Good morning, and welcome to the Lemonade, Inc. first quarter 2022 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touchtone phone. To withdraw from the question queue, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Yael Wissner-Levy, VP, Communications. Please go ahead. Good morning, and welcome to Lemonade's first quarter 2022 earnings call. My name is Yael Wissner-Levy, and I am the VP, Communications at Lemonade. Joining me today to discuss our results are Daniel Schreiber, Co-CEO and Co-founder, Shai Wininger, Co-CEO and Co-founder, and Tim Bixby, Chief Financial Officer. A letter to shareholders covering the company's first quarter 2022 financial results is available on our investor relations website, investor.lemonade.com. Before we begin, I'd 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 Factors section of our Form 10-K filed with the SEC on March 1st, 2022, 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 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? Thank you, Yael, and thank you to everybody for joining us this morning to review our Q1 results and to allow us to update you on our expectations from the remainder of Q2 and indeed the remainder of 2022. I'm very happy to say that the year kicked off with a very strong first quarter. Both our top line and our bottom line came in ahead of expectations as Inforce Premium or IFP stood at $419 million while our adjusted EBITDA loss for the quarter came in at $57 million. This quarter, we also hit a big milestone for the company as it was the first full quarter in which Lemonade offered a full suite of insurance products, that is renters, home, life, pet and car in one market. For the first time, a customer could mega bundle or get all four Lemonade policies that meet their insurance needs in one app with bundle discounts and with the ease Lemonade is known for. Far, this mega bundle is available in Illinois and Tennessee alone, and I think these markets offer an early peek into how meaningful growing with our customers can become as we roll out these products nationwide. Growing with our customers has long been a central plank of our strategy, and the early dynamics we see in both Illinois and Tennessee reinforce that. For example, in one quarter alone, we saw bundle rates in Illinois climb 40% versus the rest of the country. To the extent that this is indicative of things to come, it is very significant. Customers with two Lemonade products outspent the average single product customer three-one. For customers with three Lemonade products, the ratio was seven-one. When we get to customers with all four products in these two markets, that ratio jumped to nine-one. Indeed, annual dollar retention or ADR in Illinois jumped during Q1 to 90%. While it's early days in small numbers, Illinois serves as an encouraging case study. As has been our strategy since day one, we want to be there for our customers as they go through predictable life cycle events, moving, buying a home, getting a car, starting a family. All of these are events with dramatic growth implications for insurance spend and with little corresponding marketing spend on our part. This dynamic not only boosts our bottom line, it is also the fastest contributor to our top line. While total premiums from single product customers grew at a rate of 61% relative to Q1 2021, premiums for customers with two Lemonade products grew at a pace of 140%. Premiums for customers with three products jumped 390% during that same period. Shai will touch on the second plank of our strategy, winning with technology, in a minute, but before that, I'd like to say a word about two changes at our board of directors. The first is that we recently announced that Caryn Seidman-Becker will step down from our board of directors, effective at the conclusion of the annual meeting in June. Caryn's company, CLEAR, recently IPO'd, and Caryn was also appointed to the board of Home Depot. As a result of concerns regarding over-boarding, which means serving on too many public boards, and to avoid any questions around good governance, Caryn will depart from our board. I'd like to take this opportunity to thank Caryn for the extraordinary contribution she has made to our company over her four-year tenure at Lemonade. She has left an indelible mark on the company and has provided incisive and actionable counsel for Shai and I at key junctures. In an unrelated change, Joel Cutler has today tendered his resignation from the Lemonade board. Joel has recently learned of a serious health issue, and he will be undergoing major surgery later this week. Joel has served on our board since November 2016, and it would be hard to overstate the impact he has had on Lemonade nor the esteem and affection Shai and I hold for him. On behalf of all your friends at Lemonade, Joel, we want to issue a speedy and complete recovery. We are kicking off a search for two new board members, and we'll of course update you as those searches conclude. With that, let me hand over to Shai for some more color on our loss ratio. Shai, over to you. Thank you, Daniel. Last quarter, I spoke about measures we've taken to address underwriting profitability in our quest to achieve loss ratios of all Lemonade products within a 75% target. We've always believed that building a technology-powered insurance company is the way to achieve best-in-class customer experience, efficiency, and prediction of risk. When it comes to loss ratios, our internal dashboards show increasingly profitable cohorts with every month that passes. We're now using our fifth-generation machine learning LTV prediction models, and these provide an ever-improving estimate of the loss ratio of each new customer, as well as their likelihood to churn or cross-sell. The combination of these factors supports our real-time view of customer lifetime value. Despite a 90% gross-loss ratio for the quarter, these dashboards show that the business we generated in Q1 is expected to have a lifetime loss ratio comfortably within our 75% gross loss ratio target. As we've spoken about before, loss ratios are lagging indicators, and changes in pricing, underwriting, and segmentation take time to develop and then get approved through regulatory filings and yet more time to earn in. This lag between action and results is a structural reality of