Q1 2024 Lemonade Inc Earnings Call

Participants

Yael Wissner-Levy; VP, Communications; Lemonade Inc

Daniel Schreiber; Chief Executive Officer; Lemonade Inc

Shai Wininger; President, Co-Founder, Director; Lemonade Inc

Timothy Bixby; Chief Financial Officer; Lemonade Inc

Yaron Kinar; Analyst; Jefferies

Tom McCrohan; Analyst; Stifel

Jason Helfstein; Analyst; Oppenheimer

Katie Sarkis; Analyst; Autonomous Research

Andrew Kligerman; Analyst; TD Securities

Maxime Halter; Analyst; Ferguson Financial

Paul Kwon; Analyst; Morgan Stanley

Thomas Chong; Analyst; Stifel

Presentation

Operator

Good morning, everyone, and welcome to the nominees' First Quarter 2024 financial results. My name is Angela, and I'll be coordinating your call today. During the presentation, you can register to ask a question by pressing star followed by one on your telephone keypad. If you change your mind, please press star followed by two. I will now hand you over to your host.
Yael Wissner-Levy, VP Communications at Lemonade. Please go ahead.

Yael Wissner-Levy

Good morning, and welcome to Lemonade First Quarter 2024 earnings call. My name is Alexander levy, and I'm the VP Communications at Lemonade. Joining me today to discuss our results are Daniel Schreiber, CEO and Co-Founder, Shieh winning our President and Co-Founder, and Tim Bixby, our Chief Financial Officer, a letter to shareholders covering the company's first quarter 2024 financial results is available on our Investor Relations website, investor dot Lemonade.com.
Before we begin, I would like to remind you that management's remarks on this call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those discussed in the Risk Factors section of our 2023 form 10 K filed with the SEC on February 28th, 2024, and our other filings with the SEC. Any forward-looking statements on this call represent our views only as of today, and we undertake no obligation to update them.
We will be referring to certain non-GAAP financial measures on today's call, such as adjusted EBITDA and adjusted gross profit, which we believe may be important to investors to assess our operating performance. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures are included in our letter to shareholders.
Our Letter to Shareholders also includes information about our key performance indicators, including customers, in-force premium premium per customer, annual dollar retention, gross earned premium gross loss ratio, gross loss ratio and net loss and loss ratio and a definition of each metric why each is useful to investors and how we use each to monitor and manage our business.
With that, I'll turn the call over to Daniel for some opening remarks. Daniel.

Daniel Schreiber

Good morning, and thank you for joining us to discuss lemonades Q1 results. I'm happy to report that 2024 got off to a strong start year on year, our top line grew 22%. Adjusted EBITDA loss improved fully by a third, and our gross profit more than doubled. Quarterly loss ratio came in at 79% down eight points from this time last year.
While our TTM loss ratio, that is a trailing 12 month loss ratio came in six points lower than the same time last year. These loss ratio improvements indicate that the growing sophistication and diligence in our rate modelings and filings are bearing fruit. In addition, the reflect that our claims accuracy is strong and getting stronger. And this is helping with favorable prior year development.
And indeed that again, underwriting precision is delivering lower frequency of claims out, right, all in all. Then the strong quarter very much keeping us on track or perhaps better than on track. In fact, we're happy to update that.
We now project to be net cash flow positive by the end of this year. This acceleration in our cash flow profitability is made possible by a couple of factors. The most notable being how technology in general and AI in particular continue to deliver on the promise at the very core of eliminates thesis.
This quarter, for example, saw a 22% top-line growth, but only a 2% increase in operating expense and an 11% decrease in headcount. All of these metrics year on year. These numbers tell a powerful story.
With this in mind, let me hand over to Syed, tell you more about our recent efficiency improvements side of it.

Shai Wininger

You think, Daniel, this quarter I wanted to highlight a metric we don't often talk about called LAY. or loss adjustment expense. Eliquis represents the cost associated with handling claims and by extension, operational efficiency, LEDs, an essential piece of the loss ratio and for large insurers who enjoy the benefits of scale, it tends to run around 10%.
I'm happy to report that after years of technology driven improvements in our claims, automation and operations with nearly 50% improvement in the last two years, alone, we ended Q1 at an impressive 7.6% LAE ratio. This achievement was made possible by the ongoing advancement of our blender insurance operating system, which incorporates AI machine learning and other cutting-edge technologies to help our team become more efficient.
Blender uses AI to minimize human involvement at multiple points of the claims journey automatically validate and extract important information from documents. It can itemize invoices, detect preexisting conditions and much more. And as we continue to break apart our claims process and automated piece by piece, our loss adjustment expenses improve and our loss ratio continues to trend down.
I believe that building our core technology in house buys us an ever growing advantage over the industry, both in efficiency and capabilities and expect to continue seeing this positive impact flowing into our financial results and plans.
And with that, let me hand it over to Tim to cover our financial results and outlook in greater detail. Tim?

