course, massive profit. It is that that is propelling us to 10x our business. And when we 10x it, it is that that will propel us to 10x it again. By the end of this morning, I hope you will find that proposition investable. Thank you.

Thank you. Let me just introduce the speakers that follow, and I want to do it by way of going back to my geometry. I said this is going to follow us throughout the day: growing the business, scaling the operation. If you like, you can map those on to two leaders in our organization. Growing the business is Maya Proser, our Chief Business Officer, and scaling the operation is Adina X, our Chief Operations Officer. And you will hear from them in succession, one after the other. We will then follow that with our SVP of Finance, Nick, who will try and model everything that we saw and try and make sense of all the plethora of examples and data points they'll hear presented in the next couple of presentations so that it all comes together for you in a simple form that you know what to do with.

Billion to 10x ourselves and reach $10 billion. In order to 10x ourselves, we're going to rely on three core pillars that are unique to Lemonade. The first is having a leading brand and best-in-class product experience that redefines customer expectations in our industry and serves as a platform for our growth. The second is having a proprietary go-to-market machine built on learning models that constantly optimize for profitability. And the third is a differentiated and defensible go-to-market strategy for our next growth engine, car, which is unique to Lemonade and will enable us to win and scale effectively in the upcoming years. Winning brand and product experience, profit-optimizing marketing machine, and a differentiated go-to-market strategy for car. I'll now dive into each one of those and expand.

So what does it take to build a huge brand in the insurance industry? Let's take Geico, for example. We don't mean to keep picking on Geico, we think they're great and we have a lot of appreciation for their brand. Geico has been around for 90 years, so first you can say that it takes a real long time to build a big brand in the industry. They also have an attractive selling proposition that centers around value and savings, and they've spent billions of dollars on marketing over decades getting awareness and attraction from customers. Let's not forget they also have a very cute mascot. But at a fraction of the cost and in record time, Lemonade has established itself as the brand for the next generation insurance buyers.

We set a new standard for insurance product experience, proving that a customer-centric approach can win. We made it easy, real easy, to quote, bind, service, all the way up to getting your claims paid. And we have one of the highest customer rankings in the industry. We also control the experience end to end, constantly looking for more ways to optimize the experience for our customers without having to depend on any external vendors. Let me give you an example of how this works. Every week we do about 50 code releases, optimizing the experience and changing it for our customers. Let me repeat this: every week we change our product 50 times. All other insurance companies rely on off-the-shelf systems in order to make the changes to the products that they want. Think of the advantage that we have and see how our customers appreciate it. This is what redefining the product experience looks like.

Our product experience has attracted an audience and a customer base that is representative of the next generation insurance buyers. 70% of Lemonade's customers are younger than 35. This is a great indicator of where the market is going. This is also on par with other category leaders at a similar stage to Lemonade who built on this audience in order to become the iconic brand of their domain. If you had to bet today who will be the next-gen insurance brand, we would argue that Lemonade is the one to bet on, and we believe that we are well on our way to become that chosen brand for the next generation insurance buyers. In fact, we are already the most loved brand in our category for our target demographic, and this is now driving much of our acquisition, where Lemonade renters insurance is ranked number two in searches. These are customers not doing generic search searching for renters insurance, but Lemonade renters insurance, ranking above Progressive, Geico, State Farm, and many others. In pet insurance, in record time we're now the number four most searched brand with the highest year-over-year growth. And we did this efficiently, punching above our weight, spending 5% of what the largest incumbent spends a year on marketing. Even if you add up all of Lemonade's marketing spend throughout the year, it doesn't add up to what some of our competitors spend in one year alone on marketing. Mind share translates to market share, and we expect this trend to continue. Next year we'll bring in more than a million new renters and hundreds of thousands of new pet customers, continuing to outpace the growth of these two respective markets and thus capturing more and more market share. We love these products, we plan to invest in them so that we can continue to drive this momentum.

It's important to note that these two products represent a high contribution of profit to Lemonade's bottom line, but they also play a very important role in our car go-to-market strategy, which I'll get to later. To sum it up, investing in our brand and product experience has created a strong platform for growth and expansion. This is now driving much of our sales, with over a third of them coming in organically, and getting us to the point where we have hundreds of thousands of customers signing up for our future products. These are 700,000 customers signing up for car insurance in places we don't offer car insurance. These are customers on a waitlist for car insurance, not the latest drop of Air Jordans. This is the power of our brand and product experience.