insurance. Which is why we use predictive machine learning models rather than backward-looking loss ratios in our day-to-day management. As much of the broader insurance industry has reported, Q1 loss ratios were more significantly impacted by inflation as claims have quickly adjusted for inflation while rates can take months to adjust. We've been working hard to combat this with corrective measures and in the past year have filed about 100 applications for rate changes. As regulatory approvals come in, we look forward to bringing rates back in line with risk. While our target multi-year average loss ratio below 75% remains unchanged, it's important to remind our shareholders that while loss ratios spike from time to time, we have reinsurance in place to help insulate us from such bumps. Indeed, this quarter we're reporting a 23% gross profit margin at a better than expected EBITDA, notwithstanding the heightened loss ratio. Now over to you, Tim. Great. Thanks, Shai. I'll give a bit more color on our Q1 results as well as expectations for the second quarter and the full year, 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 66% in Q1 as compared to the prior year to $419 million. 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 22% versus the prior year to $279. This increase was driven by a combination of increased value of policies over time, as well as a continuing mix shift toward higher value homeowner and pet policies. As in the prior quarter, the majority of the growth in premium per customer in Q1 was driven by product mix shift, including cross-sales and the remaining 20% from increased coverage levels and pricing. Gross earned premium in Q1 increased 71% as compared to the prior year to $96 million, roughly in line with the increase in in-force premium. Revenue in Q1 increased 89% from the prior year to $44 million, and our gross loss ratio was 90% for Q1 2021 as compared to 96% in the preceding quarter. Operating expenses, excluding loss and loss adjustment expense, increased 68% in Q1 as compared to the prior year. This is primarily driven by increased technology-related personnel expense, stock-based compensation expense, and legal and professional fees, partially offset by the impact of increased sales and marketing efficiency. We also continued to add new Lemonade team members in all areas of the company in support of customer and premium growth and to support geographic product expansion and thus saw increases in each of the other expense lines. Global headcount grew 76% versus the prior year to 1,162, with a greater growth rate in product development and underwriting teams. Notably, headcount growth was just 20% when compared to six months ago, as we are seeing more efficiency gains in personnel expense in recent quarters. Our net loss was $74.8 million in Q1 or $1.21 per share, as compared to the $49 million loss we reported in the first quarter of 2021. While our adjusted EBITDA loss was $57.4 million in Q1 as compared to $41.3 million in the first quarter of 2021. Our total cash equivalents, and investments ended the quarter at $1 billion, reflecting primarily a use of cash for operations of $39 million during the first quarter. Now, with these goals and metrics in mind, I'll outline our specific financial expectations for the second quarter and an updated full year 2022. For the second quarter 2022, we expect in-force premium at June 30 of between $445 million and $450 million. Gross earned premium of $103 million-$105 million. Revenue between $46 million and $48 million. An adjusted EBITDA loss between $70 million and $65 million. Stock-based compensation expense of approximately $15 million and capital expenditures of approximately $4 million. For the full year 2022, please note that we expect the Metromile transaction will close during Q2, and that our annual in-force premium is expected to grow approximately 70% during 2022. The guidance that follows, however, excludes the expected impact of the closing of the Metromile acquisition. At year-end, we expect in-force premium of between $535 million-$545 million. Gross earned premium between $426 million-$430 million. Revenue between $205 million-$208 million. Adjusted EBITDA loss of between $280 million-$265 million. Stock-based compensation expense of approximately $60 million and capital expenditures of approximately $14 million. As we noted last quarter, we do continue to expect that 2022 will be our year of peak EBITDA losses. With that, I would like to turn the call back over to Daniel. Daniel? Thanks, Tim. As is our practice, we'll now turn to questions most upvoted by our shareholders on the Say platform, and the first one is from the Paper Bag Investor, also by Darren Q. It is why has there been no or little insider buying even as the market cap of Lemonade has dropped? I'll state the obvious, that stocks have clearly taken a spectacular tumble in recent months. Lemonade has dropped about 50% year to date. This is fairly typical of what's really happened across the tech growth sector. I'd like to believe for that reason that it says more about macroeconomic trends and cycles of investor sentiment than about Lemonade specifically. Turning to the specifics of the question, I understand and often see the interest that people have in insider buying and selling. I have to say honestly, for myself, I take little to no interest in it. I have not once, as best I can recall, asked Lemonade's officers or board members or even my partner Shai, with whom I discuss everything. Not once have we discussed whether or why he is buying or selling, or they are buying or selling shares. Literally, not once. People buy and sell shares for many reasons, and I've never found this to be a helpful gauge of anybody's commitment or faith in Lemonade. In any event, since the question is asked not about the actions of the company for whom I'm authorized to speak, but of individuals who work here for whom I cannot, let me just answer for myself. I have an incredibly high level of conviction in the long-term prospects of Lemonade and its shares. Indeed, the majority of our family's wealth is in a single stock, LMND. I expect that to be true for many years to come, and I expect you would hear similar sentiments from all insiders. I do hope that that addresses the concern that underlines the question. The second