Lemonade, Inc S-3ASR, filed Dec 7, 2022
Lemonade, Inc. (LMND)
S-3ASR
2022-12-07
View Original
Added on
October 15, 2026
As filed with the Securities and Exchange Commission on December 6, 2022
Registration No. 333-
| UNITED STATES SECURITIES AND EXCHANGE COMMISSION | ||
Washington, D.C. 20549
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
Lemonade, Inc.
(Exact name of registrant as specified in its charter)
Delaware (State or other jurisdiction of incorporation or organization) | 32-0469673 (I.R.S. Employer Identification No.) | ||||
5 Crosby Street, 3rd Floor
New York, NY 10013
(844) 733-8666
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
Daniel Schreiber
Chief Executive Officer
5 Crosby Street, 3rd Floor
New York, NY 10013
Chief Executive Officer
5 Crosby Street, 3rd Floor
New York, NY 10013
(844) 733-8666
(Name, address, including zip code, and telephone number, including area code, of agent for service)
Copies to:
| Marc D. Jaffe, Esq. Robert M. Katz, Esq. Rachel W. Sheridan, Esq. Latham & Watkins LLP 1271 Avenue of the Americas New York, NY 10020 (212) 906-1200 | ||
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time to time after the effective date of this registration statement.
If the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, please check the following box: ☐
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box. ☒
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this Form is a registration statement pursuant to General Instruction I.D. or a post-effective amendment thereto that shall become effective upon filing with the Commission pursuant to Rule 462(e) under the Securities Act, check the following box. ☒
If this Form is a post-effective amendment to a registration statement filed pursuant to General Instruction I.D. filed to register additional securities or additional classes of securities pursuant to Rule 413(b) under the Securities Act, check the following box. ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
Large accelerated filer ☒ | Accelerated filer ☐ | ||||
Non-accelerated filer ☐ | Smaller reporting company ☐ | ||||
Emerging growth company ☐ | |||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐
EXPLANATORY NOTE
This registration statement on Form S-3ASR is being filed to correct a clerical error made in a previously filed registration statement on Form S-3 (file number 333-268615) related to the form type used for such filing. The contents of this registration statement on Form S-3ASR are identical to those of the previously filed registration statement on Form S-3, except for certain changes required to be made to update the date of the filing.
PROSPECTUS
Lemonade, Inc.
7,846,646 Warrants to Purchase Shares of Common Stock
Up to 412,969 Shares of Common Stock Issuable Upon Exercise of Warrants to be Sold by Selling Shareholders
This prospectus relates to the offer and sale from time to time by certain selling stockholders identified in an accompanying prospectus supplement (the “Selling Stockholders”) of warrants originally issued by INSU Acquisition Corp. II (subsequently assumed by Metromile, Inc. in connection with its business combination with INSU Acquisition Corp. II) and assumed by us in connection with our acquisition of Metromile, Inc. and converted automatically into warrants denominated in shares of our common stock on the same terms and conditions (including vesting terms) as applied to such warrant immediately prior to the consummation of the acquisition (with the number of common stock subject to such warrants and exercise price being adjusted based on the exchange ratio).
In connection with this prospectus, (i) the Selling Stockholders may offer and sell from time to time 7,846,646 warrants to purchase shares of our common stock, $0.00001 par value per share (“common stock”), and (ii) we may issue, and the Selling Stockholders may subsequently offer and sell, from time to time, up to 412,969 shares of common stock that are issuable upon the exercise of the warrants.
Our registration of the securities covered by this prospectus does not mean that the Selling Stockholders will offer or sell any of the warrants or shares covered by this prospectus. The Selling Stockholders may sell the warrants and/or shares of common stock covered by this prospectus in a number of different ways and at varying prices. We provide more information about how the Selling Stockholders may sell the shares in the section entitled “Plan of Distribution.”
Our common stock is listed on the New York Stock Exchange (the “NYSE”), under the symbol “LMND.” On December 5, 2022, the closing price of our common stock was $18.22. We have applied to list the Public Warrants (defined below) on the NYSE under the symbol “LMNDW.”
Investing in our securities involves a high degree of risk. Please carefully read the information under the heading “Risk Factors” beginning on page 3 of this prospectus before you invest in our securities. This information may also be included in any supplement, any related free writing prospectus and/or any other future filings we make with the Securities and Exchange Commission that are incorporated by reference into this prospectus.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The Selling Stockholders may offer and sell these securities to or through one or more underwriters, dealers and agents, or directly to purchasers, on a continuous or delayed basis. We will provide specific information about any Selling Stockholders in one or more supplements to this prospectus. If any underwriters, dealers or agents are involved in the sale of any of the securities, their names, and any applicable purchase price, fee, commission or discount arrangement between or among them will be set forth, or will be calculable from the information set forth, in the applicable prospectus supplement. See the sections entitled “Plan of Distribution” and “About This Prospectus” for more information. The price to the public of those securities and the net proceeds any Selling Stockholders expect to receive from that sale will also be set forth in a prospectus supplement.
The date of this prospectus is December 6, 2022.
TABLE OF CONTENTS
| Unaudited Pro Forma Condensed Combined Financial Information | |||||
| Selected Historical Consolidated Financial Data of Metromile | |||||
You should rely only on the information provided in this prospectus, as well as the information incorporated by reference into this prospectus and any applicable prospectus supplement. Neither we nor the Selling Stockholders have authorized anyone to provide you with different information. Neither we nor the Selling Stockholders are making an offer of these securities in any jurisdiction where the offer is not permitted. You should not assume that the information in this prospectus or any applicable prospectus supplement is accurate as of any date other than the date of the applicable document. Since the date of this prospectus and the documents incorporated by reference into this prospectus, our business, financial condition, results of operations and prospects may have changed.
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement on Form S-3 that we filed with the Securities and Exchange Commission (the “SEC”) using the “shelf” registration process. Under this shelf registration process, the Selling Stockholders may, from time to time, sell the securities offered by them described in this prospectus. We will not receive any proceeds from the sale by such Selling Stockholders of the securities offered by them described in this prospectus. This prospectus also relates to the issuance by us of the shares of common stock issuable upon the exercise of any warrants. We may receive in cash the proceeds from any exercise of warrants and issuance of such shares underlying the warrants pursuant to this prospectus.
Neither we nor the Selling Stockholders have authorized anyone to provide you with any information or to make any representations other than those contained in this prospectus or any applicable prospectus supplement or any free writing prospectuses prepared by or on behalf of us or to which we have referred you. Neither we nor the Selling Stockholders take responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. Neither we nor the Selling Stockholders will make an offer to sell these securities in any jurisdiction where the offer or sale is not permitted.
We may also provide a prospectus supplement or, if appropriate, a post-effective amendment, to the registration statement to add information to, or update or change information contained in, this prospectus. You should read both this prospectus and any applicable prospectus supplement or post-effective amendment to the registration statement together with the additional information to which we refer you in the sections of this prospectus entitled “Where You Can Find More Information” and “Incorporation of Certain Documents by Reference.”
Unless the context indicates otherwise, references in this prospectus to the “Company,” “Lemonade,” “we,” “us,” “our” and similar terms refer to Lemonade, Inc. and its consolidated subsidiaries, including Lemonade Insurance Company and Lemonade Insurance Agency, LLC. References in this prospectus to “Metromile” refer to Metromile, Inc. and its wholly owned subsidiaries. Prior to February 9, 2021, Metromile was known as INSU Acquisition Corp. II. On February 9, 2021, INSU Acquisition Corp. II completed the acquisition of 100% of the outstanding shares of Metromile.
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FORWARD-LOOKING STATEMENTS
This prospectus and any accompanying prospectus supplement contain forward-looking statements. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. All statements other than statements of historical fact contained in this prospectus and any accompanying prospectus supplement, including without limitation statements regarding our future results of operations and financial position, our ability to attract, retain and expand our customer base, our ability to operate under and maintain our business model, our ability to maintain and enhance our brand and reputation, our ability to effectively manage the growth of our business, the effects of seasonal trends on our results of operations, our ability to attain greater value from each customer, our ability to compete effectively in our industry, the future performance of the markets in which we operate, and our ability to maintain reinsurance contracts, and the plans and objectives of management for future operations and capital expenditures are forward-looking statements. These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.
In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplate,” “believe,” “estimate,” “predict,” “potential”, or “continue” or the negative of these terms or other similar expressions. The forward-looking statements in this prospectus and any accompanying prospectus supplement are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. These forward-looking statements are subject to a number of important factors that could cause actual results to differ materially from those in the forward-looking statements, including:
•We have a history of losses and we may not achieve or maintain profitability in the future.
•Our success and ability to grow our business depend on retaining and expanding our customer base. If we fail to add new customers or retain current customers, our business, revenue, operating results and financial condition could be harmed.
•The “Lemonade” brand may not become as widely known as incumbents' brands or the brand may become tarnished.
•Denial of claims or our failure to accurately and timely pay claims could materially and adversely affect our business, financial condition, results of operations, and prospects.
•Our future revenue growth and prospects depend on attaining greater value from each user.
•The novelty of our business model makes its efficacy unpredictable and susceptible to unintended consequences.
•We could be forced to modify or eliminate our Giveback, which could undermine our business model and have a material adverse effect on our results of operations and financial condition.
•Our limited operating history makes it difficult to evaluate our current business performance, implementation of our business model, and our future prospects.
•We may not be able to manage our growth effectively.
•Intense competition in the segments of the insurance industry in which we operate could negatively affect our ability to attain or increase profitability.
•Reinsurance may be unavailable at current levels and prices, which may limit our ability to write new business. Furthermore, reinsurance subjects us to counterparty risk and may not be adequate to protect us against losses, which could have a material effect on our results of operations and financial condition.
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•Failure to maintain our risk-based capital at the required levels could adversely affect the ability of our insurance subsidiary to maintain regulatory authority to conduct our business.
•If we are unable to expand our product offerings, our prospects for future growth may be adversely affected.
•Our proprietary artificial intelligence algorithms may not operate properly or as we expect them to, which could cause us to write policies we should not write, price those policies inappropriately or overpay claims that are made by our customers. Moreover, our proprietary artificial intelligence algorithms may lead to unintentional bias and discrimination.
•Regulators may limit our ability to develop or implement our proprietary artificial intelligence algorithms and/or may eliminate or restrict the confidentiality of our proprietary technology, which could have a material adverse effect on our financial condition and results of operations.
•New legislation or legal requirements may affect how we communicate with our customers, which could have a material adverse effect on our business model, financial condition, and results of operations.
•We rely on artificial intelligence and our digital platform to collect data points that we evaluate in pricing and underwriting our insurance policies, managing claims and customer support, and improving business processes, and any legal or regulatory requirements that restrict our ability to collect this data could thus materially and adversely affect our business, financial condition, results of operations and prospects.
•We depend on search engines, social media platforms, digital app stores, content-based online advertising and other online sources to attract consumers to our website and our online app, which may be affected by third-party interference beyond our control and as we grow our customer acquisition costs will continue to rise.
•We may require additional capital to grow our business, which may not be available on terms acceptable to us or at all.
•Security incidents or real or perceived errors, failures or bugs in our systems, website or app could impair our operations, result in loss of personal customer information, damage our reputation and brand, and harm our business and operating results.
•We are periodically subject to examinations by our primary state insurance regulator, which could result in adverse examination findings and necessitate remedial actions. In addition, insurance regulators of other states in which we are licensed to operate may also conduct examinations or other targeted investigations, which may also result in adverse examination findings and necessitate remedial actions.
•We collect, process, store, share, disclose and use customer information and other data, and our actual or perceived failure to protect such information and data, respect customers' privacy or comply with data privacy and security laws and regulations could damage our reputation and brand and harm our business and operating results.
•We may be unable to prevent or address the misappropriation of our data.
•If we are unable to underwrite risks accurately and charge competitive yet profitable rates to our customers, our business, results of operations and financial condition will be adversely affected.
•Our product development cycles are complex and subject to regulatory approval, and we may incur significant expenses before we generate revenues, if any, from new products.
•Our expansion within the United States and any future international expansion strategy will subject us to additional costs and risks and our plans may not be successful.
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•Combining the businesses of Lemonade and Metromile may be more difficult, costly or time-consuming than expected and the combined company may fail to realize the anticipated benefits of the mergers, which may adversely affect the combined company’s business results and negatively affect the value of the company’s common stock.
•The combined company may not be able to retain customers, which could have an adverse effect on the combined company’s business and operations. Third parties may terminate or alter existing contracts or relationships with Lemonade or Metromile.
•The combined company may be exposed to increased litigation, which could have an adverse effect on the combined company’s business and operations.
•The insurance business, including the market for renters and homeowners insurance, is historically cyclical in nature, and we may experience periods with excess underwriting capacity and unfavorable premium rates, which could adversely affect our business.
•We are subject to extensive insurance industry regulations.
•State insurance regulators impose additional reporting requirements regarding enterprise risk on insurance holding company systems, with which we must comply as an insurance holding company.
•Severe weather events and other catastrophes, including the effects of climate change and global pandemics, are inherently unpredictable and may have a material adverse effect on our financial results and financial condition.
•We expect our results of operations to fluctuate on a quarterly and annual basis. In addition, our operating results and operating metrics are subject to seasonality and volatility, which could result in fluctuations in our quarterly revenues and operating results or in perceptions of our business prospects.
•We rely on data from our customers and third parties for pricing and underwriting our insurance policies, handling claims and maximizing automation, the unavailability or inaccuracy of which could limit the functionality of our products and disrupt our business.
•Our results of operations and financial condition may be adversely affected due to limitations in the analytical models used to assess and predict our exposure to catastrophe losses.
•Our actual incurred losses may be greater than our loss and loss adjustment expense reserves, which could have a material adverse effect on our financial condition and results of operations.
•Our insurance subsidiary is subject to minimum capital and surplus requirements, and our failure to meet these requirements could subject us to regulatory action.
•We are subject to assessments and other surcharges from state guaranty funds, and mandatory state insurance facilities, which may reduce our profitability.
•As a public benefit corporation, our focus on a specific public benefit purpose and producing a positive effect for society may negatively impact our financial performance.
•Our directors have a fiduciary duty to consider not only our stockholders' interests, but also our specific public benefit and the interests of other stakeholders affected by our actions. If a conflict between such interests arises, there is no guarantee such a conflict would be resolved in favor of our stockholders.
•A joint investment committee consisting of our Co-Founders and a former executive of SoftBank will have sole voting and dispositive control over the shares owned by the entities affiliated with SoftBank Group Corp. This joint investment committee further concentrates voting power with our Co-Founders, which could limit your ability to influence the outcome of important transactions, including a change in control.
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•We conduct certain of our operations in Israel and therefore our results may be adversely affected by political, economic and military instability in Israel and the region.
•The factors described under the section titled “Risk Factors” in our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K filed with the Commission.
Given these risks and uncertainties, you should not place undue reliance on these forward-looking statements. Additional cautionary statements or discussions of risks and uncertainties that could affect our results or the achievement of the expectations described in forward-looking statements may also be contained in any accompanying prospectus supplement. There can be no assurance that future developments affecting us will be those that we have anticipated. Should one or more of these risks or uncertainties materialize, or should any of the assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements.
These forward-looking statements made by us in this prospectus and any accompanying prospectus supplement speak only as of the date of this prospectus and the accompanying prospectus supplement. Except as required under the federal securities laws and rules and regulations of the Commission, we expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based. You should, however, review additional disclosures we make in our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K filed with the Commission.
You should read this prospectus and any accompanying prospectus supplement completely and with the understanding that our actual future results, levels of activity and performance as well as other events and circumstances may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.
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SUMMARY
This summary highlights selected information appearing elsewhere in this prospectus. Because it is a summary, it may not contain all of the information that may be important to you. To understand this offering fully, you should read this entire prospectus carefully, including the information set forth under the heading “Risk Factors” and our financial statements and related notes included in this prospectus or incorporated by reference into this prospectus, any applicable prospectus supplement and the documents to which we have referred to in the “Incorporation of Certain Documents by Reference” section below.
Overview
Lemonade is rebuilding insurance from the ground up on a digital substrate and an innovative business model. By leveraging technology, data, artificial intelligence, contemporary design, and behavioral economics, we believe we are making insurance more delightful, more affordable, more precise, and more socially impactful. To that end, we have built a vertically-integrated company with wholly-owned insurance carriers in the United States and Europe, and the full technology stack to power them.
A brief chat with our bot, AI Maya, is all it takes to get covered with renters, homeowners, pet, car or life insurance, and we expect to offer a similar experience for other insurance products over time. Claims are filed by chatting with another bot, AI Jim, who pays claims in as little as three seconds. This breezy experience belies the extraordinary technology that enables it: a state-of-the-art platform that spans marketing to underwriting, customer care to claims processing, finance to regulation. Our architecture melds artificial intelligence with the human kind, and learns from the prodigious data it generates to become ever better at delighting customers and quantifying risk.
In addition to digitizing insurance end-to-end, we also reimagined the underlying business model to minimize volatility while maximizing trust and social impact. In a departure from the traditional insurance model, where profits can literally depend on the weather, we typically retain a fixed fee, currently 25% of premiums, and our gross margin is expected to change little in good years and in bad. At Lemonade, excess claims are generally offloaded to reinsurers, while excess premiums are usually donated to nonprofits selected by our customers as part of our annual “Giveback.” These two ballasts, reinsurance and Giveback, reduce volatility, while creating an aligned, trustful, and values-rich relationship with our customers.
Lemonade’s cocktail of delightful experience, aligned values, and great prices enjoys broad appeal, while over indexing on younger and first time buyers of insurance. As these customers progress through predictable lifecycle events, their insurance needs typically grow to encompass more and higher-value products: renters regularly acquire more property and frequently upgrade to successively larger homes; home buying often coincides with a growing household and a corresponding need for life or pet insurance, and so forth. These progressions can trigger orders-of-magnitude increases in insurance premiums.
The result is a business with highly-recurring and naturally-growing revenue streams; a level of automation that we believe delights consumers while collapsing costs; and an architecture that generates and employs data to price and underwrite risk with ever-greater precision to the benefit of our company, our customers and their chosen nonprofits.
Warrants Assumed in the Metromile Acquisition
On November 8, 2021, Lemonade entered into a definitive agreement to acquire Metromile, pursuant to which the Company acquired 100% of the equity of Metromile, through an all-stock transaction based upon the exchange ratio of 0.05263 shares of Lemonade for each outstanding share of Metromile (the “Merger”). In connection with the Merger, each outstanding warrant of Metromile was assumed by us and converted automatically into warrants denominated in shares of our common stock on the same terms and conditions (including vesting terms) as applied to such warrant immediately prior to the consummation of the acquisition (with the number of common stock subject to such warrants and exercise price being adjusted based on the exchange ratio).
Metromile was incorporated in the State of Delaware on January 14, 2011. In February 2021, Metromile completed a business combination with INSU Acquisition Corp. II, where it merged with a wholly-owned subsidiary of INSU Acquisition Corp. II, with Metromile surviving the merger as a wholly-owned subsidiary of INSU Acquisition Corp. II.
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The shares offered in this prospectus relate to the warrants assumed in connection with the Merger and the resale by Selling Shareholders of an aggregate of 412,969 common stock issuable upon the exercise of the assumed warrants, which were purchased (1) pursuant to certain Warrant Agreement, dated September 2, 2020, by and among INSU Acquisition Corp. II and each of the signatories thereto (the "Public Warrants") and (2) in a private placement in connection with the initial public offering of INSU Acquisition Corp. II (the"Placement Warrants").
Corporate Information
Lemonade, Inc. was incorporated as a Delaware corporation on June 17, 2015. Our corporate headquarters is located at 5 Crosby Street, 3rd Floor, New York, New York 10013. Our telephone number is (844) 733-8666. Our principal website address is www.lemonade.com. Information contained on our website or connected thereto does not constitute part of, and is not incorporated by reference into, this prospectus or the registration statement of which it forms a part.
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RISK FACTORS
An investment in our securities involves risks. Our business, financial condition or results of operations could be materially and adversely affected by any of these risks. If any of these risks occur, the value of our common stock and our other securities may decline. You should carefully consider the risk factors set forth in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 and our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2022, June 30, 2022 and September 30, 2022, as well as other information contained or incorporated by reference herein or any applicable prospectus supplement hereto, before making a decision to invest in our securities. See “Incorporation of Certain Documents by Reference.”
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USE OF PROCEEDS
All of the shares of common stock and warrants offered by the Selling Stockholders will be sold by them for their respective accounts. We will not receive any of the proceeds from these sales.