Timothy Bixby

Great. Thanks, Chuck. I'll review highlights of our Q1 results and provide our expectations for Q2 and the full year, and then we'll take some questions as Daniel and Shawn noted, it was a great quarter with good progress on all of our key metrics, including growth, gross loss ratio and our cash outlook.
Premium per customer increased 8% versus the prior year to $379, driven primarily by rate increases. Annual dollar retention or ADR was 88%, up one percentage points since this time last year. We measure ADR on an annual cohort basis and include the impact of changes in policy value, additional policy purchases and churn. Gross earned premium in Q1 increased 22% as compared to the prior year to $188 million, in line with our IFP. growth and revenue in Q1 increased 25% from the prior year to $119 million.
The growth in revenue was driven by the increase in gross earned premium, a slightly higher effective ceding commission rate under our quota share reinsurance primarily related to reserve adjustments and a near doubling of investment income.
Our gross loss ratio was 79% for Q1 as compared to 87% in Q1 2023 and 77% in Q4 2023. The impact of catastrophes or cats in Q1 was roughly 16 percentage points within the gross loss ratio and nearly all driven by convective storm and winter storm activity.
Absent this total cat impact, the underlying gross loss ratio was 63% and nine points better than the prior quarter and nearly 10 percentage points better than the prior year. Our prior period development was roughly 6% favorable impact in the quarter and worth noting that the cat or catastrophe prior period development impact was about 2% unfavorable, while non-cat was about 8% favorable.
Given the notable ups and downs of the quarterly gross loss ratio, it's all the more useful to continue to consider our rolling four-quarter view of loss ratio, which we include, again in our shareholder letter to get a feel for the longer-term trends for loss ratio, our trailing 12 months or TTM loss ratio was about 83%, and this is six points better year on year.
From a product perspective, loss ratios improved across the business as compared to the prior year with the exception of home, which did not gross profit and adjusted gross profit have shown notable improvement over time, driven by continued premium growth, coupled with loss ratio and investment income improvements.
Q1 gross profit increased by 110% to $35 million versus the prior year, while adjusted gross profit increased by 78% over the same period, gross profit has grown significantly more than tripling in two years, while quarterly adjusted gross profit is more than double for that same period.
Operating expenses, excluding loss and loss adjustment expense increased just 2% to $98 million in Q1 compared to the prior year. Other insurance expense grew 27% Q1 versus the prior year, a bit more than the growth of earned premium, primarily in support of our increased investment in rate filing capacity.
Total sales and marketing expense increased by $2 million or 8%, primarily due to our increased gross spend, which was partially offset by lower personnel-related costs driven by efficiency gains.
Total gross spend in the quarter was $19.8 million, up about 14% as compared to the prior year. We continue to utilize our synthetic Agento growth funding program and have financed 80% of our growth spend since the start of the year.
As a reminder, you will see 100% of our gross spend flow through the P&L. As always, while the impact of the new growth mechanism is visible on the cash flow statement the balance sheet and the net financing to date through our synthetic agents program is about $28 million.
As of the end of Q1, our technology development expense declined 4% to $21 million due primarily to personnel cost efficiencies and our G&A expense declined 9% as compared to the prior year to $30 million, primarily due to lower professional service fees and lower insurance costs. Personnel expense and headcount control continued to be a high priority.
Total headcount is down about 11% as compared to the prior year at $1.2 million. Well, again, our top line IFP. grew about 22% in the same period. Our net loss was a loss of $47 million in Q1 or a loss of $0.67 per share. This was about 28% better as compared to the $66 million loss or $0.95 per share loss. We reported in the first quarter of 2023. Our adjusted EBITDA loss was a loss of $34 million in Q1 as compared to the $51 million adjusted EBITDA loss in the first quarter of 2023 or about 33% better.
Our total cash, cash equivalents and investments ended the quarter at approximately $927 million, down just 2% since year end 2023. And with these metrics in mind, I'll outline our specific financial expectations for the second quarter and for the full year 24 for the second quarter. We expect in-force premium at June 30th between $839 million and $841 million.
Gross earned premium between $197 million, $199 million revenue of between $118 million and $120 million and an adjusted EBITDA loss of between $49 million and $47 million. We expect stock-based compensation expense of approximately $15 million in the quarter, capital expenditures of approximately $3 million and a weighted average share count of approximately $70 million shares. And for the full year of 2024, we expect in-force premium at December 31st of between $940 million and $944 million. Gross earned premium between $818 million and $822 million, revenue of between $511 million and $515 million and an adjusted EBITDA loss of between $155 million and $151 million.
For the full year, we expect stock-based compensation expense of approximately $62 million. Capital expenditures approximately $10 million and a weighted average share count of approximately $71 million shares.
And with that, I'd like to hand things back over to Sean to answer a few questions from our retail investors.