question is a compound question by Charwak, and it reads as follows: What are some of the indicators that you track to analyze the AI engine efficacy? How do you tackle inflationary environments where premiums are charged in today's currency and claims must be paid in tomorrow's? And how do you guard against financial implications of rare events? That's obviously several questions, and let me work through them from last to first. We guard against rare events through reinsurance. That's been a massive way in which we've really avoided the worst surprises over the years and continue to. Beyond that, as we launch new geographies and new products, that diversification actually is very protective as well. Rare events that hit homeowners in California don't usually hurt pet owners in California and don't hurt homeowners across the U.S., let alone in Europe. Being diversified geographically and product-wise is a great protection against those rare events as well. Certainly dampens their impact. The second question was really about inflation, and that too was touched on earlier. Let me take the opportunity to add some color from the board, kind of, and examples of the board actions that we're taking. For example, on homeowners, we are filing for rate increases. We're filing for base rate increases really across the USA, and we're doing that for home, condo and renters indeed for pet as well. We expect to have new rates filed for about 90+% of our book of business across those products home, condo, renters and pet before the quarter is out. In addition, for homeowners, we've implemented an automatic update to our assessment of the costs that would be associated with repair or rebuilding of each home, so that any inflation in the cost of construction or materials should be captured in correspondingly higher limits that the system will automatically assess and by extension, automatically higher rates. Now this will apply both to new policies, and to existing policies when they renew. We expect to have that entirely operational before the end of this quarter as well. Finally for car, we think we're in pretty good shape. Car definitely as a sector within the insurance industry has been terribly hit, perhaps worst hit by inflation. But since we are new to this business, we don't have older filings that need updating. In fact, all of our filings are very much current and were submitted with full awareness of these inflationary pressures. We don't anticipate having to take a further rate in car in the near term, but we will keep our finger on the pulse there clearly. Finally turning to the AI question. Well, in accordance with best practices, we use multiple metrics for measuring our machine learned models and predictions. For example, for binary decisions such as classifiers, we typically use a methodology known as AUC, which stands for Area Under the Curve, and we use the Gini score for ordering challenges like rank ordering risks. We use AI throughout our organization, throughout our business, from marketing efficiency optimization to underwriting to fraud detection to claims handling, et cetera. In many areas of our business, the AI acts autonomously. In several areas like fraud detection or underwriting declinations or claim rejections, the AI makes recommendations or flags things which humans then review and make a decision on. In those instances, the human decisions establish a ground truth, and that serves both as a benchmark for the AI efficacy, but also as a training set to make it continuously improve. I hope that fully answers that question. Another question comes again from the Paper Bag Investor, and it asks about whether Lemonade would release loss ratios on a by-product basis in order to enable a better assessment of the AI impact on our underwriting. I think that's a very fair question. It's one that we do discuss from time to time and I saw Paper Bag Investor that you also posted a question about an investor day in which we would share more information about AI, and I see these as related questions. I do expect we will hold an analyst day, with a view to sharing a lot more information both about our AI and about our by-product loss ratios and perhaps cohort loss ratios. There is a real trade-off, and that's something that we have to always bear in mind because information that helps our investors can also help our competitors, which in turn hurts our investors. Lemonade is closely watched by the rest of the industry, and while our detailed filings are public, by law, our detailed results are not, and that makes it harder for competitors to know which aspects of our business to copy, because absent those, results, it's harder for them to close that learning loop. We do share selected numbers and insights when we think they are germane to you, our investors. We did that in the last quarter, for example. In general, I'll say that we anticipated this tension between wanting to be more transparent but also wanting to protect areas of our business where we think there is some exposure. We address this in our founder's letter, and let me perhaps just wrap up here by reading the relevant paragraph. It reads as follows: "We are transparent except when we are not. We will explain why we zig or zag and be forthright about our past mistakes and future plans, except when revealing that information might hurt the business and its disclosure is not required by law. By disposition, we continue there. We are transparent and default to sharing more rather than less, but we know that transparency is subject to diminishing returns and at some point negative returns. We try to be guided by that. Okay, the final question comes from Antonio P, and it asks for an update on the Metromile acquisition and integration. Antonio, very happy to share that almost all of the preconditions to closing the Metromile deal have been met. Metromile shareholders approved the deal with a 95% majority. What we need now really is approval from insurance regulators, specifically in Delaware, where Metromile is domiciled, and then the transaction will close. Our estimate all along has been that, we'll be able to do that in this quarter, in Q2, and I'm still hopeful that that will happen. It would not be a shock if it slips into early Q3, but our best estimate remains as it was Q2. The proprietary work