Washington, D.C.
2021
| Delaware | 84-4916134 | |||||||
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||
| ||||||||
425 Market Street
San Francisco, California | 94105 | |||||||
| (Address of | (Zip Code) |
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||||||||
| Large accelerated filer | ☐ | Accelerated filer | ☐ | |||||||||||
| ☒ | Smaller reporting company | ☒ | ||||||||||||
| Emerging growth company | ☒ | |||||||||||||
As
INSU ACQUISITION CORP. II
Quarterly Report on Form 10-Q
| Page | |||||||||
i
Class A Common Stock Class B Common StockiTable of ContentsINSU ACQUISITION CORP. IICONDENSED BALANCE SHEETS September 30, December 31, 2020 2019 (unaudited) ASSETS Current assets Cash $ 690,971 $ — Prepaid expenses 240,442 — Total Current Assets 931,413 — Deferred financing cost — 10,315 Cash and marketable securities held in Trust Account 230,001,386 — Total Assets $ 230,932,799 $ 10,315 LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) Current liabilities Accounts payable and accrued expenses $ 26,454 $ 1,124 Accrued offering costs — 10,315 Total Current Liabilities 26,454 11,439 Deferred underwriting fee payable 9,800,000 — Total Liabilities 9,826,454 11,439 Commitments and Contingencies Class A common stock subject to possible redemption, 21,610,634 and no shares at redemption value as of September 30, 2020 and December 31, 2019, respectively 216,106,340 — Stockholders’ Equity (Deficit) Preferred stock, $0.0001 par value; 1,000,000 shares authorized, none issued and outstanding — — Class A common stock, $0.0001 par value; 60,000,000 shares authorized; 1,929,366 and no shares issued and outstanding (excluding 21,610,634 and no shares subject to possible redemption) as of September 30, 2020 and December 31, 2019, respectively 193 — Class B common stock, $0.0001 par value; 10,000,000 shares authorized; 7,846,667 shares issued and outstanding as of September 30, 2020 and December 31, 2019 785 785 Additional paid-in capital 5,083,766 24,215 Stock subscription receivable from stockholder — (25,000 ) Accumulated deficit (84,739 ) (1,124 ) Total Stockholders’ Equity (Deficit) 5,000,005 (1,124 ) Total Liabilities and Stockholders’ Equity (Deficit) $ 230,932,799 $ 10,315 The accompanying notes are an integral partCAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTSThis Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the unaudited condensed financial statements.CONDENSED STATEMENT OF OPERATIONS(Unaudited) Three Months
Ended
September 30, Nine Months
Ended
September 30, 2020 2020 Operating expenses $ 85,001 $ 85,001 Loss from operations (85,001 ) (85,001 ) Other income: Interest earned on marketable securities held in Trust Account 1,386 1,386 Net loss $ (83,615 ) $ (83,615 ) Weighted average shares outstanding of Class A redeemable common stock 23,000,000 23,000,000 Basic and diluted net income per share, Class A redeemable common stock $ 0.00 $ 0.00 Weighted average shares outstanding of Class A and Class B non-redeemable common stock 8,386,667 8,386,667 Basic and diluted net loss per share, Class A and Class B non-redeemable common stock $ (0.01 ) $ (0.01 ) The accompanying notes are an integral partSecurities Act of 1933, as amended (the “Securities Act”), and Section 21E of the unaudited condensed financialSecurities Exchange Act of 1934, as amended (the “Exchange Act”). All statements, other than statements of present or historical fact included in this Quarterly Report on Form 10-Q are forward-looking statements. 2CONDENSED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITYTHREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020(Unaudited) Additional
Paid-in Stock
Subscription
Receivable
from Accumulated Total
Stockholders’ Shares Amount Shares Amount Capital Stockholder Deficit Equity Balance – January 1, 2020 — $ — 7,846,667 $ 785 $ 24,215 $ (25,000 ) $ (1,124 ) $ (1,124 ) Net loss — — — — — — — — Balance – March 31, 2020 — — 7,846,667 785 24,215 (25,000 ) (1,124 ) (1,124 ) Net loss — — — — — — — — Balance – June 30, 2020 — — 7,846,667 785 24,215 (25,000 ) (1,124 ) (1,124 ) Collection of stock subscription receivable from stockholder — — — — — 25,000 — 25,000 Sale of 23,000,000 Units, net of underwriting discount and offering expenses 23,000,000 2,300 — — 215,763,784 — — 215,766,084 Sale of 540,000 Placement Units 540,000 54 — — 5,399,946 — — 5,400,000 Common stock subject to possible redemption (21,610,634 ) (2,161 ) — — (216,104,179 ) — — (216,106,340 ) Net loss — — — — — — (83,615 ) (83,615 ) Balance – September 30, 2020 1,929,366 $ 193 7,846,667 $ 785 $ 5,083,766 $ — $ (84,739 ) $ 5,000,005 The accompanying notes are an integral part•our ability to recognize the anticipated benefits of the unaudited condensedBusiness Combination (as defined herein), which may be affected by, among other things, competition and the ability of the combined business to grow and manage growth profitably;•our financial and business performance, including financial projections and business metrics and any underlying assumptions thereunder;•changes in our strategy, future operations, financial position, estimated revenues and losses, projected costs, prospects and plans;•potential disruptions to our ongoing business operations caused by the announcement, pendency or completion of the Proposed Transaction (as defined herein);•our ability to consummate the Proposed Transaction and realize the anticipated benefits thereof;•the implementation, market acceptance and success of our business model;•our ability to scale in a cost-effective manner;•developments and projections relating to our competitors and industry;•the impact of health epidemics, including the COVID-19 pandemic, on our business and the actions we may take in response thereto;•our expectations regarding our ability to obtain and maintain intellectual property protection and not infringe on the rights of others;•expectations regarding the time during which we will be an emerging growth company;•our future capital requirements and sources and uses of cash;•our ability to obtain funding for our future operations;•our business, expansion plans and opportunities; and•the outcome of any known and unknown litigation and regulatory proceedings.In some cases, you can identify forward-looking statements by terminology such as “anticipate,” “continue,” “could,” “estimate,” “expect,” “intends,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “seek,” “should,” “target,” “will,” “would” or the negative of such terms or other similar expressions. Further, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report on Form 10-Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These forward-looking statements and statements about our beliefs are subject to known and unknown risks, uncertainties and assumptions about us that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. These risks and uncertainties include the following:
•We have a history of net losses and could continue to incur substantial net losses in the future;
•We may lose existing customers or fail to acquire new customers•We may require additional capital to support business growth or to satisfy our regulatory capital and surplus requirements, and this capital might not be available on acceptable terms, if at all;•The COVID-19 pandemic has caused disruption to our operations and may negatively impact our business, key metrics, and results of operations in numerous ways that remain unpredictable;•Severe weather and other catastrophic events, including the effects of climate change, are unpredictable and may have a material adverse effect on our financial results and financial condition;•We rely on telematics, mobile technology and its digital platform to collect data points that we evaluate in pricing and underwriting insurance policies, managing claims and customer support, and improving business processes, and to the extent regulators prohibit or restrict this collection or use of this data, our business could be harmed;•Regulatory changes may limit our ability to develop or implement our telematics-based pricing model and/or may eliminate or restrict the confidentiality of our proprietary technology;•We expect a number of factors to cause our results of operations to fluctuate on a quarterly and annual basis, which may make it difficult to predict future performance;iiTable of ContentsINSU ACQUISITION CORP.•Denial of claims or our failure to accurately and timely pay claims could materially and adversely affect our business, financial condition, results of operations, brand and prospects;•Unexpected increases in the frequency or severity of claims may adversely affect our results of operations and financial condition;•Failure to maintain our risk-based capital (“RBC”) at the required levels could adversely affect our ability to maintain regulatory authority to conduct our business;•We are subject to stringent and changing privacy and data security laws, regulations, and standards related to data privacy and security, and our actual or perceived failure to comply with such obligations could harm our reputation, subject us to significant fines and liability, or adversely affect our business;•If we are unable to underwrite risks accurately or charge competitive yet profitable rates to our customers, our business, results of operations and financial condition will be adversely affected;•Litigation and legal proceedings filed by or against us and our subsidiaries could have a material adverse effect on our business, results of operations and financial condition;•The insurance business, including the market for automobile, 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 regulation and potential further restrictive regulation may increase our operating costs and limit our growth; and•Our actual incurred losses may be greater than our loss and loss adjustment expense (“LAE”) reserves, which could have a material adverse effect on our financial condition and results of operations.Additional discussion of the risks, uncertainties and other factors described above, as well as other risks and uncertainties material to our business, can be found under “Risk Factors” in Part II,CONDENSED STATEMENT Item 1A of this Quarterly Report on Form 10-Q, and we encourage you to refer to that additional discussion. Given these risks, uncertainties and other factors, you should not place undue reliance on these forward-looking statements. Also, these forward-looking statements represent our plans, objectives, estimates, expectations and intentions only as of the date of this filing. You should read this report completely and with the understanding that our actual future results and the timing of events may be materially different from what we expect, and we cannot otherwise guarantee that any forward-looking statement will be realized. We hereby qualify all of our forward-looking statements by these cautionary statements.Except as otherwise required by applicable law, we disclaim any duty to update any forward-looking statements, all of which are expressly qualified by the statements in this section, to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q. We caution you that these forward-looking statements are subject to numerous risks and uncertainties, most of which are difficult to predict and many of which are beyond our control.iiiPART IITEM 1. FINANCIAL STATEMENTSMETROMILE, INC.CONSOLIDATED BALANCE SHEETS(In thousands, except share and per share amounts) September 30,
2021December 31,
2020(unaudited) Assets Investments Marketable securities - restricted $ 49,792 $ 24,651 Total investments 49,792 24,651 Cash and cash equivalents 159,157 19,150 Restricted cash and cash equivalents 50,938 31,038 Receivable for securities 624 — Premiums receivable 18,655 16,329 Reinsurance recoverable on paid loss — 8,475 Reinsurance recoverable on unpaid loss — 33,941 Prepaid reinsurance premium — 13,668 Prepaid expenses and other assets 7,973 12,058 Deferred transaction costs — 3,581 Deferred policy acquisition costs, net 1,569 656 Telematics devices, improvements and equipment, net 13,025 12,716 Website and software development costs, net 22,008 18,401 Digital assets, net 803 — Intangible assets 7,500 7,500 Total assets $ 332,044 $ 202,164 Liabilities, Convertible Preferred Stock and Stockholders’ Deficit Liabilities Loss and loss adjustment expense reserves $ 70,798 $ 57,093 Ceded reinsurance premium payable — 27,000 Payable to carriers - premiums and LAE, net 299 849 Unearned premium reserve 17,393 16,070 Deferred revenue 4,597 5,817 Accounts payable and accrued expenses 8,907 8,222 Notes payable — 51,934 Warrant liability 6,693 83,652 Other liabilities 6,302 8,554 Total liabilities 114,989 259,191 0 0 Convertible preferred stock, $0.0001 par value; 10,000,000 and 89,775,268 shares authorized as of September 30, 2021, and December 31, 2020, respectively; 0 and 68,776,614 shares issued and outstanding as of September 30, 2021, and December 31, 2020, respectively; liquidation preference of $0 and $302,397 as of September 30, 2021, and December 31, 2020, respectively — 304,469 Stockholders’ equity (deficit) Common stock, $0.0001 par value; 640,000,000 and 111,702,628 shares authorized as of September 30, 2021, and December 31, 2020, respectively; 127,737,209 and 8,992,039 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively 13 1 Accumulated paid-in capital 755,276 5,482 Note receivable from executive — (415) Accumulated other comprehensive (loss) income (15) 11 Accumulated deficit (538,219) (366,575) Total stockholders' equity (deficit) 217,055 (361,496) Total liabilities, convertible preferred stock and stockholders’ equity (deficit) $ 332,044 $ 202,164 See notes to consolidated financial statements.1METROMILE, INC.CONSOLIDATED STATEMENTS OF OPERATIONS(In thousands, except share and per share amounts) Three Months Ended
September 30,Nine Months Ended
September 30,2021 2020 2021 2020 Revenue (unaudited) (unaudited) Premiums earned, net $ 28,142 $ 3,139 $ 47,316 $ 9,360 Investment income 30 81 85 500 Other revenue 1,829 4,731 27,974 14,499 Total revenue 30,001 7,951 75,375 24,359 Costs and expenses Losses and loss adjustment expenses 27,480 4,443 62,383 12,214 Policy servicing expense and other 5,674 4,119 15,172 12,803 Sales, marketing and other acquisition costs 12,332 28 85,552 3,616 Research and development 5,130 1,832 11,898 6,668 Amortization of capitalized software 2,838 2,815 8,190 8,311 Other operating expenses 14,207 3,924 39,534 13,138 Total costs and expenses 67,661 17,161 222,729 56,750 Loss from operations (37,660) (9,210) (147,354) (32,391) Other expense Interest expense — 1,513 15,974 3,453 Impairment on digital assets 117 — 183 — (Decrease) increase in fair value of stock warrant liability (11,020) (26) 8,133 640 Total other expense (10,903) 1,487 24,290 4,093 Loss before taxes (26,757) (10,697) (171,644) (36,484) Income tax benefit — (67) — (67) Net loss $ (26,757) $ (10,630) $ (171,644) $ (36,417) Net loss per share, basic and diluted $ (0.21) $ (1.20) $ (1.56) $ (4.10) Weighted-average shares used in computing basic and diluted net loss per share 127,166,524 8,888,099 109,988,189 8,882,040 See notes to consolidated financial statements.2METROMILE, INC.CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS(In thousands)Three Months Ended
September 30,Nine Months Ended
September 30,2021 2020 2021 2020 (unaudited) (unaudited) Net loss $ (26,757) $ (10,630) $ (171,644) $ (36,417) Unrealized net loss on marketable securities — (64) (26) (33) Total comprehensive loss $ (26,757) $ (10,694) $ (171,670) $ (36,450) See notes to consolidated financial statements.3METROMILE, INC.CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’
(DEFICIT) EQUITY(dollars in thousands)Convertible Preferred Stock Common Stock APIC Note
ReceivableAccumulated
Other
Comprehensive
IncomeAccumulated
DeficitTotal Shares Amount Shares Amount Balance as of December 31, 2019 67,728,286 $ 304,469 8,730,377 $ 1 $ 3,816 $ (408) $ 60 $ (246,478) $ (243,009) Retroactive application of recapitalization 1,048,328 — 135,133 — — — — — — As adjusted, beginning of period 68,776,614 304,469 8,865,510 1 3,816 (408) 60 (246,478) (243,009) Exercises and vested portion of stock options — — 20,452 — 50 — — — 50 Stock-based compensation — — — — 555 — — — 555 Interest on stock purchase promissory note — — — — — (6) — — (6) Unrealized net gain on marketable securities — — — — — — 31 — 31 Net loss — — — — — — — (25,787) (25,787) Balance as of June 30, 2020 68,776,614 $ 304,469 8,885,962 $ 1 $ 4,421 $ (414) $ 91 $ (272,265) (268,166) Exercises and vested portion of stock options — — 7,630 — 20 — — — 20 Stock-based compensation — — — — 426 — — — 426 Interest on stock purchase promissory note — — — — — (2) — — (2) Unrealized net gain on marketable securities — — — — — — (64) — (64) Net loss — — — — — — — (10,630) (10,630) Balance as of September 30, 2020 68,776,614 $ 304,469 8,893,592 $ 1 $ 4,867 $ (416) $ 27 $ (282,895) $ (278,416) 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 — — — — 12,021 — — — 12,021 Exercises and vested portion of stock options — — 1,089,670 — 2,175 — — — 2,175 Conversion of promissory note — — — — (415) 415 — — — RSUs withheld for tax purposes — — — — (422) — — — (422) Unrealized net loss on marketable securities — — — — — — (26) — (26) 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 — — — — — — — (144,887) (144,887) Balance as of June 30, 2021 — $ — 126,727,134 $ 12 $ 746,981 $ — $ (15) $ (511,462) $ 235,516 401K match with MILE stock — — 37,170 — 321 — — — 321 Exercises and vested portion of stock options — — 5,968 — 46 — — — 46 Stock-based compensation — — 966,937 1 7,928 — — — 7,929 Net loss — — — — — — — (26,757) (26,757) Balance as of September 30, 2021 — $ — 127,737,209 $ 13 $ 755,276 $ — $ (15) $ (538,219) $ 217,055 See notes to consolidated financial statements.4METROMILE, INC.CONSOLIDATED STATEMENTS OF CASH FLOWSNINE MONTHS ENDED SEPTEMBER 30, 2020(Unaudited)Cash Flows from Operating Activities: Net loss $ (83,615 ) Adjustments to reconcile net loss to net cash used in operating activities: Interest earned on marketable securities held in Trust Account (1,386 ) Changes in operating assets and liabilities: Prepaid expenses (240,442 ) Accounts payable and accrued expenses 25,330 Net cash used in operating activities (300,113 ) Cash Flows from Investing Activities: Investment of cash in Trust Account (230,000,000 ) Net cash used in investing activities (230,000,000 ) Cash Flows from Financing Activities: Proceeds from sale of Units, net of underwriting discounts paid 226,000,000 Proceeds from sale of Placement Units 5,400,000 Proceeds from collection of stock subscription receivable from stockholder 25,000 Proceeds from promissory note – related party 75,000 Repayment of promissory note – related party (75,000 ) Payment of offering costs (433,916 ) Net cash provided by financing activities 230,991,084 Net Change in Cash 690,971 Cash – Beginning of period — Cash – End of period $ 690,971 Non-Cash investing and financing activities: Initial classification of common stock subject to possible redemption $ 216,189,340 Change in value of common stock subject to possible redemption $ (83,000 ) Deferred underwriting fee payable $ 9,800,000 The accompanying(in thousands)Nine Months Ended September 30, 2021 2020 (unaudited) Cash flows from operating activities: Net loss $ (171,644) $ (36,417) Adjustments to reconcile net loss to cash used in operating activities: Depreciation and amortization 12,523 12,503 Stock-based compensation 19,949 981 Change in fair value of warrant liability 8,133 640 Telematics devices unreturned 1,616 684 Amortization of debt issuance costs 11,695 796 Noncash interest and other expense 4,388 8,344 Changes in operating assets and liabilities: Premiums receivable (2,326) (1,171) Accounts receivable 3,526 692 Reinsurance recoverable on paid loss 8,475 4,752 Reinsurance recoverable on unpaid loss 33,941 (4,746) Prepaid reinsurance premium 13,668 (1,899) Prepaid expenses and other assets 456 3,636 Deferred transaction costs 3,581 — Deferred policy acquisition costs, net (1,951) (482) Digital assets, net (986) — Accounts payable and accrued expenses 476 (2,115) Ceded reinsurance premium payable (27,000) (8,683) Loss and loss adjustment expense reserves 13,705 1,157 Payable to carriers - premiums and LAE, net (550) (1,558) Unearned premium reserve 1,323 2,234 Deferred revenue (1,220) 249 Deferred tax liability — (67) Other liabilities (2,109) 1,134 Net cash used in operating activities (70,331) (19,336) Cash flows from investing activities: Purchases of telematics devices, improvements, and equipment (5,220) (6,269) Payments relating to capitalized website and software development costs (12,077) (10,320) Net change in payable/(receivable) for securities (624) 225 Purchase of securities (44,828) (18,088) Sales and maturities of marketable securities 19,484 39,040 Net cash (used in) provided by investing activities (43,265) 4,588 Cash flow from financing activities: Proceeds from notes payable 2,015 25,880 Payment on notes payable (69,351) (222) Proceeds from merger with INSU II, net of issuance costs 336,469 — Proceeds from exercise of common stock options and warrants 4,370 70 Net cash provided by financing activities 273,503 25,728 Net increase in cash, cash equivalents, restricted cash and restricted cash equivalents 159,907 10,980 Cash, cash equivalents, restricted cash and restricted cash equivalents at beginning of period 50,188 42,887 Cash, cash equivalents, restricted cash and restricted cash equivalents at end of period $ 210,095 $ 53,867 Supplemental cash flow data: Cash paid for interest $ 3,164 $ 2,233 Non-cash investing and financing transactions: Net liabilities assumed in the Business Combination $ 45,516 $ — Net exercise of preferred stock warrants $ 56,160 $ — Net exercise of promissory note $ 415 $ — Capitalized website and software development costs included in accrued liabilities $ 280 $ 125 Capitalized stock-based compensation $ 639 $ 336 Reclassification of liability to equity for vesting of stock options $ 169 $ — Preferred stock warrant issued in conjunction with note payable $ — $ 12,464 See notes are an integral partto consolidated financial statements.5
METROMILE, INC.