The Selling Stockholders will pay any underwriting fees, discounts, selling commissions, stock transfer taxes and certain legal expenses incurred by such Selling Stockholders in disposing of their shares of common stock and warrants, and we will bear all other costs, fees and expenses incurred in effecting the registration of such securities covered by this prospectus, including, without limitation, all registration and filing fees, NYSE listing fees and fees and expenses of our counsel and our independent registered public accountants.
We may receive proceeds from the exercise of the warrants for cash, but not from the sale of the shares of common stock issuable upon such exercise.
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UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The following unaudited pro forma condensed combined financial statements combine the separate historical financial information of Lemonade, Inc. ("Lemonade") and Metromile, Inc. ("Metromile") after giving effect to the Mergers (as described in Note 1 below), and the pro forma effects of certain assumptions and adjustments described in “Notes to the Unaudited Pro Forma Condensed Combined Financial Statements” below. The unaudited pro forma condensed combined financial statements give effect to the Mergers, as if they had been completed as of January 1, 2021 for the purposes of the unaudited pro forma condensed combined statements of operations and comprehensive loss.
The preparation of the unaudited pro forma condensed combined financial statements and related adjustments required management to make certain assumptions and estimates. The unaudited pro forma condensed combined financial statements should be read together with:
•the accompanying notes to the unaudited pro forma condensed combined financial statements;
•Lemonade’s separate audited historical consolidated financial statements and accompanying notes as of and for the year ended December 31, 2021, included in Lemonade’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021, filed with the SEC on March 1, 2022;
•Metromile’s separate audited historical consolidated financial statements and accompanying notes as of and for the year ended December 31, 2021, included in Metromile’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021, filed with the SEC on February 28, 2022;
•Lemonade’s separate unaudited historical consolidated financial statements and accompanying notes as of and for nine months ended September 30, 2022, included in Lemonade’s Quarterly Reports on Form 10-Q for the fiscal quarter ended September 30, 2022 filed with the SEC on November 9, 2022; and
•Metromile’s separate unaudited historical condensed consolidated financial statements and accompanying notes as of and for the six months ended June 30, 2022 included herein.
In connection with the plan to integrate the operations of Lemonade and Metromile following the completion of the Mergers, Lemonade anticipates that nonrecurring charges will be incurred. Lemonade is not able to determine the timing, nature, and amount of these charges as of the date of this prospectus. However, these charges will affect the results of operations of Lemonade and Metromile, as well as those of the combined company following the completion of the mergers, in the period in which they are incurred. The unaudited pro forma condensed combined financial statements do not include the effects of costs associated with any restructuring or integration activities resulting from the transaction, as such costs cannot be determined at this time.
The pro forma financial information reflects adjustments that management believes are necessary to present fairly, the combined pro forma results of operations following the closing of the transaction as of and for the periods indicated. The adjustments are based on currently available information and assumptions that management believes are, under the circumstances and given the information available at this time, reasonable. These adjustments are based on preliminary estimates and will be finalized within the measurement period that will not extend beyond 12 months from the close of the transaction. Differences between these preliminary estimates and the final acquisition accounting may arise, and these differences could have a material impact on the accompanying unaudited pro forma condensed combined consolidated financial information and the combined entity’s future results of operations and financial position.
The unaudited pro forma condensed combined financial information has been prepared to illustrate the effect of the Mergers. It has been prepared for informational purposes only and is subject to a number of uncertainties and assumptions. The pro forma financial information has been prepared by Lemonade in accordance with Regulation S-X Article 11, Pro Forma Financial information (“Article 11”). Additionally, the unaudited pro forma condensed combined financial statements are not necessarily, and should not be assumed to be, an indication of the results that would have been achieved had the transaction been completed as of the dates indicated or that may be achieved in the future.
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Unaudited Pro Forma Condensed Combined Statement of Operations and Comprehensive Loss
For the Nine Months Ended September 30, 2022
(in millions, except per share data)
| Transaction Accounting Adjustments | Pro Forma Combined | |||||||||||||||||||||||||||||||
| Lemonade Historical | Metromile Historical | Reclassification Adjustments - Note 4 | Pro Forma Adjustments - Note 7 | |||||||||||||||||||||||||||||
| Revenue | ||||||||||||||||||||||||||||||||
Net earned premium | $ | 109.2 | $ | 46.1 | $ | — | $ | — | $ | 155.3 | ||||||||||||||||||||||
Ceding commission income | 46.4 | — | 0.2 | — | 46.6 | |||||||||||||||||||||||||||
Net investment income | 4.7 | 0.3 | — | — | 5.0 | |||||||||||||||||||||||||||
Commission and other income | 8.0 | — | 2.9 | — | 10.9 | |||||||||||||||||||||||||||
Other revenue | — | 3.1 | (3.1) | — | — | |||||||||||||||||||||||||||
| Total revenue | 168.3 | 49.5 | — | — | 217.8 | |||||||||||||||||||||||||||
| Expense | ||||||||||||||||||||||||||||||||
Loss and loss adjustment expense, net | 105.8 | 51.9 | — | (0.2) | (A) | 157.5 | ||||||||||||||||||||||||||
Other insurance expense | 30.9 | 12.1 | 3.8 | (0.6) | (B) | 46.2 | ||||||||||||||||||||||||||
Sales and marketing | 111.1 | — | 9.6 | — | 120.7 | |||||||||||||||||||||||||||
Sales, marketing and other acquisition costs | — | 10.4 | (10.4) | — | — | |||||||||||||||||||||||||||
Technology development | 56.1 | 10.7 | — | — | 66.8 | |||||||||||||||||||||||||||
Amortization of capitalized software | — | 7.9 | (7.9) | — | — | |||||||||||||||||||||||||||
Other operating expenses | — | 33.5 | (33.5) | — | — | |||||||||||||||||||||||||||
General and administrative | 91.1 | — | 38.4 | (0.9) | (C) | 128.6 | ||||||||||||||||||||||||||
| Interest expense | — | — | — | — | — | |||||||||||||||||||||||||||
| Impairment on digital assets | — | 0.2 | — | — | 0.2 | |||||||||||||||||||||||||||
Decrease in fair value of stock warrant liability | — | (0.6) | — | — | (0.6) | |||||||||||||||||||||||||||
| Total expenses | 395.0 | 126.1 | — | (1.7) | 519.4 | |||||||||||||||||||||||||||
| Loss before income taxes | (226.7) | (76.6) | — | 1.7 | (301.6) | |||||||||||||||||||||||||||
Income tax expense | 7.4 | — | — | — | (E) | 7.4 | ||||||||||||||||||||||||||
| Net loss | $ | (234.1) | $ | (76.6) | $ | — | $ | 1.7 | $ | (309.0) | ||||||||||||||||||||||
| Other comprehensive income, net of tax | ||||||||||||||||||||||||||||||||
Unrealized loss on investments | (23.8) | (0.4) | — | — | (24.2) | |||||||||||||||||||||||||||
Foreign currency translation adjustment | (8.1) | — | — | — | (8.1) | |||||||||||||||||||||||||||
| Comprehensive loss | $ | (266.0) | $ | (77.0) | — | $ | 1.7 | $ | (341.3) | |||||||||||||||||||||||
| Per share data: | ||||||||||||||||||||||||||||||||
Net loss per share attributable to common stockholders - basic and diluted | $ | (3.69) | (F) | $ | (4.87) | |||||||||||||||||||||||||||
Weighted average common shares outstanding-basic and diluted | 63,482,945 | (F) | 63,482,945 | |||||||||||||||||||||||||||||
See accompanying notes to the unaudited pro forma condensed combined financial statements.
6
Unaudited Pro Forma Condensed Combined Statement of Operations and Comprehensive Loss
For the Year Ended December 31, 2021
(in millions, except per share data)
| Transaction Accounting Adjustments | Pro Forma Combined | |||||||||||||||||||||||||||||||
| Lemonade Historical | Metromile Historical | Reclassification Adjustments - Note 4 | Pro Forma Adjustments - Note 7 | |||||||||||||||||||||||||||||
| Revenue | ||||||||||||||||||||||||||||||||
| Net earned premium | $ | 77.0 | $ | 75.6 | $ | — | $ | — | $ | 152.6 | ||||||||||||||||||||||
| Ceding commission income | 44.9 | — | 24.4 | — | 69.3 | |||||||||||||||||||||||||||
| Net investment income | 1.9 | 0.1 | — | — | 2.0 | |||||||||||||||||||||||||||
| Commission and other income | 4.6 | — | 4.8 | — | 9.4 | |||||||||||||||||||||||||||
| Other revenue | — | 29.2 | (29.2) | — | — | |||||||||||||||||||||||||||
| Total revenue | 128.4 | 104.9 | — | — | 233.3 | |||||||||||||||||||||||||||
| Expense | ||||||||||||||||||||||||||||||||
| Loss and loss adjustment expense, net | 71.9 | 88.5 | — | (0.6) | (A) | 159.8 | ||||||||||||||||||||||||||
| Other insurance expense | 24.1 | 20.3 | 64.3 | 0.4 | (B) | 109.1 | ||||||||||||||||||||||||||
| Sales and marketing | 141.6 | — | 43.4 | — | 185.0 | |||||||||||||||||||||||||||
| Sales and marketing and other acquisition costs | — | 103.0 | (103.0) | — | — | |||||||||||||||||||||||||||
| Technology development | 51.8 | 16.0 | — | — | 67.8 | |||||||||||||||||||||||||||
| Amortization of capitalized software | — | 11.3 | (11.3) | — | — | |||||||||||||||||||||||||||
| Other operating expenses | — | 63.5 | (63.5) | — | — | |||||||||||||||||||||||||||
| General and administrative | 72.6 | — | 70.1 | (2.0) | (C) | 149.6 | ||||||||||||||||||||||||||
| 8.9 | (D) | |||||||||||||||||||||||||||||||
| Interest expense | — | 16.0 | — | — | 16.0 | |||||||||||||||||||||||||||
| Impairment on digital assets | — | 0.2 | — | — | 0.2 | |||||||||||||||||||||||||||
| Increase in fair value of stock warrant liability | — | 2.6 | — | — | 2.6 | |||||||||||||||||||||||||||
| Total expense | 362.0 | 321.4 | — | 6.7 | 690.1 | |||||||||||||||||||||||||||
| Loss before income taxes | (233.6) | (216.5) | — | (6.7) | (456.8) | |||||||||||||||||||||||||||
| Income tax expense | 7.7 | — | — | — | (E) | 7.7 | ||||||||||||||||||||||||||
| Net loss | $ | (241.3) | $ | (216.5) | $ | — | $ | (6.7) | $ | (464.5) | ||||||||||||||||||||||
| Other comprehensive income, net of tax | ||||||||||||||||||||||||||||||||
Unrealized loss on investments | (5.7) | (0.1) | — | — | (5.8) | |||||||||||||||||||||||||||
Foreign currency translation adjustment | 0.5 | — | — | — | 0.5 | |||||||||||||||||||||||||||
| Comprehensive loss | $ | (246.5) | $ | (216.6) | — | $ | (6.7) | $ | (469.8) | |||||||||||||||||||||||
| Per share data: | ||||||||||||||||||||||||||||||||
Net loss per share attributable to common stockholders - basic and diluted | $ | (3.94) | $ | (1.89) | (F) | $ | (6.82) | |||||||||||||||||||||||||
Weighted average common shares outstanding-basic and diluted | 61,224,433 | 114,609,563 | (F) | 68,107,457 | ||||||||||||||||||||||||||||
See accompanying notes to the unaudited pro forma condensed combined financial statements.
7
Notes to Unaudited Pro Forma Condensed Combined Financial Statements
1. Description of Transaction
On July 28, 2022, Lemonade, Inc., a Delaware corporation (the “Company,”) completed the acquisition of Metromile, Inc. (“Metromile”), a Delaware corporation (“Metromile”) pursuant to the Agreement and Plan of Merger, dated as of November 8, 2021 (the “Merger Agreement”), by and among the Company, Citrus Merger Sub A, Inc., a Delaware corporation and a direct, wholly owned subsidiary of the Company (“Acquisition Sub I”), Citrus Merger Sub B, LLC, a Delaware limited liability company and a direct, wholly owned subsidiary of the Company (“Acquisition Sub II”) and Metromile. Pursuant to the Merger Agreement, Acquisition Sub I merged with and into Metromile, with Metromile surviving as a wholly-owned subsidiary of the Company (the “First Merger”) and following the First Merger, Metromile merged with and into Acquisition Sub II, with Acquisition Sub II surviving as “Metromile, LLC” (the “Second Merger,” and together with the First Merger, the “Mergers”). Pursuant to the Merger Agreement, on the closing date, the former shareholders of Metromile exchanged all of the issued and outstanding shares for a total of 6,901,934 shares of Lemonade common stock. On July 28, 2022, Metromile delisted the Metromile common stock and warrants from Nasdaq.
2. Basis of Presentation
The above unaudited pro forma condensed combined statements of operations and comprehensive loss for the nine months ended September 30, 2022, and for the year ended December 31, 2021 are derived from the historical financial statements of Lemonade and Metromile after giving effect to the Mergers. The unaudited pro forma condensed combined statements operations and comprehensive loss for the nine months ended September 30, 2022 and the year ended December 31, 2021 give pro forma effect to these transactions as if they had been completed on January 1, 2021. Certain amounts may not foot due to rounding to millions.
The transaction is accounted for under the acquisition method of accounting in accordance with Accounting Standards Codification (“ASC”) Topic 805, Business Combinations (“ASC 805”), with Lemonade considered the acquirer for accounting purposes. In business combination transactions in which the consideration given is not in the form of cash (that is, in the form of non-cash assets, liabilities incurred, or equity interests issued), measurement of the merger consideration is based on the fair value of the consideration given or the fair value of the assets (or net assets) acquired, whichever is more evident and, thus more reliably measurable.
Under ASC 805, all of the Metromile assets acquired and liabilities assumed in this business combination are recognized at their acquisition-date fair value, while transaction costs and integration costs associated with the business combination are expensed as incurred. The excess of estimated fair value of the purchase price over the net assets acquired is recorded as goodwill. Subsequent to the completion of the Mergers, Lemonade and Metromile implemented an integration plan which may affect how the assets acquired, including intangible assets, will be utilized by the combined company
The purchase price consideration and estimated fair values of assets acquired and liabilities assumed from Metromile will be updated and finalized within the measurement period that will not extend beyond 12 months from the close of the transaction. Estimated fair value adjustments could change significantly from those allocations used in the unaudited pro forma condensed combined financial statements as presented below.
The estimated identifiable finite lived intangible assets include internally developed technology and value of business acquired ("VOBA"). The weighted average useful life of the internally developed technology intangible is estimated to be 3 years. VOBA is expected to be fully amortized in less than a year. Identifiable intangible assets also include insurance licenses which are estimated to have an indefinite life, and are therefore not amortized, but will be subject to periodic impairment testing and are subject to the same risks and uncertainties noted for the identifiable finite lived assets.
Management has recorded reclassifications of Metromile’s financial information to conform to Lemonade’s financial statement presentation. In addition, Lemonade management reviewed Metromile’s accounting policies and determined that no significant differences in accounting policies require adjustment to conform to Lemonade’s accounting policies. Management however, may identify further differences that, when conformed, could have a material impact on these unaudited pro forma condensed combined financial statements.
8
3. Metromile Acquisition
As discussed and described above, Lemonade obtained unilateral control over Metromile on July 28, 2022. For the purposes of the unaudited pro forma condensed combined statements of operations for the nine months ended September 30, 2022, the Metromile historical unaudited condensed statement of operation for the six months ended June 30, 2022, as included in this prospectus, was adjusted to include the results of operations for the month ended July 31, 2022.
“Metromile As Adjusted” for unaudited pro forma condensed combined statements of operations for the nine months ended September 30, 2022 was determined as follows:
| Metromile As Adjusted | ||||||||||||||||||||
| For the Six Months Ended | For the Month Ended | For the Seven Months Ended | ||||||||||||||||||
| June 30, 2022 | July 31, 2022 | July 31, 2022 | ||||||||||||||||||
| Revenue | ||||||||||||||||||||
| Premium earned, net | $ | 39.4 | $ | 6.7 | $ | 46.1 | ||||||||||||||
| Investment income | 0.2 | 0.1 | 0.3 | |||||||||||||||||
| Other revenue | 2.6 | 0.5 | 3.1 | |||||||||||||||||
| Total revenue | 42.2 | 7.3 | 49.5 | |||||||||||||||||
| Costs and expenses | ||||||||||||||||||||
| Losses and loss adjustment expenses | 44.1 | 7.8 | 51.9 | |||||||||||||||||
| Policy servicing expense and other | 10.4 | 1.7 | 12.1 | |||||||||||||||||
| Sales, marketing, and other acquisition costs | 10.1 | 0.3 | 10.4 | |||||||||||||||||
| Research and development | 9.6 | 1.1 | 10.7 | |||||||||||||||||
| Amortization of capitalized software | 6.7 | 1.2 | 7.9 | |||||||||||||||||
| Other operating expenses | 26.4 | 7.1 | 33.5 | |||||||||||||||||
| Total costs and expenses | 107.3 | 19.2 | 126.5 | |||||||||||||||||
| Loss from operations | (65.1) | (11.9) | (77.0) | |||||||||||||||||
| Other expense | ||||||||||||||||||||
| Impairment on digital assets | 0.4 | (0.2) | 0.2 | |||||||||||||||||
| Decrease in fair value of stock warrant liability | — | (0.6) | (0.6) | |||||||||||||||||
| Total other expense | 0.4 | (0.8) | (0.4) | |||||||||||||||||
| Loss before taxes | (65.5) | (11.1) | (76.6) | |||||||||||||||||
| Income tax expense | — | — | — | |||||||||||||||||
| Net loss | $ | (65.5) | $ | (11.1) | $ | (76.6) | ||||||||||||||
| Net loss | (65.5) | (11.1) | (76.6) | |||||||||||||||||
| Unrealized (loss) gain on marketable securities | (0.5) | 0.1 | (0.4) | |||||||||||||||||
| Total comprehensive loss | $ | (66.0) | $ | (11.0) | $ | (77.0) | ||||||||||||||
9
4. Reclassification Adjustments
The Pro Forma Financial Statements have been adjusted to reflect reclassifications of Metromile’s historical financial statements to conform to Lemonade’s financial statement presentation, which is summarized below:
Pro Forma Statement of Operations and Comprehensive Loss for the nine months ended September 30, 2022:
•Reclassification of $3.1 million from Other revenue to Ceding commission income and Commission and other income;
•Reclassification of $10.4 million from Sales, marketing and other acquisition costs to Sales and marketing and Other insurance expense;
•Reclassification of $33.5 million from Other operating expenses to General and administrative and Other insurance expense; and
•Reclassification of $7.9 million from Amortization of capitalized software to General and administrative.
Pro Forma Statement of Operations and Comprehensive Loss for the year ended December 31, 2021:
•Reclassification of $29.2 million of Other revenue to Ceding commission income and Commission and other income;
•Reclassification of $103.0 million from Sales, marketing and other acquisition costs to Sales and marketing and Other insurance expense;
•Reclassification of $63.5 million from Other operating expenses to General and administrative and Other insurance expense; and
•Reclassification of $11.3 million from Amortization of capitalized software to General and administrative.
5. Merger Consideration
Merger Consideration
The fair value of merger consideration, or the purchase price, in the unaudited pro forma financial information is approximately $137.7 million. This amount was derived based on the 131,140,667 issued and outstanding common stock of Metromile on July 28, 2022, and applying the exchange ratio of 0.05263 and closing price of Lemonade common stock of $19.84 per share as of closing date.
Replacement Equity Awards
The fair value of assumed Metromile equity awards which includes stock options and and restricted stock units which are attributable to pre combination service amounted to $0.8 million at the completion of the Merger, and is considered part of the purchase price.
Additional Shares
Additional Shares are considered to be contingent consideration which requires recognition of this consideration at fair value under ASC 805. Management has determined that the Additional Shares are equity-classified instruments. Given that the contingencies are not probable of being met within the contingency period, the fair value was assessed to be zero for these Additional Shares.