Shai Wininger

Thanks, team will now turn to our shareholders' questions submitted through the Safe Harbor. First, Henry asked for more insight on the rollout of auto nationwide. Henry, it usually takes a few years to stabilize the performance of the new insurance product after launch.
During that period, we test product at lower scale and continuously improve pricing, underwriting and operating efficiency to get the product to be compatible with our LTV target. Once that happens, we can increase our marketing efforts and grow faster by the way, despite the fact that cars loss ratio isn't yet where we want it to be. It did improve 18 points in 2023, which was the biggest and fastest loss ratio improvement across all of our business lines that year. So while there is still work to be done, a lot has already happened and I expect we will begin rolling out car more broadly early next year.
In the next question, paper bag, wanted to know more about our strategy of balancing growth between the U.S. and Europe paperback. There are a few reasons why we're bullish on the European opportunity beyond its sheer size.
First, Europe offers attractive and scalable distribution opportunities on the B to B to C side, such as large institutional partnerships as well as price comparison websites. Secondly, Europe is less cat-prone compared to the US offering diversification benefit or loss exposure, particularly for home insurance. Finally, in Europe, we have much more flexibility over pricing and risk selection relative to the U.S. due to differences in the regulatory environment over there.
This, for example, allows us to experiment with pricing models by making multiple changes on a daily basis in terms of balancing growth across products and geographies. Our strategy is simple. We allocate our incremental dollar to the product market and campaign that shows the best LTV to cash return in a sense, our product and geographies compete against each other.
And so budget allocation frequently and dynamically changes based on seasonality, pricing changes, competitors' new capabilities and so on. And in the next question, Sumeet asks whether we are profitable and what is our growth target for the next three to five years.
Hi, Sumit. As you probably heard on this call and read in our letter, we are excited by the accelerated timing of us getting to net cash flow positive at the end of this year, 2024, such that by Q1 25, we expect to be generating positive cash flow on a consistent basis. We expect to reach profitability as measured by adjusted EBITDA the following year, once we're generating positive cash flow, we will be able to lean in and reinvest this additional cash and faster growth.
For your question about our growth targets, we previously indicated our expectation for a multi-year average IFPI. compounded annual growth rate in the mid 20s. While we're not revising this today, we may accelerate our growth rates as new incremental growth opportunities come along.
Lastly, paperback asked about the automation index, a metric we use back in 2018 and for some current efficiency metrics.
Thanks for the question, paperback. This is something near and dear to the Lemonade ethos. And to me personally, as I mentioned a few minutes ago, our LED is outstanding and excellent way to benchmark our efficiency. The percentage of e-mails handled by general TBI. also continues to grow as our generative AI platform now handles 22% of all incoming e-mails and was recently trained to handle SMS messages as well.
One signal that I believe shows our efficiency improvement as a whole is our total OpEx, which remained virtually flat for two consecutive years, while our business has roughly doubled by the way the old automation index metric from 2018 was retired long ago because it couldn't keep up with the growing complexity of our business and felt it properly reflect things like multiple policies per customer difference in service efforts among products, geographies and so on. Regardless of this particular metric, our automation levels have increased dramatically since 2018, and I expect to see this continue.
And now I'll turn the call back to the operator for more questions from our friends from the street.

Question and Answer Session

Operator

(Operator Instructions) Yaron Kinar, Jefferies.

Yaron Kinar

Thank you. Good morning. I'm Tim, you had offered the catastrophe and prior development impacts on a gross basis, could you offer those on a net basis as well?

Timothy Bixby

Yes, sure. The distinction between gross and net this quarter was as small as it's ever been primarily as a result of reserve releases. So the total difference in gross and net was 1% or less than 1%. So the answer is the same for the difference that you're asking to very minimal.

Yaron Kinar

Got it.
Okay, thank you.
And I know you had mentioned on the acceleration of the time line to free cash flow positive at key talk through some of the drivers for the change with EV acceleration?

Daniel Schreiber

Yes. So we noted that net cash flow, and I just is really the simplest measure of it, cash investments and equivalents on the balance sheet, is it going up or is it going down? You've seen a couple of periods already where it's actually gone up the second half as of this past year. In fact, our net net cash investments actually increased, and that was a notable change. So now we're in this period where we're heading towards sustainable, continue generation of cash and sort of use of cash.
We're not quite there this coming the current quarter, I actually expect us to be flat or better. And so by by that, by the end of this year, that should be consistently net positive drivers are really just a better granularity and understanding of the levers.
Our reinsurance agreements do tend to move that cash flow a bit out of sync sometimes with the ebbs and flows of the business itself, the growth in customers and the growth in premium. And so the only greater understanding of the current reinsurance agreement going forward we're in negotiations for an upcoming reinsurance.
We expect that to be fundamentally strong and similar and the underlying unit economics of customers are each quarters ago. You're getting a little bit more comfort with that. Some of the tech efficiencies that we noted, those are sustainable. We've seen some of those for a number of quarters. But until you get two or three or four quarters under your belt to really confirm that they're sustainable improvements. Those are the kinds of things that give us greater confidence now to really pinpoint that cash flow positive variance.