SEPTEMBER 30, 2020
(Unaudited)
NOTE
Overview and Basis of Presentation
Although the Company is not limited to a particular industry or sector for purposes of consummating a Business Combination, the Company intends to focus its search on businesses providing insurance or insurance related services, with particular emphasis on insurance distribution businesses, regulated insurance or reinsurance businesses, and insurance related technology businesses. The Company is an early stage and emerging growth company and, as such, the Company is subject to all of the risks associated with early stage and emerging growth companies.
As of September 30, 2020, the Company had not yet commenced operations. All activity for the period from October 11, 2018 (inception) through September 30, 2020 relates to the Company’s formation, the initial public offering (the “Initial Public Offering”), which is described below, and, subsequent to the Initial Public Offering, identifying a target company for a Business Combination. The Company will not generate any operating revenues until after the completion of its initial Business Combination, at the earliest. The Company will generate non-operating income in the form of interest income from the proceeds derived from the Initial Public Offering.
$230.0 million. Simultaneously with the closing of the Initial Public Offering, the CompanyIPO, 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 Insurance Acquisition Sponsor II, LLCthe sponsor and Cantor Fitzgerald & Co. (“Cantor”), generating gross proceeds of $5,400,000, which is described in Note 4.
$5.4 million. Transaction costs amounted to $14,233,916,$14.2 million, consisting of $4,000,000$4.0 million in cash underwriting fees, $9,800,000$9.8 million of deferred underwriting fees and $433,916$0.4 million of other offering costs. In addition, as of September 30, 2020, cash of $690,971 was held outside of the Trust Account (as defined below) and is available for working capital purposes.
Following the closing of the Initial Public OfferingIPO on September 8, 2020, an amount of $230,000,000$230.0 million ($10.00 per Unit) from the net proceeds of the sale of the Units in the Initial Public OfferingIPO and the sale of the Placement Units was placed in a trust account (the “Trust
Account”), which will bewas 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, which invest only in direct U.S. government treasury obligations untilas determined by INSU.
The Company’s management has broad discretion with respect to the specific application of the net proceeds of the Initial Public Offering and the sale of the Placement Units, although substantially all of the net proceeds are intended to be applied generally toward consummating a Business Combination. There is no assurance that the Company will be able to successfully effectreceive shares of Lemonade common stock at a Business Combination. Nasdaq rules provide thatratio of 19:1. The transaction is conditioned on customary closing conditions, including receipt of applicable regulatory approvals and approval of the Proposed Transaction by stockholders of the Company, must completeand is expected to close in the second quarter of 2022. The Boards of Directors of both the Company and Lemonade have each approved the Proposed Transaction.
The Company will provide its stockholders with the opportunity to redeem all or a portion of their Public Shares upon the completion of a Business Combination either (i) in connection with a stockholder meeting called to approve the Business Combination or (ii) by means of a tender offer. The decision as to whether(the “Closing”), the Company will seek stockholder approvalchanged 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 a Business Combination or conduct a tender offer will be made byINSU prior to the Company, solely inClosing, and references to the “Company,” “Metromile” and “Metromile Operating Company” refer to the historical operations of Legacy Metromile and its discretion. The stockholders will be entitledconsolidated subsidiaries prior to redeem their Public Shares for a pro rata portionthe Closing and the business of the amount then on deposit incombined company and its subsidiaries following the Trust Account (initially approximately $10.00 per Public Share, plus any pro rata interest earned on the funds held in the Trust Account and not previously released to the Company to pay its tax obligations). Closing.
5
INSU ACQUISITION CORP. II
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2020
(Unaudited)
The Company will proceed with a Business Combination if the Company has net tangible assets of at least $5,000,001 upon such consummation of a Business Combination and, if the Company seeks stockholder approval, a majority of the outstanding shares voted are voted in favor of the Business Combination. If a stockholder vote is not required by law and the Company does not decide to hold a stockholder voteMerger was accounted for business or other legal reasons, the Company will, pursuant to its Amended and Restated Certificate of Incorporation, conduct the redemptions pursuant to the tender offer rules of the U.S. Securities and Exchange Commission (“SEC”), and file tender offer documents with the SEC prior to completing a Business Combination. If, however, stockholder approval of the transaction is required by law, or the Company decides to obtain stockholder approval for business or other legal reasons, the Company will offer to redeem shares in conjunction with a proxy solicitation pursuant to the proxy rules and not pursuant to the tender offer rules. If the Company seeks stockholder approval in connection with a Business Combination, Insurance Acquisition Sponsor II, LLC and Dioptra Advisors II, LLC (collectively, the “Sponsor”) and the Company’s officers and directors (the “Insiders”) have agreed to vote their Founder Shares (as defined in Note 5), the shares of Class A common stock included in the Placement Units (the “Placement Shares”) and any Public Shares held by them in favor of approving a Business Combination. Additionally, each public stockholder may elect to redeem their Public Shares irrespective of whether they vote for or against the proposed transaction.
The Company will also provide its stockholders with the opportunity to redeem all or a portion of their Public Shares in connection with any stockholder vote to approve an amendment to the Company’s Amended and Restated Certificate of Incorporation that would affect the substance or timing of the Company’s obligation to redeem 100% of Public Shares if it does not complete an initial Business Combination within the Combination Period. The stockholders will be entitled to redeem their shares for a pro rata portion of the amount then on deposit in the Trust Account (initially approximately $10.00 per share, plus any pro rata interest earned on the funds held in the Trust Account, net of taxes payable). The per-share amount to be distributed to stockholders who redeem their shares will not be reduced by the deferred underwriting commissions the Company will pay to the representative (as discussed in Note 6). There will be no redemption rights with respect to the Company’s warrants in connection with such a stockholder vote to approve such an amendment to the Company’s Amended and Restated Certificate of Incorporation. Notwithstanding the foregoing, the Company may not redeem shares in an amount that would cause its net tangible assets to be less than $5,000,001. The Insiders have agreed to vote any Founder Shares, any Placement Shares and any Public Shares held by them in favor of any such amendment.
The Company will have until the expiration of the Combination Period to consummate its initial Business Combination. If the Company is unable to consummate a Business Combination within the Combination Period, the Company will (i) cease all operations except for the purposes of winding up; (ii) as promptly as reasonably possible but not more than ten business days thereafter, redeem the Public Shares, at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account, including any interest earned on the Trust Account not previously released to the Company to pay its tax obligations and up to $100,000 of interest to pay dissolution expenses, divided by the number of then outstanding Public Shares, which redemption will completely extinguish public stockholders’ rights as stockholders (including the right to receive further liquidating distributions, if any), subject to applicable law, and (iii) as promptly as reasonably possible following such redemption, subject to the approval of the Company’s remaining stockholders and the Company’s board of directors, dissolve and liquidate, subject in each case to the Company’s obligations under Delaware law to provide for claims of creditors and the requirements of other applicable law. There will be no redemption rights or liquidating distributions with respect to the Company’s warrants, which will expire worthless if the Company fails to complete a Business Combination within the Combination Period.
The Insiders and Cantor have agreed to waive their redemption rights with respect to any Founder Shares and Placement Shares, as applicable, (i) in connection with the consummation of a Business Combination, (ii) in connection with a stockholder vote to amend the Company’s Amended and Restated Certificate of Incorporation to modify the substance or timing of the Company’s obligation to redeem 100% of its Public Shares if it does not complete its initial Business Combination within the Combination Period, and (iii) if the Company fails to consummate a Business Combination within the Combination Period. The Insiders have also agreed to waive their redemption rights with respect to any Public Shares held by them in connection with the consummation of a Business Combination and in connection with a stockholder vote to amend the Company’s Amended and Restated Certificate of Incorporation to modify the substance or timing of the Company’s obligation to redeem 100% of its Public Shares if it does not complete its initial Business Combination within the Combination Period. However, the Insiders will be entitled to redemption rights with respect to Public Shares if the Company fails to consummate a Business Combination or liquidates within the Combination Period. Cantor will have the same redemption rights as public stockholders with respect to any Public Shares it acquires. The representative has agreed to waive its rights to deferred underwriting commissions held in the Trust Account in the event the Company does not consummate a Business Combination within the Combination Period and, in such event, such amounts will be included with the funds held in the Trust Account that will be available to fund the redemption of the Public Shares. In the event of such distribution, it is possible that the per share value of the residual assets remaining available for distribution (including Trust Account assets) will be less than the initial public offering price per Unit in the Initial Public Offering. Placing funds in the Trust Account may not protect those funds from third party claims against the Company. Although the Company will seek to have all vendors, service providers, prospective target businesses or other entities it engages, execute agreements with the Company waiving any claim of any kind in or to any monies held in the Trust Account, there is no guarantee that such persons will execute such agreements. Insurance Acquisition Sponsor II, LLC has agreed that it will be liable under certain circumstances to ensure that the proceeds in the Trust Account are not reduced by the claims of target businesses or vendors or other entities that are owed money by the Company for service rendered, contracted for or products sold to the Company. However, it may not be able to satisfy those obligations should they arise.
INSU ACQUISITION CORP. II
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2020
(Unaudited)
Notwithstanding the foregoing redemption rights, if the Company seeks stockholder approval of its Business Combination and it does not conduct redemptions in connection with its Business Combination pursuant to the tender offer rules, the Amended and Restated Certificate of Incorporation provides that a public stockholder, together with any affiliate of such stockholder or any other person with whom such stockholder is acting in concert or as a “group” (as defined under Section 13 of the Exchange Act), will be restricted from redeeming its shares with respect to an aggregate of 20.0% or more of the shares sold in the Initial Public Offering. However, there is no restriction on the Company’s stockholders’ ability to vote all of their shares for or against a Business Combination.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited condensed financial statements have been preparedreverse recapitalization in accordance with accounting principles generally accepted in the United States of America (“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.
The accompanyingtransactions have been eliminated in consolidation.
The Company had minimal activity for the three and nine months ended September 30, 2019. Accordingly, the condensed statement of operations, condensed statement of stockholder’s deficit and condensed statement of cash flows for the three and nine months ended September 20, 2019 are not presented.
Emerging Growth Company
The Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.
Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with newinterim or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of the Company’s financial statements with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.
annual periods.
INSU ACQUISITION CORP. II
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2020
(Unaudited)
Making The Company’s principal estimates requires management to exercise significant judgment. It is at least reasonably possible thatinclude: unpaid losses and LAE reserves; the estimatefair value of investments; the fair value of stock-based awards; the fair value of the effectwarrant liability; premium refunds to policyholders; reinsurance recoverable on unpaid loss; and the valuation allowance for income taxes. Because of a condition, situation or setuncertainties associated with estimating the amounts, timing and likelihood of circumstances that existed at the date of the financial statements, which management considered in formulating its estimate, could change in the near term due to one or more future events. Accordingly, thepossible outcomes, actual results could differ significantlymaterially from these estimates.
digital assets in the amount equal to the difference between their carrying values and the price determined.
Class A common stock subject to possible redemption
The Company accounts for its common stock subject to possible redemption in accordance with the guidance in Accounting Standards Codification (“ASC”) Topic 480 “Distinguishing Liabilities from Equity.” Common stock subject to mandatory redemption is classified as2020.
Offering Costs
Offering costs consist of underwriting, legal, accounting and other expenses incurred through the Initial Public Offering that are directlyvalue, primarily related to marketable securities, included in the Initial Public Offering. Offering costs amounting to $14,233,916 were charged to stockholders’ equity upon the completion of the Initial Public Offering.
Income Taxes
The Company complies with the accounting and reporting requirements of ASC Topic 740 “Income Taxes,” which requires an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are computed for differences between the financial statement and tax bases of assets and liabilities that will result in future taxable or deductible amounts, based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.