10
For purposes of the pro forma financial information, the following table presents the components of the merger consideration (in millions, except for number of shares and per share amount):
| Lemonade common stock issued to existing Metromile common stockholders | 6,901,934 | |||||||
Lemonade common stock closing price at July 28, 2022 | $ | 19.84 | ||||||
| Merger consideration exchange of Metromile common stock to Lemonade common stock | $ | 136.9 | ||||||
| Fair value of Metromile assumed equity awards | 0.8 | |||||||
| Total Merger Consideration | $ | 137.7 | ||||||
6. Preliminary Fair Value Estimate of Assets Acquired and Liabilities Assumed
The table below represents an initial allocation of the merger consideration to Metromile’s tangible and intangible assets acquired and liabilities assumed based on Lemonade’s initial estimate of their respective fair values and the working capital balances that existed as of the acquisition date. The pro forma financial information do not give effect to normal course changes in our cash and other working capital balances through the closing date. Due to the pro forma financial statements being prepared based on preliminary estimates of fair value of the net assets acquired as of closing date, the final purchase allocation and the effect on our financial position and results of operations may differ significantly from the pro forma amounts included herein.
| Assets acquired | ||||||||
| Fixed maturities, available for sale, at fair value | $ | 1.8 | ||||||
| Short-term investments | 64.2 | |||||||
| Cash, cash equivalents and restricted cash | 98.8 | |||||||
| Premiums receivable | 17.4 | |||||||
| Reinsurance recoverable | 14.5 | |||||||
| Property and equipment | 4.6 | |||||||
| Value of Business Acquired (VOBA) | 1.7 | |||||||
| Intangible assets, technology | 28.0 | |||||||
| Intangible assets, insurance licenses | 7.5 | |||||||
| Other Assets | 14.7 | |||||||
| Total assets acquired | $ | 253.2 | ||||||
| Liabilities assumed | ||||||||
| Unpaid loss and loss adjustment expenses | $ | 76.3 | ||||||
| Unearned premium | 15.1 | |||||||
| Ceded premium payable | 12.0 | |||||||
| Trade payables | 0.8 | |||||||
| Other liabilities and accrued expenses | 22.2 | |||||||
| Total liabilities assumed | 126.4 | |||||||
| Total identifiable net assets acquired | $ | 126.8 | ||||||
| Total purchase consideration | $ | 137.7 | ||||||
| Goodwill | $ | 10.9 | ||||||
11
The preliminary purchase price allocation has been used to prepare the pro forma adjustments in the pro forma condensed combined financial information. Final purchase price allocation is subject to change as more detailed analyses are completed and additional information about the fair value of assets acquired and liabilities assumed from Metromile becomes available, and finalized within the measurement period that will not extend beyond 12 months from the close of the transaction. The final allocation could differ materially from the preliminary allocation used in the pro forma adjustments which may include changes in valuation of assets acquired and liabilities assumed, including but not limited to intangible assets, fixed assets, and the residual goodwill.
7. Adjustments to Unaudited Pro Forma Condensed Combined Statement of Operations and Comprehensive Loss
Explanations of the adjustments to the unaudited pro forma condensed combined statement of operations and comprehensive loss are as follows:
A. Represents the amortization on the adjustment of the reserves to fair value.
B. Represents the removal of historical DAC amortization, offset by the amortization related to the newly established VOBA asset.
C. Represents the amortization of newly established intangible assets. Subsequent to the Mergers, the expected amortization expense relating to the preliminary fair value of the acquired intangible assets (excluding VOBA) is reflected in the table below. The pro forma amortization adjustment is $7.0 million and $9.3 million for the nine months ended September 30, 2022 and the year ended December 31, 2021, respectively. The pro forma amortization adjustments include the removal of historical amortization expense of $7.9 million and $11.3 million for the nine months ended September 30, 2022 and the year ended December 31, 2021, respectively.
| Estimated fair value ($ in millions) | Estimated average useful life (in years) | Estimated Annual Amortization Expense ($ in millions) | ||||||||||||||||||
| Technology Assets | $ | 28.0 | 3 | $ | 9.3 | |||||||||||||||
| Insurance Licenses | 7.5 | Indefinite | — | |||||||||||||||||
| Total | $ | 35.5 | $ | 9.3 | ||||||||||||||||
D. Reflects the impact of the estimated severance payment and transaction costs of $8.9 million. These costs are not expected to recur beyond 12 months following the close of the transaction.
E. After the acquisition, Lemonade will file a consolidated tax return that will include Metromile. Lemonade is expected to continue maintaining a full valuation allowance against net deferred tax assets. Metromile is also expected to have net deferred tax assets offset by a full valuation at acquisition date. As such, there were no pro forma adjustments related to taxes as tax effects of pro forma adjustments are fully offset by the valuation allowance.
F. The pro forma basic and diluted net loss per share amounts presented in the unaudited pro forma condensed combined statements of operations are based upon the number of Lemonade’s shares outstanding as if the transaction occurred on January 1, 2021. The calculation of weighted average shares outstanding for pro forma basic and diluted net loss per share assumes that the shares issuable in connection with the transaction have been outstanding for the entirety of the period presented. Since Lemonade is in a net loss position in both the historical and pro forma results of operations, any dilutive shares that were identified in calculating the historical EPS would stay as anti-dilutive for the pro forma calculations. The following table
12
sets forth the calculation of basic and diluted loss per share (in millions, except for number of shares and per share amounts):
| Nine Months Ended September 30, 2022 | Year Ended December 31, 2021 | |||||||||||||
| Numerator: | ||||||||||||||
| Net loss attributable to common shareholders - Lemonade | $ | (234.1) | $ | (241.3) | ||||||||||
| Net loss attributable to common shareholders - Metromile | (76.6) | (216.5) | ||||||||||||
| Pro forma transaction adjustments | 1.7 | (6.7) | ||||||||||||
| Pro forma net loss attributable to common shareholders | $ | (309.0) | $ | (464.5) | ||||||||||
| Denominator: | ||||||||||||||
| Pro forma weighted average common shares - basic and diluted | 63,482,945 | 68,107,457 | ||||||||||||
| Pro forma loss per share - basic and diluted | $ | (4.87) | $ | (6.82) | ||||||||||
13
DETERMINATION OF OFFERING PRICE
The offering price of the shares of common stock underlying the warrants offered hereby is determined by reference to the exercise price of the warrants of $218.51 per share.
We cannot currently determine the price or prices at which shares of our common stock may be sold by the Selling Stockholders under this prospectus.
14
SELLING STOCKHOLDERS
Information about selling stockholders, when applicable, will be set forth in a prospectus supplement, in a post-effective amendment or in filings we make with the Commission under the Exchange Act which are incorporated by reference into this prospectus.
15
DESCRIPTION OF OUR CAPITAL STOCK
The description of our capital stock is incorporated by reference to Exhibit 4.3 to our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, filed with the SEC on March 1, 2022.
16
DESCRIPTION OF WARRANTS
The following summary of the material terms of our warrants is not intended to be a complete summary of the rights and preferences of such securities, and is qualified by reference to our Certificate of Incorporation, our Bylaws and the Warrant Agreement, dated September 2, 2020, by and among INSU Acquisition Corp. II and each of the signatories thereto (the “Warrant Agreement”). For a complete description, you should refer to the Certificate of Incorporation, Bylaws and Warrant Agreement, copies of which have been filed as exhibits to our Annual Report on Form 10-K or this registration statement, as well as the relevant provisions of the Delaware General Corporation Law.
Public Warrants
Each whole Public Warrant entitles the registered holder to purchase .05263 share of our common stock at a price of $218.51 per share, subject to adjustment as discussed below, at any time commencing on July 28, 2022. Pursuant to the Warrant Agreement, a warrantholder may exercise his, her or its Public Warrants only for a whole number of shares of common stock. The warrants will expire five years after the closing of Metromile’s initial business combination on February 9, 2021 (the “Business Combination”), at 5:00 p.m., New York time, or earlier upon redemption or liquidation.
We will not be obligated to deliver any shares of common stock pursuant to the exercise for cash of a warrant and will have no obligation to settle such Public Warrant exercise unless a registration statement under the Securities Act of 1933, as amended (the “Securities Act”), with respect to the shares of common stock underlying the Public Warrants is then effective and a prospectus relating thereto is current, subject to our satisfying our obligations with respect to registration. No Public Warrant will be exercisable and we will not be obligated to issue shares of common stock upon exercise of a Public Warrant unless common stock issuable upon such Public Warrant exercise has been registered, qualified or deemed to be exempt from the registration or qualifications requirements of the securities laws of the state of residence of the registered holder of the Public Warrants.
If a registration statement covering the shares of common stock issuable upon exercise of the Public Warrants has not been declared effective by the 60th business day following the closing of the Business Combination, warrantholders may, until such time as there is an effective registration statement and during any period when we have failed to maintain an effective registration statement, exercise warrants on a cashless basis pursuant to the exemption provided by Section 3(a)(9) of the Securities Act or another available exemption. Notwithstanding the above, if our common stock is at the time of any exercise of a warrant not listed on a national securities exchange such that it satisfies the definition of a “covered security” under Section 18(b)(1) of the Securities Act, we may, at our option, require holders of Public Warrants who exercise their warrants to do so on a “cashless basis” in accordance with Section 3(a)(9) of the Securities Act and, in the event we so elect, we will not be required to file or maintain in effect a registration statement, and in the event we do not so elect, we will use our best efforts to register or qualify the shares under applicable blue sky laws to the extent an exemption is not available.
Once the Public Warrants become exercisable, we may, except as otherwise provided in the Warrant Agreement, call the Public Warrants for redemption:
•in whole and not in part;
•at a price of $0.01 per Public Warrant;
•upon not less than 30 days’ prior written notice of redemption to each warrantholder; and
•if, and only if, the reported last sale price of the common stock (or the closing bid price of our common stock in the event shares of our common stock are not traded on any specific day) equals or exceeds $342.01 per share (as adjusted for stock splits, stock dividends, reorganizations and the like) for any 20 trading days within a 30 trading-day period ending on the third business day prior to the date on which we send proper notice of such redemption to the warrantholders.
If and when the Public Warrants become redeemable by us, we may exercise our redemption right even if we are unable to register or qualify the underlying securities for sale under all applicable state securities laws.
17
We have established the last of the redemption criterion discussed above to prevent a redemption call unless there is at the time of the call a significant premium to the Public Warrant exercise price. If the foregoing conditions are satisfied and we issue a notice of redemption of the Public Warrants, each warrantholder will be entitled to exercise his, her or its Public Warrant prior to the scheduled redemption date. However, the price of the common stock may fall below the $342.01 redemption trigger price (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) as well as the $218.51 (for whole shares) Public Warrant exercise price after the redemption notice is issued.
If we call the Public Warrants for redemption as described above, our management will have the option to require any holder that wishes to exercise its Public Warrant to do so on a “cashless basis.” In determining whether to require all holders to exercise their Public Warrants on a “cashless basis,” our management will consider, among other factors, our cash position, the number of Public Warrants that are outstanding and the dilutive effect on our stockholders of issuing the maximum number of shares of common stock issuable upon the exercise of our Public Warrants. If our management takes advantage of this option, all holders of Public Warrants would pay the exercise price by surrendering their Public Warrants for that number of shares of common stock equal to the quotient obtained by dividing (x) the product of the number of shares of common stock underlying the Public Warrants, multiplied by the difference between the exercise price of the Public Warrants and the “fair market value” (defined below) by (y) the fair market value. The “fair market value” shall mean the average last reported sale price of the common stock for the 10 trading days ending on the third trading day prior to the date on which the notice of redemption is sent to the holders of the Public Warrants. If our management takes advantage of this option, the notice of redemption will contain the information necessary to calculate the number of shares of common stock to be received upon exercise of the Public Warrants, including the “fair market value” in such case. Requiring a cashless exercise in this manner will reduce the number of shares to be issued and thereby lessen the dilutive effect of a warrant redemption.
A holder of a Public Warrant may notify us in writing if it elects to be subject to a requirement that such holder will not have the right to exercise such Public Warrant, to the extent that after giving effect to such exercise, such person (together with such person’s affiliates), to the Public Warrant agent’s actual knowledge, would beneficially own in excess of 4.9% or 9.8% (or such other amount as a holder may specify) of the shares of common stock outstanding immediately after giving effect to such exercise.
If the number of outstanding shares of common stock is increased by a stock dividend payable in shares of common stock, or by a split-up of shares of common stock or other similar event, then, on the effective date of such stock dividend, split-up or similar event, the number of shares of common stock issuable on exercise of each Public Warrant will be increased in proportion to such increase in the outstanding shares of common stock. A rights offering to holders of common stock entitling holders to purchase shares of common stock at a price less than the fair market value will be deemed a stock dividend of a number of shares of common stock equal to the product of (i) the number of shares of common stock actually sold in such rights offering (or issuable under any other equity securities sold in such rights offering that are convertible into or exercisable for common stock) and (ii) one (1) minus the quotient of (x) the price per share of common stock paid in such rights offering divided by (y) the fair market value. For these purposes (i) if the rights offering is for securities convertible into or exercisable for common stock, in determining the price payable for common stock, there will be taken into account any consideration received for such rights, as well as any additional amount payable upon exercise or conversion and (ii) fair market value means the volume weighted average price of common stock as reported during the ten (10) trading day period ending on the trading day prior to the first date on which the shares of common stock trade on the applicable exchange or in the applicable market, regular way, without the right to receive such rights.
In addition, if we, at any time while the Public Warrants are outstanding and unexpired, pay a dividend or make a distribution in cash, securities or other assets to the holders of common stock on account of such shares of common stock (or other shares of our capital stock into which the Public Warrants are convertible), other than (a) as described above or (b) by certain ordinary cash dividends, then the Public Warrant exercise price will be decreased, effective immediately after the effective date of such event, by the amount of cash and/or the fair market value of any securities or other assets paid on each share of common stock in respect of such event.
If the number of outstanding shares of our common stock is decreased by a consolidation, combination, reverse stock split or reclassification of shares of common stock or other similar event, then, on the effective date of such consolidation, combination, reverse stock split, reclassification or similar event, the number of shares of common stock issuable on exercise of each Public Warrant will be decreased in proportion to such decrease in outstanding shares of common stock.
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Whenever the number of shares of common stock purchasable upon the exercise of the Public Warrants is adjusted, as described above, the Public Warrant exercise price will be adjusted by multiplying the Public Warrant exercise price immediately prior to such adjustment by a fraction (x) the numerator of which will be the number of shares of common stock purchasable upon the exercise of the Public Warrants immediately prior to such adjustment, and (y) the denominator of which will be the number of shares of common stock so purchasable immediately thereafter.
In case of any reclassification or reorganization of the outstanding shares of common stock (other than those described above or that solely affects the par value of such shares of common stock), or in the case of any merger or consolidation of us with or into another corporation (other than a consolidation or merger in which we are the continuing corporation and that does not result in any reclassification or reorganization of our outstanding shares of common stock), or in the case of any sale or conveyance to another corporation or entity of the assets or other property of us as an entirety or substantially as an entirety in connection with which we are dissolved, the holders of the Public Warrants will thereafter have the right to purchase and receive, upon the basis and upon the terms and conditions specified in the Public Warrants and in lieu of the shares of our common stock immediately theretofore purchasable and receivable upon the exercise of the rights represented thereby, the kind and amount of shares of stock or other securities or property (including cash) receivable upon such event, that the holder of the warrants would have received if such holder had exercised his, her or its Public Warrants immediately before the event. If less than 70% of the consideration receivable by the holders of common stock in such a transaction is payable in the form of common stock in the successor entity that is listed for trading on a national securities exchange or is quoted in an established over-the-counter market, or is to be so listed for trading or quoted immediately following such event, and if the registered holder of the Public Warrant properly exercises the Public Warrant within thirty (30) days following public disclosure of such transaction, the Public Warrant exercise price will be reduced as specified in the Warrant Agreement based on the Black-Scholes value (as defined in the Warrant Agreement) of the Public Warrant.
The Warrant Agreement provides that the terms of the Public Warrants may be amended without the consent of any holder to cure any ambiguity or correct any defective provision, but requires the approval by the holders of at least 65% of the then outstanding Public Warrants to make any change that adversely affects the interests of the registered holders of Public Warrants.
The Public Warrants may be exercised upon surrender of the warrant certificate on or prior to the expiration date at the offices of the warrant agent, with the exercise form on the reverse side of the warrant certificate completed and executed as indicated, accompanied by full payment of the exercise price (or on a cashless basis, if applicable), by certified or official bank check payable to us, for the number of Public Warrants being exercised. The warrantholders do not have the rights or privileges of holders of common stock and any voting rights until they exercise their Public Warrants and receive shares of common stock. After the issuance of shares of common stock upon exercise of the Public Warrants, each holder will be entitled to one vote for each share held of record on all matters to be voted on by stockholders.
Public Warrants may be exercised only for a whole number of shares of common stock. No fractional shares will be issued upon exercise of the warrants. If, upon exercise of the warrants, a holder would be entitled to receive a fractional interest in a share, we will, upon exercise, round down to the nearest whole number of shares of common stock to be issued to the warrantholder.
Placement Warrants
The Placement Warrants are identical to the Public Warrants, except that if held by the initial holders or their permitted transferees, they (a) may be exercised for cash or on a cashless basis, (b) are not subject to being called for redemption and (c) they (including our common stock issuable upon exercise of these warrants) may not, subject to certain limited exceptions, be transferred, assigned or sold by the holders until 30 days after the consummation of the business combination. In addition, for as long as the placement warrants are held by Cantor Fitzgerald & Co. and/or its designees or affiliates, such placement warrants may not be exercised after September 2, 2025.
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PLAN OF DISTRIBUTION
The Selling Stockholders, which as used herein includes donees, pledgees, transferees, distributees or other successors-in-interest selling shares of our common stock or warrants or interests in our common stock or warrants received after the date of this prospectus from the Selling Stockholders as a gift, pledge, partnership distribution or other transfer, may, from time to time, sell, transfer, distribute or otherwise dispose of certain of their shares of common stock or warrants or interests in our common stock or warrants on any stock exchange, market or trading facility on which shares of our common stock or warrants, as applicable, are traded or in private transactions. These dispositions may be at fixed prices, at prevailing market prices at the time of sale, at prices related to the prevailing market price, at varying prices determined at the time of sale, or at negotiated prices.
We are required to pay all fees and expenses incident to the registration of the shares of our common stock to be offered and sold pursuant to this prospectus.
We will not receive any of the proceeds from the sale of the securities by the Selling Stockholders. We will receive proceeds from warrants exercised in the event that such warrants are exercised for cash. The aggregate proceeds to the Selling Stockholders will be the purchase price of the securities less any discounts and commissions borne by the Selling Stockholders. The shares of common stock beneficially owned by the Selling Stockholders covered by this prospectus may be offered and sold from time to time by the Selling Stockholders. The term “Selling Stockholders” includes donees, pledgees, transferees or other successors in interest selling securities received after the date of this prospectus from a Selling Stockholder as a gift, pledge, partnership distribution or other transfer. The Selling Stockholders will act independently of us in making decisions with respect to the timing, manner and size of each sale. Such sales may be made on one or more exchanges or in the over-the-counter market or otherwise, at prices and under terms then prevailing or at prices related to the then current market price or in negotiated transactions. The Selling Stockholders may sell their shares by one or more of, or a combination of, the following methods:
•purchases by a broker-dealer as principal and resale by such broker-dealer for its own account pursuant to this prospectus;
•ordinary brokerage transactions and transactions in which the broker solicits purchasers;
•block trades in which the broker-dealer so engaged will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction;
•an over-the-counter distribution in accordance with the rules of NYSE;
•through trading plans entered into by a Selling Stockholder pursuant to Rule 10b5-1 under the Exchange Act, that are in place at the time of an offering pursuant to this prospectus and any applicable prospectus supplement hereto that provide for periodic sales of their securities on the basis of parameters described in such trading plans;
•to or through underwriters or broker-dealers;
•in “at the market” offerings, as defined in Rule 415 under the Securities Act, at negotiated prices, at prices prevailing at the time of sale or at prices related to such prevailing market prices, including sales made directly on a national securities exchange or sales made through a market maker other than on an exchange or other similar offerings through sales agents;
•in privately negotiated transactions;
•in options transactions;
•through a combination of any of the above methods of sale; or
•any other method permitted pursuant to applicable law.
In addition, any shares that qualify for sale pursuant to Rule 144 may be sold under Rule 144 rather than pursuant to this prospectus.
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To the extent required, this prospectus may be amended or supplemented from time to time to describe a specific plan of distribution. In connection with distributions of the shares or otherwise, the Selling Stockholders may enter into hedging transactions with broker-dealers or other financial institutions. In connection with such transactions, broker-dealers or other financial institutions may engage in short sales of shares of common stock in the course of hedging transactions, broker-dealers or other financial institutions may engage in short sales of shares of common stock in the course of hedging the positions they assume with Selling Stockholders. The Selling Stockholders may also sell shares of common stock short and redeliver the shares to close out such short positions. The Selling Stockholders may also enter into option or other transactions with broker-dealers or other financial institutions which require the delivery to such broker-dealer or other financial institution of shares offered by this prospectus, which shares such broker-dealer or other financial institution may resell pursuant to this prospectus (as supplemented or amended to reflect such transaction). The Selling Stockholders may also pledge shares to a broker-dealer or other financial institution, and, upon a default, such broker-dealer or other financial institution, may effect sales of the pledged shares pursuant to this prospectus (as supplemented or amended to reflect such transaction).