Timothy Bixby

And that makes sense. Thanks.
And if I could sneak one more in before I re-queue on the growth spend seemed a little bit light relative to the full year target I'm assuming that's just a matter of ramping up. Has that spend as you expect to accelerate growth over the course of the year?
Or is it that you are expecting to revise that target down?

Daniel Schreiber

Yes, you're exactly right. It's the former. So the year-on-year comparison is a little out of sync with the year-on-year quarter comparison is a little out of sync Q1 a year ago was relatively high in terms of growth spend versus the full year 23. And we've got the opposite effect this year. We're ramping up if we looked at January, February March with a consistent ramp-up to the full year target is unchanged. And as we head into Q2 and forward, you will see an acceleration versus the prior year Thank you and best of luck.

Operator

Tom McCrohan, Stifel.

Tom McCrohan

Hey, good morning. Thanks for taking my questions. I know it's only a point or two when I look at the difference between the gross and the net loss ratio, but this was the first time that the net loss ratio was lower than the gross loss ratio. And I don't think that's going to ever happen or I don't think so. So just kind of can you talk through as to like how that mechanically happened?

Daniel Schreiber

Yes, there's typically two main drivers of it, just a difference between growth and net loss ratio. One is unallocated loss adjustment expense, which is a part of our expense structure that is not and subject to the reinsurance agreements. As that number ebbs and flows, it can drive a greater or lesser a difference between gross and net.
The second main driver is we do have reinsurance coverages where we pay premiums, but we have very low claims and that's a typical quarter and that can swing from quarter to quarter this quarter. Specifically that Uli number was notably low because of reserve adjustments. And so when you get a swing in those two numbers that can really bring the net and the gross close together. I don't expect it to new normal, but we can see quarters where it so relatively similar.

Tom McCrohan

Got it. Makes sense. And then separately, do you have an update on your latest thoughts for what kind of a normalized cat load for the year should be? And has that changed at all with your focus on really leaning into growth on the renters and pet side, maybe less so on the home auto side, just kind of how that has impacted your expected cat load.

Daniel Schreiber

So at a high level, I would say, no, no, fundamental change in isolation, meaning excuse me, isolation, the Q1 number was a little bit higher in percentage terms, 16% impact on the quarter. But important to note that that in that 16% that were no named storms. It was a relatively broad distribution of <unk> technically cat events, but not enormous cat events. A lot of storms kind of clearing that cat definition threshold. That's really been unchanged for many years. So it's interesting in terms of the combination of events in Q1, it's not notably doesn't fundamentally change any of our assumptions but it tends to be isolated to our home product, which is again a typical, but I would say sort of business as usual and the underlying trends continue to be the same consistent improvement. And I'd highlight that the trailing 12 month number is a good metric because it takes out a bit of the variance of seasonality and cat impact and variations across product.

Operator

Jason Helfstein, Oppenheimer.

Jason Helfstein

Two questions. One, just on some kind of pay. I mean, the whole world has kind of woken up to what the benefit to the business of using AINL. ML. And obviously, you guys were much earlier on this and you've talked to us about how you train models and if you at the time it take till you actually then deploy those miles the business. So can you just elaborate from how are you seeing kind of the newer technologies and newer LOM?
And also when you think of help you either with onboarding underwriting adjudicating claims, it's kind of what you know, when will we see kind of some of those benefits? Or just how do you think about the newer models that are available? That's question one. And then secondly, just a question on auto, it doesn't the inflationary pressure that we're seeing around Bordeaux, make you less bullish on your outlook for car? And just how are you thinking about expanding bundling of car over the next few years. Thank you.