ASC Topic 740 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as income tax expense. There were no unrecognized tax benefits and no amounts accrued for interest and penaltiesconsolidated balance sheets as of September 30, 2020.2021 (unaudited) and December 31, 2020 are set forth below (in thousands):
| Fair Value Measurement at September 30, 2021 (unaudited) | |||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||
| Cash equivalents | |||||||||||||||||||||||
| Money market accounts | $ | 154,111 | $ | — | $ | — | $ | 154,111 | |||||||||||||||
| Total cash equivalents | $ | 154,111 | $ | — | $ | — | $ | 154,111 | |||||||||||||||
| Restricted cash equivalents | |||||||||||||||||||||||
| Money market accounts | $ | 31,254 | $ | — | $ | — | $ | 31,254 | |||||||||||||||
| Certificates of deposits | 3,331 | — | — | 3,331 | |||||||||||||||||||
| Total restricted cash equivalents | $ | 34,585 | $ | — | $ | — | $ | 34,585 | |||||||||||||||
| Marketable securities - restricted | |||||||||||||||||||||||
| Corporate debt securities | $ | — | $ | 3,356 | $ | — | $ | 3,356 | |||||||||||||||
| U.S. treasury and agency securities | 23,273 | 1,995 | — | 25,268 | |||||||||||||||||||
| Commercial paper | — | 12,088 | — | 12,088 | |||||||||||||||||||
| Asset backed securities | — | 9,080 | — | 9,080 | |||||||||||||||||||
| Total marketable securities - restricted | $ | 23,273 | $ | 26,519 | $ | — | $ | 49,792 | |||||||||||||||
| Fair Value Measurement at December 31, 2020 | |||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||
| Cash equivalents | |||||||||||||||||||||||
| Money market accounts | $ | 6,771 | $ | — | $ | — | $ | 6,771 | |||||||||||||||
| Total cash equivalents | $ | 6,771 | $ | — | $ | — | $ | 6,771 | |||||||||||||||
| Restricted cash equivalents | |||||||||||||||||||||||
| Money market accounts | $ | 6,201 | $ | — | $ | — | $ | 6,201 | |||||||||||||||
| Certificates of deposits | 3,331 | — | — | 3,331 | |||||||||||||||||||
| Total restricted cash equivalents | $ | 9,532 | $ | — | $ | — | $ | 9,532 | |||||||||||||||
| Marketable securities - restricted | |||||||||||||||||||||||
| Corporate debt securities | $ | — | $ | 5,955 | $ | — | $ | 5,955 | |||||||||||||||
| U.S. treasury securities | 6,994 | — | — | 6,994 | |||||||||||||||||||
| Commercial paper | — | 8,791 | — | 8,791 | |||||||||||||||||||
| Asset backed securities | — | 2,911 | — | 2,911 | |||||||||||||||||||
| Total marketable securities - restricted | $ | 6,994 | $ | 17,657 | $ | — | $ | 24,651 | |||||||||||||||
a different fair value measurement at the reporting date and as such are classified as Level 2 liabilities.
Net Income (Loss) Per Common Share
Net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of common shares outstandingLevel 3 liabilities for the period. The Company has not considered the effect of warrants sold in the Initial Public Offering and private placement to purchase 7,846,666 shares of Class A common stock in the calculation of diluted income (loss) per share, since the exercise of the warrants are contingent upon the occurrence of future eventsyear ended December 31, 2020 and the inclusion of such warrants would be anti-dilutive.
INSU ACQUISITION CORP. II
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBERnine months ended September 30, 2020
(Unaudited)
The Company’s statement of operations includes a presentation of income (loss) per share for common shares subject to possible redemption in a manner similar to the two-class method of income per share. Net income (loss) per common share, basic and diluted for Class A redeemable common stock is calculated by dividing the interest income earned on the Trust Account, net of applicable franchise and income taxes, by the weighted average number of Class A redeemable common stock outstanding since original issuance. Net income (loss) per common share, basic and diluted for Class A and Class B non-redeemable common stock is calculated by dividing the net income (loss), less income attributable to Class A redeemable common stock, by the weighted average number of Class A and Class B non-redeemable common stock outstanding for the period. Class A and Class B non-redeemable common stock includes the Founder Shares and the Placement Shares as these shares do not have any redemption features and do not participate in the income earned on the Trust Account.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist of a cash account in a financial institution, which, at times, may exceed the Federal Depository Insurance Coverage of $250,000. The Company has not experienced losses on this account and management believes the Company is not exposed to significant risks on such account.
Fair Value of Financial Instruments
2021 (unaudited) (in thousands):
| Balance at December 31, 2019 | $ | 1,738 | |||
| Issuance of warrant on Series E convertible preferred stock | 12,620 | ||||
| Increase in fair value of warrant | 69,294 | ||||
| Balance at December 31, 2020 | $ | 83,652 | |||
| Increase in fair value of warrants | 47,061 | ||||
| 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 | (38,929) | ||||
| Balance at September 30, 2021 | $ | 6,693 | |||
| Estimated Fair Value of Warrants as of September 30, 2021 | Exercise Price | Dividend Yield | Volatility | Risk-Free Interest Rate | Expected Term | ||||||||||||||||||||||||||||||
| (in thousands) | (in whole dollars) | (in years) | |||||||||||||||||||||||||||||||||
| Private placement warrants | $ | 176 | $ | 11.50 | 0 | % | 70 | % | 0.84 | % | 4.4 | ||||||||||||||||||||||||
| As of September 30, 2021 (Unaudited) | |||||||||||||||||||||||
| Amortized Cost | Unrealized Gain | Unrealized Loss | Estimated Fair Value | ||||||||||||||||||||
| Marketable securities - restricted | |||||||||||||||||||||||
| Corporate debt securities | $ | 3,356 | $ | — | $ | — | $ | 3,356 | |||||||||||||||
| U.S. treasury and agency securities | 25,274 | — | (6) | 25,268 | |||||||||||||||||||
| Commercial paper | 12,088 | — | — | 12,088 | |||||||||||||||||||
| Asset backed securities | 9,083 | — | (3) | 9,080 | |||||||||||||||||||
| Total marketable securities - restricted | $ | 49,801 | $ | — | $ | (9) | $ | 49,792 | |||||||||||||||
| As of December 31, 2020 | |||||||||||||||||||||||
| Amortized Cost | Unrealized Gain | Unrealized Loss | Estimated Fair Value | ||||||||||||||||||||
| Marketable securities - restricted | |||||||||||||||||||||||
| Corporate debt securities | $ | 5,938 | $ | 17 | $ | — | $ | 5,955 | |||||||||||||||
| U.S. treasury securities | 6,994 | — | — | 6,994 | |||||||||||||||||||
| Commercial paper | 8,791 | — | — | 8,791 | |||||||||||||||||||
| Asset backed securities | 2,911 | — | — | 2,911 | |||||||||||||||||||
| Total marketable securities - restricted | $ | 24,634 | $ | 17 | $ | — | $ | 24,651 | |||||||||||||||
| As of September 30, 2021 (unaudited) | |||||||||||
| Amortized Cost | Estimated Fair Value | ||||||||||
| Due within one year | $ | 29,171 | $ | 29,193 | |||||||
| Due between one to five years | 20,630 | 20,599 | |||||||||
| $ | 49,801 | $ | 49,792 | ||||||||
| As of December 31, 2020 | |||||||||||
| Amortized Cost | Estimated Fair Value | ||||||||||
| Due within one year | $ | 21,603 | $ | 21,629 | |||||||
| Due between one to five years | 3,031 | 3,022 | |||||||||
| $ | 24,634 | $ | 24,651 | ||||||||
| 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 | ||||
| September 30, 2021 | December 31, 2020 | ||||||||||
| (unaudited) | |||||||||||
| Deferred policy acquisition costs | $ | 11,363 | $ | 10,511 | |||||||
| Deferred ceding commission [1] | (104) | (1,202) | |||||||||
| Accumulated amortization | (9,690) | (8,653) | |||||||||
| Deferred policy acquisition costs, net | $ | 1,569 | $ | 656 | |||||||
| Nine Months Ended September 30, | |||||||||||
| 2021 | 2020 | ||||||||||
| (unaudited) | |||||||||||
| Balance at January 1 | $ | 57,093 | $ | 52,222 | |||||||
| Less reinsurance recoverable | (33,941) | (28,837) | |||||||||
| Net balance at January 1 | 23,152 | 23,385 | |||||||||
| Incurred related to: | |||||||||||
| Current year | 60,940 | 10,774 | |||||||||
| Prior years | 1,332 | 1,214 | |||||||||
| Total incurred | 62,272 | 11,988 | |||||||||
| Paid related to: | |||||||||||
| Current year | 26,648 | 4,155 | |||||||||
| Prior years | (12,022) | 11,422 | |||||||||
| Total paid | 14,626 | 15,577 | |||||||||
| Net balance at end of period | 70,798 | 19,796 | |||||||||
| Plus reinsurance recoverable | — | 33,583 | |||||||||
| Balance at end of period | $ | 70,798 | $ | 53,379 | |||||||
Recently Issued Accounting Standards
Management does not believe that any recently issued, but not yetconcentration of risk and to manage its operating leverage ratios. As of September 30, 2021, the Company has commuted all of its reinsurance agreements. Details regarding the commutation settlement agreements include the following:
NOTE 3. INITIAL PUBLIC OFFERING
dates beginning May 1, 2017, May 1, 2018,
| September 30, 2021 (unaudited) | |||||||||||||||||||||||||||||
| Premium Written | Premium Earned | Unearned Premium | Losses and LAE Incurred | Loss and LAE Reserves | |||||||||||||||||||||||||
| Direct | $ | 83,396 | $ | 82,073 | $ | 17,393 | $ | 76,973 | $ | 70,798 | |||||||||||||||||||
| Ceded | (19,411) | (33,080) | — | (14,701) | — | ||||||||||||||||||||||||
| Net | $ | 63,985 | $ | 48,993 | $ | 17,393 | $ | 62,272 | $ | 70,798 | |||||||||||||||||||
| December 31, 2020 | |||||||||||||||||||||||||||||
| Premium Written | Premium Earned | Unearned Premium | Losses and LAE Incurred | Loss and LAE Reserves | |||||||||||||||||||||||||
| Direct | $ | 100,611 | $ | 99,712 | $ | 16,070 | $ | 74,943 | $ | 57,093 | |||||||||||||||||||
| Ceded | (85,504) | (84,740) | (13,668) | (54,010) | (33,941) | ||||||||||||||||||||||||
| Net | $ | 15,107 | $ | 14,972 | $ | 2,402 | $ | 20,933 | $ | 23,152 | |||||||||||||||||||
| September 30, 2021 | December 31, 2020 | ||||||||||
| (unaudited) | |||||||||||
| 2019 Loan and Security Agreement | $ | — | $ | 25,000 | |||||||
| Subordinated Note Purchase and Security Agreement | — | 32,461 | |||||||||
| Paycheck Protection Program Loan | — | 5,880 | |||||||||
| Principal Amount Due | — | 63,341 | |||||||||
| Less: Unamortized debt issuance costs and discounts | — | (11,407) | |||||||||
| Notes payable, net | $ | — | $ | 51,934 | |||||||
| As of September 30, 2021 (unaudited) | Purchase Obligations | Leases | Total | |||||||||||||||||
| 2021 (remaining three months) | $ | 1,045 | $ | 825 | $ | 1,870 | ||||||||||||||
| 2022 | — | 3,093 | 3,093 | |||||||||||||||||
| 2023 | — | 3,181 | 3,181 | |||||||||||||||||
| 2024 | — | 3,190 | 3,190 | |||||||||||||||||
| 2025 | — | 2,433 | 2,433 | |||||||||||||||||
| Thereafter | — | 11,186 | 11,186 | |||||||||||||||||
| Total minimum lease payments | $ | 1,045 | $ | 23,908 | $ | 24,953 | ||||||||||||||
NOTE 4. PRIVATE PLACEMENT
Simultaneously with the closing of the Initial Public Offering, Insurance Acquisition Sponsor II, LLC and Cantor purchased an aggregate of 540,000 Placement Units, at a price of $10.00 per Placement Unit, or $5,400,000 in the aggregate, of which 452,500 Placement Units were purchased by Insurance Acquisition Sponsor II, LLC and 87,500 Placement Units were purchased by Cantor. Each Placement Unit consists of one share of Class A common stock and one-third of one warrant (the “Placement Warrant”). Each whole Placement Warrant is exercisable for one share of Class A common stock at a price of $11.50 per share. The proceeds fromshare, subject to adjustment, at any time commencing on September 8, 2021, which was the Placement Units were added tolater of 30 days after the proceeds fromcompletion of the Initial Public Offering held in the Trust Account. If the Company does not complete a Business Combination withinor 12 months from INSU’s IPO closing date. The public warrants will expire on the Combination Period, the proceeds from the salefifth anniversary of the Placement Units will be used to fundBusiness Combination, or earlier upon redemption or liquidation.
NOTE 5. RELATED PARTY TRANSACTIONS
Founder Shares
In January 2019, the Company issued an aggregate of 1,000 shares of common stock to the Sponsor (the “Founder Shares”) for an aggregate purchasein part;
On July 28, 2020, the Company filed an amendment to its Certificate of Incorporation to, among other things, create two classes of common stock, Class A and Class B, and to convert the outstanding Founder Shares into shares of Class B common stock. The Founder Shares will automatically convert into shares of Class A common stock upon consummation of a Business Combination on a one-for-one basis, subject to certain adjustments, as described in Note 7. On July 28, 2020, the Company effectuated a 6,888.333-for-1 forward stock split of its Class B common stock and on September 2, 2020, the Company effected a stock dividend of 1.1391242 shares of Class B common stock for each share of its Class B common stock, resulting in an aggregate of 7,846,667 shares of Class B common stock being held by the Sponsor (the “Founder Shares”). The 7,846,667 Founder Shares included an aggregate of up to 1,000,000 shares of Class B common stock which were subject to forfeiture by the Sponsor to the extent that the underwriters’ overallotment option was not exercised in full or in part, so that the Founder Shares would represent 25% of the Company’s aggregate Founder Shares, Placement Shares and issued and outstanding Public Shares after the Initial Public Offering. As a result of the underwriters’ election to fully exercise their over-allotment option, 1,000,000 Founder Shares are no longer subject to forfeiture.
INSU ACQUISITION CORP. II
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2020
(Unaudited)
The Insiders have agreed not to transfer, assign or sell any of their Founder Shares (except to permitted transferees) until (i) with respect to 20% of such shares, upon consummation of the Company’s initial Business Combination, (ii) with respect to 20% of such shares, when thelast reported closing price of the Class A common stockordinary shares equals or exceeds $12.00$18.00 per share for any 20 trading days within a 30-trading day period following the consummation of a Business Combination, (iii) with respect to 20% of such shares, when the closing price of the Class A common stock exceeds $13.50 for any 20 trading days within a 30-trading day period following the consummation of a Business Combination, (iv) with respect to 20% of such shares, when the closing price of the Class A common stock exceeds $15.00 for any 20 trading days within a 30-trading day period following the consummation of a Business Combination and (v) with respect to 20% of such shares, when the closing price of the Class A common stock exceeds $17.00 for any 20 trading days within a 30-trading day period following the consummation of a Business Combination or earlier, in any case, if, following a Business Combination, the Company completes a liquidation, merger, capital stock exchange, reorganization or other similar transaction that results in all of the public stockholders having the right to exchange their shares of common stock for cash, securities or other property.
Administrative Services Agreement
The Company entered into an agreement whereby, commencing on September 3, 2020 through the earlier of the Company’s consummation of a Business Combination and its liquidation, the Company will pay the Sponsor or an affiliate of the Sponsor $20,000 per month for office space, administrative and shared personnel support services. For the three and nine months ended September 30, 2020, the Company incurred and paid $20,000 in fees for these services.
Related Party Loans
In order to finance transaction costs in connection with a Business Combination, the Sponsor or one of its affiliates has committed to loan the Company funds as may be required up to a maximum of $750,000 (“Working Capital Loans”), which will be repaid only upon the consummation of a Business Combination. If the Company does not consummate a Business Combination, the Company may use a portion of any funds held outside the Trust Account to repay the Working Capital Loans; however, no proceeds from the Trust Account may be used for such repayment. If such funds are insufficient to repay the Working Capital Loans, the unpaid amounts would be forgiven. Up to $1,500,000 of the Working Capital Loans may be converted into warrants at a price of $1.00 per warrant at the option of the holder. The warrants would be identical to the Placement Warrants. As of September 30, 2020, there were no amounts outstanding under the Working Capital Loans.
NOTE 6. COMMITMENTS AND CONTINGENCIES
Risks and Uncertainties
Management continues to evaluate the impact of the COVID-19 pandemic on the industry and has concluded that while it is reasonably possible that the virus could have a negative effect on the Company’s financial position, results of its operations and/or search for a target company, the specific impact is not readily determinable as of the date of these condensed financial statements. The condensed financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Registration Rights
Pursuant to a registration rights agreement entered into on September 2, 2020, the holders of the Founder Shares, Placement Units (including securities contained therein) and the warrants that may be issued upon conversion of the Working Capital Loans (and any shares of Class A common stock issuable upon the exercise of the Placement Warrants or the warrants issued upon conversion of the Working Capital Loans) are entitled to registration rights requiring the Company to register such securities for resale (in the case of the Founder Shares, only after conversion to Class A common stock). The holders of these securities will be entitled to make up to three demands, excluding short form demands, that the Company register such securities for sale under the Securities Act. In addition, the holders will have “piggy-back” registration rights to include such securities in other registration statements filed by the Company and rights to require the Company to register for resale such securities pursuant to Rule 415 under the Securities Act. However, the registration rights agreement will provide that the Company will not permit any registration statement filed under the Securities Act to become effective until termination of the applicable lock-up period. Notwithstanding the foregoing, Cantor may not exercise its demand and “piggyback” registration rights after five (5) and seven (7) years after the effective date of the Initial Public Offering and may not exercise its demand rights on more than one occasion. The Company will bear the expenses incurred in connection with the filing of any such registration statements.