has really gone very, very well. The teams have gotten to know each other and have every reason really to believe that the integration will be hugely successful and very, very speedy. With that, let me hand the call over to the operator so we can take some questions from our friends on the street. Thank you. We will now begin the question and answer session. To ask a question, you may press star then one on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw from the question queue, please press star then two. At this time, we will pause momentarily to assemble our roster. The first question is from Michael Phillips with Morgan Stanley. Please go ahead. Okay, thanks. Good morning, everybody. Thanks for all the comments on the loss ratio that everybody provided. What I didn't hear, and maybe if you have it, if you want to share, was there any impact, obviously we're comparing to last year where there's pretty big impacts, but any impact on any kind of storms or catastrophe losses that will get back to 90%? No, see what I would call a significant cat or notable cat, but there is every quarter, you know, a baseline level of cat, so nothing along the lines of Uri or similar that we saw a year ago. I would categorize it as sort of a typical, relatively quiet quarter from a cat perspective. Okay, thank you. You, Tim, mentioned in your comments that kind of the impact on loss ratio from the mix shift. You said that last quarter too. Last quarter you said. Well, this quarter you said how much of it was, how much of your business is now renters. I think last quarter you said it was less than half. Can you talk about that and how much of the shift to homeowners then impacted the loss ratio in this quarter too? Can you talk about the shift to homeowners from renters and the impact on the loss ratio? Yeah, I would think of the mix shift as continuing its pace of the last several quarters. We don't give an exact breakdown currently, but as we did mention, we recently crossed over, you know, from having renters above 50% to below 50%. It continues to decline as a share of the total, but relatively slowly. A contributor to the loss ratio in the quarter, it was certainly primarily the mix shift, the continued rate of mix shift. But also fair to say that the inflation impact starting to be, you know, visible in the numbers that affects home more than pet or renters, but it will, you know, ultimately potentially affect all of the product lines. Primarily mix shift, to a lesser extent, some of the inflation impacts. Okay. Thank you. That's it for now. Appreciate it. The next question is from Matt Carletti of JMP. Please go ahead. Hey, thanks. Good morning. Daniel, you gave some helpful stats on some of the bundling take up, particularly in Illinois, I think, where you have four products live. I was hoping you could help us understand kind of the cadence by which we might get more states that look like Illinois, kind of, you know, how the rollout will be in terms of getting more kind of three and four product states, maybe where we might stand by the end of the year. Hi, Matt, good morning. Well, I think we'll see with the closing of Metromile here a sudden kind of jump in those states. We are planning our launches of the Lemonade Car product and so as not to overlap too much with what's already in existence and that we expect to inherit pretty quickly. I think you'll see something of a step function change once the Metromile deal closes. Okay, great. Just one other one. I think both, you know, you alluded to with kind of commentary on the market and Tim as well, just with kind of, you know, 2022 being peak EBITDA losses. I was hoping you could update us maybe on a little more longer term view of Lemonade's path to profitability, particularly given kind of the recent changes in at least the market, you know, demands. Sure. Matt, let me kind of give you a few high-level comments then if Tim has anything to add, I'll turn to him. It's an opportune time to remind you and all of our shareholders that as a matter of policy, Lemonade does not and never has sold products or maintained campaigns or invested in territories that we don't believe to be marginally profitable. Even though we are reporting losses at a company-wide level, the places that we are investing our dollars in terms of promoting products, growing territories or acquiring customers are all ones where we think the CAC to LTV is incredibly compelling. It's been hovering at all around a three-one ratio. It can be misleading because you look at our losses and it looks like we'd be selling dollars for $0.90, but that's just not the case. The reason it is skewed the way it is because the costs are borne all up front since we tend to be predominantly acquiring customers through direct-to-consumer advertising. We take the CAC hit right at the beginning. That is then compounded by the fact that year one loss ratios are the highest. All of our year one customers have the full brunt of the acquisition plus the worst loss ratios. We are able to model out their lifetime loss ratios, and we have every confidence and reason to believe, and the historical data has proven that our models are doing this pretty well, every reason to believe that they will return something in the order of a 3x return on every dollar that we're spending. Since we're growing fast, a substantial portion of our business is still first year customers. Even though they will be profitable over their lifetime, they're not profitable in the same accounting period. That is the predominant dynamic that's driving losses. The reason I'm delaying on this is because as our denominator grows, as our book grows, the percentage, even though we're adding more and more customers, the percentage of year one customers declines. That happens naturally just through arithmetic. That is why we're able to forecast peak losses pretty soon as those dynamics of CAC to LTV and historical investments that we made in products and customers start giving that return on investment that we've long since spoken about. I say all of that by way of answering your question, which is that this isn't a major strategic shift. This is something that we have planned and anticipated and worked towards really forever. This is, as I said, the arithmetic doing what it does, which is that, older cohorts are