Timothy Bixby

Hey, Jason. Good morning, and you're quite right. Of course, AI is all the rage right now, but we've been in our tag line since the founding of the company. So this isn't something new. And the way I tend to think about it is that a lot of the foundational work that we've been doing in terms of risk assessment, risk selection, risk pricing, which is really about using the and stunning amount of data that we're able to collect as part of our onboarding process.
And in general just being there being a purely digital provider of insurance that gives us perhaps orders of magnitude more signals than traditional insurance companies get. And then we're able to match those to claims after the I remember being 21. So I don't know if this is still true, but that the number one cause of loss in America is other, which is to say that a lot of the systems recordings rather poorly.
And therefore, even if you were to collect data as customers come in, it's hard for you to reconcile that with systems at the end as claims are recorded since it's all manual. And the data then becomes very poor quality garbage in garbage out. And then even if you were to extract those insights. You don't have systems in place. I can deploy them because agents and generally can't do much with these kind of machine learning insights. So there are systemic reasons why we think we have an advantage at the foundations, the plumbing, the matching rate to risk work, and that has been true for some years.
And we've been building out this model that we've shared our LTV models and 50 different machine learning models that inform us every single time any prospective customer come to our sites. We've spoken about the systems that length and that all continues to grow and is quite independent of LLM.s.
This is using really machine learning, deep learning models touches on on the deep stuff about insurance companies and the ability to monetize probability theory and statistics. What's changed in the last couple of years is that AI. has also got very proficient at understanding and generating the written word quite distinct from the numbers game. And we've been able to really harness technologies very naturally in our customer support on side of the house.
We have a lot of documents that are inbound, whether it's receipts or more complicated documents, health reports from that and the state of the building from surveyors, oftentimes those 50 page technical documents that need to be reviewed in some detail, and then you'll have to generate responses based on them. And we've been able to harness these very, very rapidly because of the structural advantage that I kind of referenced in passing earlier.
This applies equally to these kinds of systems. When everything is built digitally, we're able to harness these capabilities. And I think this isn't something that's merely future looking one of the points that we've tried to make this quarter and last quarter that a few years ago when we spoke about these teams, it was a hypothesis that perhaps co-heads, but was unproven. I think you see it very clearly now in the numbers, the numbers this quarter speak of a 22% top line growth and an 11% decrease in headcount.
That is dramatic, and I'd put it to you pretty much impossible without that level of automation and with avenues able to use elements to do what previously shipments had to do over the course of the last two years and the size of our book has doubled. Our gross profit has trebled and our operating expense hasn't moved goes quite far from the LAE. that we did.
Our deep dive on right now, I think are all glaring proof points that these technologies are being harnessed and powerful way in terms of auto, of course, we'd like to see inflationary pressures abate. But no, our bullishness is not contingent on that. We want to see from some of our rate filings approved and implemented. We've got a couple of iterations to do, but we do remain bullish.
We think if inflation doesn't explode, but it simply continues in the way it is that we probably have systems in place that we'll be able to keep up with that. Now inflation indeed has not passed by and yet. And in auto last year, we saw a loss ratio improvement of 20 points, notwithstanding that rather severe headwinds that we faced in terms of inflationary pressures.
So I do think we've broken the back of that are on the I've kind of I've now seen on to our systems and our filings kick in in a way that is able. So we hope and believe to overwhelm the inflation that we're still seeing I'm out there.

Operator

(Operator Instructions) Katie Sarkis, Autonomous Research.

Katie Sarkis

Hi.
Thank you.
Good morning.
And I just want to ask sort of on the drivers of this quarter's ex cat loss ratio improvement. Could you give us a little bit more color as to what products drove that? And sort of how sustainable you think some of those coverages might be over there?

Timothy Bixby

Yes, sure.
It's probably worth noting that shouldn't be Yum. The distinction between cat and non-cat is is has some arbitrary miss to it. And so anything that's just over the cap threshold becomes a cat and just under it isn't a cat. And so there's some of that going on, particularly in a quarter where we've got on a lot of frequency, many, many storms as opposed to one or two single our dominant caps, which you have seen on very rare occasions one a few years ago when a couple of years ago, but those are really big exceptions.
So I would say that's kind of a normalized quarter, but a higher cat load and a lower underlying measure. So I think looking at both of them in tandem, looking at all the loss ratio information that we share in aggregate, including the trailing 12 months is important. All of the products, with the exception of home showed year-on-year improvement quarter over quarter versus the prior year improvement this quarter. And we will and do continue to see quarterly ebbs and flows from Q4 is typically a notably low quarter.
Others that's not been the case for a couple of years, a couple of fourth quarters in the past year or so. I would I would focus on the big picture, consistent improvement in all products, a little bit more of a hill to climb in home, but our long-term view on that is nonetheless strong.
Finally, you've seen rate approvals start to move at a more healthy pace in larger markets. Some carriers pulled out entirely from certain markets. We've not done. So we proactively moderated our growth in products where the loss ratio was somewhat elevated in territories and states where the loss ratio was somewhat elevated.
And now we have the ability to to switch that the other way as we see improvements. So I would say it's steady as she goes, and we're comfortable we're on track to our ultimate target, which is in the low 70s and into the high.

Katie Sarkis

Thank you for that detail. I guess following up on your discussion of rate action and on inflation levels, are there any particular geographies where you guys are feeling like you're getting more than enough pricing and really feel like you could lean into growth there?