INSU ACQUISITION CORP. II
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2020
(Unaudited)
Underwriting Agreement
The underwriters were paid a cash underwriting discount of 2.0% of the gross proceeds of the Initial Public Offering, or $4,000,000. In addition, the representative of the underwriters is entitled to a deferred fee of $9,800,000. The deferred fee will become payable to the representative from the amounts held in the Trust Account solely in the event that the Company completes a Business Combination, subject to the terms of the underwriting agreement.
NOTE 7. STOCKHOLDERS’ EQUITY
Preferred Stock — The Company is authorized to issue 1,000,000 shares of preferred stock with a par value of $0.0001 per share with such designation, rights and preferences as may be determined from time to time by the Company’s Board of Directors. At September 30, 2020 and December 31, 2019, there were no shares of preferred stock issued or outstanding.
Class A Common Stock — The Company is authorized to issue 60,000,000 shares of Class A common stock with a par value of $0.0001 per share. Holders of Class A common stock are entitled to one vote for each share. At September 30, 2020, there were 1,929,366 shares of Class A common stock issued and outstanding, excluding 21,610,634 shares of Class A common stock subject to possible redemption. At December 31, 2019, there were no shares of Class A common stock issued or outstanding.
Class B Common Stock — The Company is authorized to issue 10,000,000 shares of Class B common stock with a par value of $0.0001 per share. Holders of the Company’s Class B common stock are entitled to one vote for each common share. At September 30, 2020 and December 31, 2019, there were 7,846,667 shares of Class B common stock issued and outstanding.
Holders of Class B common stock will vote on the election of directorsthird trading day prior to the consummationdate on which the Company sends the notice of a Business Combination. Holders of Class A common stock and Class B common stock will vote together as a single class on all other matters submitted to a vote of stockholders except as required by law.
The shares of Class B common stock will automatically convert into shares of Class A common stock at the time of a Business Combination on a one-for-one basis, subject to adjustment. In the case that additional shares of Class A common stock or equity-linked securities are issued or deemed issued in excess of the amounts offered in the Initial Public Offering and relatedredemption to the closing of a Business Combination, the ratio at which shares of Class B common stock shall convert into shares of Class A common stock will be adjusted (unless the holders of a majority of the outstanding shares of Class B common stock agree to waive such adjustment with respect to any such issuance or deemed issuance) so that the number of shares of Class A common stock issuable upon conversion of all shares of Class B common stock will equal, in the aggregate, on an as-converted basis, 25% of the sum of the total number of all shares of common stock issued and outstanding upon completion of the Business Combination, including Placement Shares, plus all shares of Class A common stock and equity-linked securities issued or deemed issued in connection with a Business Combination (excluding any shares or equity-linked securities issued, or to be issued, to any seller in a Business Combination).
Warrants — Public Warrants may only be exercised for a whole number of shares. No fractional shares will be issued upon exercise of the Public Warrants. The Public Warrants will become exercisable on the later of (a) 30 days after the completion of a Business Combination or (b) 12 months from the closing of the Initial Public Offering. The Public Warrants will expire five years after the completion of a Business Combination or earlier upon redemption or liquidation.
The Company will not be obligated to deliver any shares of Class A common stock pursuant to the exercise for cash of a warrant and will have no obligation to settle such warrant exercise unless a registration statement under the Securities Act with respect to the shares of Class A common stock underlying the warrants is then effective and a prospectus relating thereto is current, subject to the Company satisfying its obligations with respect to registration. No warrant will be exercisable and the Company will not be obligated to issue shares of Class A common stock upon exercise of a warrant unless Class A common stock issuable upon such 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 warrants. Notwithstanding the foregoing, if a registration statement covering the shares of Class A common stock issuable upon exercise of the Public Warrants has not been declared effective by the end of 60 business days following the closing of a Business Combination, warrant holders may, until such time as there is an effective registration statement and during any period when the Company shall 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.
The Company has agreed that as soon as practicable, but in no event later than 15 business days after the closing of a Business Combination, the Company will use its best efforts to file with the SEC, and within 60 business days following a Business Combination to have declared effective, a registration statement covering the issuance of the shares of Class A common stock issuable upon exercise of the warrants and to maintain a current prospectus relating to those shares of Class A common stock until the warrants expire or are redeemed, as specified in the warrant agreement. The Company will use its best efforts to maintain the effectiveness of such registration statement, and a current prospectus relating thereto, until the expiration of the warrants in accordance with the provisions of the warrant agreement. Notwithstanding the above, if the Class A 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, the Company may, at its 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 the Company so elects, the Company will not be required to file or maintain in effect a registration statement, but will be required to use its best efforts to register or qualify the shares under applicable blue sky laws to the extent an exemption is not available.
INSU ACQUISITION CORP. II
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2020
(Unaudited)
Once the warrants become exercisable, the Company may redeem the Public Warrants:
If and when the warrants become redeemable by the Company, the Company may exercise its redemption right even if it is unable to register or qualify the underlying securities for sale under all applicable state securities laws.
If the Company calls the Public Warrantspublic warrants for redemption, for cash, management will have the option to require all holders that wish to exercise the Public Warrantspublic warrants to do so on a “cashless basis,” as described in the warrant agreement.
If (x)vesting period and is calculated using the closing price per share of the Company's common stock on the grant date. For the three months and nine months ended September 30, 2021 (unaudited), the Company issues additionalrecorded compensation expense of $6.8 million and $14.6 million, respectively, and related to non-performance based RSUs.
| Number of RSUs | Weighted-Average Fair Value | ||||||||||
| Balance at December 31, 2020 | — | $ | — | ||||||||
| Granted | 9,848,048 | 9.38 | |||||||||
| Vested | (2,267,295) | 10.47 | |||||||||
| Forfeited | (127,507) | 8.61 | |||||||||
| Balance at September 30, 2021 | 7,453,246 | $ | 9.07 | ||||||||
| 2021 | |||||
| Expected volatility | 65% - 70% | ||||
| Expected term (years) | 0.60 - 1.90 | ||||
| Expected dividend yield | n/a | ||||
| Risk-free interest rate | .3% - .6% | ||||
| Nine months ended September 30, 2021 (unaudited) | |||||
| Forfeiture rate | 26.2 | % | |||
| Volatility | 62.00 | % | |||
| Expected term (years) | 5.33 | ||||
| Risk-free interest rate | 0.53 | % | |||
| Expected dividends | — | ||||
| Year ended December 31, 2020 | |||||
| Forfeiture rate | 19.60% - 25.76% | ||||
| Volatility | 47.00% - 62.00% | ||||
| Expected term (years) | 4.95 - 7.00 | ||||
| Risk-free interest rate | 0.26% - 1.73% | ||||
| Expected dividends | — | ||||
| Stock Number of Options | Weighted- Average Exercise Price | Weighted- Average Remaining Contractual Term (Years) | Aggregate Intrinsic Value (in thousands) | ||||||||||||||||||||
| Outstanding as of December 31, 2020 | 5,931,024 | $ | 2.61 | 8.10 | $ | 70,192 | |||||||||||||||||
| Options granted | 4,231 | $ | 14.45 | ||||||||||||||||||||
| Options exercised | (1,095,567) | $ | 2.21 | ||||||||||||||||||||
| Options cancelled or expired and returned to plan | (1,987,158) | $ | 2.24 | ||||||||||||||||||||
| Outstanding as of September 30, 2021 (unaudited) | 2,852,530 | $ | 3.00 | 8.48 | $ | 1,611 | |||||||||||||||||
| Vested and exercisable to vest as of September 30, 2021 | 643,414 | $ | 2.96 | 8.22 | $ | 400 | |||||||||||||||||
| Vested and expected as of September 30, 2021 (unaudited) | 1,986,567 | $ | 2.99 | 8.36 | $ | 1,146 | |||||||||||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| (unaudited) | (unaudited) | ||||||||||||||||||||||
| Cost of revenues | $ | 343 | $ | 39 | $ | 568 | $ | 53 | |||||||||||||||
| Research and development | 1,691 | 219 | 2,321 | 455 | |||||||||||||||||||
| Sales and marketing | 693 | 41 | 832 | 44 | |||||||||||||||||||
| Other operating expenses | 5,201 | 127 | 16,228 | 429 | |||||||||||||||||||
| Total stock-based compensation | $ | 7,928 | $ | 426 | $ | 19,949 | $ | 981 | |||||||||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| (unaudited) | (unaudited) | ||||||||||||||||||||||
| Revenue: | |||||||||||||||||||||||
| Insurance services | $ | 28,470 | $ | 6,810 | $ | 71,686 | $ | 20,753 | |||||||||||||||
| Enterprise business solutions | 1,531 | 1,141 | 3,689 | 3,606 | |||||||||||||||||||
| Total revenue | $ | 30,001 | $ | 7,951 | $ | 75,375 | $ | 24,359 | |||||||||||||||
| Contribution: | |||||||||||||||||||||||
| Insurance services | $ | (2,097) | $ | 4,480 | $ | (5,133) | $ | 10,981 | |||||||||||||||
| Enterprise business solutions | (786) | (546) | (2,383) | (716) | |||||||||||||||||||
| Total contribution | $ | (2,883) | $ | 3,934 | $ | (7,516) | $ | 10,265 | |||||||||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| (unaudited) | (unaudited) | ||||||||||||||||||||||
| Total segment contribution | $ | (2,883) | $ | 3,934 | $ | (7,516) | $ | 10,265 | |||||||||||||||
| Ceded premium, losses and LAE | — | 5,134 | (5,242) | 11,548 | |||||||||||||||||||
| Other income | 345 | 901 | 1,672 | 1,699 | |||||||||||||||||||
| Policy services expenses and other | 2,242 | 200 | 4,305 | 1,999 | |||||||||||||||||||
| Sales, marketing, and other acquisition costs | 12,092 | (89) | 84,975 | 3,299 | |||||||||||||||||||
| Research and development | 3,060 | 261 | 6,427 | 2,662 | |||||||||||||||||||
| Amortization of capitalized software | 2,838 | 2,815 | 8,190 | 8,311 | |||||||||||||||||||
| Other operating expenses | 14,200 | 3,922 | 39,511 | 13,138 | |||||||||||||||||||
| Loss from operations | $ | (37,660) | $ | (9,210) | $ | (147,354) | $ | (32,391) | |||||||||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| (unaudited) | (unaudited) | ||||||||||||||||||||||
| California | $ | 16,352 | $ | 15,737 | $ | 47,832 | $ | 43,343 | |||||||||||||||
| Washington | 3,567 | 3,086 | 9,931 | 8,410 | |||||||||||||||||||
| New Jersey | 2,853 | 2,475 | 8,061 | 6,718 | |||||||||||||||||||
| Oregon | 1,821 | 1,862 | 5,330 | 5,466 | |||||||||||||||||||
| Illinois | 1,133 | 1,179 | 3,193 | 3,381 | |||||||||||||||||||
| Arizona | 1,410 | 1,170 | 3,923 | 3,332 | |||||||||||||||||||
| Pennsylvania | 735 | 792 | 2,133 | 2,197 | |||||||||||||||||||
| Virginia | 622 | 459 | 1,670 | 1,284 | |||||||||||||||||||
| Total premiums earned | $ | 28,493 | $ | 26,760 | $ | 82,073 | $ | 74,131 | |||||||||||||||
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| Numerator: | (unaudited) | (unaudited) | |||||||||||||||||||||
| Net loss attributable to common stockholders ($ in thousands) | $ | (26,757) | $ | (10,630) | $ | (171,644) | $ | (36,417) | |||||||||||||||
| Denominator: | |||||||||||||||||||||||
| Weighted average common shares outstanding - basic and diluted | 127,166,524 | 8,888,099 | 109,988,189 | 8,882,040 | |||||||||||||||||||
| Net loss per share attributable to common stockholders - basic and diluted | $ | (0.21) | $ | (1.20) | $ | (1.56) | $ | (4.10) | |||||||||||||||
| As of September 30, | |||||||||||
| 2021 | 2020 | ||||||||||
| (unaudited) | |||||||||||
| Convertible preferred stock | — | 68,776,612 | |||||||||
| Outstanding stock options - Stock Plan | 2,852,530 | 6,149,668 | |||||||||
| Warrants for preferred stock | — | 9,570,649 | |||||||||
| Warrants for common stock | 7,846,646 | — | |||||||||
| Restricted stock units | 11,506,230 | — | |||||||||
| Total anti-dilutive securities | 22,205,406 | 84,496,929 | |||||||||
If the Company is unable to completeconverted into a Business Combination within the Combination Period and the Company liquidates the funds held in the Trust Account, holders of warrants will not receive any of such fundscorresponding award with respect to their warrants, nor will they receive any distribution fromLemonade Common Stock (with the number of shares subject to such award equitably adjusted based on the Exchange Ratio); and (v) each Metromile warrant exercisable for shares of the Company’s assets held outsidecommon 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 Placement Warrants are identicalany Company stockholders meeting to the Public Warrants underlyingextent permitted or required pursuant to the Units soldAgreement; (iii) against any alternative acquisition proposal or transaction; (iv) against any merger, sale of substantial assets or liquidation of the Company; and (v) against any proposal, action or agreement that would reasonably be expected to impede, interfere with, delay or postpone, prevent or otherwise impair the Proposed Transaction.
NOTE 8. FAIR VALUE MEASUREMENTS
At September 30, 2020 assets held in the Trust Account were comprised of $230,001,386 in money market funds which are invested in U.S. Treasury securities.
The following table presents information aboutimpact the Company’s assets that are measured at fair value on a recurring basis at September 30, 2020 and indicates the fair value hierarchyability to meet its ongoing costs of the valuation inputs the Company utilized to determine such fair value:
| Description | Level | September 30, 2020 | ||||
| Assets: | ||||||
| Marketable securities held in Trust Account – U.S. Treasury Securities Money Market Fund | 1 | $ | 230,001,386 | |||
NOTE 9. SUBSEQUENT EVENTS
The Company evaluated subsequent events and transactions that occurred after the balance sheet date up to the date that the condensed financial statements were issued. Based upon this review, the Company did not identify any subsequent events that would have required adjustmentoperations, working capital needs, or disclosure in the condensed financial statements.