A Selling Stockholder may enter into derivative transactions with third parties, or sell securities not covered by this prospectus to third parties in privately negotiated transactions. If the applicable prospectus supplement indicates, in connection with those derivatives, the third parties may sell securities covered by this prospectus and the applicable prospectus supplement, including in short sale transactions. If so, the third party may use securities pledged by any Selling Stockholder or borrowed from any Selling Stockholder or others to settle those sales or to close out any related open borrowings of stock, and may use securities received from any Selling Stockholder in settlement of those derivatives to close out any related open borrowings of stock. The third party in such sale transactions will be an underwriter and will be identified in the applicable prospectus supplement (or a post-effective amendment). In addition, any Selling Stockholder may otherwise loan or pledge securities to a financial institution or other third party that in turn may sell the securities short using this prospectus. Such financial institution or other third party may transfer its economic short position to investors in our securities or in connection with a concurrent offering of other securities.
In effecting sales, broker-dealers or agents engaged by the Selling Stockholders may arrange for other broker-dealers to participate. Broker-dealers or agents may receive commissions, discounts or concessions from the Selling Stockholders in amounts to be negotiated immediately prior to the sale.
In offering the shares covered by this prospectus, the Selling Stockholders and any broker -dealers who execute sales for the Selling Stockholders may be deemed to be “underwriters” within the meaning of the Securities Act in connection with such sales. Any profits realized by the Selling Stockholders and the compensation of any broker-dealer may be deemed to be underwriting discounts and commissions.
In order to comply with the securities laws of certain states, if applicable, the shares must be sold in such jurisdictions only through registered or licensed brokers or dealers. In addition, in certain states the shares may not be sold unless they have been registered or qualified for sale in the applicable state or an exemption from the registration or qualification requirement is available and is complied with.
We have advised the Selling Stockholders that the anti-manipulation rules of Regulation M under the Exchange Act may apply to sales of shares in the market and to the activities of the Selling Stockholders and their affiliates. In addition, we will make copies of this prospectus available to the Selling Stockholders for the purpose of satisfying the prospectus delivery requirements of the Securities Act. The Selling Stockholders may indemnify any broker-dealer that participates in transactions involving the sale of the shares against certain liabilities, including liabilities arising under the Securities Act.
At the time a particular offer of shares is made, if required, a prospectus supplement will be distributed that will set forth the number of shares being offered and the terms of the offering, including the name of any underwriter, dealer or agent, the purchase price paid by any underwriter, any discount, commission and other item constituting compensation, any discount, commission or concession allowed or reallowed or paid to any dealer, and the proposed selling price to the public.
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LEGAL MATTERS
The validity of any securities offered by this prospectus will be passed upon for us by Latham & Watkins LLP.
EXPERTS
The consolidated financial statements of Lemonade, Inc. as of December 31, 2021 and 2020, and for each of the three years in the period ended December 31, 2021, incorporated by reference in this prospectus and elsewhere in the registration statement have been audited by Ernst & Young LLP, independent registered public accounting firm and are incorporated by reference in reliance upon such report given on the authority of such firm as experts in accounting and auditing.
The consolidated financial statements of Metromile, Inc. as of December 31, 2021 and 2020, and for the years then ended, appearing in Lemonade, Inc.’s Current Report on Form 8-K/A filed with the SEC on October 11, 2022, have been audited by Moss Adams LLP, an independent registered public accounting firm, as stated in their report thereon included therein, and incorporated herein by reference. Such consolidated financial statements have been so incorporated in reliance upon the report such firm given upon their authority as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We are required to file annual, quarterly and current reports, proxy statements and other information with the Commission as required by the Exchange Act. You can read Lemonade’s SEC filings, including this prospectus, over the Internet at the SEC’s website at http://www.sec.gov.
Our website address is www.lemonade.com. Through our website, we make available, free of charge, the following documents as soon as reasonably practicable after they are electronically filed with, or furnished to, the Commission, including our Annual Reports on Form 10-K, our proxy statements for our annual and special stockholder meetings, our Quarterly Reports on Form 10-Q, our Current Reports on Form 8-K, Forms 3, 4, and 5 and Schedules 13D with respect to our securities filed on behalf of our directors and our executive officers; and amendments to those documents. The information contained on, or that may be accessed through, our website is not a part of, and is not incorporated into, this prospectus.
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission by us pursuant to the Exchange Act are incorporated by reference in this prospectus, other than information furnished pursuant to Item 2.02 or Item 7.01 of Form 8-K:
•Our Quarterly Report on Form 10-Q for the quarter ended March 31, 2022, filed with the Commission on May 10, 2022, our Quarterly Report on Form 10-Q for the quarter ended June 30, 2022, filed with the Commission on August 9, 2022 and our Quarterly Report on Form 10-Q for the quarter ended September 30, 2022, filed with the Commission on November 9, 2022;
•The Annual Report on Form 10-K for the fiscal year ended December 31, 2021, filed on March 1, 2022;
•The Current Reports on Form 8-K filed on March 9, 2022, April 14, 2022, June 14, 2022, July 28, 2022, October 11, 2022 and October 20, 2022; and
•The Company’s Definitive Proxy Statement for its 2021 Annual Meeting of Stockholders, filed with the Commission on April 29, 2022.
In addition, all documents filed by us pursuant to Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act, other than information furnished pursuant to Item 2.02 or Item 7.01 of Form 8-K, prior to the termination of the offering shall be deemed to be incorporated by reference into this prospectus and to be a part hereof from the date of filing of such documents. Any statement in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for the purposes of this prospectus to the extent that a statement contained herein or in any other subsequently filed document which also is or deemed to be incorporated by reference herein modifies or supersedes such statement. Any statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this prospectus.
We will provide to each person, including any beneficial owner, to whom a prospectus has been delivered, upon written or oral request, a copy of any or all of the information that has been incorporated by reference in the prospectus but not delivered with the prospectus. Please make your request by writing or telephoning us at the following address or telephone number:
Lemonade, Inc.
5 Crosby Street, 3rd Floor
New York, NY 10013
(844) 733-8666
You should rely only on the information incorporated by reference or provided in this prospectus or any supplement. We have not authorized anyone else to provide you with different information. You should not assume that the information in this prospectus or any supplement is accurate as of any date other than the date on the front of those documents.
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SELECTED HISTORICAL CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes Metromile, Inc.'s consolidated financial data and other data. The selected consolidated income statement data and selected consolidated statement of cash flow data for the years ended December 31, 2021 and 2022, and the consolidated balance sheet data as of December 31, 2021 and 2020 were derived from the audited consolidated financial statements of Metromile, Inc. The selected unaudited consolidated income statement data and selected unaudited consolidated statement of cash flow data from the six months ended June 30, 2022 and 2021 , and the unaudited consolidated balance sheet data as of June 30, 2022 and 2021, were derived from the unaudited consolidated financial statements of Metromile, Inc.
| For the six-months ended June 30, | For the years ended December 31, | |||||||||||||||||||||||||
| (in thousands, except shares and per share amounts) | 2022 | 2021 | 2021 | 2020 | ||||||||||||||||||||||
| (Unaudited) | (Unaudited) | |||||||||||||||||||||||||
| Income Statement: | ||||||||||||||||||||||||||
| Revenue | $ | 42,218 | $ | 45,374 | $ | 104,897 | $ | 35,064 | ||||||||||||||||||
| Cost of services, excluding depreciation and amortization | 96,852 | 146,879 | 285,382 | 62,880 | ||||||||||||||||||||||
| Loss from operations | (65,115) | (109,694) | (197,706) | (44,820) | ||||||||||||||||||||||
| Interest expense | — | 15,974 | 15,974 | 6,067 | ||||||||||||||||||||||
| Income tax provision (benefit) | — | — | — | (84) | ||||||||||||||||||||||
| Net loss | (65,470) | (144,887) | (216,459) | (120,097) | ||||||||||||||||||||||
| Unrealized loss on marketable securities | (461) | (26) | (127) | (49) | ||||||||||||||||||||||
| Total comprehensive loss | (65,931) | (144,913) | (216,586) | (120,146) | ||||||||||||||||||||||
| Per Share Data: | ||||||||||||||||||||||||||
| Weighted average shares outstanding | 129,633,871 | 101,236,461 | 114,609,563 | 8,890,631 | ||||||||||||||||||||||
| Net loss per share, basic an diluted | $ | (0.51) | $ | (1.43) | $ | (1.89) | $ | (13.51) | ||||||||||||||||||
| Balance Sheet: | ||||||||||||||||||||||||||
| Cash and cash equivalents | $ | 69,576 | $ | 202,584 | $ | 120,940 | $ | 19,150 | ||||||||||||||||||
| Total assets | 269,916 | 361,101 | 313,415 | 202,164 | ||||||||||||||||||||||
| Total liabilities | 138,125 | 125,585 | 127,027 | 259,191 | ||||||||||||||||||||||
| Total convertible preferred stock | — | — | — | 304,469 | ||||||||||||||||||||||
| Total stockholders' equity(deficit) | 131,791 | 235,516 | 186,388 | (361,496) | ||||||||||||||||||||||
| Cash Flows: | ||||||||||||||||||||||||||
| Net cash used in operating activities | $ | (45,090) | $ | (47,534) | $ | (95,122) | $ | (32,193) | ||||||||||||||||||
| Net cash (used in) provided by investing activities | (12,295) | (32,217) | (64,765) | 1,805 | ||||||||||||||||||||||
| Net cash provided by financing activities | — | 273,482 | 273,520 | 37,689 | ||||||||||||||||||||||
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7,846,646 Warrants to Purchase Shares of Common Stock
Up to 412,969 Shares of Common Stock Issuable Upon Exercise of Warrants to be sold by Selling Shareholders
PROSPECTUS
PART II
Information Not Required in Prospectus
Item 13. Other Expenses of Issuance and Distribution.
The following is an estimate of the expenses (all of which are to be paid by the registrant) that we may incur in connection with the securities being registered hereby.
| Amount | |||||
| SEC registration fee | $ | 856 | |||
| Legal fees and expenses | 50,000 | ||||
| Accounting fees and expenses | 45,000 | ||||
| Miscellaneous | — | ||||
Total | $ | 95,856 | |||
Item 14. Indemnification of Directors and Officers.
Lemonade, Inc. is incorporated under the laws of the state of Delaware. Section 102 of the Delaware General Corporation Law, as amended (the “DGCL”), allows a corporation to eliminate the personal liability of a director to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except in cases where the director breached his or her duty of loyalty to the corporation or its stockholders, failed to act in good faith, engaged in intentional misconduct or a knowing violation of the law, willfully or negligently authorized the unlawful payment of a dividend or approved an unlawful stock redemption or repurchase or obtained an improper personal benefit. The registrant’s amended and restated certificate of incorporation contains a provision which eliminates directors’ personal liability as set forth above.
The registrant’s amended and restated certificate of incorporation and amended and restated bylaws provide in effect that the registrant shall indemnify its directors and officers to the extent permitted by the Delaware law. Section 145 of the DGCL provides that a Delaware corporation has the power to indemnify its directors, officers, employees, and agents in certain circumstances.
Subsection (a) of Section 145 of the DGCL empowers a corporation to indemnify any director, officer, employee or agent, or former director, officer, employee or agent, who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation), against expenses (including attorneys’ fees), judgments, fines, and amounts paid in settlement actually and reasonably incurred in connection with such action, suit or proceeding, provided that such director, officer, employee or agent acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, provided that such director, officer, employee or agent had no reasonable cause to believe that his or her conduct was unlawful.
Subsection (b) of Section 145 of the DGCL empowers a corporation to indemnify any director, officer, employee or agent, or former director, officer, employee or agent, who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that such person acted in any of the capacities set forth above, against expenses (including attorneys’ fees) actually and reasonably incurred in connection with the defense or settlement of such action or suit provided that such person acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the corporation, except that no indemnification may be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine that despite the adjudication of liability such person is fairly and reasonably entitled to indemnity for such expenses which the court shall deem proper.
Section 145 further provides that to the extent that a present or former director or officer of a corporation has been successful in the defense of any action, suit or proceeding referred to in subsections (a) and (b) of Section 145 or in the defense of any claim, issue or matter therein, he or she shall be indemnified against expenses
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(including attorneys’ fees) actually and reasonably incurred by him or her in connection therewith; that indemnification provided by Section 145 shall not be deemed exclusive of any other rights to which the party seeking indemnification may be entitled; that the corporation is empowered to purchase and maintain insurance on behalf of a director, officer, employee or agent of the corporation against any liability asserted against him or her or incurred by him or her in any such capacity or arising out of his or her status as such whether or not the corporation would have the power to indemnify him or her against such liabilities under Section 145; and that, unless indemnification is ordered by a court, the determination that indemnification under subsections (a) and (b) of Section 145 is proper because the director, officer, employee or agent has met the applicable standard of conduct under such subsections shall be made by (1) a majority vote of the directors who are not parties to such action, suit or proceeding (or a committee of such directors designated by majority vote of such directors), even though less than a quorum, or (2) if there are no such directors, or if such directors so direct, by independent legal counsel in a written opinion, or (3) by the stockholders.
The right to indemnification conferred by the registrant’s amended and restated certificate of incorporation and amended and restated bylaws also includes the right to be paid the expenses (including attorneys’ fees) incurred by a present or former director or officer in defending any civil, criminal, administrative, or investigative action, suit, or proceeding in advance of its final disposition, provided, however, that if Delaware law requires, an advancement of expenses incurred by a director or officer in his or her capacity as a director or officer shall be made only upon delivery to the registrant of an undertaking by or on behalf of such director or officer to repay all amounts so advanced if it is ultimately determined that such person is not entitled to be indemnified for such expenses under the registrant’s amended and restated certificate of incorporation, amended and restated bylaws, or otherwise.
In addition, the registrant intends to enter into indemnification agreements with each of its directors and certain of its officers, a form of which will be filed as an exhibit to a pre-effective amendment to this Registration Statement. These agreements require the registrant to indemnify such persons to the fullest extent permitted under Delaware law against liabilities that may arise by reason of their service to the registrant, and to advance expenses incurred as a result of any action, suit, or proceeding against them as to which they could be indemnified.
The registrant has in effect insurance policies for general officers’ and directors’ liability insurance covering all of its officers and directors.
Item 16. Exhibits.
| Exhibit No. | Document | ||||
| 2.1 | |||||
| 4.1 | |||||
| 4.2 | |||||
| 4.3 | |||||
| 4.4 | |||||
| 5.1 | |||||
| 23.1 | Consent of Latham & Watkins LLP (included in Exhibit 5.1) | ||||
| 23.2 | |||||
| 23.3 | |||||
| 24.1 | Powers of Attorney (incorporated by reference to the signature page hereto) | ||||
| 99.1 | |||||
| 107 | |||||
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Item 17. Undertakings.
(a)The undersigned registrant hereby undertakes:
(1)To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:
(i)To include any prospectus required by section 10(a)(3) of the Securities Act of 1933;
(ii)To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement; and
(iii)To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement; provided, however, that: Paragraphs (a)(1)(i), (ii) and (iii) of this section do not apply if the registration statement is on Form S-1, Form S-3, Form SF-3 or Form F-3 and the information required to be included in a post-effective amendment by those paragraphs is contained in reports filed with or furnished to the Commission by the registrant pursuant to section 13 or section 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in the registration statement, or, as to a registration statement on Form S-3, Form SF-3 or Form F-3, is contained in a form of prospectus filed pursuant to Rule 424(b) that is part of the registration statement.
(1)That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
(2)To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.
(3)That, for the purpose of determining liability under the Securities Act of 1933 to any purchaser each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A (§ 230.430A of this chapter), shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.
Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized in the City of New York, State of New York, on December 6, 2022.
| LEMONADE, INC. | |||||
| By: | /s/ Daniel Schreiber | ||||
| Daniel Schreiber | |||||
| Co-Chief Executive Officer | |||||
POWER OF ATTORNEY
KNOW ALL MEN AND WOMEN BY THESE PRESENTS, that each person whose signature appears below hereby severally constitutes and appoints each of Daniel Schreiber and Tim Bixby as such person’s true and lawful attorney-in-fact and agent, each acting alone, with full power of substitution and resubstitution, for and in such person’s name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration Statement and all documents relating thereto, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Commission, granting unto such attorneys-in-fact and agents, each acting alone, full power and authority to do and perform each and every act and thing necessary or advisable to be done in and about the premises, as fully to all intents and purposes as such person might or could do in person, hereby ratifying and confirming all that such attorneys-in-fact and agents, each acting alone, or such person’s substitute or substitutes, lawfully may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed below by the following persons in the capacities and on the date indicated.