Timothy Bixby

Or are you kind of thinking about growth sort of across the entirety of, yes, the country and the geographies we underwrite. So at a high level, yes, it feels like we have we sort of kind of crested the hill that was probably not the case three quarters ago where we had large important territories with large rate increase approvals still pending. That is no longer the case.
There are many approvals still pending, but they are more widespread. They're somewhat smaller. And so I think we've caught up and substantially, but there's still a bit of room to go. Inflation continues at a much more moderated pace. But our assumption is that it's going to continue at some reasonable rate. Our capacity is dramatically higher and more efficient in terms of filing getting rate filings in and done and than it was on territories where our growth was zero or pretty close to zero.
California is probably the most notable one, even there we've seen a couple of quite sizable rate approvals. And we're seeing that almost across the board. It's still a little unpredictable in terms of, you know, the data and months that those approvals will come but again, really I think past certainly past the worst part of it and now into more of a standard mode with aggressive filing.
Good follow-up and earning in rate across the board.

Operator

Andrew Kligerman, TD Securities.

Andrew Kligerman

Very good morning.
Good morning.
I know you had really nice a nice progress on fees. The first question is around the retention ratio at 88%, super strong. I think you noted it's up a point. What is it about Lemonade that drives that retention. What would you say kind of differentiates Lemonade that's going to make people want to stay with you as opposed to just moving to the next carrier getting a cheaper price.

Daniel Schreiber

Andrew?
Hi, it's Daniel here. Thanks for the question. Yes, the annual dollar retention continues to strengthen and I'm glad you highlighted that there are a few things that differentiate them in Asia in a way that's relevant for this particular metric. One is the level of customer satisfaction that we enjoy. Patsie universal measure of that is NPS Net Promoter Score. The industry doesn't do very well by that measure.
I think the low 10s is pretty customers are commonplace being negative or is not unusual. And we tend to be in the 70s, sometimes in the 80s across all touch points with customers, including claims experience. And shockingly, we have an incredibly high NPS even for declined claims. It's something about interacting with RAI., the instant nature of the relationship, the ability to respond and cleverly, but precisely and any time of day or night from the comfort of your phone to pay as many as 50% of claims without any human intervention within a matter of seconds of the submit button being pressed.
All these have powerful brand building capabilities and they reflect themselves in retention. And the second one is the ability to upsell, which frankly, is just in its nascent stages. And I do expect this to become a far more powerful force on ADR as we go forward, which is to say the majority of our customers join us when they're young and oftentimes first-time buyers of insurance. That is a powerful part of our strategy.
So among first-time buyers of, say, renters insurance in the U.S., we may be the number one in terms of market share. If not, we're pretty close. We get to a dramatically disproportionate number of first-time buyers of insurance coming to Lemonade. Our technology is responsible for that as well. We're able to get to entry-level price points out of a difficult under more traditional insurance models.
But when you're doing everything digitally, the module cost to serve plummet sometimes drops at the margins to zero and therefore able to get very attractive yet profitable business in at the low end. So it's a low end disruption, but those customers then grow up. They graduate, they get a pet, they get a car.
They get a ring, they get a job, they get kids, they need life insurance than your car insurance, et cetera. All of those reflect themselves powerfully and annual dollar retention where they just get more stuff. So as that personal GDP grows and the average in America in the first 10 to 15 years of adulthood as to Ten-X and 15 times your net worth that will reflect itself in a similar way financing or financing of the premiums that you pay to an insurance company.
So combining those two getting customers young when incumbents want them to lease because they're paying five, six bucks a month being able to delight them so that they don't want to go to anybody else when they come to needing that next policy, the expanded policy and an additional kind of coverage.
You put all of that together, and you have a snapshot of our thinking, and I think that's reflecting itself in ADI., as I say, as car becomes more prevalently available as we feel more confident and promoting some of our home insurance policies and geographies where without underpriced, I think you'll see those numbers grow further.

Andrew Kligerman

Interesting. And then just with regard to the AI. in general, do you feel that Lemonade has enough of a head start that competitors won't be able to copy it or were catch-up, is there is it could you give a sense of whether weather eliminated is a step or two ahead and can stay at that it's kind of I'm sorry, Andrew, I missed about two idle sentences in what central asking. That's kind of a tricky question. I think yes, it's kind of a tricky question or you can answer, but like I want to get a sense of is eliminate a I ahead of the competition stage such that you can stay a step or two ahead, persistently maybe there's a way to answer that.
I don't know.
It's a tough question, so.