showing they're more profitable and contributing, to the underlying part of the business and newer cohorts are a smaller percentage, and this thing works its way out. We are continuing pretty much along the same strategy that we've been along all along. We continue to believe that these upfront investments will yield a longer term return on investment than some of the ways in which traditional insurance operators work with doing an entirely agent-based distribution. You've got less upfront expenses, but you've got a partner for life. That's really the way we view the path towards profitability. It will emerge as we turn this corner. We hit peak losses in the not too distant future, and then you will see these effects compounding all the way down to profitability. Great. Thank you very much for the answers. The next question is from Yaron Kinar of Jefferies. Please go ahead. Thank you. Good morning, everybody. So my first question, probably a continuation of the last question and answer. Can you maybe give us a little more color or data around the split between new and renewal customers? What does that look like? How's that been trending? I think, you know, our focus has shifted somewhat to expanding our existing customers now that we have the ability to bundle and upsell and cross-sell at a greater level than we have in the past. If you look at, you know, one of the metrics we publish is net added customers. You'll see that vary quarter- to- quarter, and it's to kind of repeat I think what we've said in the past, that's more of an output than an input. Gradually over time, we're seeing more of our increase in premium coming from existing customers. We look at annual dollar retention as a key metric. For example, each customer that we add is spending more and staying with us longer. It's still under 100%, but making strong improvement. As Daniel noted, in Illinois, where we've got the broadest portfolio available, we're seeing even higher results there, inching up to 90%. In terms of the breakdown, I mean, you can see it in the net number of customers we've added. I would say there's no change in the last several quarters approach, which is we want to consistently increase the amount of premium coming from existing customers. Now that said, we're expanding, you know, into states we're not in. With the combination with Metromile, that'll enable us to do that more effectively with car product. You'll continue to see a balance. The focus is really more on lifetime value, and that's increasing the retention of existing customers and increasing the dollar premium potential value of new customers. We're seeing that. You know, the more recent cohorts, as Shai noted, look quite strong. When you see the amount of ad dollars we're continuing to put to work, that's because we can see that cohort activity with a stronger result. You know, the publicly published numbers are a bit of a lagging indicator, and in our dashboards, we can see the you know monthly and quarterly updates look very promising. Okay. And second question, probably further down this path. Can you maybe talk about the spread between the loss ratios of new and renewal customers? I don't know if you can quantify it, or at least give us some direction. Is it improving? Is it deteriorating, staying stable? And then maybe as a follow-up to that, with each renewal, do you continue to see an improvement in the loss ratio or does that count over two, three, four renewals? Hi, Yaron. Yeah. We do see steady improvements over time when you look at the same cohort, as it ages. In our earlier comments, we spoke about lifetime loss ratio, and that's really what we have in mind. You know, we don't measure the value of a customer by their loss ratio in the first few months, but really by the projected loss ratio over their lifetime. We do see a fairly steady drop in loss ratio of cohorts that have been with us for three and four years. You'll see, across the book a drop of oftentimes 15% or more from year one to year two, and something not altogether different from year two to year three. It does vary by product. We don't have enough years of cohorts, for example, in pet, let alone in car, but certainly that has been the dynamic in homeowners. Got it. One last one if I could, really quick. You talked a little bit about some of the data that you were observing in Illinois as you launch Lemonade Car. Was the data similar in Tennessee? Was Tennessee just later in the onboarding of Car? I was just surprised not to see equivalent data from Tennessee. Yeah. It's just the launch of Tennessee was much more recent, that's all. We're not seeing any significant differences. It's only a few weeks of Tennessee, and we've got a full quarter of Illinois, so that's just more substantial. There's nothing in Tennessee that contradicts or diverges from what we've seen in Illinois. Thank you for the answers. The next question is from Jason Helfstein of Oppenheimer. Please go ahead. Hey, this is Chad on for Jason. How does the expansion of auto impact your outlook for the next two years? Where is the outsize impact on the P&L? Thanks. A couple thoughts and then I'll let Daniel jump in if he likes. Car is similar in some ways and different in others. We are, you know, historically we've said that we're agnostic, you know, between the types of premium we get. That's probably a bit of an exaggeration. We really do like a customer who has all the product types, and so we do. We're seeing the value of that. We're seeing the specific impact in Illinois. That is important to us, that more policy for customers, that trend continue. From a cost perspective, we've built a significant amount of the cost to support the Car product. We've got a product and development team that's in place. We've got a customer experience and claim support infrastructure in place. The premium flow is still in its early stages. A lot of that investment has been made. Loss ratios will show some pressure certainly versus renters, which is a much more mature product and a quite different product. I think the challenges of Car may look more like home and pet in terms of our ability to launch a new product, experience a period of time where we have less data and we've shown a track record of being able to optimize fairly quickly. If you look at the track record of pet over the last