SIGNATURE | TITLE | DATE | ||||||||||||
/s/ Daniel Schreiber | Co-Chief Executive Officer (Co-Principal Executive Officer) and Chairman of the Board of Directors | December 6, 2022 | ||||||||||||
Daniel Schreiber | ||||||||||||||
/s/ Shai Wininger | Co-Chief Executive Officer (Co-Principal Executive Officer) and Director | December 6, 2022 | ||||||||||||
Shai Wininger | ||||||||||||||
/s/ Tim Bixby | Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) | December 6, 2022 | ||||||||||||
Tim Bixby | ||||||||||||||
/s/ Michael Eisenberg | Director | December 6, 2022 | ||||||||||||
Michael Eisenberg | ||||||||||||||
/s/ Silvija Martincevic | Director | December 6, 2022 | ||||||||||||
| Silvija Martincevic | ||||||||||||||
/s/ Irina Novoselsky | Director | December 6, 2022 | ||||||||||||
Irina Novoselsky | ||||||||||||||
/s/ Mwashuma Nyatta | Director | December 6, 2022 | ||||||||||||
Mwashuma Nyatta | ||||||||||||||
II-4
1271 Avenue of the Americas New York, New York 10020-1401 Tel: +1.212.906.1200 Fax: +1.212.751.4864 www.lw.com FIRM / AFFILIATE OFFICES Austin Milan Beijing Munich Boston New York Brussels Orange County Century City Paris Chicago Riyadh Dubai San Diego Düsseldorf San Francisco Frankfurt Seoul Hamburg Shanghai Hong Kong Silicon Valley Houston Singapore London Tel Aviv Los Angeles Tokyo Madrid Washington, D.C. December 6, 2022 Lemonade, Inc. 5 Crosby Street, 3rd Floor New York, NY 10013 Re: Registration Statement on Form S-3 To the addressees set forth above: We have acted as special counsel to Lemonade, Inc., a Delaware corporation (the “Company”), in connection with its filing on the date hereof with the Securities and Exchange Commission (the “Commission”) of a registration statement on Form S-3 (the “Registration Statement”), including a base prospectus (the “Base Prospectus”), which provides that it will be supplemented by one or more prospectus supplements (each such prospectus supplement, together with the Base Prospectus, a “Prospectus”), under the Securities Act of 1933, as amended (the “Act”), relating to the registration of (i) the offer and sale from time to time of 7,846,646 warrants (the “Warrants”) to acquire shares of common stock by certain securityholders of the Company and (ii) the issuance by the Company of up to 412,969 shares (the “Warrant Shares”) of common stock upon the exercise of the Warrants. The Warrant Shares and Warrants, plus any additional Warrant Shares and Warrants that may be registered pursuant to any subsequent registration statement that the Company may hereafter file with the Commission pursuant to Rule 462(b) under the Act in connection with the offering by the Company contemplated by the Registration Statement, are referred to herein collectively as the “Securities.” This opinion is being furnished in connection with the requirements of Item 601(b)(5) of Regulation S-K under the Act, and no opinion is expressed herein as to any matter pertaining to the contents of the Registration Statement or related applicable Prospectus, other than as expressly stated herein with respect to the issue of the Securities. As such counsel, we have examined such matters of fact and questions of law as we have considered appropriate for purposes of this letter. With your consent, we have relied upon certificates and other assurances of officers of the Company and others as to factual matters without having independently verified such factual matters. We are opining herein as to the
December 6, 2022 Page 2 General Corporation Law of the State of Delaware (the “DGCL”), and with respect to the opinions set forth in numbered paragraph 2 below, the internal laws of the State of New York, and we express no opinion with respect to the applicability thereto, or the effect thereon, of the laws of any other jurisdiction or, in the case of Delaware, any other laws, or as to any matters of municipal law or the laws of any local agencies within any state. Subject to the foregoing and the other matters set forth herein, it is our opinion that, as of the date hereof: 1. When the Warrant Shares shall have been duly registered on the books of the transfer agent and registrar therefor in the name of or on behalf of the Warrant holders and have been issued by the Company against payment therefor (not less than par value) in the circumstances contemplated by the Warrants, the Warrant Shares will have been duly authorized by all necessary corporate action of the Company and will be validly issued, fully paid and nonassessable. In rendering the foregoing opinion, we have assumed that the Company will comply with all applicable notice requirements regarding uncertificated shares provided in the DGCL. 2. The Warrants are the legally valid and binding obligations of the Company, enforceable against the Company in accordance with their terms. Our opinions are subject to: (i) the effect of bankruptcy, insolvency, reorganization, preference, fraudulent transfer, moratorium or other similar laws relating to or affecting the rights and remedies of creditors; (ii) (a) the effect of general principles of equity, whether considered in a proceeding in equity or at law (including the possible unavailability of specific performance or injunctive relief), (b) concepts of materiality, reasonableness, good faith and fair dealing, and (c) the discretion of the court before which a proceeding is brought; and (iii) the invalidity under certain circumstances under law or court decisions of provisions providing for the indemnification of or contribution to a party with respect to a liability where such indemnification or contribution is contrary to public policy. We express no opinion as to (a) any provision for liquidated damages, default interest, late charges, monetary penalties, make-whole premiums or other economic remedies to the extent such provisions are deemed to constitute a penalty, (b) consents to, or restrictions upon, governing law, jurisdiction, venue, arbitration, remedies or judicial relief, (c) waivers of rights or defenses, (d) any provision requiring the payment of attorneys’ fees, where such payment is contrary to law or public policy, (e) any provision permitting, upon acceleration of any debt securities, collection of that portion of the stated principal amount thereof which might be determined to constitute unearned interest thereon, (f) the creation, validity, attachment, perfection, or priority of any lien or security interest, (g) advance waivers of claims, defenses, rights granted by law, or notice, opportunity for hearing, evidentiary requirements, statutes of limitation, trial by jury or at law, or other procedural rights, (h) waivers of broadly or vaguely stated rights, (i) provisions for exclusivity, election or cumulation of rights or remedies, (j) provisions authorizing or validating conclusive or discretionary determinations, (k) grants of setoff rights, (l) proxies, powers and trusts, (m) provisions prohibiting, restricting, or requiring consent to assignment or transfer of any right or property, (n) any provision to the extent it requires that a claim with respect to a security denominated in other than U.S. dollars (or a judgment in respect of such a claim) be converted
December 6, 2022 Page 3 into U.S. dollars at a rate of exchange at a particular date, to the extent applicable law otherwise provides, and (o) the severability, if invalid, of provisions to the foregoing effect. With your consent, we have assumed (a) that the Warrants and the warrant agreement, dated September 2, 2020, between INSU Acquisition Corp. II and Continental Stock Transfer & Trust Company, as warrant agent, and the amendment thereto, dated as of June 17, 2022, between Metromile, Inc., Continental Stock Transfer & Trust Company, as warrant agent, and American Stock Transfer & Trust Company, LLC, as successor warrant agent, relating to the Warrants, have been duly authorized, executed and delivered by the parties thereto other than the Company, (b) that the Warrants and the warrant agreement constitute or will constitute legally valid and binding obligations of the parties thereto other than the Company, enforceable against each of them in accordance with their respective terms and (c) that the status of the Warrants as legally valid and binding obligations of the parties will not be affected by any (i) breaches of, or defaults under, agreements or instruments, (ii) violations of statutes, rules, regulations or court or governmental orders or (iii) failures to obtain required consents, approvals or authorizations from, or to make required registrations, declarations or filings with, governmental authorities. This opinion is for your benefit in connection with the Registration Statement and may be relied upon by you and by persons entitled to rely upon it pursuant to the applicable provisions of the Act. We consent to your filing this opinion as an exhibit to the Registration Statement and to the reference to our firm contained in the Prospectus under the heading “Legal Matters.” We further consent to the incorporation by reference of this letter and consent into any registration statement or post-effective amendment to the Registration Statement filed pursuant to Rule 462(b) under the Act with respect to the Securities. In giving such consent, we do not thereby admit that we are in the category of persons whose consent is required under Section 7 of the Act or the rules and regulations of the Commission thereunder. Sincerely, /s/ Latham & Watkins LLP
Exhibit 23.2
Consent of Independent Registered Public Accounting Firm
We consent to the reference to our firm under the caption "Experts" in the Registration Statement (Form S-3) and related Prospectus of Lemonade, Inc. for the registration of 7,846,646 warrants and 412,969 shares of common stock issuable upon exercise of warrants and to the incorporation by reference therein of our reports dated March 1, 2022, with respect to the consolidated financial statements of Lemonade, Inc., and the effectiveness of internal control over financial reporting of Lemonade, Inc., included in its Annual Report (Form 10-K) for the year ended December 31, 2021, filed with the Securities and Exchange Commission.
/s/ Ernst & Young LLP
New York, New York
November 30, 2022
Exhibit 23.3
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in this Registration Statement on Form S-3 of Lemonade, Inc., of our report dated February 28, 2022, relating to the consolidated financial statements of Metromile, Inc. (the “Company”), appearing in the Current Report on Form 8-K/A of Lemonade, Inc., filed with the Securities and Exchange Commission on October 11, 2022. We also consent to the reference to us under the heading “Experts” in such Registration Statement.
/s/ Moss Adams LLP
San Francisco, California
November 30, 2022
METROMILE, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
June 30, 2022 | December 31, 2021 | ||||||||||
| (unaudited) | |||||||||||
| Assets | |||||||||||
| Investments | |||||||||||
Marketable securities - restricted (amortized cost of $63,833 and $62,741) | $ | 63,256 | $ | 62,625 | |||||||
| Total investments | 63,256 | 62,625 | |||||||||
| Cash and cash equivalents | 69,576 | 120,940 | |||||||||
| Restricted cash and cash equivalents | 33,031 | 42,881 | |||||||||
| Receivable for securities | 1,029 | — | |||||||||
| Premiums receivable | 17,360 | 16,839 | |||||||||
| Reinsurance recoverable on paid loss | 4,677 | — | |||||||||
| Reinsurance recoverable on unpaid loss | 7,295 | — | |||||||||
| Prepaid expenses and other assets | 21,455 | 21,677 | |||||||||
| Deferred policy acquisition costs, net | 1,165 | 1,433 | |||||||||
| Telematics devices, improvements and equipment, net | 12,324 | 13,654 | |||||||||
| Website and software development costs, net | 22,366 | 25,866 | |||||||||
| Intangible assets | 7,500 | 7,500 | |||||||||
| Assets held for sale | 8,882 | — | |||||||||
| Total assets | 269,916 | 313,415 | |||||||||
| Liabilities, Convertible Preferred Stock and Stockholders’ Equity | |||||||||||
| Liabilities | |||||||||||
| Loss and loss adjustment expense reserves | $ | 80,252 | $ | 73,438 | |||||||
| Ceded reinsurance premium payable | 8,885 | — | |||||||||
| Payable to carriers - premiums and LAE, net | 697 | 340 | |||||||||
| Unearned premium reserve | 15,403 | 15,726 | |||||||||
| Deferred revenue | — | 5,601 | |||||||||
| Accounts payable and accrued expenses | 6,549 | 10,820 | |||||||||
| Payable for securities | 1,006 | 422 | |||||||||
| Warrant liability | 1,182 | 1,156 | |||||||||
| Other liabilities | 18,698 | 19,524 | |||||||||
| Liabilities held for sale | 5,453 | — | |||||||||
| Total liabilities | 138,125 | 127,027 | |||||||||
Commitments and contingencies (Note 8) | |||||||||||
| Stockholders’ equity | |||||||||||
Common stock, $0.0001 par value; 640,000,000 shares authorized as of June 30, 2022, and December 31, 2021; 131,132,144 and 128,221,885 shares issued and outstanding as of June 30, 2022 and December 31, 2021. | 13 | 13 | |||||||||
| Accumulated paid-in capital | 780,859 | 769,525 | |||||||||
| Accumulated other comprehensive loss | (577) | (116) | |||||||||
| Accumulated deficit | (648,504) | (583,034) | |||||||||
| Total stockholders' equity | 131,791 | 186,388 | |||||||||
| Total liabilities, convertible preferred stock and stockholders’ equity | $ | 269,916 | $ | 313,415 | |||||||
See notes to consolidated financial statements.
1
METROMILE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share amounts)
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Revenue | (unaudited) | (unaudited) | |||||||||||||||||||||
| Premiums earned, net | $ | 20,223 | $ | 18,049 | $ | 39,388 | $ | 19,174 | |||||||||||||||
| Investment income | 162 | 19 | 207 | 55 | |||||||||||||||||||
| Other revenue | 1,134 | 10,030 | 2,623 | 26,145 | |||||||||||||||||||
| Total revenue | 21,519 | 28,098 | 42,218 | 45,374 | |||||||||||||||||||
| Costs and expenses | |||||||||||||||||||||||
| Losses and loss adjustment expenses | 21,993 | 22,640 | 44,053 | 34,903 | |||||||||||||||||||
| Policy servicing expense and other | 5,080 | 5,055 | 10,363 | 9,498 | |||||||||||||||||||
| Sales, marketing and other acquisition costs | 3,657 | 25,926 | 10,116 | 73,220 | |||||||||||||||||||
| Research and development | 5,302 | 3,118 | 9,579 | 6,768 | |||||||||||||||||||
| Amortization of capitalized software | 3,342 | 2,701 | 6,710 | 5,352 | |||||||||||||||||||
| Other operating expenses | 12,810 | 16,738 | 26,512 | 25,327 | |||||||||||||||||||
| Total costs and expenses | 52,184 | 76,178 | 107,333 | 155,068 | |||||||||||||||||||
| Loss from operations | (30,665) | (48,080) | (65,115) | (109,694) | |||||||||||||||||||
| Other expense | |||||||||||||||||||||||
| Interest expense | — | 98 | — | 15,974 | |||||||||||||||||||
| Impairment on digital assets | 329 | 66 | 329 | 66 | |||||||||||||||||||
| Increase (decrease) in fair value of stock warrant liability | 157 | (6,984) | 26 | 19,153 | |||||||||||||||||||
| Total other expense | 486 | (6,820) | 355 | 35,193 | |||||||||||||||||||
| Loss before taxes | (31,151) | (41,260) | (65,470) | (144,887) | |||||||||||||||||||
| Income tax benefit | — | — | — | — | |||||||||||||||||||
| Net loss | $ | (31,151) | $ | (41,260) | $ | (65,470) | $ | (144,887) | |||||||||||||||
| Net loss per share, basic and diluted | $ | (0.24) | $ | (0.33) | $ | (0.51) | $ | (1.43) | |||||||||||||||
| Weighted-average shares used in computing basic and diluted net loss per share | 130,542,613 | 126,693,218 | 129,633,871 | 101,236,461 | |||||||||||||||||||
See notes to consolidated financial statements.
1
METROMILE, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In thousands)
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| (unaudited) | (unaudited) | ||||||||||||||||||||||
| Net loss | $ | (31,151) | $ | (41,260) | $ | (65,470) | $ | (144,887) | |||||||||||||||
Unrealized net loss on marketable securities | (113) | (17) | (461) | (26) | |||||||||||||||||||
| Total comprehensive loss | $ | (31,264) | $ | (41,277) | $ | (65,931) | $ | (144,913) | |||||||||||||||
See notes to consolidated financial statements.
1
METROMILE, INC.
CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY
(dollars in thousands)
| Convertible Preferred Stock | Common Stock | APIC | Note Receivable | Accumulated Other Comprehensive Income | Accumulated Deficit | Total | |||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance as of December 31, 2020 | 67,728,286 | $ | 304,469 | 8,854,978 | $ | 1 | $ | 5,482 | $ | (415) | $ | 11 | $ | (366,575) | $ | (361,496) | |||||||||||||||||||||||||||||||||||||
| Retroactive application of recapitalization | 1,048,328 | — | 137,061 | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| As adjusted, beginning of period | 68,776,614 | 304,469 | 8,992,039 | 1 | 5,482 | (415) | 11 | (366,575) | (361,496) | ||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | 3,208 | — | — | — | 3,208 | ||||||||||||||||||||||||||||||||||||||||||||
| Exercises and vested portion of stock options | — | — | 1,089,670 | — | 2,059 | — | — | — | 2,059 | ||||||||||||||||||||||||||||||||||||||||||||
| Conversion of promissory note | — | — | — | — | (415) | 415 | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| RSUs withheld for tax purposes | — | — | — | — | (422) | — | — | — | (422) | ||||||||||||||||||||||||||||||||||||||||||||
| Unrealized net loss on marketable securities | — | — | — | — | — | — | (9) | — | (9) | ||||||||||||||||||||||||||||||||||||||||||||
| Exercise of convertible preferred stock warrants | 3,974,655 | 132,718 | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Conversion of preferred stock to common | (72,751,269) | (437,187) | 72,751,269 | 7 | 437,187 | — | — | — | 437,194 | ||||||||||||||||||||||||||||||||||||||||||||
| Business Combination and PIPE financing | — | — | 43,894,156 | 4 | 290,953 | — | — | — | 290,957 | ||||||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | — | — | — | (103,627) | (103,627) | ||||||||||||||||||||||||||||||||||||||||||||
| Balance as of March 31, 2021 | — | $ | — | 126,727,134 | $ | 12 | $ | 738,052 | $ | — | $ | 2 | $ | (470,202) | $ | 267,864 | |||||||||||||||||||||||||||||||||||||
| Vested portion of common stock options | — | — | — | — | 116 | — | — | — | 116 | ||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | 8,813 | — | — | — | 8,813 | ||||||||||||||||||||||||||||||||||||||||||||
| Unrealized net loss on marketable securities | — | — | — | — | — | — | (17) | — | (17) | ||||||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | — | — | — | (41,260) | (41,260) | ||||||||||||||||||||||||||||||||||||||||||||
| Balance as of June 30, 2021 | — | $ | — | 126,727,134 | $ | 12 | $ | 746,981 | $ | — | $ | (15) | $ | (511,462) | $ | 235,516 | |||||||||||||||||||||||||||||||||||||
| Balance as of December 31, 2021 | — | $ | — | 128,221,885 | $ | 13 | $ | 769,525 | $ | — | $ | (116) | $ | (583,034) | $ | 186,388 | |||||||||||||||||||||||||||||||||||||
| 401K match with MILE stock | — | — | 110,364 | — | 553 | — | — | — | 553 | ||||||||||||||||||||||||||||||||||||||||||||
| Vesting of common stock from early exercises | — | — | — | — | 107 | — | — | — | 107 | ||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | 1,851,013 | — | 5,258 | — | — | — | 5,258 | ||||||||||||||||||||||||||||||||||||||||||||
| Unrealized net loss on marketable securities | — | — | — | — | — | — | (348) | — | (348) | ||||||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | — | — | — | (34,319) | (34,319) | ||||||||||||||||||||||||||||||||||||||||||||
| Balance as of March 31, 2022 | — | $ | — | 130,183,262 | $ | 13 | $ | 775,443 | $ | — | $ | (464) | $ | (617,353) | $ | 157,639 | |||||||||||||||||||||||||||||||||||||
| 401K match with MILE stock | — | — | 236,511 | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Vesting of common stock from early exercises | — | — | — | — | 9 | — | — | — | 9 | ||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | 712,371 | — | 5,407 | — | — | — | 5,407 | ||||||||||||||||||||||||||||||||||||||||||||
| Unrealized net loss on marketable securities | — | — | — | — | — | — | (113) | — | (113) | ||||||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | — | — | — | (31,151) | (31,151) | ||||||||||||||||||||||||||||||||||||||||||||
| Balance as of June 30, 2022 | — | $ | — | 131,132,144 | $ | 13 | $ | 780,859 | $ | — | $ | (577) | $ | (648,504) | $ | 131,791 | |||||||||||||||||||||||||||||||||||||
See notes to consolidated financial statements.
2
METROMILE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
| Six Months Ended June 30, | |||||||||||
| 2022 | 2021 | ||||||||||
| (unaudited) | |||||||||||
| Cash flows from operating activities: | |||||||||||
| Net loss | $ | (65,470) | $ | (144,887) | |||||||
| Adjustments to reconcile net loss to cash used in operating activities: | |||||||||||
| Depreciation and amortization | 10,481 | 8,189 | |||||||||
| Stock-based compensation | 10,665 | 12,021 | |||||||||
| Change in fair value of warrant liability | 26 | 19,153 | |||||||||
| Telematics devices unreturned | 377 | 710 | |||||||||
| Amortization of debt issuance costs | — | 11,695 | |||||||||
| Noncash interest and other expense | 997 | 3,872 | |||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Premiums receivable | (521) | (2,081) | |||||||||
| Reinsurance recoverable on paid loss | (4,677) | 8,475 | |||||||||
| Reinsurance recoverable on unpaid loss | (7,295) | 33,941 | |||||||||
| Prepaid reinsurance premium | 97 | 13,668 | |||||||||
| Prepaid expenses and other assets | (341) | 1,534 | |||||||||
| Deferred transaction costs | — | 3,581 | |||||||||
| Deferred policy acquisition costs, net | (275) | (1,665) | |||||||||
| Accounts payable and accrued expenses | (3,286) | 535 | |||||||||
| Ceded reinsurance premium payable | 8,885 | (27,000) | |||||||||
| Loss and loss adjustment expense reserves | 6,814 | 8,383 | |||||||||
| Payable to carriers - premiums and LAE, net | 357 | (254) | |||||||||
| Unearned premium reserve | (323) | 750 | |||||||||
| Deferred revenue | (891) | (159) | |||||||||
| Other liabilities | (710) | 2,005 | |||||||||
| Net cash used in operating activities | (45,090) | (47,534) | |||||||||
| Cash flows from investing activities: | |||||||||||
| Purchases of telematics devices, improvements, and equipment | (1,595) | (3,170) | |||||||||
| Payments relating to capitalized website and software development costs | (9,048) | (6,182) | |||||||||
| Net change in payable/(receivable) for securities | (445) | (754) | |||||||||
| Purchase of securities | (21,826) | (32,626) | |||||||||
| Sales and maturities of marketable securities | 20,619 | 10,515 | |||||||||
| Net cash used in investing activities | (12,295) | (32,217) | |||||||||
| Cash flow from financing activities: | |||||||||||
| Proceeds from notes payable | — | 2,015 | |||||||||
| Payment on notes payable | — | (69,351) | |||||||||
| Proceeds from merger with INSU II, net of issuance costs | — | 336,469 | |||||||||
| Proceeds from exercise of common stock options and warrants | — | 4,349 | |||||||||
| Net cash provided by financing activities | — | 273,482 | |||||||||
| Net (decrease) increase in cash, cash equivalents, restricted cash and restricted cash equivalents including cash classified within assets held for sale | (57,385) | 193,731 | |||||||||
| Less: Net increase in cash classified within assets held for sale | 3,829 | — | |||||||||
| Net (decrease) increase in cash, cash equivalents, restricted cash and restricted cash equivalents | (61,214) | 193,731 | |||||||||
Cash, cash equivalents, restricted cash and restricted cash equivalents at beginning of period | 163,821 | 50,188 | |||||||||
Cash, cash equivalents, restricted cash and restricted cash equivalents at end of period | $ | 102,607 | $ | 243,919 | |||||||
| Supplemental cash flow data: | |||||||||||
| Cash paid for interest | $ | — | $ | 3,164 | |||||||
| Non-cash investing and financing transactions: | |||||||||||
| Transaction costs in accrued liabilities at period end | $ | — | $ | 45,516 | |||||||
| Warrants assumed from Business Combination | $ | — | $ | — | |||||||
| Net exercise of preferred stock warrants | $ | — | $ | — | |||||||
| Net exercise of promissory note | $ | — | $ | 415 | |||||||
| Capitalized website and software development costs included in accrued liabilities | $ | 242 | $ | 274 | |||||||
| Capitalized stock-based compensation | $ | 1,102 | $ | 373 | |||||||
| Reclassification of liability to equity for vesting of stock options | $ | 49 | $ | 169 | |||||||
See notes to consolidated financial statements.
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METROMILE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Overview and Basis of Presentation
Metromile, Inc. (together with its consolidated subsidiaries, the “Company”) formerly known as INSU Acquisition Corp. II (“INSU”), was incorporated in Delaware on October 11, 2018. INSU was formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses.