$1.8 million or 7%, as compared to $26.7 million for the three months ended September 30, 2020. For the nine months ended September 30, 2021, we generated $82.1 million in direct earned premium, an increase of $8.0 million or 11%, as compared to $74.1 million for the nine months ended September 30, 2020. This increase in both reporting periods was primarily due to a year-over-year increase in direct earned premium per policy, which is a reflection of miles driven. Based on internal data, average daily miles driven increased by 18% for the first nine months of 2021 as compared to the same period in 2020. We believe that the potential long-term impacts of COVID-19, as more companies embrace work from home policies, represent an opportunity for us to increase our customer base as drivers continue to look for value-driven insurance solutions that provide the same or a better quality product that aligns to their own driving behaviors. $0.5 million at issuance. These warrants were net exercised immediately prior to the Effective Time and are no longer outstanding. and Estimates Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Because there are inherent limitations in all control systems, a control system, no matter how well conceived and operated, can provide only reasonable, as opposed to absolute, assurance that the objectives of the control system are met. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. SEC on June 2, 2021 and Part II, Item 1A. "Risk Factors" in our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2021, filed with the SEC on August 10, 2021. DISCLOSURES ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSReferencesSection Page OverviewWe started Metromile based on the simple observation that the physical world is being increasingly digitized, that this digital data can be used to better estimate the future, and that the best opportunity to create value for everyday customers in an increasingly predictable world is to reinvent insurance, one of the largest and most important global markets.At its core, insurance financially protects the insured customer from the occurrence of specific future events. If these events can be more accurately estimated, using data and data science, then the insurance provided can be more accurately priced — lower likelihood events would cause the price of insurance to go down and higher likelihood events would cause the price of insurance to go up. The proliferation of sensor data, from cars, mobile phones, and elsewhere, means we have a greater ability to estimate the likelihood of future events and, thus, help many customers who are overpaying for insurance save money.We founded Metromile in 2011 to realize this opportunity and tackle the broken auto insurance industry. With data science as our foundation, we offer our insurance customers real time, personalized auto insurance policies, priced and billed by the mile, with rates based on precisely how and how much they actually drive, instead of using the industry standard approximations and estimates that make prices unfair for most customers.Through our digitally native offering, built around the needs of the modern driver, we believe our per-mile insurance policies save our customers, on average, 47% over what they were paying their previous auto insurer. We base this belief on data our customers self-reported in 2018 with respect to premiums paid to providers before switching to Metromile.We believe the opportunity for our personalized per-mile insurance product is significant. Federal Highway Administration data indicates that approximately 35% of drivers drive more than half the total miles driven. We believe there is a correlation between the number of miles driven and the number of insurable losses. An October 2016 report (this “Quarterly Report”by the Insurance Information Institute noted that the increase in claims frequency appears directly linked to the increase in the number of miles driven. Notwithstanding the relationship between miles driven and claims, auto insurance premiums have historically been priced based on a driver’s “class” — and drivers are charged the same basic premium rate as others in their class no matter the actual miles driven. In the traditional pricing model, a driver’s age, credit score, accident history, and geography influence the premium paid more than the actual miles driven. Thus, the 35% of drivers who account for more than half the total miles driven are not paying premiums based on how often they are behind the wheel and increasing the potential for an insurable loss claim. We believe the traditional pricing model is inherently unfair to the majority of drivers — the 65% of drivers who drive less than half the miles driven — as they are effectively subsidizing the minority of drivers who are high-mileage drivers. By offering auto insurance using a per-mile rate and then billing each customer monthly based on their actual miles driven, we are able to provide significant savings to the 65% of drivers who drive less than half the miles driven. Customers can simply use their connected car or use The Pulse to share their data with us — which includes miles driven, and in certain states where permitted by insurance regulators (four of the eight in which we currently operate), driving habits, such as phone use, speeding, hard-braking, accelerating, cornering, and25location. Our customers are able to choose when and how to drive and share this information with us to realize these data driven savings every day.The U.S. auto insurance market is massive, dominated by insurers stuck on legacy technology infrastructure who offer antiquated services. U.S. personal auto insurers write approximately $250 billion of premiums each year, with no carrier currently achieving more than 20% market share. We believe we are strategically positioned to succeed as industry incumbents struggle to meet the significant structural changes underway in an increasingly digital world. The advent of mobile phones has revolutionized modern mobility, while connected and autonomous technologies are drastically changing consumer relationships with vehicles. As we scale and accumulate more data, we believe that we can deliver increasingly better service, pricing and experiences for customers across all stages of the policy lifecycle.Additionally, with the per-mile insurance that Metromile provides, customers are incentivized to drive less and choose more environmentally friendly transportation methods. We found that after customers switch to per-mile insurance, they tend to decrease their overall miles driven. Not only does this equate to a lower bill, but also a significant reduction in carbon emissions.Recent DevelopmentsOn November 8, 2021, we 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 “we,” “us”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 “Proposed Transaction”). The Proposed 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 “Company” referAgreement, at the First Effective Time, each share of our common stock issued and outstanding immediately prior to INSU Acquisition Corp. II. Referencesthe 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”). The Proposed Transaction is conditioned on customary closing conditions, including receipt of applicable regulatory approvals and approval of the Proposed Transaction by our stockholders, and is expected to close in the second quarter of 2022.Contemporaneously with the execution of the Agreement, certain of our stockholders holding approximately 11.3% of the outstanding shares of the our common stock, including all members of our Board of Directors and certain of our officers (the “Stockholders”), entered into voting and support agreements (the “Voting and Support Agreements”) with Lemonade, pursuant to which the Stockholders agreed to, among other things, vote all of their shares of our common stock (“Voting Shares”) (i) in favor of the adoption of the Agreement and approval of the Proposed Transaction; (ii) in favor of any adjournment or postponement recommended by us with respect to any stockholders meeting to the extent permitted or required pursuant to the Agreement; (iii) against any alternative acquisition proposal or transaction; (iv) against any merger, sale of substantial assets or liquidation of Metromile; and (v) against any proposal, action or agreement that would reasonably be expected to impede, interfere with, delay or postpone, prevent or otherwise impair the Proposed Transaction.For additional information related to the Proposed Transaction, please see Note 1, Overview and Basis of Presentation and Note 18, Subsequent Events to our “management” or our “management team” refer to our officers and directors, references to the “Sponsor” refer to Insurance Acquisition Sponsor II, LLC and Dioptra Advisors II, LLC. The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with theunaudited consolidated financial statements and the notes thereto contained elsewhereincluded in Part I, Item 1, of this Quarterly Report. Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties.Special Note Regarding Forward-Looking StatementsThis Quarterly Report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) that are not historical facts, and involve risks and uncertainties that could cause actual results to differ materially from those expected and projected. All statements, other than statements of historical fact included in thison Form 10-Q including, without limitation, statements in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding the Company’s financial position, business strategy and the plans and objectives of management for future operations, are forward-looking statements. Words such as “expect,” “believe,” “anticipate,” “intend,” “estimate,” “seek” and variations and similar words and expressions are intended to identify such forward-looking statements. Such forward-looking statements relate to future events or future performance, but reflect management’s current beliefs, basedour Current Report on information currently available. A number of factors could cause actual events, performance or results to differ materially from the events, performance and results discussed in the forward-looking statements. For information identifying important factors that could cause actual results to differ materially from those anticipated in the forward-looking statements, please refer to the Risk Factors section of the Company’s final prospectus for its Initial Public OfferingForm 8-K filed with the U.S. SecuritiesSEC on November 9, 2021.Our ModelThe traditional auto insurance industry is focused on charging customers static insurance rates based on a “class” of driver, which is determined based on a set of variables that approximate and Exchange Commission (the “SEC”).estimate risk. The Company’s securities filings can be accessedtraditional approach requires little ongoing customer engagement and requires manual claims servicing, which results in lower gross margins. In contrast, our model is digitally native, automated, and built using predictive models. Our product provides customized rates for each individual driver, using telematics data and proprietary predictive models to assess risk and determine pricing for each customer, while billing customers based on their actual miles driven. We have automated the EDGAR section of the SEC’s website at www.sec.gov. Except as expressly required by applicable securities law, the Company disclaims any intention or obligation to update or revise any forward-looking statements whether asclaims approval process, resulting in higher margins, and reduced fraud rates through real-time reporting from telematics devices, resulting in lower loss ratios.We have experienced strong growth since inception; however, our focus has been on prioritizing unit economics rather than solely focusing on revenue growth through increased net losses. Our priority has been on developing a result of new information, future events or otherwise.OverviewWe are a blank check company formed under the laws of the State of Delaware on October 11, 2018durable business advantage.Total revenue increased from $8.0 million for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar Business Combination with one or more target businesses. We intend to effectuate our Business Combination using cash from the proceeds of our Initial Public Offering and the sale of the Placement Units that occurred simultaneously with the completion of our Initial Public Offering, our capital stock, debt or a combination of cash, stock and debt.We expect to continue to incur significant costs in the pursuit of our acquisition plans. We cannot assure you that our plans to complete a Business Combination will be successful.In March 2020, the COVID-19 outbreak was declared a National Public Health Emergency that continues to spread throughout the world and has adversely impacted global activity and contributed to significant declines and volatility in financial markets. The outbreak could have a continued material adverse impact on economic and market conditions and trigger a period of global economic slowdown. The rapid development and fluidity of this situation precludes any prediction as to the ultimate material adverse impact of the coronavirus outbreak. Nevertheless, the outbreak presents uncertainty and risk with respect to the Company and its ability to successfully complete a Business Combination.Results of OperationsWe have neither engaged in any operations (other than searching for a Business Combination after our Initial Public Offering) nor generated any revenues to date. Our only activities from October 11, 2018 (inception) throughthree months ended September 30, 2020 were organizational activities, those necessary to prepare$30.0 million for the Initial Public Offering, described below,three months ended September 30, 2021, and finding a target companyincreased from $24.4 million for a Business Combination. We do not expect to generate any operating revenues until after the completion of our Business Combination. We generate non-operating income in the form of interest income on marketable securities held after the Initial Public Offering. We incur expenses as a result of being a public company (for legal, financial reporting, accounting and auditing compliance), as well as for due diligence expenses.For each of the three and nine months ended September 30, 2020 to $75.4 million for the nine months ended September 30, 2021. Our gross profit/(loss), defined as total revenue as adjusted for losses and LAE, policy servicing expense and other and amortization of capitalized software, and which is impacted by our reinsurance arrangements, increased from $(3.3) million for the three months ended September 30, 2020 to $(6.0) million for the three months ended September 30, 2021, and increased from $(8.9) million for the nine months ended September 30, 2020 to $(10.4) million for the nine months ended September 30, 2021. Our accident period26contribution profit/(loss), a non-GAAP financial measure that excludes from gross profit/(loss) the results of prior period development on loss and LAE, decreased from $6.2 million for the three months ended September 30, 2020 to $(3.0) million for the three months ended September 30, 2021, and decreased from $14.0 million for the nine months ended September 30, 2020 to $(1.1) million for the nine months ended September 30, 2021, largely due to an increase in losses, despite an increase in direct written and earned premium for both periods. Accident period refers to the period in which the loss occurs, and estimates are made to determine the ultimate expected cost of that loss. These estimates are reassessed each subsequent period, and the movement from the initial estimate of that accident period is known as prior period development. We view accident period contribution margin as the most relevant metric of current product profitability and use accident period contribution margin to consistently evaluate the variable contribution to our business from insurance operations from period to period based on the most current product profitability. Contribution profit/(loss), a non-GAAP financial measure that includes the results of prior period development accident period contribution profit/(loss), decreased from $4.7 million for the three months ended September 30, 2020 to $(2.1) million for the three months ended September 30, 2021, and decreased from $11.1 million for the nine months ended September 30, 2020 to $(5.1) million for the nine months ended September 30, 2021 largely due to unfavorable prior period loss development. We use contribution profit/(loss) as a key measure of our progress towards profitability and to consistently evaluate the variable contribution to our business from insurance operations from period to period. See the section entitled “— Non-GAAP Financial Measures” for additional information regarding our use of accident period contribution profit/(loss) and contribution profit/(loss)and a reconciliation to the most comparable GAAP measure.ReinsuranceWe review our need to obtain reinsurance to help manage our exposure to property and casualty insurance risks.The reinsurance arrangement covering the periods May 1, 2017 to April 30, 2018 and May 1, 2018 to April 30, 2019 covered 85% of our renewal policies and beginning May 1, 2019, the reinsurance arrangements expanded to also include new policies. Thus, from May 1, 2019 through April 30, 2021, we hadceded a net losslarger percentage of $83,615, which consistedour premium than in prior periods, resulting in a significant decrease in our revenues as reported under GAAP. In addition, under the reinsurance agreements from various years, LAE was ceded at a fixed rate ranging from 3% to 6% of operating costsceded earned premium. In February 2021, we commuted 67% of $85,001, offset by interest income on marketable securities heldour reinsurance program, resulting in the Trust Account of $1,386.Liquidity and Capital ResourcesUntil the consummation34.2% of the Initial Public Offering,book being ceded as of March 2021. As of September 30, 2021 we have commuted the remainder of our only sourcereinsurance programs to allow us to manage our surplus at the insurance carrier at a lower cost of liquidity wascapital. Going forward, and given the strength of our current balance sheet, we will continue to monitor our reinsurance needs, including new quota share arrangements, to maintain adequate capital levels at the insurance company level.As we change our reinsurance arrangements, whereby the terms and structures may vary widely, our prior results, impacted by reinsurance, may not be a good indicator of future performance, including the fluctuations experienced in gross profit. Thus, we use accident period contribution profit/(loss) and contribution profit/(loss) as key measures of our performance.Key Performance IndicatorsWe regularly review key operating and financial performance indicators to evaluate our business, measure our performance, identify trends in our business, prepare financial projections and make strategic decisions. We believe these non-GAAP financial and operational measures are useful in evaluating our performance, in addition to our financial results prepared in accordance with GAAP. See the section entitled “— Non-GAAP Financial Measures” for additional information regarding our use of accident period contribution profit/(loss), contribution profit/(loss), accident period loss ratio and accident period LAE ratio and a reconciliation to the most comparable GAAP measures.27The following table presents these metrics as of and for the periods presented:Three Months Ended
September 30,Nine Months Ended
September 30,2021 2020 2021 2020 ($ in millions, except for
Direct Earned Premium
per Policy)($ in millions, except for
Direct Earned Premium
