Lemonade, Inc. Q2 FY2021 Earnings Call

Hello, everyone, and thank you for joining the Lemonade, Inc Q2 2021 Earnings Conference Call. My name is Will, and I will be moderating the call today. I now have the pleasure of handing the call over to Yael Wissner-Levy from Lemonade. Please go ahead.

Good morning, and welcome to Lemonade's Second Quarter 2021 Earnings Call. My name is Yael Wissner-Levy, and I am the VP of 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, our Chief Financial Officer. A letter to shareholders covering the company's second quarter 2021 financial results is available on our Investor Relations website, investor.lemonade.com. Before we begin, I would like to remind you that management's remarks on this call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those discussed in the Risk Factors section of our Form 10-K filed with the SEC on March 8, 2021, and our other filings with the SEC. Any forward-looking statements made on this call represent our views only as of today, and we undertake no obligation to update them. We will be referring to certain non-GAAP financial measures on today's call, such as adjusted EBITDA and adjusted gross profit, which we believe may be important to investors to assess 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.

Good morning. I'm happy to be able to report on another quarter of strong advances along our key performance indicators. As compared to Q2 2020, our top line, in-force premium, or IFP, grew 91% to $297 million. For the second consecutive quarter, this represents an accelerating rate of year-over-year growth. Premium per customer also increased at an accelerated rate to 29% year-on-year as recent product launches continue to bolster our economics. Our IFP growth rates reflect our decision to lean in. Earlier in the year, we spoke about compelling unit economics giving us confidence to ramp up growth investment levels, and that's exactly what we've done. For the fourth consecutive quarter, we have sequentially increased our investments in marketing. I expect this theme of leaning in to continue through the second half of 2021. As long as we're able to acquire business at an attractive LTV to CAC ratio, we'll continue to put our foot to the gas. Tim will elaborate on our expected numbers shortly. I wanted to provide an update on our reinsurance program. In Q1 2021, our business encountered a catastrophe event, which exerted more pressure on our gross loss ratio than any other before it, the Texas Freeze. We were able to effectively endure this pressure due to the outstanding reinsurance program we implemented in Q3 of 2020, a 75% proportional or quota share reinsurance program. As a result, our bottom line was shielded from 75% of the impact of the Texas Freeze. In this hyper-growth stage of our business, our proportional reinsurance program is especially helpful. Not only does it reduce our volatility exposure, but it enables us to be capital-light as it relates to regulatory surplus requirements. However, over time, as the business matures and our expected volatility declines, we anticipate a gradual reduction of the proportion of our business that we seed. When we entered into our current reinsurance program a year ago, we locked in 55 of the 75 points for a 3-year term with the remaining 20 points up for renewal each year. Having just completed the first annual renewal process, we are pleased to share that we were able to secure similar financial terms on a portion of the quota share that we renewed. Consistent with my earlier comment, we made a modest reduction in the scope of our quota share program, stepping down from 75% to 70%. Put differently, we renewed 15 of the 20 points that were up for renewal. I have spent time in prior quarters speaking about the product diversification at Lemonade, a critically important aspect of our strategy that Shai will elaborate on in a moment. But I wanted to share an update on another important aspect of our business mix, geographic diversification. Today, at least one Lemonade product is available for purchase in each of the 50 U.S. states, and we continue to push towards being able to service 100% of our customers' insurance needs regardless of where they live. We recently made meaningful progress in the pursuit of this goal with the launch of our renters' insurance product in Florida. The renters' insurance market in Florida is large. In fact, it's the fourth largest market in the nation, as measured by total gross written premium. By first focusing on renters' insurance in Florida, we will be able to fine-tune our approach in a risky CAT state before we develop our homeowners' product in that market. We look forward to bringing the Lemonade renters' experience to Floridians and anticipate our product suite in the state will expand over time. As a tech-enabled business, we've been uniquely able to address markets across continents. To date, our investments have been heavily lopsided in favor of the United States, as that's been where we've seen the most compelling unit economics. In response to favorable recent trends around improving conversion rates and steadily declining loss ratios that we're observing in Europe, we started investing more meaningfully in R&D in the continent. We anticipate this will lead to a step change in growth investment levels in the continent in 2022 and beyond, and we'll certainly keep you posted. And with that, let me hand over to Shai for some more updates on our product.

