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Acquisition of Metromile | 9 Months Ended
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Sep. 30, 2023
Business Combination and Asset Acquisition [Abstract] |
Acquisition of Metromile | Acquisition of Metromile On July 28, 2022 (the "Acquisition Date"), the Company completed its acquisition of Metromile, Inc. (“Metromile"), a leading digital insurance platform in the United States that offers real-time, personalized auto insurance policies by the mile (the "Metromile Acquisition"). The Company acquired 100% of Metromile's equity through an all-stock transaction based upon the exchange ratio of 0.05263 shares of Lemonade for each outstanding share of Metromile. As a result of the acquisition, Metromile stockholders received 6,901,934 shares of Lemonade's common stock, with minimal cash paid in lieu of fractional shares. In addition, upon closing of the Metromile Acquisition, the Company assumed all outstanding and unexercised options, and outstanding restricted stock units (collectively referred to as "replacement awards") as of the Acquisition Date, which were converted into corresponding awards using the same exchange ratio of 0.05263 and with substantially identical terms and conditions prior to the close of the Metromile Acquisition. Fair value of consideration transferred for the Metromile Acquisition is as follows ($ in millions):
Metromile issued and outstanding stock exchanged for Lemonade common stock (1) |  | $ | 136.9 |
Contingent consideration (2) |  | — |
Metromile vested awards exchanged for Lemonade awards (3) |  | 0.8 |
Total Purchase Consideration |  | $ | 137.7 |
(1) The fair value of 6,901,934 shares issued and exchanged for Lemonade common stock was determined based on the closing price at acquisition date of $19.84, and includes a minimal amount of cash paid in lieu of fractional shares. (2) Contingent consideration represents Metromile's contingently issuable shares that are convertible into Lemonade common stock in accordance with the exchange ratio as set forth in the merger agreement. In accordance with ASC 805-30-25-5, contingent consideration shall be recognized and measured at fair value as of the Acquisition Date. Given that the contingencies are not probable of being met within the contingency period, no fair value was assessed for these Metromile shares. (3) Fair value of replacement awards related to services rendered prior to the Metromile Acquisition are included as part of purchase consideration. The unvested portion of fair value attributable to these replacement awards of $4.3 million comprised of $0.1 million for assumed options and $4.2 million for assumed restricted stock units ("RSUs"), and associated with future service will be recognized as expense over the future service period. The Metromile Acquisition increased the Company's geographic footprint as a tech-enabled insurance provider and is expected to accelerate growth of the Lemonade car product, including other product offerings. The Metromile Acquisition was accounted for as a business combination using the acquisition method of accounting in accordance with ASC 805, Business Combinations (“ASC 805”). The purchase price was allocated to assets acquired and liabilities assumed based on the estimated fair values at the Acquisition Date. The excess of the purchase price over the fair value of the net assets acquired was allocated to goodwill, and will not be deductible for tax purposes. Goodwill from this business combination is primarily attributable to synergies from future expected economic benefits, enhanced revenue growth from expanded capabilities and geographic presence, including cost savings from streamlined operations and enhanced operational efficiencies. The following table presents the preliminary allocation of purchase consideration recorded on the condensed consolidated balance sheet as of the Acquisition Date ($ in millions):
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 |  | $ | 84.4 |
Unearned premium |  | 15.1 |
Trade payables |  | 0.8 |
Ceded premium payable |  | 12.0 |
Other liabilities and accrued expenses |  | 22.2 |
Total liabilities assumed |  | $ | 134.5 |
Total identifiable net assets acquired |  | $ | 118.7 |
Total purchase consideration |  | $ | 137.7 |
Goodwill |  | $ | 19.0 |
Estimated fair values of assets acquired and liabilities assumed from Metromile are subject to change as we obtain additional information, and will be updated and finalized within the measurement period that will not extend beyond 12 months from the Acquisition Date. The amounts, based on preliminary valuations and subject to final adjustment, allocated to intangible assets are as follows ($ in millions):
|  | Fair Value |  | Weighted-Average Useful Life
Technology |  | $ | 28.0 |  |  | 3 to 5 years
Insurance licenses |  | 7.5 |  |  | N/A
Total |  | $ | 35.5 |  |  |
The Company finalized the fair value valuation analysis of assets acquired and liabilities assumed and as a result no measurement period adjustments were recorded. The results of operations for Metromile of $57.9 million of revenue and $24.7 million of net loss for the nine months ended September 30, 2023, and $15.1 million of revenue and $20.7 million of net loss from the date of the acquisition to the period ended September 30, 2022, have been included within the accompanying consolidated statements of operations and comprehensive loss. The Company incurred transaction and integration costs of approximately $7.4 million for the three months ended September 30, 2022 and $8.4 million for the nine months ended September 30, 2022, and were included in "General and administrative expenses" within the Company’s consolidated statements of operations and comprehensive loss. The following unaudited supplemental pro forma combined financial information presents the Company’s results of operations for the three and nine months ended September 30, 2022 as if the Metromile Acquisition had occurred on January 1, 2022. The pro forma financial information is presented for comparative purposes only and is not necessarily indicative of the Company’s operating results that may have actually occurred had the Metromile Acquisition been completed on January 1, 2022. In addition, the unaudited pro forma financial information does not give effect to any anticipated cost savings, operating efficiencies or other synergies that may be associated with the Metromile Acquisition, or any estimated costs that have been or will be incurred by the Company to integrate the assets and operations of Metromile.
|  | Three Months Ended September 30, 2022 |  | Nine Months Ended September 30, 2022
Total Revenue |  | $ | 85.1 |  |  | $ | 221.1 |
Net Loss |  | $ | (112.2) |  |  | $ | (316.8) |
The unaudited pro forma financial information reflects pro forma adjustments to present the combined pro forma results of operations as if the Metromile Acquisition had occurred on January 1, 2022 to give effect to certain events the Company believes to be directly attributable to the Metromile Acquisition. These pro forma adjustments primarily include: •a net decrease in amortization expense that would have been recognized due to acquired intangible assets; •an increase in the nine months ended September 30, 2022 for acquisition-related transaction costs; •a decrease in operating revenues due to the elimination of deferred revenues and assigned no value at the Acquisition Date; •a decrease to amortization expense due to the elimination of unamortized deferred acquisition costs; •an increase to income due to the adjustment of the loss and loss adjustment expense reserves at fair value; and •an increase in income due to the depreciation of Right-of-Use assets and lease expense upon adoption of ASC 842.

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- Definition The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. The disclosure may include leverage buyout transactions (as applicable). + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Topic 805 -SubTopic 20 -Name Accounting Standards Codification -Section 50 -Paragraph 5 -Subparagraph (b) -Publisher FASB -URI https://asc.fasb.org//1943274/2147479907/805-20-50-5 Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Topic 805 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org//805/tableOfContent + Details
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