The registration statement for INSU’s initial public offering (“IPO”) was declared effective on September 2, 2020. On September 8, 2020 INSU consummated the IPO of 23,000,000 units (“Units”), and, with respect to the shares of Class A common stock, par value $0.0001 (the “Class A Common Stock”) included in the Units sold (the “Public Shares”), which included the full exercise by the underwriters of their over-allotment option in the amount of 3,000,000 Units, at $10.00 per Unit, generating gross proceeds of $230.0 million. Simultaneously with the closing of the IPO, INSU consummated the sale of 540,000 units (the “Placement Units”), at a price of $10.00 per Placement Unit in a private placement to the sponsor and Cantor Fitzgerald & Co. (“Cantor”), generating gross proceeds of $5.4 million. Transaction costs amounted to $14.2 million, consisting of $4.0 million in cash underwriting fees, $9.8 million of deferred underwriting fees and $0.4 million of other offering costs. Following the closing of the IPO on September 8, 2020, $230.0 million ($10.00 per Unit) from the net proceeds of the sale of the Units in the IPO and the sale of the Placement Units was placed in a trust account (the “Trust Account”), which was invested in U.S. government securities, within the meaning set forth in Section 2(a)(16) of the Investment Company Act of 1940, as amended (the “Investment Company Act”), with a maturity of 185 days or less, or in money market funds meeting certain conditions under Rule 2a-7 of the Investment Company Act, as determined by INSU.
Enterprise Business Solutions Held for Sale
As of June 30, 2022, the Company had committed to a plan to sell its Enterprise Business Solutions segment and as such the assets and liabilities have been classified as held for sale in the Company's consolidated balance sheets beginning with the period ended June 30, 2022. The business does not meet the criteria to be classified as a discontinued operation; therefore, the results are reflected within continuing operations on the consolidated statements of operations. For additional information related to the held for sale business, please see Note 16, Business Disposition.
Acquisition of Metromile, Inc. by Lemonade, Inc.
On November 8, 2021, the Company entered into an Agreement and Plan of Merger (the “Agreement”) with Lemonade, Inc., a Delaware corporation (“Lemonade”), Citrus Merger Sub A, Inc., a Delaware corporation and a wholly-owned subsidiary of Lemonade (“Acquisition Sub I”) and Citrus Merger Sub B, LLC, a Delaware limited liability company and wholly owned subsidiary of Lemonade (“Acquisition Sub II”), pursuant to which (i) Acquisition Sub I will merge with and into Metromile (the “First Merger” and the effective time of the First Merger, the “First Effective Time”), with Metromile continuing as the surviving entity (the “Initial Surviving Corporation”), and (ii) the Initial Surviving Corporation will merge with and into Acquisition Sub II (the “Second Merger”), with Acquisition Sub II continuing as the surviving entity as a wholly owned subsidiary of Lemonade (the First Merger, the Second Merger and the other transactions contemplated by the Agreement, collectively, the “Transaction”). The Transaction implies a fully diluted equity value of approximately $500 million, or an enterprise value of about $340 million net of unrestricted cash and cash equivalents as September 30, 2021. In accordance with the Agreement, at the First Effective Time, each share of our common stock issued and outstanding immediately prior to the First Effective Time will be converted into the right to receive 0.05263(the “Exchange Ratio”) validly issued, fully paid and non-assessable shares of common stock of Lemonade, par value $0.00001 per share (“Lemonade Common Stock”).
On July 28, 2022, the Transaction was completed. Upon the consummation of the Transaction, the Company ceased to be a publicly traded company. For additional information related to the Transaction, please see Note 4, Business Combinations.
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Business Combination
On February 9, 2021, the Company consummated a merger pursuant to that certain Agreement and Plan of Merger and Reorganization, dated November 24, 2020, and as amended on January 12, 2021 and February 8, 2021 (the “Merger Agreement”), by and among INSU, INSU II Merger Sub Corp., a Delaware corporation and a direct wholly owned subsidiary of INSU (“Merger Sub”) and MetroMile, Inc., a Delaware corporation (“Legacy Metromile”), pursuant to which, among other things, Merger Sub merged with and into Legacy Metromile, with Legacy Metromile surviving the merger as a wholly owned subsidiary of the Company (the “Merger,” and together with the other transactions contemplated by the Merger Agreement, the “Business Combination”). In connection with the closing of the Business Combination (the “Closing”), the Company changed its name to Metromile, Inc., and Legacy Metromile changed its name to Metromile Operating Company. Unless the context indicates otherwise, references to “INSU” refer to the historical operations of INSU prior to the Closing, and references to the “Company,” “Metromile” and “Metromile Operating Company” refer to the historical operations of Legacy Metromile and its consolidated subsidiaries prior to the Closing and the business of the combined company and its subsidiaries following the Closing.
The Merger was accounted for as a reverse recapitalization in accordance with accounting principles generally accepted in the United States (“GAAP”). Under this method of accounting, INSU, who was the legal acquirer, is treated as the “acquired” company for financial reporting purposes and Metromile Operating Company is treated as the accounting acquirer. This determination was primarily based on the fact that Metromile Operating Company’s stockholders prior to the Merger have a majority of the voting power of the Company, Metromile Operating Company’s senior management now comprise substantially all of the senior management of the Company, the relative size of Metromile Operating Company compared to the Company, and that Metromile Operating Company’s operations comprise the ongoing operations of the Company. Accordingly, for accounting purposes, the Merger is treated as the equivalent of a capital transaction in which Metromile Operating Company issued stock for the net assets of INSU, which are stated at historical cost, with no goodwill or other intangible assets recorded, and Metromile Operating Company’s financial statements became those of the Company.
Pursuant to the Amended and Restated Certificate of Incorporation of the Company, at the closing, each share of INSU’s Class B Common Stock, par value $0.0001 per share (the “Class B Common Stock”), converted into one share of INSU’s Class A Common Stock. After the Closing and following the effectiveness of the Second Amended and Restated Certificate of Incorporation of the Company, each share of Class A Common Stock was automatically reclassified, redesignated and changed into one validly issued, fully paid and non-assessable share of the Company’s Common Stock, par value $0.0001 per share (the “Common Stock”), without any further action by the Company or any stockholder thereof.
On February 9, 2021, a number of purchasers (each, a “Subscriber”) purchased from the Company an aggregate of 17,000,000 shares of Common Stock (the “PIPE Shares”), for a purchase price of $10.00 per share and an aggregate purchase price of $170.0 million, pursuant to separate subscription agreements (each, a “Subscription Agreement”) entered into effective as of November 24, 2020. Pursuant to the Subscription Agreements, the Company gave certain registration rights to the Subscribers with respect to the PIPE Shares. The sale of PIPE Shares was consummated concurrently with the Closing.
Description of Business after the Business Combination
The Company, through Metromile Operating Company and its wholly owned subsidiary, Metromile Insurance Services LLC (the “GA Subsidiary”), sells pay-per-mile auto insurance to consumers in eight states: California, Washington, Oregon, Illinois, Pennsylvania, Virginia, New Jersey, and Arizona. Metromile Operating Company has a wholly owned subsidiary, Metromile Insurance Company (the “Insurance Company”), which focuses on property and casualty insurance. In January 2019, Metromile Operating Company formed Metromile Enterprise Solutions, LLC (“Enterprise”), a wholly owned subsidiary, which focuses on selling its insurance solution technology to third party customers.
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The Insurance Company provides auto insurance to customers with premiums based on a flat rate plus an adjustable rate based on actual miles driven. To record miles driven, the GA Subsidiary may provide drivers with a telematics device, the Metromile Pulse, which plugs into a car’s on-board diagnostic system to capture mileage.
The GA Subsidiary acts as a full-service insurance General Agent (“GA”). As a full-service GA, the subsidiary provides all policy pricing, binding, and servicing (payments and customer service) for the policyholders. Until late 2016, the GA Subsidiary underwriting carrier was National General Insurance (“NGI”) and its related carriers. The GA Subsidiary began transitioning NGI-issued policies upon renewal in late 2016 to the Insurance Company and has only a small number of policies with NGI as of June 30, 2022. Policies underwritten by the Insurance Company are binded by the GA as well as through a network of independent agents.
NGI handles claims for the GA Subsidiary’s policies underwritten by NGI and its related carriers, for which it pays NGI a fee for the LAE. NGI bears the risk of loss under these policies. Accordingly, the Company has no exposure to claims that would require an accrual for those NGI-related losses.
The Insurance Company bears risk of loss under all insurance policies it underwrites. The financial statements include reserves for future claims based on actuarial estimates for the Insurance Company. The Loss and LAE reserves as of June 30, 2022 (unaudited) and December 31, 2021 were $80.3 million and $73.4 million, respectively.
Basis of Presentation
The accompanying interim unaudited consolidated financial statements have been prepared in accordance GAAP and in accordance with the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). References to the Accounting Standard Codification (“ASC”) and Accounting Standard Updates (“ASU”) included hereinafter refer to the Accounting Standards Codification and Updates established by the Financial Accounting Standards Board (“FASB”) as the source of authoritative GAAP. The consolidated financial statements include the accounts of Metromile, Inc. and its subsidiaries, all of which are wholly owned. All intercompany accounts and transactions have been eliminated in consolidation.
These unaudited consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 ("the Company’s 2021 Annual Report").
Liquidity and Capital Resources
Consistent with 2021, the Company's liquidity and capital resources were not materially impacted by COVID-19 and related economic conditions during the first half of 2022. While these impacts have moderated since the beginning of the pandemic, there remains a risk that previous disruptions could return or new issues emerge as time amidst the pandemic perpetuates. The Company will continue to monitor and proactively adapt to the changing conditions and effects of COVID-19, but given the continued uncertainty about the duration or magnitude of the pandemic, it is not possible to reliably estimate the impact on the Company's financial condition, operations, and workforce.
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Reclassifications
Reclassifications have been made to the prior year balances to conform to the current year presentation. In particular, accounts receivable, and digital assets, net have been combined with prepaid expenses and other assets into a single line on the consolidated balance sheets and consolidated statements of cash flows. The reclassifications had no effect on stockholders’ deficit or net loss after taxes as previously reported.
Unaudited Interim Financial Information
The accompanying interim consolidated balance sheets as of June 30, 2022, the interim consolidated statements of operations, comprehensive loss, convertible preferred stock and stockholders’ (deficit) equity for the three months and six months ended June 30, 2021 and 2022, and cash flows for the six months ended June 30, 2021 and 2022 are unaudited. These unaudited interim consolidated financial statements are presented in accordance with the rules and regulations of the SEC and do not include all disclosures normally required in annual consolidated financial statements prepared in accordance with GAAP. In management’s opinion, the unaudited interim consolidated financial statements have been prepared on the same basis as the annual financial statements and include all adjustments, which include only normal recurring adjustments, necessary for the fair presentation of the Company’s financial position as of June 30, 2022 and the Company’s consolidated results of operations for the three months and six months ended June 30, 2021 and 2022, and cash flows for the six months ended June 30, 2021 and 2022. The results of operations for the periods presented are not necessarily indicative of the results to be expected for the full fiscal year or any other future interim or annual periods.
Use of Estimates
The preparation of consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and the accompanying notes. On an ongoing basis, the Company’s management evaluates estimates, including those related to contingent assets and liabilities as of the date of the financial statements as well as the reported amounts of revenue and expense during the reporting period. The Company’s principal estimates include: unpaid losses and LAE reserves; the fair value of investments; the fair value of stock-based awards; the fair value of the warrant liability; premium refunds to policyholders; reinsurance recoverable on unpaid loss; and the valuation allowance for income taxes. Because of uncertainties associated with estimating the amounts, timing and likelihood of possible outcomes, actual results could differ materially from these estimates.
There have been no material changes to our significant accounting policies from our audited consolidated financial statements included in the Company’s 2021 Annual Report except as set forth below:
Discontinued Operations and Held for Sale
A business is classified as held for sale when management having the authority to approve the action commits to a plan to sell the business, the sale is probable to occur during the next 12 months at a price that is reasonable in relation to its current fair value and certain other criteria are met. A business classified as held for sale is recorded at the lower of its carrying amount or estimated fair value less cost to sell. When the carrying amount of the business exceeds its estimated fair value less cost to sell, a loss is recognized and updated each reporting period as appropriate. The results of operations of business classified as held for sale are reported as discontinued operations if the disposal represents a strategic shift that will have a major effect on the entity’s operations and financial results.
Adoption of Accounting Standards
For information regarding accounting standards that the Company adopted during the periods presented, see Note 1 of notes to the consolidated financial statements in the Company’s 2021 Annual Report.
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Recently Issued Accounting Pronouncements
Reference Rate Reform
In March 2020, FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional expedients and exceptions to contract modifications and hedging relationships that reference LIBOR or another reference rate expected to be discontinued. The standard is effective upon issuance through December 31, 2022 and may be applied at the beginning of the interim period that includes March 12, 2020 or any date thereafter. The Financial Accounting Standards Board (FASB) is currently working on a project to extend the date to December 31, 2024. The Company is currently evaluating this new standard and the impact it will have on its consolidated financial statements.
This standard may be elected and applied prospectively over time from March, 2020 through December 31, 2022 as reference rate reform activities occur. The Company is evaluating the method of adoption and impact of the standard on its consolidated financial statements and related disclosures.
Government Assistance
In November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance. This update requires annual disclosures about transactions with a government that are accounted for by applying a grant or contribution accounting model by analogy. This standard is effective for annual periods beginning after December 15, 2021. Early adoption is permitted. The amendments should be applied either (1) prospectively to all transactions within the scope of the amendments that are reflected in financial statements at the date of initial application and new transactions that are entered into after the date of initial application or (2) retrospectively to those transactions. The Company is currently evaluating the impact of these amendments on its consolidated financial statements.
2. Fair Value of Financial Instruments
Topic 820, Fair Value Measurements, defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Topic 820 also establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:
Level 1 — Quoted prices in active markets for identical assets or liabilities.
Level 2 — Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
An asset’s or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.
The following is a description of the valuation methodologies used for instruments measured at fair value on a recurring basis and recognized in the accompanying Consolidated Balance Sheet, as well as the general classification of such instruments pursuant to the valuation hierarchy.
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Cash and Cash Equivalents
The Company’s cash and cash equivalents are demand and money market accounts and other highly liquid investments with an original maturity of three months or less. Demand and money market accounts are at stated values. Fair values for other cash equivalents are classified as Level 1 and are based upon appropriate valuation methodology.
Marketable Securities — Available-for-sale
The Company classifies highly liquid money market funds, U.S. Treasury bonds and certificates of deposit within Level 1 of the fair value hierarchy because they are valued based on quoted market prices in active markets and upon models that take into consideration such market-based factors as recent sales, risk-free yield curves, and prices of similarly rated bonds. Commercial paper, corporate bonds, corporate debt securities, repurchase agreements, and asset backed securities are classified within Level 2 because they are valued using inputs other than quoted prices that are directly or indirectly observable in the market, including readily available pricing sources for the identical underlying security which may not be actively traded. The Company did not hold any securities classified within Level 3 as of June 30, 2022 (unaudited) and December 31, 2021.
Assets measured on a recurring basis at fair value, primarily related to marketable securities, included in the consolidated balance sheets as of June 30, 2022 (unaudited) and December 31, 2021 are set forth below (in thousands):
| Fair Value Measurement at June 30, 2022 (unaudited) | |||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||
| Cash equivalents | |||||||||||||||||||||||
| Money market accounts | $ | 64,575 | $ | — | $ | — | $ | 64,575 | |||||||||||||||
| Total cash equivalents | $ | 64,575 | $ | — | $ | — | $ | 64,575 | |||||||||||||||
| Restricted cash equivalents | |||||||||||||||||||||||
| Money market accounts | $ | 19,574 | $ | — | $ | — | $ | 19,574 | |||||||||||||||
| Certificates of deposits | 3,031 | — | — | 3,031 | |||||||||||||||||||
| Total restricted cash equivalents | $ | 22,605 | $ | — | $ | — | $ | 22,605 | |||||||||||||||
| Marketable securities - restricted | |||||||||||||||||||||||
| Corporate debt securities | $ | — | $ | 3,731 | $ | — | $ | 3,731 | |||||||||||||||
| U.S. treasury and agency securities | 35,526 | 1,949 | — | 37,475 | |||||||||||||||||||
| Commercial paper | — | 17,850 | — | 17,850 | |||||||||||||||||||
| Asset backed securities | — | 4,200 | — | 4,200 | |||||||||||||||||||
| Total marketable securities - restricted | $ | 35,526 | $ | 27,730 | $ | — | $ | 63,256 | |||||||||||||||
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| Fair Value Measurement at December 31, 2021 | |||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||
| Cash equivalents | |||||||||||||||||||||||
| Money market accounts | $ | 113,402 | $ | — | $ | — | $ | 113,402 | |||||||||||||||
Total cash equivalents | $ | 113,402 | $ | — | $ | — | $ | 113,402 | |||||||||||||||
| Restricted cash equivalents | |||||||||||||||||||||||
| Money market accounts | $ | 19,569 | $ | — | $ | — | $ | 19,569 | |||||||||||||||
| Certificates of deposits | 3,331 | — | — | 3,331 | |||||||||||||||||||
Total restricted cash equivalents | $ | 22,900 | $ | — | $ | — | $ | 22,900 | |||||||||||||||
| Marketable securities - restricted | |||||||||||||||||||||||
| Corporate debt securities | $ | — | $ | 2,545 | $ | — | $ | 2,545 | |||||||||||||||
| U.S. treasury securities | 33,295 | 1,986 | — | 35,281 | |||||||||||||||||||
| Commercial paper | — | 16,081 | — | 16,081 | |||||||||||||||||||
Asset backed securities | — | 8,718 | — | 8,718 | |||||||||||||||||||
Total marketable securities - restricted | $ | 33,295 | $ | 29,330 | $ | — | $ | 62,625 | |||||||||||||||
Public and Private Warrants
At the Closing, Metromile Operating Company acquired the net liabilities from INSU, including warrants exercisable for common stock. The Company estimated the fair value of warrants exercisable for common stock measured at fair value on a recurring basis at the respective dates using the public trading price, for the Public warrants, and the Black-Scholes option valuation model, for the Private placement warrants (together with the public warrants, the “Warrants”), respectively. The Black-Scholes option valuation model inputs are based on the estimated fair value of the underlying common stock at the valuation measurement date, the remaining contractual term of the warrant, the risk-free interest rates, the expected dividends, and the expected volatility of the price of the Company’s underlying stock. These estimates, especially the expected volatility, are highly judgmental and could differ materially in the future.
The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. The Company considers its Public warrants to be Level 1 liabilities as it uses publicly and readily available information to measure the fair value of the warrants. For the Company's Private placement warrants, while the Company believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date and as such are classified as Level 2 liabilities.
The table below sets forth a summary of changes in the fair value of the Company’s Level 1, Level 2, and Level 3 liabilities for the year ended December 31, 2021 and the six months ended June 30, 2022 (unaudited) (in thousands):
| Balance at December 31, 2020 | $ | 83,652 | |||
| Increase in fair value of warrants | 47,062 | ||||
| Exercise of preferred stock warrants prior to Business Combination | (130,714) | ||||
| Public and Private placement Warrants acquired in Business Combination | 45,623 | ||||
| Decrease in fair value of Public and Private placement Warrants | (44,467) | ||||
| Balance at December 31, 2021 | $ | 1,156 | |||
| Decrease in fair value of warrants | 26 | ||||
| Balance at June 30, 2022 | $ | 1,182 | |||
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The fair value of the Private placement warrants was determined using the Black-Scholes option valuation model using the following assumptions for values as of June 30, 2022:
Estimated Fair Value of Warrants as of June 30, 2022 | Exercise Price | Dividend Yield | Volatility | Risk-Free Interest Rate | Expected Term | ||||||||||||||||||||||||||||||
| (in thousands) | (in whole dollars) | (in years) | |||||||||||||||||||||||||||||||||
| Private placement warrants | $ | 32 | $ | 12 | — | % | 95 | % | 3 | % | 3.61 | ||||||||||||||||||||||||
In connection with the Merger, each of the Metromile Operating Company convertible preferred stock warrants outstanding as of December 31, 2020 was exercised for shares of Metromile Operating Company common stock. Therefore, there were no convertible preferred stock warrants outstanding after the Closing.
Through the six months ended June 30, 2022 and 2021 (unaudited), there were no transfers to or from any Level. The carrying amounts of accounts payable, accrued expenses and notes payable approximate their fair values because of the relatively short periods until they mature or are required to be settled.
3. Marketable Securities
The Company has investments in certain debt securities that have been classified as available-for-sale and recorded at fair value. These investments are included in both assets for securities with a maturity of one-year or less and assets for securities with a maturity of more than one-year. These securities are held in the Insurance Company and shown as restricted given that the transfer of these assets is subject to the approval of the state regulators. As of June 30, 2022 (unaudited) and December 31, 2021, deposits with various states consisted of bonds, cash and cash equivalents with carrying values of $5.2 million in both periods.