Daniel Schreiber

Sure. No, it's sorry. I just hadn't had the beginning of the sentence. It's a tough question which we think about a lot and have a view on. So I'll share our perspective. We think the answer is unequivocally, yes, and we think that there are structural advantages to being built by technology founders in in recent years and the age of AI and having architect the business from the get go that way and incumbents in this sense are encumbered the very, very smart.
They know everything that you and I know, but they have objectively just a lot of legacy to deal with in a couple of days' time will be the Berkshire Hathaway Annual General Meeting this time last year on that stage, Jane, who runs insurance, the Vice Chairman, spoke about Geico who they own outright and said that Geico has 500 and then he corrected himself and said, actually, it's over 600 different systems that don't talk to one another well when you have that kind of legacy and the Geiger has the advantage of being a direct to consumer other that competitors are even more encumbered because they've got 40,000 agents by way of distribution.
And it's very hard for them without conflicted a channel strategy to really adopt a direct to consumer a driven approach. But even if that weren't the case, just when you aren't built as a tech company, when you are led by people who understand technology when your systems were built in the 1980s on COBOL and you can't even hire engineers who know that programming language and therefore, instead of having a black box, you have a black hole where you have to continuously invest to stay afloat.
Those are genuinely difficult systems and problems to overcome. I'm not saying that no incumbents will overcome them and I'm sure they will all make as much use of AI as they can. But I do think that taken together that amounts to a structural disadvantage that will be difficult for them and advantageous to us. It's something I can wax lyrical about for a while, but I hope that gives you some sense of how we think about this yet.

Andrew Kligerman

Yes, very helpful. And if I could just sneak one more in on the auto insurance. Could you specify roughly how much of the written premium now is in the auto line and a competitor in direct to consumer was talking about how they started to see a little competitive, a little competitive pressure at the end of the first quarter on, do you still feel with all your rate approvals and new rollouts, the ability to keep growing already? Or do you see competition kind of getting a little tougher tougher to compete.

Timothy Bixby

Sure. So in a big picture sense, auto is, I say, a smaller relative piece, but a substantial piece of the business around 15% or so of the current run rate, IFP. that's made up of both pay per mile, which is the majority of that three-quarters or maybe a little bit more of that is pay per mile, but the remainder is fixed price or more traditional price.
More importantly, to note, I think is our auto product in terms of its understanding and integration of telematics is second to none. We monetize sort of capture data through telematics for nearly 100%, excuse me, of our customers are car customers and for nearly 100% of their travel of their mileage and you multiply those two together, you get a very high number that is uncommon in the industry. In fact, the largest incumbents, a very small percentage of their car customers through telematics and a very small number of miles of those. So a fundamental difference there.
I did see the comment that you noted in terms of increased competition I took that to be a bit of a bit of a throw away about the coming quarter, unique to maybe how the competitor views the numbers unfolding. So no, we don't see any fundamental changes in the market or or our opportunity for cost.

Andrew Kligerman

Thanks very much in queue.

Operator

Maxime Halter, Ferguson Financial.

Maxime Halter

And thanks and congrats on a strong quarter. I wanted to circle back to the sales and marketing and kind of customer growth spend. Question from earlier on. I noticed there wasn't any new information on the LTV to cap kind of trends this quarter. So I wonder if you can just kind of lay the groundwork and what are you seeing on that kind of marginal dollar potential to spend? And is there anything that is causing that kind of low? For instance, you do have the financing available under the competitor agents or insurance No.

Timothy Bixby

So I would term our growth spend and our growth efficiency as all systems are go. So we're following our plan of accelerating the spend and our growth rate and that began to ramp up as planned and expected in January. When you just see the quarter's numbers, it's a little harder to see, but and January, February, March, April, a consistent increase is ramping up to what we expect. And we've communicated as a rough, almost a doubling of our gross spend year on year.
In terms of the efficiency, I would just look at Q1, for example, versus the prior year quarter, we did see an improvement something on the order of 15 or so percent more efficient for each dollar in terms of the in-force premium acquired or the cost per dollar acquired.
So good progress.
We think of LTV to CAC., which is obviously a very fairly common measure of well above three In fact, over the course of last year, we saw numbers that we've seen it's from the high threes and towards for that was when we were spending at a lower rate that things tend to get a bit more efficient. But even at this high rate, we're continuing to see strong LTV to cap ratios well above three. So things are tracking nicely and our full year spend supported and made from a cash perspective, much more efficient through our synthetic agents program is running full steam ahead. We're financing about 80% of our spend since the beginning of the year, and these are right on track.

Maxime Halter

Thanks, Tim. That's really helpful context. And maybe just more philosophically, how do you think about the kind of trade-offs between the spend impact on your GAAP metrics and kind of current period profitability mentioned earlier, wanted to get to EBITDA adjusted EBITDA positive by next year. But with the LTV to cap where it is because certainly you argue for more spend, which would create kind of near term our GAAP margin pressure. So how do you think philosophically around the trade-off for the kind of near term impact of that increased spend potential versus the really attractive economically interesting on a customer cohort basis?