Thank you, Daniel. We announced the upcoming launch of Lemonade Car, and it's been gratifying to see how much our community, shareholders, and customers alike share our excitement. In the intervening months, we've made real strides on all aspects of our Car roadmap, including products and technology, recruiting and regulatory approvals. On the product and technology front, we've completed the development from scratch of an end-to-end, digital-first Car policy management system. In all aspects of our product strategy, we stayed true to our values and prioritized delivery of a delightful customer experience that is simple, fast, and automated where possible. We use telematics data to develop a nuanced and segmented pricing structure that will provide a great price for safe drivers and ensure we build a strong, low-risk book of business. The Lemonade Car team continues to grow considerably. We recruited some of the best talent in the industry to lead our Car insurance operations and are staffing up our customer-facing teams in preparation for launch. And now I'd like to update you on the mix of products that are currently live. As we look ahead to the long term, we expect our product mix to continue to gradually shift and increasingly diversify. While we love renters as a great point of entry to Lemonade, we continue to invest in other product verticals that provide large and growing addressable markets, cross-sell opportunities to existing customers, and incremental on-ramps to the Lemonade experience. This mix shift is in full effect with our non-renters' products accounting for roughly half of our new business for the second consecutive quarter. Today, for the first time, we are pleased to provide the product breakdown of our total book of business. A year ago, at Q2 2020, renters represented about 75% of our IFP, with homeowners accounting for the balance. By the end of Q1 '21, the renters' share was 56%; with homeowners representing 30%; Pet, 13%; and life accounting for the remainder. As we look ahead, I expect these mix shift dynamics to continue through the rest of '21 and beyond. We expect to periodically update the mix breakdown when we believe it is helpful to understand our product growth and strategy results. I'd like to make a short comment on the performance of one of our lines of business that recently celebrated a major milestone. At the end of Q2 2020, Lemonade Pet turned 1 year old. At 13% of the book, Pet has well exceeded our internal expectations. Notably, we've seen great success selling to both new and existing Lemonade customers. As it relates to new customers, comparing LTV to CAC ratios have enabled us to quickly ramp up spend volume that targets new Lemonade Pet customers. Pet has been a great case study that demonstrates the willingness of our existing customers to purchase additional Lemonade policies. We've made tens of thousands of Pet cross-sells, and those cross-sells currently make up about 30% of our total Pet IFP. All in all, a terrific first year for our Pet coverage. And with that, let me hand over to Tim for a bit more detail around our financial results and outlook.

Great. Thanks, Shai. I'll give a bit more color on our Q2 results as well as expectations for the third quarter and the full year 2021. We had another strong quarter of growth driven by additions of new customers as well as a continued increase in premium per customer. In-force premium grew 91% in Q2 as compared to Q2 in the prior year to $296.8 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 29% versus the prior year to $246. This increase was driven by a combination of increased value of policies over time as well as mix shift toward higher-value homeowner and Pet policies. Roughly 3/4 of the growth in premium per customer in Q2 was driven by a product mix shift, including cross-sells, and the remaining 1/4 from increased coverage levels and pricing. Gross earned premium in Q2 increased 90% as compared to the prior year to $66.9 million, in line with the increase in in-force premium. With the impact of the Texas Freeze behind us, our gross loss ratio was 74% for Q2 2021, in line with our target range. This result is 7 percentage points higher than Q2 2020. This increase is primarily driven by the impact of our rapidly growing new business lines. Early in their Lemonade life cycles, new products tend to demonstrate higher loss ratios than the relatively more mature rest of the book. Operating expenses, excluding loss and loss adjustment expense, increased 126% in Q2 as compared to the prior year. This was primarily driven by a 106% increase in sales and marketing spend as a result of leaning into advertising and growth investment. We also continue to add new Lemonade team members in all areas of the company in support of customer and premium growth, in both current and future product launches and thus saw increases in each of the other expense lines. Global headcount grew 97% versus the prior year to 749, with a greater growth rate in customer-facing departments and in product development teams. Net loss was $55.6 million in Q2 as compared to the $21 million we reported in the second quarter of 2020, while adjusted EBITDA loss was $40.4 million in Q2 as compared to $18.2 million in the second quarter of 2020. Our total cash, cash equivalents, and investments ended the quarter at roughly $1.2 billion, reflecting primarily the net proceeds from our January follow-on offering of approximately $640 million, partially offset by the use of cash for operations of $57 million since year-end 2020. And with these goals and metrics in mind, I'll outline our specific financial expectations for the third quarter as well as an updated full year view of 2021. For the third quarter, we expect in-force premium at September 30 of between $336 million and $339 million; gross earned premium between $76.5 million and $77.5 million; revenue between $32.5 million and $33.5 million; adjusted EBITDA loss of between $55 million and $52 million; and stock-based compensation expense of approximately $15 million; and capital expenditures of approximately $3 million. And for the full year 2021, we expect in-force premium at December 31 of between $380 million and $384 million; gross earned premium between $286 million and $288 million; revenue between $123 million and $125 million; an adjusted EBITDA loss between $173 million and $169 million; stock-based compensation expense of approximately $50 million; and capital expenditures of approximately $11 million in the year. And as a reminder, please note that GAAP accounting rules are such that ceded premiums are excluded from GAAP revenue. As a result of the change in our reinsurance structure effective last July 1 to significant proportional reinsurance, our year-over-year revenue and gross margin comparisons are not directly comparable. Accordingly, we publish in-force premium and gross earned premium as metrics that we believe are very useful to analysts and investors because both capture the overall growth trajectory of the business before the impact of reinsurance. And with that, I would like to turn the call back over to Daniel to address some questions from our shareholders.