Following the adoption of accounting guidance for credit losses on January 1, 2021, when marketable securities are in an unrealized loss position and the Company does not record an intent-to-sell impairment, the Company will record an allowance for credit losses ("ACL") for the portion of the unrealized loss due to a credit loss. Any remaining unrealized loss on a fixed maturity after recording an ACL is the non-credit amount and is recorded in other comprehensive income (loss) ("OCI"). The ACL is the excess of the amortized cost over the greater of the Company's best estimate of the present value of expected future cash flows or the security's fair value. The ACL cannot exceed the unrealized loss and, therefore, it may fluctuate with changes in the fair value of the fixed maturity if the fair value is greater than the Company's best estimate of the present value of expected future cash flows. The initial ACL and any subsequent changes are recorded in net realized capital gains and losses. The ACL is written off against the amortized cost in the period in which all or a portion of the related fixed maturity is determined to be uncollectible. For further information refer to Note 1, Basis of Presentation and Significant Accounting Policies in the Company’s 2021 Annual Report.
As of December 31, 2021 and June 30, 2022 (unaudited), the Company did not recognize credit losses.
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The amortized cost and fair value of investments in fixed maturities classified as available-for-sale as of June 30, 2022 (unaudited) and December 31, 2021 are presented below (in thousands):
| As of June 30, 2022 (Unaudited) | |||||||||||||||||||||||||||||
Amortized Cost | ACL | Unrealized Gain | Unrealized Loss | Estimated Fair Value | |||||||||||||||||||||||||
| Marketable securities - restricted | |||||||||||||||||||||||||||||
| Corporate debt securities | $ | 3,736 | $ | — | $ | — | $ | (5) | $ | 3,731 | |||||||||||||||||||
| U.S. treasury and agency securities | 38,039 | — | — | (564) | 37,475 | ||||||||||||||||||||||||
| Commercial paper | 17,850 | — | — | — | 17,850 | ||||||||||||||||||||||||
| Asset backed securities | 4,208 | — | — | (8) | 4,200 | ||||||||||||||||||||||||
| Total marketable securities - restricted | $ | 63,833 | $ | — | $ | — | $ | (577) | $ | 63,256 | |||||||||||||||||||
| As of December 31, 2021 | |||||||||||||||||||||||||||||
Amortized Cost | ACL | Unrealized Gain | Unrealized Loss | Estimated Fair Value | |||||||||||||||||||||||||
| Marketable securities - restricted | |||||||||||||||||||||||||||||
| Corporate debt securities | $ | 2,547 | $ | — | $ | — | $ | (2) | $ | 2,545 | |||||||||||||||||||
| U.S. treasury securities | 35,385 | — | — | (104) | 35,281 | ||||||||||||||||||||||||
| Commercial paper | 16,081 | — | — | — | 16,081 | ||||||||||||||||||||||||
| Asset backed securities | 8,728 | — | — | (10) | 8,718 | ||||||||||||||||||||||||
| Total marketable securities - restricted | $ | 62,741 | $ | — | $ | — | $ | (116) | $ | 62,625 | |||||||||||||||||||
The amortized cost and estimated fair value of marketable securities as of June 30, 2022 (unaudited) and December 31, 2021 and are shown below by contractual maturity (in thousands):
As of June 30, 2022 (unaudited) | |||||||||||
Amortized Cost | Estimated Fair Value | ||||||||||
| Due within one year | $ | 63,833 | $ | 63,256 | |||||||
| Due between one to five years | — | — | |||||||||
| $ | 63,833 | $ | 63,256 | ||||||||
As of December 31, 2021 | |||||||||||
Amortized Cost | Estimated Fair Value | ||||||||||
| Due within one year | $ | 41,603 | $ | 41,596 | |||||||
| Due between one to five years | 21,138 | 21,029 | |||||||||
| $ | 62,741 | $ | 62,625 | ||||||||
The following table summarizes, for all fixed maturities classified as available-for-sale in an unrealized loss position at June 30, 2022, the aggregate fair value and gross unrealized loss by length of time those securities have been continuously in an unrealized loss position. The fair value amounts reported in the tables are estimates that are prepared using the process described in Note 2, Fair Value. The Company also relies upon estimates of several factors in its review and evaluation of individual investments, using the process described in Note 1, Basis of Presentation and Significant Accounting Policies in the Company’s 2021 Annual Report in determining whether a credit loss impairment exists.
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| As of June 30, 2022 (unaudited) | ||||||||||||||||||||||||||
| Less Than 12 Months | 12 Months or Longer | Total | ||||||||||||||||||||||||
| Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | |||||||||||||||||||||
| Marketable securities - restricted | ||||||||||||||||||||||||||
| Corporate debt securities | $ | 730 | $ | (2) | $ | — | $ | — | $ | 730 | $ | (2) | ||||||||||||||
| U.S. treasury and agency securities | 37,475 | (564) | — | — | 37,475 | (564) | ||||||||||||||||||||
| Commercial paper | 1,998 | (3) | — | — | 1,998 | (3) | ||||||||||||||||||||
| Asset backed securities | 2,950 | (6) | 1,250 | (2) | 4,200 | (8) | ||||||||||||||||||||
| Total in an unrealized loss position | $ | 43,153 | $ | (575) | $ | 1,250 | $ | (2) | $ | 44,403 | $ | (577) | ||||||||||||||
| As of December 31, 2021 | ||||||||||||||||||||||||||
| Less Than 12 Months | 12 Months or Longer | Total | ||||||||||||||||||||||||
| Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | |||||||||||||||||||||
| Marketable securities - restricted | ||||||||||||||||||||||||||
| Corporate debt securities | $ 737 | $ (2) | $ — | $ — | $ 737 | $ (2) | ||||||||||||||||||||
| U.S. treasury and agency securities | 31,809 | (104) | — | — | 31,809 | (104) | ||||||||||||||||||||
| Commercial paper | 1,808 | — | — | — | 1,808 | — | ||||||||||||||||||||
| Asset backed securities | 8,716 | (10) | — | — | 8,716 | (10) | ||||||||||||||||||||
| Total in an unrealized loss position | $ | 43,070 | $ | (116) | $ | — | $ | — | $ | 43,070 | $ | (116) | ||||||||||||||
4. Business Combination
INSU
As described in Note 1, Basis of Presentation and Significant Accounting Policies, the Merger with INSU was consummated on February 9, 2021 (the “Closing Date”). For financial accounting and reporting purposes under GAAP, the Business Combination was accounted for as a reverse acquisition and recapitalization, with no goodwill or other intangible asset recorded. As a result, the historical operations of Metromile Operating Company are deemed to be those of the Company. Thus, the financial statements included in this report reflect (i) the historical operating results of Metromile Operating Company prior to the Business Combination; (ii) the combined results of the Company and Metromile Operating Company following the Business Combination; (iii) the assets and liabilities of Metromile Operating Company at their historical cost; and (iv) the Company’s equity structure for all periods presented.
In accordance with guidance applicable to these circumstances, the equity structure has been restated in all comparative periods up to the Closing Date, to reflect the number of shares of the Company’s common stock issued to Metromile Operating Company stockholders in connection with the recapitalization transaction. As such, the shares and corresponding capital amounts and earnings per share related to Metromile Operating Company redeemable convertible preferred stock and Metromile Operating Company common stock prior to the Business Combination have been retroactively restated as shares reflecting the exchange ratio established in the Merger Agreement. Activity within the statement of stockholder’s equity for the issuances and repurchases of Metromile Operating Company redeemable preferred stock, were also retroactively converted to Metromile Operating Company common stock.
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The following table reconciles the elements of the Business Combination to the consolidated statement of cash flows and the consolidated statement of stockholders’ equity for the six months ended June 30, 2021 (dollars in thousands).
| Recapitalization | |||||
| Cash – INSU’s trust and cash (net of redemptions) | $ | 229,925 | |||
| Cash – PIPE | 170,000 | ||||
| Less transaction costs and advisory fees paid | 31,456 | ||||
| Less cash payments to Metromile Operating Company stockholders | 32,000 | ||||
| Net Business Combination and PIPE financing | 336,469 | ||||
| Less non-cash net liabilities assumed from INSU | 45,516 | ||||
| Net contributions from Business Combination and PIPE Financing | $ | 290,953 | |||
| Number of Shares | |||||
| INSU Class A Common stock, outstanding prior to Business Combination | 23,540,000 | ||||
| INSU Class B Common stock, outstanding prior to Business Combination | 6,669,667 | ||||
| Less redemption of INSU shares | 8,372 | ||||
| Common stock of INSU | 30,201,295 | ||||
| Shares issued in PIPE | 17,000,000 | ||||
| Business Combination and PIPE financing shares | 47,201,295 | ||||
Metromile Operating Company shares (1) | 79,525,839 | ||||
| Total shares of common stock immediately after Business Combination | 126,727,134 | ||||
(1)The number of Metromile Operating Company shares was determined from the 78,313,665 shares of Metromile Operating Company common and preferred stock outstanding immediately prior to the closing of the Business Combination, which are presented net of the common and preferred stock redeemed, converted at the Exchange Ratio of 1.01547844. All fractional shares were rounded down.
Lemonade
As described above in Note 1, Basis of Presentation and Significant Accounting Policies the Company and Lemonade have entered into the Agreement, pursuant to which Lemonade will acquire the Company in an all-stock transaction that implies a fully diluted equity value of approximately $500 million, as of November 5, 2021 which was the last full trading day prior to public announcement of the Transaction, or an enterprise value of about $340 million net of unrestricted cash and cash equivalents as of September 30, 2021. On July 28, 2022, the Transaction was completed. Upon the consummation of the Transaction, the Company ceased to be a publicly traded company.
In accordance with the Agreement, at the First Effective Time, each share of the Company’s common stock issued and outstanding immediately prior to the First Effective Time will be converted into the right to receive 0.05263 (the “Exchange Ratio”) validly issued, fully paid and non-assessable shares of common stock of Lemonade, par value $0.00001 per share (“Lemonade Common Stock”).
At the First Effective Time, (i) each Metromile stock option that is held by an individual who, as of November 8, 2021, was not employed or providing services to the Company or its subsidiaries shall be cancelled and converted into the right to receive an amount in cash, without interest, equal to the product of (A) the excess, if any, of the product of (1) the average of the volume weighted average trading prices per share of Lemonade common stock on NYSE on each of the 20 consecutive trading days ending on (and including) the trading day that is three trading days prior to the First Effective Time multiplied by the Exchange Ratio (the “Per Metromile Share Price”), over the (2) the per share exercise price of such Metromile stock option, multiplied by (B) the total number of shares subject to such Metromile stock option; (ii) each other Metromile stock option shall be assumed by Lemonade and automatically converted into a stock option to acquire number of shares of Lemonade common stock (rounded down to the nearest whole share) equal to the product of (A) the number of shares subject to the Metromile stock option and (B) the Exchange Ratio, with an exercise price per share of Lemonade common stock (rounded up to the nearest whole cent) equal to (1) the per share exercise price of the Metromile stock option divided by (2) the Exchange Ratio; (iii) each award of Metromile restricted stock units that (A) is held by any non-
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employee director of Metromile or (B) vests based on the achievement of one or more performance criteria shall be cancelled and converted automatically into the right to receive an amount in cash equal to the Per Metromile Share Price in respect of each share of common stock underlying such Metromile restricted stock units (in the case of performance-based Metromile restricted stock units, based on actual performance); (iv) each other award of Metromile restricted stock units shall be assumed by Lemonade and automatically converted into an award of Lemonade restricted stock units covering a number of shares of Lemonade common stock equal to (A) the number of shares of Metromile common stock underlying such Metromile restricted stock units multiplied by (B) the Exchange Ratio; and (v) each Metromile warrant exercisable for shares of the Company’s common stock shall be assumed by Lemonade and converted into a corresponding warrant denominated in shares of Lemonade Common Stock (with the number of warrants and exercise price being adjusted based on the Exchange Ratio). Except as otherwise set forth above, each Metromile stock option, restricted stock unit award, and warrant assumed by Lemonade shall continue to have the same terms and conditions as applied immediately prior to the First Effective Time.
The Company has agreed to various customary covenants and agreements, including, among others, agreements to conduct business in the ordinary course during the period between the execution of the agreement and the effective time of the Transaction.
As of June 30, 2022 (unaudited), the Company has incurred $3.8 million in transaction costs, $0.3 million in the six months ended June 30, 2022 (unaudited) and the remainder in 2021, in connection with the Transaction. Transaction costs are expensed as incurred and included within Other operating expenses of the consolidated statements of operations.
5. Deferred Policy Acquisition Costs, Net
Deferred policy acquisition costs, net ("DPAC") consists of the following (in thousands):
June 30, 2022 | December 31, 2021 | ||||||||||
| (unaudited) | |||||||||||
| Deferred policy acquisition costs | $ | 11,790 | $ | 11,533 | |||||||
| Deferred ceding commission | (95) | (114) | |||||||||
| Accumulated amortization | (10,530) | (9,986) | |||||||||
| Deferred policy acquisition costs, net | $ | 1,165 | $ | 1,433 | |||||||
For the three months ended June 30, 2022 and 2021 (unaudited), total amortization expense was approximately $0.2 million and $0.3 million, respectively. For the six months ended June 30, 2022 and 2021 (unaudited), total amortization expense was approximately $0.5 million and $0.7 million, respectively. During all periods presented the amortization expense was included as part of sales, marketing and other acquisition costs in the Company’s consolidated statements of operations.
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6. Loss and Loss Adjustment Expense Reserves
The following table provides a reconciliation of the beginning and ending reserve balances for losses and LAE, net of reinsurance recoverable, for the six months ended June 30, 2021 and 2022 (unaudited) (in thousands):
Six Months Ended June 30, | |||||||||||
| 2022 | 2021 | ||||||||||
| (unaudited) | |||||||||||
| Balance at January 1 | $ | 73,438 | $ | 57,093 | |||||||
| Less reinsurance recoverable | — | (33,941) | |||||||||
| Net balance at January 1 | 73,438 | 23,152 | |||||||||
| Incurred related to: | |||||||||||
| Current year | 45,185 | 33,727 | |||||||||
| Prior years | (1,229) | 1,108 | |||||||||
| Total incurred | 43,956 | 34,835 | |||||||||
| Paid related to: | |||||||||||
| Current year | 21,323 | 9,760 | |||||||||
| Prior years | 23,114 | (17,249) | |||||||||
| Total paid | 44,437 | (7,489) | |||||||||
| Net balance at end of period | 72,957 | 65,476 | |||||||||
| Plus reinsurance recoverable | 7,295 | — | |||||||||
| Balance at end of period | $ | 80,252 | $ | 65,476 | |||||||
These reserve estimates are generally the result of ongoing analysis of recent loss development trends and emerging historical experience. Original estimates are increased or decreased as additional information becomes known regarding individual claims. In setting reserves, the Company reviewed its loss data to estimate expected loss development. Management believes that the use of sound actuarial methodology applied to its analyses of historical experience provides a reasonable estimate of future losses. However, actual future losses may differ from the Company’s estimates, and future events beyond the control of management, such as changes in law, judicial interpretations of law and inflation, may favorably or unfavorably impact the ultimate settlement of the Company’s losses and LAE.
The anticipated effect of inflation is implicitly considered when estimating liabilities for losses and LAE. While anticipated price increases due to inflation are considered in estimating the ultimate claim costs, the increase in average severities of claims is caused by a number of factors that vary with the individual type of policy written. Future average severities are projected based on historical trends adjusted for implemented changes in underwriting standards, policy provisions, and general economic trends.
The estimation of unpaid losses and LAE reserves is based on existing factors at the date of estimation.
Accordingly, future events may result in ultimate losses and LAE significantly varying from a reasonable provision as of the date of estimation. Unfavorable development of claims in future years could result in a significant negative impact on operations, stockholders’ surplus, and risk-based capital. Such development, if not offset by other increases in stockholders’ surplus, could result in the insurance departments of the state of domicile taking regulatory actions against the Company.
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During the six months ended June 30, 2022 (unaudited), the Company experienced favorable development on prior accident years as a result of reserve release on physical damage coverages. The Company has not had any unfavorable prior year claim experience on retrospectively rated policies. In 2021, the Company experienced unfavorable development on losses and LAE from prior accident years as a result of higher severity for the injury coverages. The Company has not had any unfavorable prior year claim experience on retrospectively rated policies.
7. Reinsurance
During the periods presented, the Company used reinsurance contracts to protect itself from losses due to concentration of risk and to manage its operating leverage ratios. As of December 31, 2021, the Company had commuted all of its reinsurance agreements. For further discussion of the reinsurance agreements in place as of June 30, 2021, see Note 10, Reinsurance of Notes to Consolidated Financial Statements included in the Company’s 2021 Form 10-K Annual Report.
Effective January 1, 2022, the Company entered into an agreement with Swiss Reinsurance America Corporation ("Swiss Re") and Mapfre Re, Compania de Reaseguros, S.A ("Mapfre"). On a prospective basis, under the terms of the transaction, 30% of the Company's gross written premiums, losses, and certain LAE expenses are ceded to the reinsurers through June 30, 2023.
The insurance company was not relieved of its primary obligations to policyholders as a result of any reinsurance agreements. Failure of reinsurers to honor their obligations could result in losses to the Company. The credit risk associated with the Company’s reinsurance contracts was mitigated by carefully selecting its reinsurers and monitoring their financial strength ratings. The 2022 reinsurance counterparties and their A.M. Best financial strength ratings are as follows: Swiss Re (A+) and, Mapfre (A).
Reinsurance recoverables are presented on the consolidated balance sheets net of the allowance for estimated uncollectible reinsurance (“ACL”), if any. As of June 30, 2022, no ACL is required on these balances. The Company estimates the ACL based on the amount of reinsurance recoverables exposed to loss multiplied by estimated factors for the probability of default and the amount of loss given default. The probability of default is assigned based on each reinsurer's credit rating. Of the total reinsurance recoverables at June 30, 2022, all were rated by A.M. Best Company. Credit ratings are reviewed on a quarterly basis and any significant changes are reflected in an updated estimate. The loss given default factors are based on a study of historical recovery rates for general creditors as estimated through multiple economic cycles.
The effect of the Company’s reinsurance agreements on premiums, loss and LAE related to the insurance company for the six months ended June 30, 2022 (unaudited) and the year ended December 31, 2021 is as follows (in thousands):
| June 30, 2022 (unaudited) | |||||||||||||||||||||||||||||
Premium Written | Premium Earned | Unearned Premium | Losses and LAE Incurred | Loss and LAE Reserves | |||||||||||||||||||||||||
| Direct | $ | 57,746 | $ | 58,069 | $ | 15,403 | $ | 58,622 | $ | 80,252 | |||||||||||||||||||
| Ceded | (17,324) | (17,421) | 97 | (14,666) | (7,295) | ||||||||||||||||||||||||
| Net | $ | 40,422 | $ | 40,648 | $ | 15,500 | $ | 43,956 | $ | 72,957 | |||||||||||||||||||
| December 31, 2021 | |||||||||||||||||||||||||||||
Premium Written | Premium Earned | Unearned Premium | Losses and LAE Incurred | Loss and LAE Reserves | |||||||||||||||||||||||||
| Direct | $ | 110,719 | $ | 111,063 | $ | 15,726 | $ | 102,991 | $ | 73,438 | |||||||||||||||||||
| Ceded | (19,411) | (33,080) | — | (14,701) | — | ||||||||||||||||||||||||
| Net | $ | 91,308 | $ | 77,983 | $ | 15,726 | $ | 88,290 | $ | 73,438 | |||||||||||||||||||
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8. Leases, Commitments, and Contingencies
Leases
Metromile has non-cancellable and cancellable operating lease agreements for two real estate locations in Tempe, Arizona and its corporate headquarters in San Francisco, California with various expiration dates through 2030. The right-of-use asset as of June 30, 2022 (unaudited) was $13.4 million and is included in Prepaid expenses and other assets on the consolidated balance sheets. The lease liability as of June 30, 2022 (unaudited) was $17.8 million and is included in Other liabilities in the consolidated balance sheets. Metromile does not recognize a right-of-use asset and lease liability arising from leases with a term of 12 months or less. The Company’s lease payments consisted primarily of fixed rental payments for the right to use the underlying leased assets over the lease terms. The Company is responsible for operating expenses over base operating expenses as defined in each lease agreement. The weighted average remaining lease term and the weighted average discount rate of the Company’s operating leases is 7.1 years and 5.1% at June 30, 2022 (unaudited). The weighted average remaining lease term does not include any renewal options at the election of the Company.