Timothy Bixby

Sure. So you it sounds like you've been sitting in our growth marketing meetings where we debate this question in real time on on kind of a day-in day-out basis.
And that is you actually can you describe the trade-off exactly right, which is on the one hand, all the business we're acquiring and expect to acquire profitable business at some point as you increase gross spend, that doesn't go to Infinity and the efficiency starts to slow and you get to a point where you become less comfortable with that and acquiring that customer for the end dollar of spend.
And so that's really the frontier that we're constantly pushing. We believe it's important for the health of our business, the long-term health of our business and our commitment to ourselves and to our shareholders that cash flow breakeven profitability is not the only thing, but it's a critical next step for the business.
We can do both. At the same time, we've guided to a year where growth will accelerate from the low 20s to the high 20s by year end. Our goal and expectation is because of the strength of the unit economics that we're seeing and the positive trends in both our loss ratio, which which is part and parcel with getting additional rate all of those strain.
All of those trends suggest that we'll continue to be able to spend a bit more as that continues. I think we'll see into next year and beyond and our ability to continue to kind of to kind of push that push envelope from last thing I would note is one of the real benefits of being a multiproduct co and a multi continent company is we have a lot of levers to pull to find that optimal mix of profitable business, our high LTV to cash and still keep us right on track for fundamental bottom line improvement that we and investors want to see.

Maxime Halter

Thanks and if I could just squeeze in one more quick one on the premium per customer increased sequentially was a little bit higher than I was expecting. Was there any notable trends that you're seeing either on rate earnings or bundling or upsells, anything that was driving that improvement?

Timothy Bixby

It's really a bunch of small things. So now not one notable thing. The biggest change, of course, is that that ratio of drivers used to be more of a mix used to be 50 50 or 60 40 between rate increases and product mix changes since now that's almost entirely shifted to rate increases as expected sort of as planned. We're getting rate across products. And so the you're not seeing as notable a product mix shift as you saw maybe two years ago. So the bulk of it has been driven by rate. I expect that will continue, not forever, obviously, but for the next next few quarters. And the underlying drivers of our consistent and improving. So retention improving a multi-line customer rate. You have a number of percent of customers have multiple policies. All of those marketing continuing to show improvement. But As Daniel noted earlier, less than 5% of our customers have multiple policies. There's no reason that can't be a number that looks like 30 or 40 or 50 someday, and that's the long-term goal.

Operator

Paul Kwon, Morgan Stanley.

Paul Kwon

Your line is open and good morning again, like a very strong quarter. Just one question on your guidance. You beat the quarter by the midpoint by about $7 million in revenue by about $8 million in adjusted EBITDA against your prior guidance. But your full 2024 guidance, you're increasing your revenue guide by about $5.5 million. And by adjusted EBITDA increasing by about $4.5 million. Feels like that increase is a little low. Just curious if there were any revenue and earnings pull forward or what is the rationale behind the guidance when you beat the numbers by a significantly more?

Timothy Bixby

Yes, great question. And there is a nuance that's worth highlighting there that I think you're hitting on by cleverly, I will say, which is in the first quarter, we did see a positive impact on all the KPI.s, a little bit ahead of our expectations and certainly ahead of the guidance. Revenue in particular can be impacted by reserve releases and reserve adjustments. And there's a typical pattern in Q1 that was a little strengthened by the nature of our reinsurance agreements.
So we had a reserve adjustment. It had a bit of an outsized benefit because of our variable commission that we have our reinsurance agreement that drove a little bit of the revenue performance in Q1 and because that's not a typically sustainable or ongoing operating benefit, that's reserve adjustments happen positive negative quarter to quarter.
On occasion, we didn't assume that that would replicate going forward and it was not logical to assume that replicated. And so that accounts for the vast majority of that difference that you're seeing in terms of the overperformance in Q1 versus the guidance for the remainder of the year for revenue.

Paul Kwon

Scott, I really appreciate that. Thank you for clearing that up. That's all my questions.

Operator

Thomas Chong, Stifel.

Thomas Chong

Hey, guys. Just a quick follow-up here. When we were talking about the catastrophe loss discussion, I wanted to ask is there a threshold like in terms of a dollar amount or a percentage amount for you guys used to define what falls into the catastrophe bucket versus the non-cat bucket?

Timothy Bixby

Yes, we use a standard NCS ratings over to if it gets a cat number that becomes a cat. So we don't have our own proprietary measure. We just use a standard measure out there in the market, but notable that it hasn't changed that $25 million threshold. That has not changed for a very long time. It's a standard measure and one they use.
Okay. Thanks.

Operator

In queue, we have no further questions. So I will hand back over to the management team to conclude.

Timothy Bixby

Thanks so much. That wraps up our comments and thanks so much for joining, and we look forward to seeing you again next quarter.

Operator

Thank you.
This concludes today's call and thank you for joining. You may now disconnect your.