two years, of home over the last three years, there's been a consistent result, challenging early periods, consistent optimization, and now heading toward what ultimately is our target LTV and target loss ratios. We've got the infrastructure in place with car. I think the Metromile combination will fill a gap that we had with other products, which is a quick sort of a jump-start to the experience, the data, you know, $100 million plus of in-force premium. That will be different for our car launch. We'll be able to come to market with a bit more data intelligence around a pay-as-you-go or a pay-per-mile product in addition to a more traditionally priced product. Ultimately, you know, we view the primary goal is maximizing premium per customer, and that really means making car work for as many of our customers as it's appropriate for. Maybe I'll just add two or three quick thoughts. One is we've spoken about this before, but by our estimate, our existing customers are already spending over $1 billion on car insurance. They just haven't had the opportunity of spending it with Lemonade. Indeed, the majority of our sales so far of Lemonade Car in Tennessee and in Illinois have gone to existing customers, where our cost of acquisition was zero. If that dynamic can scale, if we can continue to grow that book in part by acquiring new customers and generating new on-ramps to Lemonade by people who are searching for insurance that until now we didn't offer, complement that with offering it to existing customers, I think that will change the dynamics and the economics of our business pretty materially. It changes retention and dollar retention in particular in powerful ways as Illinois has demonstrated. Just think about the fact that today we're selling homeowners insurance with one hand tied behind our back because people do expect to bundle home and car, and we can't do that. We're effectively sending away our customers to our competitors who then offer them a bundle discount. To date, we've not been able to contend with that head-on. As we roll out car, we will. I think you'll get the boost, the obvious boost of selling car, the less obvious boost of selling car without as much of a CAC spend as you might imagine because of the cross-sell dynamic that I referenced. Thirdly, a boost to our homeowners insurance because we'll be able to retain those customers and attract them by offering them something that until now we weren't able to. The final thing I would just add is that in home and in pet, as Tim referenced, we've had a learning curve by generating our own data. We've got multiple billions of miles of data coming to us from Metromile and a highly differentiated product. Our car product already launched, and this will just be compounded by all the capabilities that Metromile brings, a highly differentiated product. This is not the same car insurance product that's available on the market today. I think the advantages in terms of data from the telematics that we've spoken about in the past should compound over time pretty quickly. Got it. Thank you. The next question is from Andrew Kligerman of Credit Suisse. Please go ahead. Hey, thanks a lot. First, wanna touch on expenses. Tech and development was $16.9 million, up from $7.1 million year-over-year. G&A, $28.2 million versus $14.1 million year-over-year. I think Tim was touching on headcount being up 76%. Could you give a little color on in tech and development, where the spend is greatest, what products, where the focus is there? Same thing on G&A. Sure. I think important to note a couple things about the expense flow. You're correct in the year-on-year comparison, and I think that's helpful. I would note also that it's helpful to look at the sequential comparison as well. We'll put the Q out later today, but you can see most of it in our letter published yesterday. What you'll see, you know, there's really two primary expense line drivers. It's people, and it's marketing, you know, advertising, customer acquisition costs, and we've kind of touched on the customer acquisition costs. The year-on-year comparison for people is fairly significant growth. If you look at quarter-on-quarter or year to date, we've really seen a break in the sequential pattern. We've continued to hire great folks, but the net adds over time versus our sequential history has slowed rapidly. That's a good thing. What that means is we ramped up significantly over the course of 2021, particularly for the build and launch of car. We had to front load expenses. Car was the most significant launch we've ever conducted. But that's where you're seeing the bulk of that increase in R&D and product expense. That's what you see in the technology line. Those are the folks building that product. It's front loaded. Now we are at a point where we built that infrastructure that'll continue to grow over time, but at a much more modest pace as the premium increases. Important to look at the sequential growth. And the headcount, I think, you know, we give the number. I would compare that to Q4, and you'll see the hard data that supports what I'm saying. From a G&A perspective, a couple things. One, in the expense lines, those of course include the stock-based compensation, and that has spiked up on a year-to-year basis primarily because of a higher historical stock price and past equity grants. So backing out that stock-based compensation, it is a real expense, but backing it out from the cash perspective will give you a more apples to apples cash expense comparison. Then finally, within the G&A line, we did have somewhat higher expenses in the professional services and legal area, which are not headcount-driven. That bumped up expenses in this quarter more notably than in the prior quarter. Probably we'll see some benefit in the next quarter, next couple of quarters, as I would expect that not to repeat at quite that level. A little bit higher in Q1 than the surrounding quarters in the G&A line. Oh, very helpful, Tim. Do you anticipate any big deltas in your G&A or tech and development once you bring Metromile versus where your expenses are now and versus where Metromile's expenses are? Or do you think both entities' expenses might be somewhat steady state? I would think of it in a couple of stages. You can see our expenses for Q1. You'll be able to see