The second pillar of our growth strategy is our proprietary LTV lifetime value model and go-to-market machine that are both designed for profit optimization. Two of the biggest challenges acquiring customers directly in insurance are risk selection, getting the right risk with the relevant risk profile, and managing your acquisition cost in a highly sophisticated and competitive market where all companies are going after the same customers. How do you manage your acquisition cost so that you don't lose even when you win over the customers you want? Now imagine if you had a crystal ball that told you about every single lead what's going to be its lifetime value and how much you should actually pay for it. We have it. It's called our LTV model, now in its 11th generation. Our unique model is comprised of 50 different learning models and uses more than 3.6 billion data points. This model was built specifically for the task of optimizing our spend and enabling us to bring in the best customers. We then use this model to drive all of our marketing decisions, risk targeting, channel optimization, our spend decisions. This model also gives us key insights when it comes to multi-line customers and cross-sell capability. As this is a learning model, the bigger we get, the stronger the flywheel and the more accurate it's going to become, so this is only going to get bigger, smarter, and better. To the best of our knowledge, we are the only insurance company that is able to use LTV modeling at the lead level on a customer-specific basis, which gives an unfair advantage when it comes to customer acquisition.

To give you a sense of how good this model is, take a look at this. This is our first model prediction for the first year new cohort losses across all of Lemonade's products. It ends in Q3 as we need at least one year to verify the model. The dotted line represents the predicted losses of that cohort, while the solid line represents the actual losses, and it's looking exactly as you would hope, on top of each other and going in the same direction. We're not just growing faster and accelerating our growth, but we're doing it much smarter. We've been accelerating our growth for the past four quarters and we don't plan on slowing down. Traditionally, as you ramp up your marketing spend, the trajectory of the spend curve is such that as you grow your spend, you lose your spend efficiency. The last dollar spent is always less efficient than the dollar before. With the combination of our brand product experience and smart acquisition over the past four years, we've managed to defy gravity. We've tripled our new sales per quarter at the same and an even better level of efficiency. And what I can tell you today that I wasn't able to tell you in the past is that we expect that trend to continue. We plan to continue to accelerate our marketing spend at the same level, if not even higher level, of efficiency.

So we discussed our brand product experience that serves as a platform for growth and our go-to-market machine to scale effectively. Now let's talk about our third pillar to reaching 10x, which is our differentiated go-to-market strategy for winning in car. Looking into our future growth path, as I said, a 30% car rollout would enable us to 10x and reach $10 billion at roughly the same amount of time it took us to reach $1 billion. And you all can draw many different product paths from us to get there, but here's one where we will continue our predictable growth with our existing product lines: renters, pet, life, home, and car. Naturally, car, as it represents the largest market of all of them, will need to increase its proportional share in Lemonade's overall portfolio. And while this might seem outsized relative to the other product lines at the end of this, this is less than 1.5% of the car market. Building on our performance in pet and renters, where we grew to 5% and 8% market share respectively in record time, we have the confidence in our ability to achieve this. But our belief in this stems not only from past performance but also because we are now a mature company, not starting from scratch, and car aligns very well to our core strengths. We excel when there's high frequency of interactions with our customers. It enables us to deliver a better experience and allows us to optimize the car pricing and deliver more value to our customers. Our technology advantage is even more enhanced in car, and not just in how we sell and service the product, but at the core of the product itself with our unique approach to telematics that is unlike anything in the industry. With our market share among young consumers, we know how to target these customers, and many of them are already our customers. This is why we believe that we are well positioned to win in car.