Litigation
Shareholder Matters
The Company and/or its current and/or former directors and/or executive officers are named as defendants in a number of lawsuits initiated by putative holders of Metromile, Inc. common stock. Following the Agreement and announcement thereof, multiple complaints were filed against the Company and certain current and former officers and directors alleging that the Company’s disclosures concerning the Lemonade transaction were incomplete. The Company also received demands to inspect its books and records under Delaware General Corporation Law Section 220, and one stockholder commenced litigation to enforce inspection rights. All of the foregoing complaints have been voluntarily dismissed as moot, with the plaintiffs reserving their rights to seek a fee in connection with each respective litigation. The Company records accruals for loss contingencies with these legal matters when it is probable that a liability will be incurred, and the amount of the loss can be reasonably estimated. The Company has accrued a liability for this matter in accordance with ASC 450, Contingencies ("ASC 450").
9. Stockholders’ Equity
Common Stock
As of June 30, 2022 (unaudited), the Company had authorized a total of 640,000,000 shares for issuance as common stock. As of June 30, 2022 (unaudited), the Company had 131,132,144 shares of common stock issued and outstanding.
Preferred Stock
As of June 30, 2022 (unaudited), the Company had authorized a total of 10,000,000 shares for issuance as preferred stock. The Company’s board of directors has the authority to issue preferred stock and to determine the rights, privileges, preferences, restrictions, and voting rights of those shares. As of June 30, 2022, the Company had no shares of preferred stock outstanding.
10. Public and Private Warrants
As of June 30, 2022 (unaudited), the Company had 7,666,646 public warrants and 180,000 private placement warrants outstanding. Each whole warrant entitles the registered holder to purchase one share of common stock at a price of $11.50 per share, subject to adjustment, at any time commencing on September 8, 2021, which was the later of 30 days after the completion of the Business Combination or 12 months from INSU’s IPO closing date. The public warrants will expire on the fifth anniversary of the Business Combination, or earlier upon redemption or liquidation.
The Company may call the public warrants for redemption:
•in whole or in part;
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•at a price of $0.01 per warrant;
•Upon a minimum of 30 days’ prior written notice of redemption; and
•if, and only if, the last reported closing price of the ordinary shares equals or exceeds $18.00 per share for any 20 trading days within a 30-trading day period on the third trading day prior to the date on which the Company sends the notice of redemption to the warrant holders.
If the Company calls the public warrants for redemption, management will have the option to require all holders that wish to exercise the public warrants to do so on a “cashless basis,” as described in the warrant agreement.
The exercise price and number of shares of common stock issuable upon exercise of the warrants may be adjusted in certain circumstances including in the event of a share dividend, recapitalization, reorganization, merger or consolidation. However, the warrants will not be adjusted for issuance of common stock at a price below its exercise price.
11. Stock Option Plans
Restricted Stock Units (“RSUs”)
During the six months ended June 30, 2022 (unaudited), the Company granted 1,199,633 restricted stock units (“RSUs”) under the 2021 Plan which are conditional based on continued employment or service for a specified period. Compensation cost related to RSU grants is recognized on a straight-line basis over the vesting period and is calculated using the closing price per share of the Company's common stock on the grant date. For the three and six months ended June 30, 2022 (unaudited), the Company recorded compensation expense of $5.0 million and $10.0 million, respectively, related to non-performance based RSUs.
A summary of the Company’s RSUs as of June 30, 2022 (unaudited) is presented in the table below:
| Number of RSUs | Weighted-Average Fair Value | ||||||||||
| Balance at December 31, 2021 | 7,241,980 | $ | 8.19 | ||||||||
| Granted | 1,199,633 | 1.20 | |||||||||
| Vested | (1,184,928) | 9.46 | |||||||||
| Forfeited | (905,532) | 6.13 | |||||||||
| Balance at June 30, 2022 | 6,351,153 | $ | 6.93 | ||||||||
As of June 30, 2022 (unaudited), there was $41.7 million of total unrecognized compensation cost related to RSUs. That cost is expected to be recognized over a weighted-average period of 2.33 years. The total grant date fair value of shares vested during the six months ended June 30, 2022 (unaudited) was $11.2 million.
Performance Based Awards
As of December 31, 2020, the Company had issued 150,000 outstanding performance-based awards (“PSUs”) to Dan Preston, Metromile’s Chief Executive Officer (“CEO”). As of the Closing, the performance-based provision was achieved for the outstanding performance-based awards as the Company completed a change in control event, and the Company recognized the expense related to these PSUs on the Closing date as there were no remaining vesting provisions. As a result, the Company recorded $2.5 million in stock-based compensation expense for the six months ended June 30, 2021 (unaudited).
During 2021, the Company issued 2,216,870 PSUs, net of forfeitures, most of which each have a term of five years subject to continuous services by each holder. One third of PSUs that vest are based on a specific number of policies in force achieved by the Company. One third of the PSUs that vest are based on the Company achieving positive operating cash flow for a period of at least one financial quarter. One third of the PSUs vest based on a market condition of the
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Company achieving a specific price per share for at least 20 days in a 30-day trading window. Once the performance targets are met, the PSUs that relate to the specific performance target vest immediately. For the three and six months ended June 30, 2022 (unaudited), the Company had recorded $0.2 million and $0.3 million, respectively, in expense from the PSUs related to the market condition. None of the performance conditions were probable of being satisfied as of June 30, 2022 and, therefore, there is no unrecognized stock compensation related to PSUs. The Company did not grant any PSU's in the six months ended June 30, 2022 (unaudited).
2011 Stock Plan
In 2011, the Company’s Board of Directors adopted the 2011 Equity Incentive Plan (the “2011 Plan”). The 2011 Plan provides for the granting of stock options to officers, directors, employees, and consultants of the Company. Options granted under the 2011 Plan may be Incentive Stock Options (“ISO”) or non-statutory Stock Options (“NSO”) as determined by the Board of Directors at the time of the option grant. The remaining unallocated shares reserved under the 2011 Plan were cancelled and no new awards will be granted under the 2011 Plan. Awards outstanding under the 2011 Plan were assumed by the Company upon the closing and continue to be governed by the terms of the 2011 Plan.
2021 Stock Plan
In connection with the Closing, the Company adopted the 2021 Equity Incentive Plan (the “2021 Plan”), under which 38,018,247 shares of common stock were initially reserved for issuance for ISOs. The 2021 Plan allows for the issuance of ISOs, NSOs, restricted stock awards, stock appreciation rights, restricted stock units (“RSUs”), and performance awards. The Board of Directors determines the period over which options become exercisable and options generally vest over a four-year period. The 2021 Plan became effective immediately following the closing.
The Company uses the Black-Scholes option pricing model to estimate the fair value of each option grant on the date of grant or modification. The Company amortizes the estimated fair value to stock compensation expense using the straight-line method over the vesting period of the option. The following is a description of the significant assumptions used in the option pricing model:
•Expected term — The expected term is the period of time when granted options are expected to be outstanding. In determining the expected term of options, the Company utilized the midpoint between the vesting date and contractual expiration date.
•Volatility — Because the Company’s stock has limited trading history, the Company calculates volatility by using the historical stock prices of comparable public companies.
•Risk-free interest rate — The Company bases the risk-free interest rate used in the Black-Scholes option valuation model on the rate of treasury securities with the same term as the options.
•Forfeiture rate — The weighted average forfeiture rate of unvested options.
•Expected dividends — The Company does not have plans to pay cash dividends in the future. Therefore, the Company uses an expected dividend yield of zero in the Black-Scholes option valuation model.
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There were no options granted during the six months ended June 30, 2022 (unaudited). The following assumptions were used to estimate the value of options granted during the year ended December 31, 2021:
Year ended December 31, 2021 | |||||
| Forfeiture rate | 26 | % | |||
| Volatility | 62 | % | |||
| Expected term (years) | 5.33 | ||||
| Risk-free interest rate | 1 | % | |||
| Expected dividends | — | ||||
Stock Option Activity
The following table summarizes the activity of the Company’s stock option plan as of June 30, 2022 (unaudited):
Stock Number of Options | Weighted- Average Exercise Price | Weighted- Average Remaining Contractual Term (Years) | Aggregate Intrinsic Value (in thousands) | ||||||||||||||||||||
| Outstanding as of December 31, 2021 | 2,374,504 | $ | 3.00 | 8.25 | $ | 375.00 | |||||||||||||||||
Options granted | — | $ | — | ||||||||||||||||||||
Options exercised | — | $ | — | ||||||||||||||||||||
Options cancelled or expired and returned to plan | (848,318) | $ | 3.00 | ||||||||||||||||||||
| Outstanding as of June 30, 2022 | 1,526,186 | $ | 3.01 | 7.69 | $ | — | |||||||||||||||||
| Vested and exercisable to vest as of June 30, 2022 | 766,463 | $ | 2.99 | 7.49 | $ | — | |||||||||||||||||
| Vested and expected as of June 30, 2022 | 1,363,528 | $ | 3.00 | 7.66 | $ | — | |||||||||||||||||
The fair value of stock options granted are recognized as compensation expense in the consolidated statements of operations over the related vesting periods. As of June 30, 2022 (unaudited), there was approximately $1.0 million of unrecognized stock-based compensation cost related to stock options granted under the Plan, respectively, which is expected to be recognized over an average period of 1.79 years.
The following table illustrates stock-based compensation expense for employee and non-employee RSUs and options for the three and six months ended June 30, 2022 and 2021 (unaudited) (in thousands).
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| (unaudited) | (unaudited) | ||||||||||||||||||||||
Cost of revenues | $ | 244 | $ | 184 | $ | 548 | $ | 225 | |||||||||||||||
Research and development | 1,075 | 404 | 1,958 | 630 | |||||||||||||||||||
Sales and marketing | 336 | 122 | 680 | 139 | |||||||||||||||||||
| Policy servicing expense and other | 58 | — | 58 | — | |||||||||||||||||||
Other operating expenses | 3,694 | 8,103 | 7,421 | 11,027 | |||||||||||||||||||
Total stock-based compensation | $ | 5,407 | $ | 8,813 | $ | 10,665 | $ | 12,021 | |||||||||||||||
12. Income Taxes
The consolidated effective tax rate for both the six months ended June 30, 2022 and 2021 (unaudited), was 0%. The main driver of the difference between the federal statutory tax rate of 21% and the effective tax rate for both periods was primarily related to a full valuation allowance against the deferred tax assets.
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13. Segment and Geographic Information
The Company operates in the following two reportable segments, which are the same as its operating segments:
–Insurance Services. Providing insurance policies for automobile owners
–Enterprise Business Solutions. Providing access to its developed technology under SaaS arrangements along with professional services to third party customers.
Operating segments are based upon the nature of the Company’s business and how its business is managed. The Company’s Chief Operating Decision Maker (“CODM”) is its CEO. The CODM uses the Company’s operating segment financial information to evaluate segment performance and to allocate resources. The CODM does not evaluate the performance of the Company’s assets on a segment basis for internal management reporting and, therefore, such information is not presented.
Contribution is used, in part, to evaluate the performance of, and allocate resources to, each of the segments. Segment contribution is segment revenue less the related costs of revenue and sales and marketing expenses. It excludes certain operating expenses that are not allocated to segments because they are separately managed at the consolidated corporate level. These unallocated costs include stock-based compensation expense, research and development expenses, and general and administrative expenses such as legal and accounting.
The assets and liabilities of the Enterprise Business Solutions segment have been classified as held for sale in the Company's consolidated balance sheets as of June 30, 2022. As the Enterprise Business Solutions operations do not qualify for presentation as a discontinued operation, operating results from the segment will continue to be reported in continuing operations on the consolidated statements of operations for the period ended June 30, 2022. Refer to Note 16, Business Disposition, for further information.
The following table summarizes the operating results of the Company’s reportable segments (in thousands):
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| (unaudited) | (unaudited) | ||||||||||||||||||||||
Revenue: | |||||||||||||||||||||||
Insurance services | $ | 20,324 | $ | 26,988 | $ | 39,827 | $ | 43,216 | |||||||||||||||
Enterprise business solutions | 1,195 | 1,110 | 2,391 | 2,158 | |||||||||||||||||||
Total revenue | $ | 21,519 | $ | 28,098 | $ | 42,218 | $ | 45,374 | |||||||||||||||
Contribution: | |||||||||||||||||||||||
Insurance services | $ | (3,360) | $ | (1,173) | $ | (7,779) | $ | (3,036) | |||||||||||||||
Enterprise business solutions | (1,000) | (865) | (2,113) | (1,597) | |||||||||||||||||||
Total contribution | $ | (4,360) | $ | (2,038) | $ | (9,892) | $ | (4,633) | |||||||||||||||
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The following table provides a reconciliation of the Company’s total reportable segments’ contribution to its total loss from operations (in thousands):
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| (unaudited) | (unaudited) | ||||||||||||||||||||||
Total segment contribution | $ | (4,360) | $ | (2,038) | $ | (9,892) | $ | (4,633) | |||||||||||||||
Ceded premium, losses and LAE | 1,454 | (2,337) | 2,747 | (5,242) | |||||||||||||||||||
Other income | 676 | 180 | 1,198 | 1,327 | |||||||||||||||||||
Policy services expenses and other | 1,316 | 1,692 | 2,922 | 2,063 | |||||||||||||||||||
Sales, marketing, and other acquisition costs | 3,520 | 25,716 | 9,860 | 72,883 | |||||||||||||||||||
Research and development | 2,986 | 1,361 | 5,337 | 3,367 | |||||||||||||||||||
Amortization of capitalized software | 3,342 | 2,701 | 6,710 | 5,352 | |||||||||||||||||||
Other operating expenses | 13,011 | 16,729 | 26,449 | 25,311 | |||||||||||||||||||
Loss from operations | $ | (30,665) | $ | (48,080) | $ | (65,115) | $ | (109,694) | |||||||||||||||
| Total other expense | 486 | (6,820) | 355 | 35,193 | |||||||||||||||||||
| Loss before taxes | $ | (31,151) | $ | (41,260) | $ | (65,470) | $ | (144,887) | |||||||||||||||
Geographical Breakdown of Direct Earned Premiums
Direct earned premium by state is as follows (in thousands):
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| (unaudited) | (unaudited) | ||||||||||||||||||||||
| California | $ | 16,472 | $ | 16,334 | $ | 32,232 | $ | 31,480 | |||||||||||||||
| Washington | 3,982 | 3,379 | 7,567 | 6,364 | |||||||||||||||||||
| New Jersey | 2,905 | 2,749 | 5,587 | 5,208 | |||||||||||||||||||
| Oregon | 1,910 | 1,713 | 3,726 | 3,509 | |||||||||||||||||||
| Illinois | 1,225 | 1,019 | 2,363 | 2,060 | |||||||||||||||||||
| Arizona | 1,863 | 1,245 | 3,622 | 2,513 | |||||||||||||||||||
| Pennsylvania | 690 | 741 | 1,325 | 1,398 | |||||||||||||||||||
| Virginia | 891 | 578 | 1,647 | 1,048 | |||||||||||||||||||
| Total premiums earned | $ | 29,938 | $ | 27,758 | $ | 58,069 | $ | 53,580 | |||||||||||||||
14. Net Loss per Share
Net loss per share calculations and potentially dilutive security amounts for all periods prior to the Merger have been retrospectively adjusted to the equivalent number of shares outstanding immediately after the Merger to effect the reverse recapitalization. Historically, reported weighted average shares outstanding have been multiplied by 1.01547844, which is the share exchange ratio established by the Merger Agreement.
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The following table sets forth the computation of basic and diluted net loss per share attributable to the Company's common stockholders:
| Three months ended June 30, | Six months ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Numerator: | (unaudited) | (unaudited) | |||||||||||||||||||||
| Net loss attributable to common stockholders ($ in thousands) | $ | (31,151) | $ | (41,260) | $ | (65,470) | $ | (144,887) | |||||||||||||||
| Denominator: | |||||||||||||||||||||||
| Weighted average common shares outstanding - basic and diluted | 130,542,613 | 126,693,218 | 129,633,871 | 101,236,461 | |||||||||||||||||||
| Net loss per share attributable to common stockholders - basic and diluted | $ | (0.24) | $ | (0.33) | $ | (0.51) | $ | (1.43) | |||||||||||||||
As the Company has reported net loss for each of the periods presented, all potentially dilutive securities are antidilutive. The following potential outstanding shares of Common Stock were excluded from the computation of diluted net loss per share attributable to common stockholders for the periods presented because including them would have been antidilutive:
| As of June 30, | |||||||||||
| 2022 | 2021 | ||||||||||
| (unaudited) | |||||||||||
Outstanding stock options - Stock Plan | 1,526,186 | 3,037,545 | |||||||||
Warrants for common stock | 7,846,667 | 7,846,667 | |||||||||
Restricted stock units | 8,544,216 | 7,678,105 | |||||||||
Total anti-dilutive securities | 17,917,069 | 18,562,317 | |||||||||
15. Related-Party Transactions
In August 2014, the Company loaned the CEO $0.4 million with interest at 3.09% and adjusted to 1.5% in April 2020, which was used to early exercise stock options issued to the CEO and was due at the earlier of one year after termination of employment, upon an Initial Public Offering or change in control, or ten years from the date issued. The loan was full recourse, and also collateralized by the underlying shares of common stock. For accounting under GAAP, the note receivable is presented as contra-equity in the accompanying consolidated balance sheets. This loan was paid in full in February 2021 and is no longer outstanding.
In March 2018, the Company entered into an agreement with a third party under which the Company developed proprietary software solutions and provides access to and use of such software solutions and related services. In July 2018, the third party became an investor of the Company as part of the Series E convertible preferred stock Financing. During the three months ended June 30, 2022 and 2021 (unaudited), the Company recognized $1.0 million and $1.0 million of revenue from the investor, respectively. During the six months ended June 30, 2022 and 2021 (unaudited), the Company recognized $2.0 million and $2.0 million of revenue from the investor, respectively. The Company had no accounts receivable balances from the investor as of June 30, 2022 (unaudited) and December 31, 2021.
An executive of Hudson, who the Company entered into a Note Purchase and Security Agreement with in 2021 (see Note 11, Notes Payable, net in the Company's 2021 Annual Report on Form 10-K), is on the Company’s Board of Directors. This loan was repaid in March 2021 and is no longer outstanding.
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16. Business Disposition
Sale of Metromile Enterprise
As of June 30, 2022, the Company committed to a plan to sell its Enterprise Business Solutions segment. The assets and liabilities of Enterprise Business Solutions have been classified as held for sale in the Company's consolidated balance sheets beginning with the period ended June 30, 2022. Revenues and earnings are not material to the Company's Consolidated Results of Operations for the three and six months ended June 30, 2022 and 2021 (unaudited). Under GAAP accounting guidance, only disposals of components of an entity that represent a strategic shift and that have a major effect on a reporting entity’s operations and financial results are reported as discontinued operations. Because Metromile’s primary business continues to be property and casualty insurance, as well as the immaterial expected impact on the Company’s ongoing results of operations, the sale of Enterprise Business Solutions was not reported as a discontinued operation. The business does not meet the criteria to be classified as a discontinued operation; therefore, the results are reflected within continuing operations on the consolidated statement of operations.
The pending sale did not result in an estimated loss on the sale, and as such, no accrual for the estimated before tax loss is included as a reduction of the carrying value of assets held for sale in the Company's Condensed consolidated balance sheets as of June 30, 2022 (unaudited).
The carrying value of assets and liabilities to be transferred in connection with the sale is as follows:
June 30, 2022 | |||||
| (unaudited) | |||||
| Assets | |||||
| Cash and cash equivalents | 3,829 | ||||
| Prepaid expenses and other assets | 137 | ||||
| Website and software development costs, net | 4,916 | ||||
| Total assets | $ | 8,882 | |||
| Liabilities | |||||
| Deferred revenue | 4,710 | ||||
| Accounts payable and accrued expenses | 743 | ||||
| Total liabilities | $ | 5,453 | |||
17. Subsequent Events
Acquisition of Metromile, Inc. by Lemonade, Inc.
On July 28, 2022, the Company's acquisition by Lemonade was completed. See Note 1. Overview and Basis of Presentation and Note 4. Business Combinations for details of the Agreement and the related transaction details with Lemonade, Inc.
Delisting and Deregistration
On July 28, 2022, in connection with the completion of the Merger Transaction, the Company notified Nasdaq that trading in MILE Common Stock should be suspended and listing of MILE Common Stock should be removed. The Company also requested that Nasdaq file a notification of removal from listing on Form 25 with the SEC with respect to the delisting and deregistration of the MILE Common Stock. The MILE Common Stock ceased being traded prior to the opening of the market on July 29, 2022, and is no longer listed on Nasdaq. In addition, the Company filed with the SEC a Form 15 per which the reporting obligations of the Company under Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended, have been suspended.
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