Thanks, Tim. As is our practice, we will now turn to questions most upvoted by our shareholders through the safe platform and the first comes from Dean C who asked about innovations and developments in the pipeline. Well, Dean, a lot of our engineering and product teams are working on new products such as Car that we have spoken about, and that certainly required intense levels of development and work. But I must tell you that product innovation, product iteration enhancements, and innovations are day-to-day bread and butter for us. It's really part of our DNA and it never stops. In fact, for existing products that are already live, we push into live production dozens of iterations a day. So there is a continuous innovation cycle in all of our products, continuous improvement. Our data scientists are continuously monitoring our data streams and training and retraining our models. Our product teams are continuing to take part of our processes that are managed by people and to automate them. And something that we've not spoken about previously, but in a few weeks, we'll be shipping a brand new app experience. This really reflects the monumental changes that our business has gone through in the past year. Just over a year ago, we were a monoline business, just in the homeowner space. Of course, now we have that and we have Pet and we have Life and Car is imminent. So we're redesigning the app experience pretty dramatically to allow customers to manage all of their different products at Lemonade in a pretty seamless way and to navigate between the insurance policies, allowing them to update coverages for our claims and get more product with a simple tap. Hopefully, Dean, that gives you a sense of what we're working on. The next question comes from Rolando G. And Rolando asked about our breakeven and how we will fund the next leg of our growth. Well, Rolando, we don't put a hard date on this, but we are not expecting to achieve cash flow positivity in the next couple of years. This is a time when there's tremendous opportunity for us to make investments now that we believe will reward us in the long term. So we think about breakeven as something in the medium term rather than in the next couple of years. We spoke about this a bit in our letter as well. In the near term, we're not going to be optimizing for EBITDA. Rather, we're trying to maximize profitable growth as measured by the lifetime value of our customers. We keep monitoring that every dollar that we invest is generating new customers on new products that will be long term and profitable. But really, the emphasis is on long term. And in terms of funding all of that growth, we believe we are likely able to fund the business to breakeven with the cash already on our balance sheet. So we're in a very strong cash position today. And as we model out the tremendous growth opportunities that we see in front of us, we do think that the cash on hand will suffice to get us through that hyper growth and to ultimately to profitability and cash flow positivity. Thadeus H asked when we expect the auto insurance product to launch and what effect we believe bundling will have on homeowners insurance. Well, Thadeus, we spoke about launch time earlier on the call, but I'm glad you raise this. We are very hopeful and quite optimistic that the Car-Home bundling will be a significant driver of value going forward. To date, despite our meaningful success in renters and homeowners insurance, we've really been selling these products with one hand tied behind our back because it's very common for customers to bundle home and car, something that our competitors are able to offer and that to date we've not been able to. So adding car products should, one, enable us to improve homeowners and renters conversion rates and retention rates and accelerate that business growth; and two, dramatically improve the lifetime value of existing Lemonade customers who then will have the option of adding a car policy. As we've said in the past, we think our existing customers are probably spending over $1 billion today on car insurance with other insurers. We'd like to believe that they'd rather spend that with Lemonade, but that option has not been available. In fact, we're encouraged to see that on Google, Lemonade Car or Lemonade Car Insurance has consistently ranked as one of the top 3 search terms associated with our company. This has been true for years, even before we spoke about this as a product. We think this may be an indicator of the pent-up demand that we will hopefully unleash with the launch of Lemonade Car. With that, let me turn the call back over to the operator so we can take some questions from our friends on the Street. Thank you.