per Policy)Policies in Force (end of period) 95,238 92,318 95,238 92,318 Direct Earned Premium per Policy (annualized) $ 1,197 $ 1,128 $ 1,160 $ 1,082 Direct Written Premium $ 29.1 $ 28.1 $ 83.4 $ 76.4 Direct Earned Premium $ 28.5 $ 26.7 $ 82.1 $ 74.1 Gross Profit/(Loss) $ (6.0) $ (3.3) $ (10.4) $ (8.9) Gross Margin (20.0) % (41.3) % (13.8) % (36.5) % Accident Period Contribution Profit/(Loss) $ (3.0) $ 6.2 $ (1.1) $ 14.0 Accident Period Contribution Margin (10.4) % 22.6 % (1.3) % 18.6 % Contribution Profit/(Loss) $ (2.1) $ 4.7 $ (5.1) $ 11.1 Contribution Margin (7.3) % 17.2 % (6.2) % 14.8 % Direct Loss Ratio 81.3 % 58.2 % 79.5 % 59.1 % Direct LAE Ratio 14.4 % 12.9 % 13.9 % 13.1 % Accident Period Loss Ratio 81.6 % 56.7 % 73.7 % 58.6 % Accident Period LAE Ratio 17.3 % 8.8 % 14.9 % 9.6 % Policies in ForceWe define policies in force as the number of current and active policyholders as of the period end date. We view policies in force as an initial purchaseimportant metric to assess our financial performance because policy growth drives our revenue growth, increases brand awareness and market penetration, generates additional data to continue to improve the performance of common stockour platform, and provides key data to assist strategic decision making for our company.Direct Earned Premium per PolicyWe define direct earned premium per policy as the ratio of direct earned premium divided by the Sponsoraverage policies in force for the period, presented on an annualized basis. We view premiums per policy as an important metric because it is a reliable indicator of revenue earned in any given period, and loansgrowth in this metric would be a clear indicator of the growth of the business. However, as evidenced by the substantial reduction in miles driven during the COVID-19 pandemic, near-term fluctuations in miles driven can lead to fluctuations in direct earned premium. Thus, we refer to policies in force as a more stable indicator of overall growth. Direct earned premium excludes the impact of premiums ceded to reinsurers such that it reflects the actual business volume and direct economic benefit generated from our Sponsor.On September 8, 2020,customer acquisition efforts. Additionally, premiums ceded to reinsurers can change based on the type and mix of reinsurance structures we consummateduse.Direct Written PremiumWe define direct written premium as the Initial Public Offeringtotal amount of 23,000,000 Units, whichdirect premiums on policies that were bound during the period. Direct written premium is a standard insurance metric and is included here for consistency. However, given that much of our premium is written and earned as customer miles are driven (i.e., customers are billed based on true use), unlike our competitors that write all premium up-front, we believe earned premium is a more meaningful comparison to other insurers. Direct written premium excludes mileage-based premium that has not yet been earned. It also excludes the full exercise byimpact of premiums ceded to reinsurers such that it reflects the underwritersactual business volume and direct economic benefit generated from our customer acquisition efforts. Additionally, premiums ceded to reinsurers can change based on the type and mix of their over-allotment option inreinsurance structures we use.Direct Earned PremiumWe define direct earned premium as the amount of 3,000,000 Units,direct premium that was earned during the period. Premiums are earned over the period in which insurance protection is provided, which is typically six months. We view direct earned premium as an important metric because it allows us to evaluate our growth prior to the impact of ceded premiums to our reinsurance partners. It is the primary driver of our consolidated GAAP revenues and represents the result of our sustained customer acquisition efforts. As with direct written premium, direct earned premium excludes the impact of premiums ceded to reinsurers to manage our business, and therefore should not be used as a substitute for net earned premium, total revenue, or any other measure presented in accordance with GAAP.28Gross Profit/(Loss)Gross profit/(loss) is defined as total revenue minus losses and LAE, policy servicing expense and other, and amortization of capitalized software. Gross margin is equal to gross profit/(loss) divided by total revenue. Gross profit/(loss) includes the effects of reinsurance, thereby increasing volatility of this measure without corresponding changes in the underlying business or operations.Contribution Profit/(Loss) and Accident Period Contribution Profit/(Loss)Contribution profit/(loss), a non-GAAP financial measure, is defined as gross profit/(loss), excluding the effects of reinsurance arrangements on both total revenue and losses and LAE and excludes enterprise software revenues, investment income earned at $10.00 per Unit, generating gross proceedsthe holding company, amortization of $230,000,000. Simultaneously withinternally developed software, and devices, while including bad debt, report costs and other policy servicing expenses. Accident period contribution profit/(loss), a non-GAAP financial measure, further excludes the closingresults of prior period development on losses and LAE. We believe the resulting calculations are inclusive of the Initial Public Offering, we consummatedvariable costs of revenue incurred to successfully service a policy, but without the salevolatility of 540,000 Placement Unitsreinsurance. We use contribution profit/(loss) as a key measure of our progress towards profitability and to consistently evaluate the Sponsorvariable contribution to our business from insurance operations from period to period because it is the result of direct earned premiums, plus investment income earned at the insurance company, minus direct losses, direct LAE, premium taxes, bad debt, payment processing fees, data costs, underwriting reports, and Cantor at a price of $10.00 per Unit, generating gross proceeds of $5,400,000.Following the Initial Public Offering, the full exercise of the over-allotment option by the underwriters and the sale of the Placement Units, a total of $230,000,000 was placed in the Trust Account and we had $963,727 of cash held outside of the Trust Account, after payment ofother costs related to servicing policies. Accident period contribution profit/(loss) further excludes the Initial Public Offering,results of prior period development on loss and availableLAE, thereby providing the most accurate view of the performance of our underlying insurance product, which drives our growth investment decisions and is a strong indicator of future loss performance.See the section entitled “— Non-GAAP Financial Measures” for a reconciliation of total revenue to accident period contribution profit/(loss) and contribution profit/(loss).Contribution Margin and Accident Period Contribution MarginContribution margin, a non-GAAP financial measure, is defined as contribution profit/(loss) divided by adjusted revenue. Adjusted revenue, a non-GAAP financial measure, is defined as total revenue, excluding the net effect of our reinsurance arrangements, revenue attributable to our enterprise segment, interest income generated outside of our insurance company, and bad debt expense. We view contribution margin as an important metric because it most closely correlates to the economics of our core underlying insurance product and measures our progress towards profitability. Accordingly, we use this non-GAAP financial measure to consistently evaluate the variable contribution to our business from insurance operations from period to period. Accident period contribution margin, a non-GAAP financial measure, is defined as accident period contribution profit/(loss) divided by adjusted revenue. We view accident period contribution margin as an important metric as it excludes the results of prior period development on loss and LAE, thereby providing the most meaningful view of the performance of our current underlying insurance product, which drives our growth investment decisions and is a strong indicator of future loss performance.See the section entitled “— Non-GAAP Financial Measures” for a reconciliation of total revenue to contribution profit/(loss) and accident period contribution profit/(loss).Direct and Accident Period Loss RatioWe define direct loss ratio expressed as a percentage, as the ratio of direct losses to direct earned premium. Direct loss ratio excludes LAE. We view direct loss ratio as an important metric because it allows us to evaluate losses and LAE separately prior to the impact of reinsurance.We define accident period loss ratio as direct loss ratio excluding prior accident period development on losses. We view accident period loss ratio as an important metric because it allows us to evaluate the expected ultimate losses, including losses not yet reported, for the most recent accident period.Direct and Accident Period LAE RatioWe define direct LAE ratio expressed as a percentage, as the ratio of direct LAE to direct earned premium. We view the direct LAE ratio as an important metric because it allows us to evaluate losses and LAE separately prior to the impact of reinsurance. We actively monitor the direct LAE ratio as it has a direct impact on our results regardless of our reinsurance strategy.We define the accident period LAE ratio as the direct LAE ratio excluding prior quarter development on LAE. We view accident period LAE ratio as an important metric because it allows us to evaluate the expected ultimate LAE, including LAE for claims not yet reported, for the most recent accident period.Recent Developments Affecting ComparabilityBusiness Combination with INSUIn February 2021, we completed the Merger, pursuant to which Metromile Operating Company (formerly MetroMile, Inc.) became our wholly owned direct subsidiary. The Merger was accounted for as a reverse recapitalization in accordance with GAAP. Under this method of accounting, although INSU was the legal acquirer, INSU is treated as the “acquired” company for financial reporting purposes and Metromile Operating Company is treated as the accounting29acquirer. This determination was primarily based on the fact that Metromile Operating Company’s stockholders prior to the Merger have a majority of our voting power, Metromile Operating Company’s senior management now comprise substantially all of our senior management, the relative size of Metromile Operating Company compared to our company, and that Metromile Operating Company’s operations comprise our ongoing operations. Accordingly, for accounting purposes, the Merger is treated as the equivalent of a capital transaction in which Metromile Operating Company issued stock for our net assets, which are stated at historical cost, with no goodwill or other intangible assets recorded, and Metromile Operating Company’s financial statements became the Company’s financial statements.In connection with the Business Combination, we received approximately $310.0 million of cash, which we used to repay certain indebtedness as described herein. We expect to use our cash on hand for working capital and general corporate purposes. We incurred $14,233,916may also use the proceeds for the acquisition of, or investment in, transaction costs relatedtechnologies, solutions, or businesses that complement our business.COVID-19 ImpactIn March 2020, the World Health Organization declared COVID-19 a global pandemic. We are closely monitoring the impact of the COVID-19 pandemic on all aspects of our business. We have taken measures in response to the Initial Public Offering,ongoing COVID-19 pandemic, including $4,000,000closing our offices and implementing a work from home policy for our nationwide workforce; implementing additional safety policies and procedures for our employees; and suspending employee travel and in-person meetings. We may take further actions that alter our business operations as may be required by federal, state, or local authorities or that we determine are in the best interests of underwriting fees, $9,800,000our employees, customers, and stockholders.For the three months ended September 30, 2021, we generated $28.5 million in direct earned premium, an increase of deferred underwriting fees and $433,916 of other costs.The future impact of the COVID-19 pandemic on our operational and financial performance will depend on certain developments, including the duration and spread of the pandemic, impact on our customers and their spending habits, impact on our marketing efforts, and effect on our suppliers, all of which are uncertain. Public and private sector policies and initiatives to reduce the transmission of COVID-19 and disruptions to our operations and the operations of our third-party suppliers, along with the related global slowdown in economic activity, may result in decreased revenues and increased costs. Impacts on our revenue and costs may continue through the duration of this crisis. It is possible that the COVID-19 pandemic, the measures taken by federal, state, or local authorities and businesses affected and the resulting economic impact may materially and adversely affect our business, results of operations, cash flows and financial positions as well as our customers.Key Factors and Trends Affecting our Operating PerformanceOur financial condition and results of operations have been, and will continue to be, affected by a number of factors, including the following:Our Ability to Attract New CustomersOur long-term growth will depend, in large part, on our continued ability to attract new customers to our platform. Our growth strategy is centered around accelerating our existing position in markets that we already serve, expanding into new markets nationally across the United States, developing new strategic partnerships with key players in the automotive industry, and growing our enterprise software sales.Our Ability to Retain CustomersTurning our customers to lifetime customers is key to our success. We realize increasing value from each customer retained as a recurring revenue base, which forms a basis for organic growth for our new product offerings and improves our loss ratios over time. Our ability to retain customers will depend on a number of factors, including our customers’ satisfaction with our products, offerings of our competitors and pricing of our products.Our Ability to Expand Nationally Across the United StatesOur long-term growth opportunity will benefit from our ability to provide insurance across more states in the United States. Today, we are licensed in 49 states and the District of Columbia, with licenses active in 46 states and the District of Columbia, and writing business in eight states. We plan to apply our highly scalable model nationally, with a tailored approach to each state, driven by the regulatory environment and local market dynamics. This will allow us to expand rapidly and efficiently across different geographies while maintaining a high level of control over the specific strategy within each state.30Our Ability to Introduce New and Innovative ProductsOur growth will depend on our ability to introduce new and innovative products that will drive the organic growth from our existing customer base as well as from potential customers. Our insurance offerings as well as our technology platform offered to enterprise customers provides us with a foundation to provide a broad set of insurance products to consumers in the future.Our Ability to Manage Risk Through Our TechnologyRisk is managed through our technology, artificial intelligence, and data science, which we utilize to accurately determine the risk profiles of our customers. Our ability to manage risk is augmented over time as data is continuously collected and analyzed by our machine learning with the objective of lowering our loss ratios over time. Our success depends on our ability to adequately and competitively price risk.Our Ability to Manage Risks Related to Severe Weather Events and Climate ChangeBoth seasonal and severe weather events impact the level and amount of claims we receive. These events, as well as climate change and its potential impact on weather patterns, include hurricanes, wildfires, coastal storms, winter storms, hailstorms, and tornados.Components of Our Results of Operations RevenueRevenues are generated primarily from the sale of our pay-per-mile auto insurance policies within the United States, revenue related to policy acquisition costs recovered as part of the reinsurance arrangement, and through sales of our proprietary AI claims platform. Revenue excludes premiums ceded to our reinsurers (see the section entitled “— Reinsurance” for further information).Premiums Earned, netPremiums earned, net represents the earned portion of our gross written premium, less the earned portion that is ceded to third-party reinsurers under any reinsurance agreements. Revenue from premiums is earned over the term of the policy, which is written for six-month terms. The premium for the policy provides for a base rate per month for the entire policy term upon the binding of the policy plus a per-mile rate multiplied by the miles driven each day (based on data from the telematics device, subject to a daily maximum).Investment IncomeInvestment income represents interest earned from our fixed maturity and short-term investments less investment expenses and is recorded as the income is earned. Investment income is directly correlated with the size of our investment portfolio and with the market level of interest rates. The size of our investment portfolio is expected to increase in future periods, and therefore investment income is also expected to increase, as we continue to invest both customer premiums and equity proceeds into our investment portfolio.Other Revenue Other revenue consists of enterprise revenue, revenue related to policy acquisition costs recovered as part of a reinsurance arrangement with reinsurance partners, reinsurance profit commissions based on performance of the ceded business, gain on reinsurance commutation and policy commissions earned from NGI. We have developed technologies intended for internal use to service our insurance business and have started offering our technologies to third-party insurance carriers. Enterprise revenue represents revenues generated from the licensing of such internally developed software on a subscription basis, and sales of our professional services, which includes customization and implementation services for customers. We also earned revenues from policy acquisition costs recovered for policies newly ceded to our reinsurance partners, and we earn commissions for policies underwritten by NGI prior to becoming a full-stack insurance carrier in 2016.Costs and ExpensesOur costs and expenses consist of losses and LAE, policy servicing expense and other, sales, marketing, and other acquisition costs, research and development, amortization of capitalized software, and other operating expenses.Losses and LAEOur losses and LAE consist of the net cost to settle claims submitted by our customers. Losses consist of claims paid, case reserves, as well as claims incurred but not reported, net of estimated recoveries from salvage and subrogation. LAE consists of costs borne at the time of investigating and settling a claim. Losses and LAE represents management’s best estimate of the ultimate net cost of all reported and unreported losses occurred through the balance sheet date. Estimates are made using individual case-basis valuations and statistical analyses and are continually reviewed and adjusted as necessary as experience develops or new information becomes known. These reserves are established to cover the estimated ultimate cost to settle insured losses. 31Both losses and LAE are net of amounts ceded to reinsurers. We evaluate whether to enter into reinsurance contracts to protect our business from losses due to concentration of risk and to manage our operating leverage ratios, as well as to provide additional capacity for growth. Our reinsurance contracts have historically consisted of quota-share reinsurance agreements with our reinsurance partners under which risks are covered on a pro-rata basis for all policies underwritten by us. All reinsurance has been commuted as of September 30, 2021 (see the section entitled “— Reinsurance” for further discussion). These expenses are a function of the size and term of the insurance policies we write and the loss experience associated with the underlying risks. Losses and LAE may be paid out over a period of years. Various other expenses incurred during claims processing are allocated to losses and LAE. These amounts include claims adjusters’ salaries and benefits, employee retirement plan related expenses and stock-based compensation expenses (Personnel Costs); software expenses; and overhead allocated based on headcount (Overhead). Policy Servicing Expense and OtherPolicy servicing expense and other includes personnel costs related to our technical operations and customer experience teams, data transmission costs, credit card and payment processing expenses, premium taxes, and amortization of telematics devices. Policy servicing expense and other is expensed as incurred.Sales, Marketing and Other Acquisition CostsSales, marketing, and other acquisition costs includes spend related to advertising, branding, public relations, third-party marketing, consumer insights, reinsurance ceding commissions, and expense recognized due to return of onboarding allowance as part of reinsurance commutations. These expenses also include related personnel costs and overhead. We incur sales, marketing and other acquisition costs for all product offerings including our newly introduced software as a service (“SaaS”) platform which provides access to our developed technology under SaaS arrangements, along with professional services to third-party customers (“Enterprise business solutions”). Sales, marketing and other acquisition costs are expensed as incurred, except for costs related to deferred acquisition costs that are capitalized and subsequently amortized over the same period in which the related premiums are earned. We plan to continue investing in marketing to attract and acquire new customers, increase our brand awareness, and expand our Enterprise product offering. We expect that sales and marketing expenses will increase in absolute dollars in future periods and vary from period-to-period as a percentage of revenue in the near-term. We expect that, in the long-term, our sales, marketing and other acquisition costs will decrease as a percentage of revenue as the proportion of renewals to our total business increases. Research and DevelopmentResearch and development consist of costs that support our growth and expansion initiatives inclusive of website development costs, software development costs related to our mobile app and Enterprise business solution, and new product development costs. These costs include third-party services related to data infrastructure support; personnel costs and overhead for product design, engineering, and management; and amortization of internally developed software. Research and development costs are expensed as incurred, except for costs related to internally developed software that are capitalized and subsequently amortized over the expected useful life. We expect that research and development expenses will increase in both absolute dollars and percentage of revenues in future periods in the near-term. We expect that, in the long-term, our research and development expenses will decrease as a percentage of revenue as these represent largely fixed costs. Amortization of Capitalized SoftwareAmortization of capitalized software relates to the amortization recorded for the capitalized website and software development costs for the period presented.Other Operating ExpensesOther operating expenses primarily relate to personnel costs and overhead for corporate functions, external professional service expenses and depreciation expense for computers, furniture, and other fixed assets. General and administrative expenses are expensed as incurred.We expect to incur incremental operating expenses to support our global operational growth and enhancements to support our reporting and planning functions.We expect to incur significant additional operating expenses as a result of operating as a public company, including expenses related to compliance with the rules and regulations of the SEC and the listing standards of the Nasdaq Capital Market, additional corporate, director and officer insurance expenses, greater investor relations expenses and increased legal, audit and consulting fees. We also expect to continue to increase the size of our accounting, finance, and legal teams to support our increased compliance requirements and the growth of our business. As a result, we expect that our other operating expenses will increase in absolute dollars and percentage of revenues in future periods in the near-term. We expect that, in the long-term, our other operating expenses will decrease as a percentage of revenue as these represent largely fixed costs. Interest expenseInterest expense primarily relates to interest incurred on our long-term debt, the amortization of debt issuance costs.32Impairment on digital assetsImpairment on digital assets relates to losses that occur when the fair value of the digital asset at the time of measurement (the balance sheet reporting date) is less than its carrying value.Increase in fair value of stock warrant liabilityIncrease in fair value of stock warrant liability primarily relates to changes in the fair value of warrant liabilities.Results of Operations Comparison of the Three Months Ended September 30, 2021 and September 30, 2020:The following table presents our consolidated statement of operations for the three months ended September 30, 2021 and 2020, and the dollar and percentage change between the two periods: Three Months Ended