Our go-to-market strategy relies on two groups in particular. The first channel is our customers. In fact, we can build a large car business from our existing customers today. The second largest group, the second target audience, is what we call next generation drivers who drive better than what they're being charged on average. Our competitors are car first in the high cost of acquisition market. If you want to beat Patrick Mahomes, don't challenge him on the field but challenge him to a game of chess. We're going to lean into the structural things that make Lemonade better and unique. Let's start with our existing customers. I have some good news: we already have a lot of them. Lemonade has more than 2.2 million customers today that love us and want more of our future products that don't have our car product yet. Let's assume that slightly half of them have cars and pay for car insurance, and they pay around $2,500 a year. That means that they're already paying $3 billion today elsewhere on car insurance. These are zero cost of acquisition car customers. We are not a car-first company where car is a cross-sell, which represents a huge untapped potential for us. In fact, we can build a multi-billion dollar business just from our existing customers today. Most important to note is this is not a static number. We plan to continue to utilize our go-to-market machine to attract millions more customers at a low cost of acquisition. And this only gets better while we continue to optimize our car pricing and our offering. We have to increase awareness of our car offering to our existing customers. This graph represents the percentage of Lemonade new renters in states where we offer car insurance searching and looking for our car product. We've gone from 3% to 15%, 5x in two years, and that trajectory will continue to climb.

But perhaps the best news is that Lemonade customers buying car insurance are better in every way. Our initial indicators are showing that they have better retention, 70% higher than new to Lemonade customers, and far better loss ratio. And another interesting point we're seeing is that traditionally new car drivers have what we call new business penalty, meaning that their loss ratio in their first term is much higher than at renewal. With our customers, there's no new business penalty. No additional acquisition cost, better retention, better loss ratio. This means that this business is very good business for us. And as Daniel mentioned, our strategies to take all that goodness, implement it into our filings, and pass along all of those savings to our customers, winning them with unbeatable prices. And that's when you're going to see conversion and growth in car really take off.

Shifting gears to the second group we're targeting: how do we reach the next generation drivers? If you're searching for another sports analogy, think of the movie Moneyball. How do we do that? In short, using telematics and being a telematics-first and out-of-the-gate insurance company where our entire experience and product is built around it. Good young drivers are paying more on average for insurance because they belong to a group that is on average riskier. We need to target the ones that will benefit the most out of the Lemonade offering and price them specifically for their risk profile. How do we do that? We use our existing book and telematics to identify who these drivers are, price for them as the good drivers that they are, and repeat. As Daniel presented before, our own proprietary model is able to outperform for our book of business in finding higher degrees of variations, but more importantly it identifies better performing groups of drivers than originally perceived. As this is a learning model, with every claim it gets even more accurate, and all of these signals and actual claims data are then fed real time into our LTV models that I discussed before. Our LTV model in turn drives our marketing machine to look for similar groups across all of our markets and channels. These groups traditionally also have a lower cost of acquisition. We then acquire drivers in this group, we price for them, and retain the better drivers with unbeatable prices, which grows our telematics group and then generates more data that is again fed into our LTV model. And this is how it looks like in one of our ads: when you get car insurance, you get a price based on all these drivers, blah blah blah. But when you get car insurance with Lemonade, you get a price based on you. If you drive less, you save. If you drive safely, you save. Whatever your age, we see you. New drivers, you can even save by customizing your policy to suit you. And when you need help, we've got you. Sign up through the Lemonade app or at lemonade.com/car. Just don't do it while driving.

As you can see, we have a very different approach to winning in this high cost of acquisition market. We don't plan to outspend the incumbents. Instead, we will play to our strengths. When they're going car first, we're going to go car cross-sell, which is by the way the most expensive way to acquire customers. We're going to go car as a cross-sell, selling to customers that we've already acquired, building on their data to acquire new ones more efficiently. They market low prices. Our prices for our target customers will be lower thanks to our leadership in telematics and lifetime value models. All that with unmatched experience on par with tech leading brands that our customers use today. We believe that we are well on our way to 10x our business, and there are multiple paths for us to get there. This slide shows one possible path to $10 billion that doesn't even include us launching any new products, which we will. And we have all that we need already built to get there: a brand and product experience that resonates with next generation customers that drives our growth, an LTV model powering our acquisition machine that continues to learn and improve as we grow, and a differentiated go-to-market strategy for car that leans on our unique core strength. We feel the wind in our backs and we're excited for the next chapter in our book. That would no doubt also require us, as we grow, to keep our expenses and costs as low and as flat as we can. To talk more about how we plan to do that, I'm going to hand it over to Adina, our COO.