Our first question comes from Michael Phillips from Morgan Stanley.

First question to Tim, I think you mentioned the loss ratio as compared to last year. And you said specifically because of rapidly growing new business lines. So I think I specifically heard you say that as compared to just new business. So how should we think about the direction of your gross loss ratio knowing that you're going to get a lot of new business because you're growing so much and then also with the kind of the continued shift in your mix of business that you've been alluding to as well. So the direction of the gross loss ratio from here, I guess, is the question. And remind us, because you mentioned the target, remind us of what your target is on that.

Sure. I'm happy to address that. We view the loss ratio in terms of short-term fluctuations versus long-term goals and achievements. Recently, we've noticed some upward pressure on the loss ratio, partly due to strong performance in our new product growth. Throughout this year, you’ve seen an increase in our expectations regarding in-force premium and gross earned premium. This growth and newfound optimism are largely driven by our new products, like expanded homeowners' coverage and the Pet product, which typically have a higher loss ratio because they are still in the early stages of development compared to our renters’ product. Thus, we have competing forces as we balance our book of business with this ongoing mix shift. It’s not surprising to see a somewhat higher loss ratio in the short term. However, in the long run, as these new products mature, we expect to experience the same upward trend in loss ratios that we have seen with renters, indicating improvement over time. This isn’t a short-term issue. We’ve discussed our investments ahead of the Car launch, which will be new for us and represent a significant market opportunity. There will likely be similar short-term pressures as we begin to enter the auto market. Nonetheless, our long-term targets remain unchanged, and we aim for a loss ratio in the low 70s, between 70% and 75%, barring any major catastrophes. While I recognize the challenges that come with entering the Car market, it holds high potential, as highlighted by Daniel and Shai. There will be complexities to navigate, and while previous product launches have shown our ability to optimize early on, the Car segment might require a bit more time. Still, I anticipate that the same patterns regarding loss ratios will emerge.

Okay. That's very helpful. Kind of a quick numbers question, probably still for you, too, Tim. On your guidance for the adjusted EBITDA, it looks a little lumpy as we get to 3Q and 4Q. See if I'm reading that right, but it looks like there's a big drop-off more so in 3Q and then kind of rebounds in 4Q. Am I seeing that right, if I look at your guidance numbers? And if so, kind of what's behind that more of a drop-off in the third quarter relative to other quarters of the year?

Yes. I think you're seeing that right. There's a couple of dynamics happening there. So Q3, as you know, has historically been our strongest seasonal quarter; the most added customers, added growth, added premium tends to come in the third quarter. That is moderating somewhat because the newer products, Pet insurance, for example, is a little less seasonal, but we still see that dynamic. So we've got a pretty clear line of sight, visibility into the coming quarter. We're a month in. And so I think the Q3 guidance represents that high level of visibility. Now because we're guiding for the full year, there's obviously implied guidance for Q4. Q4, there's a little more uncertainty. So we're investing significantly to gear up for the pending Car launch. We don't have a hard date that we disclosed for that yet. So there's a little more uncertainty about Q4 in terms of what that spending pace will play out to be. So I would think of the Q3 guidance as in line with our confidence and approach we've seen in prior quarters. And then Q4, we'll come back in 90 days and update and have a much clearer or somewhat clearer view of how we think growth investment will play out, how we think the Car investment work is going and update the fourth quarter at that time.

Okay. One more question for now. Regarding your entry into the car market, it seems like you're taking a thoughtful and careful approach, which I appreciate. Can you explain how the timing of your entry into that market is influenced by the current challenges in the overall industry, particularly with the concerning trends in losses? Is this impacting your planned entry at this moment?