September 30,2021 2020 $ Change % Change Revenue (unaudited) Premiums earned, net $ 28,142 $ 3,139 $ 25,003 797 % Investment income 30 81 (51) (63) % Other revenue 1,829 4,731 (2,902) (61) % Total revenue 30,001 7,951 22,050 277 % Costs and expenses Losses and loss adjustment expenses 27,480 4,443 23,037 519 % Policy servicing expense and other 5,674 4,119 1,555 38 % Sales, marketing and other acquisition costs 12,332 28 12,304 43943 % Research and development 5,130 1,832 3,298 180 % Amortization of capitalized software 2,838 2,815 23 1 % Other operating expenses 14,207 3,924 10,283 262 % Total costs and expenses 67,661 17,161 50,500 294 % Loss from operations (37,660) (9,210) (28,450) 309 % Other expense Interest expense — 1,513 (1,513) (100) % Impairment on digital assets 117 — 117 NM Decrease in fair value of stock warrant liability (11,020) (26) (10,994) 42285 % Total other expense (10,903) 1,487 (12,390) (833) % Loss before taxes (26,757) (10,697) (16,060) 150 % Income tax benefit — (67) 67 (100) % Net loss $ (26,757) $ (10,630) $ (16,127) 152 % RevenuePremiums Earned, netNet premiums earned increased $25.0 million, or 797%, from $3.1 million for the three months ended September 30, 2020 to $28.1 million for the three months ended September 30, 2021, which was primarily attributable to a $22.7 million decrease in premiums ceded to our reinsurance partners, a $1.8 million increase in direct earned premium, and a $0.5 million decrease in bad debt expense which was due primarily to state mandated COVID-19 payment extensions. The decrease of $22.7 million in premiums ceded to our reinsurance partners was driven largely by reinsurance commutation settlements. Direct earned premium increased by $1.8 million from $26.7 million for the three months ended September 30, 2020 to $28.5 million for the three months ended September 30, 2021. Increase in direct earned premiums was primarily attributable to an increase in policies in force during the three months ended September 30, 2021 as well as increase in miles driven during the same period. We believe direct earned premium is the best measure of top-line revenue, as it excludes the impacts of reinsurance.33Investment IncomeInvestment income decreased $51 thousand, or 63%, from $$81 thousand for the three months ended September 30, 2020 to $30 thousand for the three months ended September 30, 2021. The decrease was primarily due to a lower yield on fixed maturity investments resulting from reinvesting at lower rates, despite a higher level of invested assets.Other RevenueOther revenue decreased $2.9 million, or 61%, from $4.7 million for the three months ended September 30, 2020 to $1.8 million for the three months ended September 30, 2021. The decrease was primarily attributable to reinsurance commutation settlements in 2021 resulting in no reinsurance related revenue in the current period, including a $2.1 million decrease in revenues from policy acquisition costs recovered for policies onboarded into our reinsurance program as well as a decrease of $1.0 million due to reinsurance profit commission and brokerage rebates in the 2020 period that did not exist in 2021.Costs and ExpensesLosses and LAELosses and LAE increased $23.1 million, or 519%, from $4.4 million for the three months ended September 30, 2020 to $27.5 million for the three months ended September 30, 2021. Ceded losses and LAE decreased $14.5 million as a result of commuting all of our reinsurance programs and thereby retaining more losses. Direct losses and LAE increased by $8.3 million due to an overall increase in claims cost, frequency, and severity. Losses in the third quarter of 2021 were primarily driven by Hurricane Ida and severe storms in several regions of the United States.Policy Servicing Expense and OtherPolicy servicing expense and other increased $1.6 million, or 38%, from $4.1 million for the three months ended September 30, 2020 to $5.7 million for the three months ended September 30, 2021. The increase was primarily attributable to telematics device write-offs as a result of our upgrade from the use of 3G technology and, to a lesser extent, an increase in our customer experience and other policy servicing personnel related expenses to support our growth objectives.Sales, Marketing, and Other Acquisition CostsSales, marketing, and other acquisition costs increased $12.3 million from $0.03 million for the three months ended September 30, 2020 to $12.3 million for the three months ended September 30, 2021. This increase was driven by an increase of $8.0 million in our online and offline marketing campaigns. Additionally, as a result of reinsurance commutation in 2021, the 2020 period was increased $2.3 million less due to reinsurance ceding commission which serves as an offset to sales and marketing expense. The third quarter of 2020 includes the benefit of lower net expenses related to COVID-19, such as a decrease in personnel costs attributable to a reduction in force in response to the COVID-19 pandemic.Research and DevelopmentResearch and development increased $3.3 million, or 180%, from $1.8 million for the three months ended September 30, 2020 to $5.1 million for the three months ended September 30, 2021. The increase was primarily attributable to an increase in personnel related expenses to support our growth objectives.Amortization of Capitalized SoftwareAmortization of capitalized software was relatively flat, increasing by 1%, from $2.82 million for the three months ended September 30, 2020 to $2.84 million for the three months ended September 30, 2021. The increase was primarily related to the amortization of our website development costs and capitalized costs related to internal use software.Other Operating ExpensesOther operating expenses increased $10.3 million, or 262%, from $3.9 million for the three months ended September 30, 2020 to $14.2 million for the three months ended September 30, 2021. The increase was primarily driven by an increase of $5.1 million in employee stock-based compensation expense and a $4.9 million increase in general and administrative costs as a result of operating as a public company, including expenses related to compliance with the rules and regulations of the SEC and the listing standards of the Nasdaq Capital Market, additional corporate, director and officer insurance expenses, and increased legal, audit and consulting fees. Also attributing to the change was an increase in fulfillment costs associated with telematics device packaging, shipping and other related expenses.Interest ExpenseInterest expense decreased $1.5 million, or 100%, from $1.5 million for the three months ended September 30, 2020 to $0.0 million for the three months ended September 30, 2021. The decrease was primarily attributable to lower debt principal balance during the third quarter of 2021 as debt was paid off during the first quarter of 2021 and no outstanding debt remains on the balance sheet.34Impairment on digital assetsImpairment on digital assets in the 2021 period relates to subsequent losses arising from changes in the fair market value on acquired digital assets initially accounted for at cost. For more information, see Note 6, Digital Assets, net to our unaudited consolidated financial statements included in Part I, Item 1, of this Quarterly Report on Form 10-Q.Decrease in fair value of stock warrant liabilityFair value of stock warrant liability decreased $11.0 million, from $(0.03) million for the three months ended September 30, 2020 to $(11.02) million for the three months ended September 30, 2021. The decrease was primarily driven by the change in fair value of our preferred stock warrants issued in April 2020 and exercised in February 2021 and public and private placement warrants as described in Note 2 of the unaudited consolidated financial statements included in Part I, Item 1, of this Quarterly Report on Form 10-Q.Comparison of the nine months ended September 30, 2021 and September 30, 2020:The following table presents our consolidated statement of operations for the nine months ended September 30, 2021 and 2020, and the dollar and percentage change between the two periods:Nine Months Ended
September 30,2021 2020 $ Change % Change Revenue (unaudited) Premiums earned, net $ 47,316 $ 9,360 $ 37,956 406 % Investment income 85 500 (415) (83) % Other revenue 27,974 14,499 13,475 93 % Total revenue 75,375 24,359 51,016 209 % Costs and expenses Losses and loss adjustment expenses 62,383 12,214 50,169 411 % Policy servicing expense and other 15,172 12,803 2,369 19 % Sales, marketing and other acquisition costs 85,552 3,616 81,936 2266 % Research and development 11,898 6,668 5,230 78 % Amortization of capitalized software 8,190 8,311 (121) (1) % Other operating expenses 39,534 13,138 26,396 201 % Total costs and expenses 222,729 56,750 165,979 292 % Loss from operations (147,354) (32,391) (114,963) 355 % Other expense Interest expense 15,974 3,453 12,521 363 % Impairment on digital assets 183 — 183 NM Increase in fair value of stock warrant liability 8,133 640 7,493 1171 % Total other expense 24,290 4,093 20,197 493 % Net loss before taxes (171,644) (36,484) (135,160) 370 % Income tax provision (benefit) — (67) 67 (100) % Net loss after taxes $ (171,644) $ (36,417) $ (135,227) 371 % RevenuePremiums Earned, netNet premiums earned increased $37.9 million, or 406%, from $9.4 million for the nine months ended September 30, 2020 to $47.3 million for the nine months ended September 30, 2021, which was primarily attributable to a $29.9 million decrease in premiums ceded to our reinsurance partners, a $8.0 million increase in direct earned premium, and, to a far lesser degree, a decrease in bad debt expense which was due primarily to state mandated COVID-19 payment extensions in the 2020 period. The decrease of $29.9 million in premiums ceded to our reinsurance partners was driven largely by reinsurance commutation settlements. Direct earned premium increased by $8.0 million from $74.1 million for the nine months ended September 30, 2020 to $82.1 million for the nine months ended September 30, 2021. The increase in direct earned premiums was primarily attributable to an increase in policies in force during the nine months ended September 30, 2021 as well as increase in miles driven during the same period due, in part, to COVID-19 shelter-in-place35restrictions in the comparative period, which generally began in March 2020. We believe direct earned premium is the best measure of top-line revenue, as it excludes the impacts of reinsurance.Investment IncomeInvestment income decreased $0.4 million, or 83%, from $0.5 million for the nine months ended September 30, 2020 to $0.1 million for the nine months ended September 30, 2021. The decrease was primarily due to lower interest rates, partially offset by a higher average level of fixed maturity investments.Other RevenueOther revenue increased $13.5 million, or 93%, from $14.5 million for the nine months ended September 30, 2020 to $28.0 million for the nine months ended September 30, 2021. The increase was primarily attributable to a $19.4 million gain recognized on reinsurance commutation settlement in the first half of 2021, partially offset by a $6.0 million decrease in revenues from policy acquisition costs recovered for policies onboarded into our reinsurance program and reinsurance profit commission. A substantial portion of Enterprise business solutions revenue was from one customer who was an investor and therefore a related party, as described in Note 17 of the unaudited consolidated financial statements included in Part I, Item 1, of this Quarterly Report on Form 10-Q.Costs and ExpensesLosses and LAELosses and LAE increased $50.2 million, or 411%, from $12.2 million for the nine months ended September 30, 2020 to $62.4 million for the nine months ended September 30, 2021. Ceded losses and LAE decreased $26.5 million as a result of commuting all of our reinsurance programs and thereby retaining more losses. Direct losses and LAE increased by $23.4 million, driven by an overall increase in claims costs due to an increase in claims severity observed industry-wide and a reserve adjustment. Additionally, losses in the nine months ended September 30, 2021 include the impacts from Hurricane Ida and severe storms in several regions of the United States.Policy Servicing Expense and OtherPolicy servicing expense and other increased $2.4 million, or 19%, from $12.8 million for the nine months ended September 30, 2020 to $15.2 million for the nine months ended September 30, 2021. The increase was primarily attributable to telematics device write-offs as a result of our upgrade from the use of 3G technology which accounted for $1.2 million of the increase and, to a lesser extent, an increase in our customer experience and other policy servicing personnel related expenses to support our growth objectives.Sales, Marketing, and Other Acquisition CostsSales, marketing, and other acquisition costs increased $82.0 million from $3.6 million for the nine months ended September 30, 2020 to $85.6 million for the nine months ended September 30, 2021. Of this increase, $64.5 million was reinsurance-related including the commutation settlement and impact to the ceding commission offset. During the nine months ended September 30, 2021, we commuted all of our reinsurance programs. As a result of the commutations, we recorded a gain of $19.4 million recorded in Other Revenue as well as Sales, Marketing, and Other Acquisition Cost expense of $58.3 million related to a return of revenues from policy acquisition costs recovered for policies onboarded into our reinsurance program. Further resulting from the commutation settlement, was a decrease of $6.2 million in reinsurance ceding commission which serves as an offset to sales and marketing expense.Aside from reinsurance related impacts, as part of our typical marketing efforts, there was an increase of $15.3 million in both our online and offline marketing campaigns. On the sales side, there was a marginal increase in sales costs due to the use of independent agents for the first time in 2021. We expect such expenses, due to the expanded use of this channel, to continue to increase in the near future.Research and DevelopmentResearch and development increased $5.2 million, or 78%, from $6.7 million for the nine months ended September 30, 2020 to $11.9 million for the nine months ended September 30, 2021. The increase was primarily attributable to employee personnel costs related to our expansion initiatives in the engineering and technology areas of approximately $3.0 million, an increase in stock compensation expense for related departments of $2.0 million, and a decrease of $0.7 million in capitalized software costs which serves as an offset to research and development expense.Amortization of Capitalized SoftwareAmortization of capitalized software decreased $0.1 million, or 1%, from $8.3 million for the nine months ended September 30, 2020 to $8.2 million for the nine months ended September 30, 2021. The decrease was primarily related to the amortization of our website development costs and capitalized costs related to internal use software.Other Operating ExpensesOther operating expenses increased $26.4 million, or 201%, from $13.1 million for the nine months ended September 30, 2020 to $39.5 million for the nine months ended September 30, 2021. The increase was primarily driven by36an increase of $15.9 million in director’s, officers’, and employees’ stock-based compensation expense and a $10.2 million increase in general and administrative costs as a result of operating as a public company, including expenses related to compliance with the rules and regulations of the SEC and the listing standards of the Nasdaq Capital Market, additional corporate, director and officer insurance expenses, and increased legal, audit and consulting fees.Interest ExpenseInterest expense increased $12.5 million, or 363%, from $3.5 million for the nine months ended September 30, 2020 to $16.0 million for the nine months ended September 30, 2021. The increase was primarily attributable to a $14.1 million non-recurring write off of unamortized debt issuance costs and debt prepayment fees related to debt payoff during the nine months ended September 30, 2021 as described in Note 9 of the unaudited consolidated financial statements included in Part I, Item 1, of this Quarterly Report on Form 10-Q. As of September 30, 2021, all debt had been repaid and no outstanding debt remains on the balance sheet.Impairment on digital assetsImpairment on digital assets in the 2021 period relates to subsequent losses arising from changes in the fair market value on acquired digital assets initially accounted for at cost. For more information, see Note 6, Digital Assets, net to our unaudited consolidated financial statements included in Part I, Item 1, of this Quarterly Report on Form 10-Q.Increase in fair value of stock warrant liabilityFair value of stock warrant liability increased $7.5 million from $0.6 million for the nine months ended September 30, 2020 to $8.1 million for the nine months ended September 30, 2021. The increase was primarily driven by the change in fair value of our preferred stock warrants issued in April 2020 and exercised in February 2021 and public and private placement warrants as described in Note 2 of the unaudited consolidated financial statements included in Part I, Item 1, of this Quarterly Report on form 10-Q.Non-GAAP Financial MeasuresThe non-GAAP financial measures below have not been calculated in accordance with GAAP, and should be considered in addition to results prepared in accordance with GAAP and should not be considered as a substitute for, or superior to, GAAP results. In addition, accident period contribution profit/(loss) and contribution profit/(loss) should not be construed as indicators of our operating performance, liquidity or cash flows generated by operating, investing and financing activities, as there may be significant factors or trends that these non-GAAP measures fail to address. We caution investors that non-GAAP financial information, by its nature, departs from traditional accounting conventions. Therefore, its use can make it difficult to compare our current results with our results from other reporting periods and with the results of other companies.Our management use these non-GAAP financial measures, in conjunction with GAAP financial measures, as an integral part of managing our business and to, among other things: (1) monitor and evaluate the performance of our business operations and financial performance; (2) facilitate internal comparisons of the historical operating performance of our business operations; (3) facilitate external comparisons of the results of our overall business to the historical operating performance of other companies that may have different capital structures and debt levels; (4) review and assess the operating performance of our management team; (5) analyze and evaluate financial and strategic planning decisions regarding future operating investments; and (6) plan for and prepare future annual operating budgets and determine appropriate levels of operating investments.37The following table provides a reconciliation of total revenue to contribution profit/(loss) and accident period contribution profit/(loss) for the periods presented:Three Months Ended
September 30,Nine Months Ended