Metromile's when they publish their figures, which is either just happened or any moment. I think they're on the same schedule as we are, same quarterly schedule. You'll see the current run rate, and that's sort of stage one. Stage two is at the point where we bring the companies together, and we expect that to happen before the end of the quarter. We're still optimistic that we're on track for that. Likely third quarter would be the first quarter you'd see a consolidation of the two. I would expect, you know, a step up certainly when we bring the two companies together, effective as of the date they come together on a pro forma basis. You'll start to see as we bring the companies together and we're able to take out redundant costs. Metromile, for example, has all the required infrastructure costs of being a public company, as do we. Those are fixed sort of, or not fixed, but those are overhead costs that over time will dissipate as we bring the companies together. In addition, we have a hiring pace in our expense line, in our guidance, in our going forward plan. A significant proportion of that planned hiring that's in our model will likely come from Metromile. We know it'll come from Metromile. You'll see somewhat gradually over a quarter or two as we bring the companies together more formally. You'll start to see us come toward a run rate that is more of a go forward run rate. It'll be less than just combining the two companies together, you know, significantly less, but obviously more so than Lemonade standalone. Thanks. That was helpful. Just one more on the gross loss ratio of 90%. I know somebody was asking a little bit about it earlier, but would it be possible for you to break out the underlying loss ratio, what the CATs piece was, and what the prior year development piece of that was? The statutory filings will be out shortly, but at a high level, the prior period development rounded to zero, so no material development there. The CAT piece, as I mentioned, was in line with prior periods without a significant CAT, and so that tends to be in the single digits. Really, I think most importantly, and we touched on this a little bit, but maybe come back to it, the inflation impact is significant. We, you know, it's hard in these early months where it's shifting pretty quickly. It's hard to pinpoint it exactly. We don't obviously guide to it. If you just look at some of the metrics that are out there of today versus a year ago, you're seeing effective inflation rates and all the key components that go into home rebuilding and home repairs and things like that of 5% or 10% or 15% or more. It's significant in that loss ratio. Now, we're not taking comfort that everything is fine, we just need to catch up with inflation, but it's significant. I think, you know, probably also worth noting what we've done about it. We've taken significant steps and continue to take significant steps in terms of rates and filings, which we had done historically on a consistent basis, but ramped up in conjunction with the new inflation data we've gotten over the past year. Something close to 100% of our home and pet business will be subject to new rate filings in the coming months, that will get us while it's difficult to compensate for 100% of the inflation impact 'cause it's a bit of a moving target. We think we'll be in good shape from both a specific rate adjustment standpoint as well as automatic rate adjustments where it's allowable by law. We'll have both of those components. We'll continue to put those components in place. Car is new for us, right? We're in one state, and we'll be rolling out in a number of states. In some ways it's easier for us to adjust as we go as we roll out new states. You know, it's something that's clearly top of our radar list. You know, anytime you see inflation rates of 20% or more, it's obviously a serious thing. We've taken that into account and you'll see it. It's a bit of a lagging indicator, but you'll see the effects of these filings take place over the coming couple of months and quarters. No, no doubt. Tough inflation. Maybe if I could just sneak one last one. So what is it about your dashboard that tells you that you can get to that 75%. Is it the bundling? Is it renewals? Is it something else that's in that dashboard telling you when, you know, a 90% this quarter can go to a 75%? Hey, Andrew. Thanks for that question. The comment that Shai made was that the business that we acquired in quarter was showing a lifetime loss ratio of under 75%. Of course, our actual book loss ratio includes sales from three and four years ago, so we do carry forward that part of the business. It takes time to earn into these newer rates. Just to be precise, that's what Shai was talking about, was newly acquired customers and their lifetime loss ratio. Now, that is derived from machine learning models. So we now have several years and over 1.5 million customers as a training set for those machine learning models. They are now able to predict with an increasing and pretty impressive rate of precision, how likely a customer is to claim, how likely they are to churn, how likely they are to buy more products. We use that in order to optimize our marketing campaigns. That really generates for us a lifetime value. As I said, we've now got a few years of history to test these models again. We have confidence in them has grown pretty significantly over the recent months as we see that they are just very good at telling us what these customers or how these customers will behave a year and two and three down the road. It is those machine learned models and predictions that we were referring to in saying that newly acquired business, according to these machine learning models, will be profitable business and their loss ratio will be sub 75%. Okay, thank you. The next question is a follow-up from Michael Phillips with Morgan Stanley. Please go ahead. Hey, thanks for the follow-up opportunity. Your new homeowners customers, can you tell us either maybe specifically or just broadly, are those coming from graduations from renters or are they coming from purely new customers? It's not purely new customers at all. We see in our condo business, which is typically the most common upsell, so renters oftentimes will move from a rental to a condo and then from a condo to a homeowners. We've seen a steady increase in the percentage of our condo business that comes from graduation. I haven't checked it in the last couple of weeks, but it was just shy of 20% last time I looked at it, which is about double what the percentage was at our IPO a couple of years ago. That has been a steady up into the right increase. If memory serves, across a book of homeowners, it's close to 15%. I may be off by a percentage point or two, but that is, broadly speaking, where the percentages break down. The 15%, Dan. The 15% was purely new, as sort of like 85% was graduation. 