Not so much. This is a long-term play as with how we think about Lemonade as a long-term play. We're building for 5 and 10 years from now. Our view towards Car is the same. We have a significant proportion of our customers who have cars and will insure their cars and will continue to do so. We think we can bring them a product that is notably distinct in the market and in line with the Lemonade promise that we've delivered with the other products that are already in the market. The short-term trends, we're certainly aware of and not ignoring. But we believe that the more tumultuous the market, the more unpredictable the market, it really benefits the providers who are more agile, who have the ability to pivot quickly and invest in clever, thoughtful, and quick ways. While it's a challenging market, we think we are in and will be once we launch in a pole position to be able to perform well in what is a trickier market. Large incumbents have done amazing things over many years, but we think we bring an ability to be agile that will put us in a great position.

Our next question comes from Josh Shanker from Bank of America.

I was surprised with the statistic that 30% of your Pet premiums are coming from bundlers. I would have thought that it's a natural companion piece to be a renter, Pet bundler with Lemonade and that would be the greatest source of your premium. Can you talk about the marketing agenda and how Lemonade Pet is sold? And do you think this percentage of bundled Pet renters rises over time?

Yes, we kind of see that as a very positive metric. So it's always a big question when you launch a new product: what proportion will come from existing folks versus new customers? Pet, as you know, in the U.S. is a relatively small market. So two-thirds or more of folks have a cat or a dog or more, and a relatively low percentage have actual insurance. I think we've been able to show with 30% of those new sales, we're overperforming our expectations in terms of the total in-force premium going to Pet. I think that's a very strong number. We'll continue to go after those existing customers. But I think it's as much a testament to our ability to bring in new customers with a new product that drove the 70%, that's the other portion of that ratio, as it is about our ability to sell to our existing customers. We've seen this pattern in the past, something like it's maybe 50-50, maybe it's 60-40; Pet is now 30-70. That's a good, balanced ratio. Hard to say how that will shift over time; I don't expect any radical shifts. And we've got some learnings from that, that will carry forward with us as we move into the Car launch.

And I think in the past, you said that renters is around a 65% loss ratio, homeowners at 75%. Are those numbers correct that I'm stating? And can you add Pet loss ratio to that list?

No. We actually don't disclose hard loss ratios by product line. You're correct directionally; we have noted that the more mature products have a lower, more optimized loss ratio. So renters is certainly less than the overall business average, homeowners, and Pet is higher. And those vary from quarter to quarter. But again, that's part of the new product penalty, as we term it, that will likely continue. We do look at the overall loss ratio of the business to keep that healthy, to keep our reinsurance relationships healthy and vibrant. And so all of that's kind of balanced together and I think the trend lines are quite good.

Our next question comes from Andrew Kligerman from Credit Suisse.

A question following up on the auto insurance area. In your release, you highlighted that you would not be including any auto insurance in your IFP guidance for 2021. So I guess the first part of the question would be, is that because you actually would expect that this product will get launched in '22? And secondly, what are some of the steps that you need to accomplish before launching the product?

Andrew, Daniel here. There is some uncertainty around the launch. I saw some questions coming our way from some of the retail investors as well along the same lines, so happy to address their questions alongside yours in this regard. We have pretty good control of our own development processes. The development is going very well, I think actually perhaps ahead of plan. What we're seeing in terms of the product development is incredibly heartening. It's really quite exciting to see this product in development. We've been pretty engaged with our prospective customers. We've had some 10,000 customers help us in designing the product and prioritizing features, and it's coming together in a way that I believe will reward all of our customers' patience. So the development, I do want to signal to you, is going well, perhaps ahead of schedule and is really quite exhilarating to see. But there are elements of the product that we don't control, and those are the regulatory approvals. We don't anticipate any problems with that; it's just hard to time them. As you know, we own our own insurance carrier and we have our own licenses, but we do need to go to several states. Not all states require us to get and then to approve us to write car insurance specifically, and we're working through that process. Not all states require us to get rates and forms approved. That can be a somewhat laborious process, often introducing unpredictability into our launch date. So for that reason, we're not giving a specific date. We did say a few months ago when we announced the product that we're hoping that it will be within the year; we certainly stand by that. Obviously, from all of our points of view, sooner is better than later. But hopefully, the regulatory process gives you a sense of why we're being somewhat ginger in addressing this because of the uncertainty posed by the regulators.

I see. So it sounds like you're happy with what you've built, but it's more the regulatory process. Is that right?

It is.

Okay. And when you said within the year, you mean within 2022 or within 2021, what you were previously saying? Just so I'm clear on that.

