The Truth About Lemonade's Finances & Cash Position

Lemonade ($LMND) reported a hefty $202 million GAAP net loss in 2024, a figure that might suggest a company rapidly burning cash. However, a closer look reveals a more complex picture, and the true cash burn is far lower than the headline loss implies.

So, what is their actual cash burn today, and is it low enough for this multi-line insurer to survive until their guided profitability dates in 2026 and 2027? That's the question we will investigate by digging into the numbers, beginning with the GAAP statements.

Lemonade Insurance: GAAP Income Statement

(numbers in millions)

Lemonade’s income statement reveals their total revenue, total expense, and net loss. In 2024, they had a GAAP Net Loss of $202 million. This was an improvement of $34.70 million over 2023.

On a GAAP basis, this is a slow rate of improvement. If the trend continues, it would take over 5 years to achieve GAAP breakeven, all else being equal. A $202 million burn rate is substantial.

However, this is not the best way to analyze Lemonade’s burn rate and if they have enough funds to reach breakeven.

What GAAP Net Loss Doesn’t Tell You

GAAP net loss numbers don’t give us the whole picture.

While Lemonade had $202 million in net loss in 2024, guess how much their cash and investments decreased in that year?

$202 million, right? The real answer might surprise you.Here is Lemonade’s cash and investment position at the end of 2024 vs 2023, as reported in their Q4’2024 quarterly report.

Cash and investments actually went up by $76 million.

How is this possible?

It is possible because GAAP counts non-cash expenses towards net loss. Thus, it does not give investors an accurate view of cash burn.

Instead, the statement we should follow more closely is the statement of cash flows.

Lemonade’s Cash Flow Shows What is Really Going On

Below are Lemonade’s cash flow statements. Pay close attention to the highlighted items.

Lemonade’s net cash in operating activities (in millions)

Lemonade’s net cash from financing activities (in millions)

Based on the cash flow statements, here are the three main reasons for net loss and cash burn differing for Lemonade:

1. Stock-Based Compensation

2. Funds held for reinsurance treaties

3. Commission financing of marketing and sales

Let’s go through each item.

1. Stock-Based Compensation - $64.5 Million

Stock-based compensation shows up as an expense on the statement of net loss, but it’s not a cash expense. It represents compensation that ultimately dilutes existing shareholders when options/shares vest or are exercised.

In 2024, Lemonade recorded about $64.5 million in SBC.

2. Funds Held for Reinsurance Treaties - $90.8 Million

When Lemonade buys reinsurance, it pays premiums to the reinsurer. Lemonade is allowed to hold back a portion of the premium it owes to the reinsurer. This is held as cash and increases Lemonade’s cash position.

On Lemonade's balance sheet, this is recorded as a liability because Lemonade technically owes this money to the reinsurer, even though it's holding onto it temporarily.

In short, that’s not cash Lemonade has access to. It belongs to the reinsurer.

3. Commission Financing of Marketing and Sales - $96.1 Million

Lemonade has an agreement with General Catalyst to finance up to 80% of customer acquisition costs.

This is not traditional debt. Repayment is tied to the performance and premiums generated by the specific cohort acquired with financing, insulating Lemonade if a specific cohort underperforms.

Adjusted Lemonade Cash Burn Rate

Lemonade also reports its own net cash numbers and adjusted free cash flow. They define adjusted free cash flow as cash flow from operating activities, less capital expenditures plus net borrowings under financing agreement.

While Lemonade's reported adjusted free cash flow offers more insight than GAAP loss, I believe a further adjustment is necessary regarding one substantial component in its calculation.

As shown previously, Lemonade counts the $90.8 of funds held for reinsurance as a benefit to its cash position and net cash from operating activities. These are funds held temporarily that are ultimately owed to reinsurers.

Therefore, My Adjusted Lemonade Cash Burn Calculation is:

For my personal adjusted cash burn calculation, I simply take Net Loss, add back SBC, and add back marketing financing. See below:

Lemonade’s Net Loss in 2024 = $202 million

Lemonade’s SBC in 2024 = $64.5 million

Lemonade’s Marketing Financing in 2024 = $96.1 million

Lemonade’s Adjusted Cash Burn = (-$202 + $64.5 + $96.1) = -$41.4 million

So the bottom line is, at present, Lemonade is only really burning approximately $41.4 million a year, based on my analysis. As previously noted, SBC will dilute shareholders, but doesn’t reduce cash, and the financing pays for itself.

Lemonade currently has over $1 billion in cash and investments. That’s a hefty reserve of capital to scale growth. Especially with cash burn of only $41.4 million a year.

There is a caveat to Lemonade’s $1 billion in cash and investments. They also have to have a certain amount of Risk-Based Capital held in order to pay claims. In 2024, Lemonade's calculated RBC requirement was approximately $33.8 million, which is around 5% of their total Gross Written Premiums. Regulators generally require about 200% of the RBC number to be kept in reserve and restricted. This would be about $67.6 million.

As we can see, $1 billion is quite a bit more than $67.6 million. At present, Lemonade has a very healthy reserve.

So, how much burn rate does Lemonade have left? At present, they are burning about $41.4 million in cash a year. Meanwhile, they have improved their net loss by $34.7 million in 2024 vs 2023. If they can keep that trend up, in a little over a year, Lemonade will be at breakeven from my adjusted cash burn calculation.

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