15% is purely new. Is that what you meant? No, no. I'm saying if you look at the totality. Yeah. Of our homeowners book and you ask. Okay. How many of the people who are today a homeowner, either condo or homeowners, ballpark 15% of them started life with us as renters and then graduated. That number is increasing quarter-on-quarter. I believe every quarter since we launched, pretty much we've seen that number increasing. Condo is ahead of homeowners, and that's closer to 20%. Okay. Thank you. Thank you. The reason I ask is I think of you guys as being a homeowners insurance company by first going after the renters and then pleasing and delighting them, as you say, so that when they do mature and, you know, go through life stages, they then stay with you as they become a homeowner, as compared to specifically targeting your marketing towards homeowners customers. That's how I think of you, and I can make sure that's, you know, that's still accurate as the way you kind of go about getting the homeowners business. Yeah, it is accurate. It is still the case that something close to 90% of our customers are joining us as first-time buyers of insurance. Oftentimes the on-ramps that we spoke about, renters, the thesis that you just laid out for renters is now repeating itself with other products as well. Pet affords another on-ramp, and people come looking for pet, and then we'll add those other products. In broad strokes, yes. Okay, great. Thank you for the clarification. Appreciate it. The next question is from Tracy Benguigui of Barclays. Please go ahead. Good morning. Apologies I had to join this call late, was on another earnings call, so if my question was already asked, my apologies. Could you quantify the rate increases you're seeking in your 100 filings and if you're getting any pushback by regulators as they're trying to protect their constituents who are also facing higher inflationary pressure? Hi, Tracy. Good morning. The question was not asked, so thank you for that. It varies tremendously from product to product and state to state. It wouldn't be responsible for me to give you kind of a blanket answer for that. It really is a matrix of three or four by 50. We try to do this with tremendous precision. In fact, even that in large measure understates things because rather than just doing kind of crude base rate increases. We do use all the data that we gather in order to become more and more refined in our segmentation. Even as we raise rate, rates in California for a particular product, we might be decreasing it for some customers, increasing it for other customers. It is a fairly complex matrix. Yes, of course, we do get pushback. There are places where it's harder and easier or slower or faster to get rates approved. I think the state of California has earned a special place in the hearts of insurers nationwide for being a place that it's been tricky, particularly for homeowners, to take a rate commensurate with the risk. We've seen an outflow of a lot of insurance companies from that state for that reason. I'm not sure it's actually protecting consumers. It's actually making it harder for them to get insured. Yes, in some states and for some products, it's harder than in other areas. Okay. Are you including an inflation guard in your homeowners policy to complement rate increases? I think that you can implement right away. Yeah, we do have inflation guard approved in most states for our homeowners products. We do have that capability. We're doing something beyond that. We're doing a couple of things beyond that. One is we are doing broad base rate increases. I spoke about the subtleties of segmentation, but when it comes to just keeping track of inflation, then we can do kind of base rate increases in order to keep track with inflation. In some parts of our business, it's very necessary. Tim spoke about some of these numbers before, but to add some color, the National Association of Home Builders say that rates for construction have risen 10% in five months, 20% in 12 months, and over 30% over the last 24 months. Some areas like car, like home, are suffering hyperinflation, not just the inflation that we read about in the papers. We are taking broad measures to keep up with inflation. Beyond that, actually built into our system, I referenced this earlier. Built into our system is the ability to adapt, or update rather Cov A, which is the construction replacement cost in a homeowner's policy, to update that every time a policy is renewed. We have access to fairly broad and deep and current databases so that we can gauge with increasing accuracy more than we ever had before, how much would it actually cost to effect that replacement or repair. For both new product, new customers and on renewal, we are using the latest and greatest estimates. Inflation does flow that way. As the limits increase because the costs have increased the ratchets to that pretty accurately. If in the past we were a little bit more tolerant in our underwriting guidelines, allowing people to select a replacement cost that is lower than what our databases are suggesting, we gave a 20% wiggle room in the past. Newer underwriting guidelines are tightening that up as well. We won't be insuring homes where the ratio is less than 100%. We'll be trusting these datasets and insisting on their implementation, and that should keep us continuously adapting to inflation as well. Is there any shift to move to actual cash value from replacement cost? No, our policies are replacement cost. It's what our customers expect. We pride ourselves on that. There's no talk of changing that. Thank you. This concludes our question and answer session and today's conference. Thank you for attending today's presentation. You may now disconnect.