Yes, the lack of clarity is understandable. It was an ambiguous statement, and I’m going to leave it unresolved for now. We are very much focused on our regulators and want to avoid constraining them. They prefer not to be pressed on deadlines that are ultimately in their control, and we intend to respect that process. I apologize for not providing more specifics on this.

No, very fair. And I'll leave it at that. And then just one other question on your life insurance launch. In the release, you mentioned that you came out with it in January, you had a meaningful ad spend in the second quarter. And currently, it's 1% of your business mix at this stage in the game. You also mentioned that you think that it could become a meaningful piece going forward. But does the 1% imply that there are a lot of challenges? What are you thinking that might allow for this to become meaningful?

Well, the market is very sizable. Consumers, including our own consumers, are spending a lot of money on this sector. It's tens of billions of dollars just on term life just in the U.S. every year. So this is clearly a major potential market for us. We are seeing it growing. The 1% that we mentioned is not what we're seeing in terms of our sales on a daily basis; that percentage is higher. The product is launching 5 years after the other one, so it has to claw its way into a meaningful percent of the book just because other products have years of head start on it. We are seeing the product sell well. We are seeing its growth along the lines that we would have hoped to see. We are learning how to sell the product, both to existing and prospective customers. So actually, I think I would categorize this as something that we're pretty optimistic about. When we announced the product, you may recall a couple of quarters ago, we were very cautious, cognizant of the fact that for other players in this space, acquiring customers at a profitable level has proven very tricky. We didn't want to presume that we'll be able to succeed where others have struggled. I think we are more bullish on it now. We're seeing a few months in that we're finding our footing on this product and it's progressing nicely. So I don't want to suggest that there's any problems with this product at all; it's progressing nicely and hopefully will continue to progress in that way.

Our next question comes from Ron Josey from JMP.

On the IFP breakdown, you talked about newer distribution channels like, I guess, in the letter, sorry, you talked about newer distribution channels, like agent partners and graduates doubling share of homeowner sales year-over-year. Can you talk about how these other channels are playing out longer term and the lessons you're learning here? And then secondly, on the Florida launch, can you talk about your approach here and just remind us how many states Lemonade offers renters and homeowners in? And how you guys are progressing towards kind of national coverage?

We have licenses in over 90% of the U.S. for homeowners and renters, although there's some variation, and we're not actively selling in every state. However, we are well above 90% in terms of licensing and over 80% for active sales. For Life insurance, we're fully licensed in all 51 states, including D.C. We don't often discuss coverage because we're nearing 100%, with just a few expansion states remaining. Since the recent launch in Florida, we now have access to every large state for Lemonade, though there are still a few smaller states that we need to address. If you could provide a bit more detail on your first question, I think I understood most of it, but it would be helpful to clarify.

Sure. In your letter, you mentioned agent partners and the goal of gradually doubling the share of homeowners year-over-year. As you consider how other channels will evolve in the long term, what insights are you gaining? Is this more of a test, or is there something significant we should reflect on within this context? Could you elaborate on this a bit more?

Yes. I believe the key takeaway is patience, as some of the trends we observe in the numbers take time to unfold. Specifically, we have focused on helping graduates transition to homeowners since the beginning of our business. While we can't directly assist someone in purchasing a home, we can streamline the process over time. We have noticed a steady monthly and quarterly increase in the number of graduates who are buying homes and continuing to engage with Lemonade. However, there remains an awareness issue, as some new homeowners are still unaware that Lemonade offers coverage. This was a significant challenge in the past, but we are improving in this area. Over the last few quarters and years, the contribution from new graduates has become substantial. In earlier times, new customer acquisition was costly, and word-of-mouth was limited, but that has now changed, and we are seeing strong recommendations from graduates. Additionally, we've seen progress in our business development efforts, particularly concerning partnerships and various channels, including referral agreements. We have discussed in past calls our agent program, which deviates from our traditional model of not having agents or offering commissions. This program helps us reach customers who are harder to target through conventional means. The agent infrastructure has evolved from a minor contributor to a significant source of business for us. It takes time to build these new channels, but we're starting to see positive results. Our mix of new business is becoming more balanced. We continually assess the lifetime value to customer acquisition cost ratio across different channels, which varies significantly. Nonetheless, the majority of our business still comes from direct channels, where we excel and continue to make improvements in customer acquisition strategies. I think if there are no more questions, we will wrap up the call. So great to catch up with everyone, and thank you for your thoughtful questions. We look forward to seeing you again next quarter. Thanks so much.