September 30,2021 2020 2021 2020 ($ in millions) ($ in millions) Total revenue 30.0 8.0 75.4 24.4 Losses and LAE (27.5) (4.4) (62.4) (12.2) Policy servicing expense and other (5.7) (4.1) (15.2) (12.8) Amortization of capitalized software (2.8) (2.8) (8.2) (8.3) Gross profit/(loss) (6.0) (3.3) (10.4) (8.9) Gross margin (20.0) % (41.3) % (13.8) % (36.5) % Less revenue adjustments: Revenue Adjustments Related to Reinsurance — 19.6 9.5 52.7 Revenue from Enterprise Segment (1.5) (1.1) (3.7) (3.6) Interest Income and Other 0.3 0.9 1.7 1.7 Less costs and expense adjustments: Loss and LAE Adjustments Related to Reinsurance — (14.5) (14.7) (41.2) Loss and LAE Adjustments Related to Prior Period Development (0.9) 1.5 4.0 2.9 Bad Debt, Report Costs and Other Expenses 0.5 (0.6) 0.3 (0.8) Amortization of Internally Developed Software 2.8 2.8 8.2 8.3 Devices 1.8 0.9 4.0 2.9 Accident period contribution profit/(loss) $ (3.0) $ 6.2 $ (1.1) $ 14.0 Prior Period Development $ 0.9 $ (1.5) $ (4.0) $ (2.9) Contribution profit/(loss) $ (2.1) $ 4.7 $ (5.1) $ 11.1 Total revenue $ 30.0 $ 8.0 $ 75.4 $ 24.4 Revenue adjustments (1.2) 19.4 7.5 50.8 Adjusted revenue $ 28.8 $ 27.4 $ 82.9 $ 75.2 Accident period contribution margin (10.4) % 22.6 % (1.3) % 18.6 % Contribution margin (7.3) % 17.2 % (6.2) % 14.8 % Liquidity and Capital ResourcesWe are a holding company that transacts a majority of our business through operating subsidiaries. Through our insurance subsidiaries, we sell pay-per-mile auto insurance policies to customers and through our Enterprise subsidiary, we sell our insurance solution technology to third-party insurance carriers. From inception through completion of the Merger, we financed our operations primarily through sales of insurance policies, sales of our Enterprise platform, and the net proceeds received from the issuance of preferred stock, debt, and sales of investments. As of September 30, 2021, we had $159.2 million in cash and cash equivalents and $49.8 million of marketable securities, compared to cash and cash equivalents of to $19.2 million and $24.7 million of marketable securities as of December 31, 2020. Our cash and cash equivalents primarily consist of bank deposits and money market funds. Our marketable securities consist of U.S. treasury securities, municipal securities, corporate debt securities, residential and commercial mortgage-backed securities, and other debt obligations.Insurance companies in the United States are also required by state law to maintain a minimum level of capital and surplus. Insurance companies are subject to certain RBC requirements as specified by NAIC. These standards for property and casualty insurers are used as a means of monitoring the financial strength of insurance companies. Under these38requirements, the amount of capital and surplus maintained by an insurance company is to be determined based on the various risk factors related to it. Such regulation is generally for the protection of the policyholders rather than stockholders. As of September 30, 2021 and December 31, 2020, our capital and policyholders’ surplus exceeded the minimum RBC requirements. We believe that our existing cash and cash equivalents, marketable securities, and cash flow from operations will be sufficient to support working capital and capital expenditure requirements for at least the next 12 months. Our future capital requirements will depend on many factors, including our insurance premium growth rate, renewal activity, including the timing and the amount of cash received from customers, the timing and extent of spending to support development efforts, the introduction of new and enhanced products, the continuing market adoption of offerings on our platform, and the current uncertainty in the global markets resulting from the worldwide COVID-19 pandemic.Our principal sources of liquidity are funds generated by operating activities, and available cash and cash equivalents, subject to the limitations set forth in the merger agreement related to the Proposed Transaction.The following table summarizes our cash flow data for the periods presented:Nine Months Ended
September 30,2021 2020 ($ in millions) Net cash used in operating activities $ (70.3) $ (19.3) Net cash (used in) provided by investing activities (43.3) 4.6 Net cash provided by financing activities 273.5 25.7 Operating ActivitiesNet cash used in operating activities for the nine months ended September 30, 2021 was $300,113,$(70.3) million, which was comprisedan increase of net cash used of $51.0 million from $19.3 million for the nine months ended September 30, 2020. Cash used during this period included $113.3 million from net loss for the nine months ended September 30, 2021, excluding the impact of changes in fair value of our net loss of $83,615, interest earned on marketable securities heldoutstanding warrants, depreciation expense and stock-based compensation and other non-cash expenses. Net cash provided by changes in the Trust Account of $1,386 and changes inour operating assets and liabilities increased by $49.9 million, which is primarily attributable to ceded reinsurance premiums, reinsurance recoverable on unpaid losses, accounts payable and accrued expense, prepaid reinsurance premium, premiums receivable which outpaced reinsurance recoverable on paid losses, and loss and LAE reserves which reflect a decrease in paid claims year over year.Net cash used $215,112in operating activities for the nine months ended September 30, 2020 was $19.3 million. Cash used during this period included $12.5 million from net loss for the nine months ended September 30, 2020, excluding the impact of changes in fair value of our outstanding warrants, depreciation expense and stock compensation and other non-cash expenses. Net cash used by changes in our operating assets and liabilities decreased by $7.6 million, which is primarily attributable to ceded reinsurance premiums, reinsurance recoverable on unpaid losses, accounts payable and accrued expense, prepaid reinsurance premium, premiums receivable which outpaced reinsurance recoverable on paid losses, prepaid expenses and other, unearned premium reserve, and loss and loss adjustment expense reserves.Investing ActivitiesNet cash used in investing activities for operating activities. Asthe nine months ended September 30, 2021 was $(43.3) million compared to net cash provided by investing activities of $4.6 million during the nine months ended September 30, 2020, which was primarily driven by a change from net proceeds to net payments for securities, as well as continued investment in our website and software development, partially offset by a decline in investment in telematics devices, leasehold improvements, and other equipment.Financing ActivitiesNet cash provided by financing activities for the nine months ended September 30, 2021 was $273.5 million compared to $25.7 million in cash provided by financing activities for the nine months ended September 30, 2020. The increase in cash provided by financing activities is primarily due to cash received from the trust account and the private placements in connection with the Closing in February 2021.39Contractual ObligationsThe following is a summary of material contractual obligations and commitments as of September 30, 2021:Total 2021 (remaining three months) 2022 – 2023 2024 – 2025 Thereafter (in millions) Long-term debt $ — $ — $ — $ — $ — Interest on long-term debt — — — — — Operating Leases 23.9 0.8 6.3 5.6 11.2 Purchase Commitments 1.1 1.1 — — — Total $ 25.0 $ 1.9 $ 6.3 $ 5.6 $ 11.2 Financing ArrangementsSubordinated Note Purchase and Security AgreementIn April 2020, we had marketable securities heldentered into the Note Purchase Agreement with Hudson, which was amended in February 2021 to reflect the Trust Accountconsummation of $230,001,386 (including approximately $1,000the Merger by adding INSU as a guarantor and reflecting our new corporate structure. An executive of interest income) consistingHudson is on our board of U.S. Treasury securities withdirectors and is a maturityrelated party, as discussed in Note 17 of 180 days or less. Interest incomethe unaudited consolidated financial statements included in Part I, Item 1, of this Quarterly Report on form 10-Q.Under the Note Purchase Agreement, we could issue up to $50.0 million in aggregate principal amount of senior secured subordinated PIK notes due in 2025 (the “Notes”). The Note Purchase Agreement further provided for additional funds of up to an aggregate of $15.0 million over time from Hudson, the timing of which was subject to reinsurance settlement timing. Notes issued under the Note Purchase Agreement were due on the fifth anniversary of their issuance, starting in April 2025, and bore interest at the following rates: 2% per annum payable quarterly in arrears in cash, and a varying interest rate of 9.0% to 11.0% PIK interest. The PIK interest was based on the aggregate outstanding principal balance inas follows: (i) 11.0% if the Trust Account may be usedoutstanding balance was less than $5.0 million; (ii) 10.0% if the outstanding balance was greater than or equal to $5.0 million but less than $10.0 million, and (iii) 9.0% if the outstanding balance was greater than or equal to $10.0 million. PIK interest represents contractually deferred interest that was added to the principal balance outstanding each quarter and due at maturity. The Notes were secured by us to pay taxes. Through September 30, 2020, we did not withdraw any interest income from the Trust Account. We intend to use substantially all of our assets. We had the funds heldright to prepay the Notes at any time subject to payment of a fee. As of December 31, 2020, $31.6 million aggregate principal amount of the Notes was outstanding, along with $0.9 million of capitalized PIK interest. Subsequent to December 31, 2020, we issued additional Notes having an aggregate principal amount of $2.0 million. As of March 30, 2021, there was approximately $36.6 million of principal and PIK interest outstanding under the Hudson debt facility, which we repaid on such date, along with the prepayment fee of $0.4 million. Accordingly, there are no longer any Notes outstanding.As part of the entry into the original Note Purchase Agreement, we issued warrants for up to 8,536,938 of Series E convertible preferred shares, which we estimated to have a fair value of $12.5 million at issuance, which was recorded as a discount to the debt and is being amortized to interest expense over the term of the debt. These warrants were net exercised immediately prior to the Effective Time (as defined in the Trust Account, including any amounts representing interest earned onMerger Agreement) and are no longer outstanding.Paycheck Protection Program LoanIn April 2020, we were granted a loan under the Trust Account (less amounts released to us to pay taxes and deferred underwriting commissions) to consummate ourPaycheck Protection Program offered by the Small Business Combination. ToAdministration under the extent that our capital stock or debt is used, in whole or in part, as consideration to consummate our Business Combination, the remaining proceeds held in the Trust Account will be used as working capital to finance the operationsCARES Act, section 7(a)(36) of the target business or businesses, make other acquisitions and pursue our growth strategies.At September 30, 2020, we had cash of $690,971 held outsideSmall Business Act for approximately $5.9 million. The balance outstanding for the Trust Account.Paycheck Protection Program loan was $5.9 million at December 31, 2020. We intend to use the funds held outside the Trust Account primarily to identify and evaluate target businesses, perform business due diligence on prospective target businesses, travel to and from the offices, production facilities or similar locations of prospective target businesses or their representatives or owners, review corporate documents and material agreements of prospective target businesses, and structure, negotiate and complete a Business Combination.In order to fund working capital requirements or finance transaction costs in connection with a Business Combination, our Sponsor or one of its affiliates has committed torepaid this loan us funds as may be required up to a maximum of $750,000, and may, but is not obligated to, loan us additional funds to fund our additional working capital requirements and transaction costs. If we complete a Business Combination, we would repay such loaned amounts. In the event that a Business Combination does not close, we may use a portion of the working capital held outside the Trust Account to repay such loaned amounts but no proceeds from our Trust Account would be used for such repayment. Up to $1,500,000 of such loans may be convertible into warrants identical to the Placement Warrants, at a price of $1.00 per warrant at the option of the lender.We do not believe we will need to raise additional funds in order to meet the expenditures required to identify and acquire a target business. However, if our estimate of the costs of undertaking due diligence investigations and negotiating a Business Combination is less than the actual amount necessary to do so, we may have insufficient funds available to pursue and consummate our Business Combination. Moreover, we may need to obtain additional financing if we become obligated to redeem a significant number of our Public Shares upon consummation of our Business Combination, in which case we may issue additional securities or incur debt. Subject to compliance with applicable securities laws, we would only obtain such financing simultaneouslyconcurrent with the consummation of the Merger and it is no longer outstanding.2019 Loan and Security AgreementIn December 2019, we entered into a Loan and Security Agreement (the “2019 Loan and Security Agreement”) with us, as borrower, certain of our Business Combination.Off-Balance Sheet Financing ArrangementsWe have no obligations, assets or liabilities, which would be considered off-balance sheet arrangementssubsidiaries, as guarantors and certain affiliates of September 30, 2020. We do not participateMultiplier Capital, LLC and other financial institutions, as lenders and agent, providing for a term loan in transactions that create relationships with unconsolidated entities or financial partnerships, often referred to as variableaggregate principal amount of $25.0 million. Minimum payments of interest entities, whichwere due monthly through December 2021. Beginning in January 2022, equal payments of principal would have been establisheddue monthly in an amount necessary to fully amortize the loan by June 5, 2024. An end of term payment of $0.6 million was due at maturity or date of any prepayment. The loan was secured by substantially all of our and the guarantor’s assets. Lender’s consent was required to be obtained regarding certain dispositions, and changes in business, management, or ownership including mergers and acquisitions, such as the Merger, as more fully described in the 2019 Loan and Security Agreement. The balance outstanding net of debt issuance costs for the purpose2019 Loan and Security Agreement was $24.3 million as of facilitating off-balance sheet arrangements. WeDecember 31, 2020.The loan could be prepaid in an amount equal to the outstanding principal, accrued interest, and the end of term fee, plus a prepayment charge of 3% if paid in the first two years after the effective date, 2% if paid in the third year after the effective date, or 1% if prepaid after the third year subsequent to the effective date. Accordingly, we prepaid this loan in connection with the consummation of the Merger and is no longer outstanding.40At the time of origination, the lender was granted a warrant to purchase Series E convertible preferred stock, estimated to have not entered into any off-balance sheet financing arrangements, established any special purpose entities, guaranteed any debt or commitmentsa fair value of other entities, or purchased any non-financial assets.Contractual ObligationsOff-Balance Sheet ArrangementsWe do not have any long-term debt, capital lease obligations, operating lease obligationsoff-balance sheet arrangements that have, or long-term liabilities, other than an agreementare reasonably likely to pay the Sponsorhave, a current or an affiliatefuture material effect on our financial condition, results of the Sponsor a monthly fee of $20,000 for office space, administrative and shared personnel support services to the Company. We began incurring these fees on September 3, 2020 and will continue to incur these fees monthly until the earlier of the completion of the Business Combination and our liquidation.In addition, we have an agreement to pay the underwriters a deferred fee of $9,800,000. The deferred fee will become payable to the underwriters’ representative from the amounts held in the Trust Account solely in the event that we complete a Business Combination, subject to the terms of the underwriting agreement.14Critical Accounting PoliciesOur financial statements are prepared in accordance with GAAP. The preparation of condensedthe consolidated financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of AmericaGAAP requires our management to make a number of estimates and assumptions that affectrelating to the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the condensedconsolidated financial statements and incomethe reported amounts of revenue and expenses during the periods reported.period. We evaluate our significant estimates on an ongoing basis, including, but not limited to, estimates related to reserves for loss and LAE, premium write-offs, and stock-based compensation. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results could materially differ from those estimates. We have identified the followingSee Note 1, Summary of Significant Accounting Policies, to our unaudited consolidated financial statements included in Part I, Item 1, of this Quarterly Report on Form 10-Q for material changes to our critical accounting policies:Class A Common Stock Subjectpolicies from the ones described under the section Critical Accounting Policies and Estimates of Management’s Discussion and Analysis of Financial Condition and Results of Operations and Summary of Significant Accounting Policies in the notes to Possible RedemptionWe account for our common stock subjectthe audited consolidated financial statements which are which are included in the Company’s Post-Effective Amendment No. 2 to possible redemption in accordanceForm S-1 filed with the guidanceSEC on August 27, 2021.New Accounting PronouncementsSee Note 1, Summary of Significant Accounting Policies, to our unaudited consolidated financial statements included in Accounting Standards Codification (“ASC”) Topic 480 “Distinguishing Liabilities from Equity.” Common stock subject to mandatory redemption is classified as a liability instrument and is measured at fair value. Conditionally redeemable common stock (including common stock that features redemption rights that are either within the controlPart I, Item 1, of the holder or subject to redemption upon the occurrence of uncertain events not solely within our control) is classified as temporary equity. At all other times, common stock is classified as stockholders’ equity. Our Class A common stock features certain redemption rights that are considered to be outside of our control and subject to occurrence of uncertain future events. Accordingly, Class A common stock subject to possible redemption is presented as temporary equity, outside of the stockholders’ equity section of our condensed balance sheets.Net Loss Per Common ShareWe apply the two-class method in calculating earnings per share. Net income per common share, basic and diluted for Class A redeemable common stock is calculated by dividing the interest income earnedthis Quarterly Report on the Trust Account, net of applicable franchise and income taxes, by the weighted average number of Class A redeemable common stock outstanding for the period. Net loss per common share, basic and diluted for Class A and Class B non-redeemable common stock is calculated by dividing net income, less income attributable to Class A redeemable common stock, by the weighted average number of Class A and Class B non-redeemable common stock outstanding for the period presented.Recent Accounting StandardsManagement does not believe that any recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on our condensed financial statements.ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKFollowing the consummationRISKSWe are exposed to certain credit and interest rate risks as part of our Initial Public Offering,ongoing business operations.Credit RiskWe are exposed to credit risk on our investment portfolio and were exposed on our reinsurance contracts. Investments that potentially subject us to credit risk consist principally of cash and marketable securities. We place our cash and cash equivalents with financial institutions with high credit standing and our excess cash in marketable investment grade securities. With respect to our reinsurance contracts, we were exposed to credit risk from reinsurance recoverables and prepaid reinsurance premiums, which was mitigated by using a diverse group of reinsurers and monitoring their financial strength ratings. For any reinsurance counterparties who were not rated, we require adequate levels of collateral in the net proceedsform of a trust account or Letter of Credit. The credit risk on our reinsurance contracts has been eliminated with the commutation of the reinsurance programs.Interest Rate RiskOur consolidated balance sheets include assets and liabilities with estimated fair values that are subject to market risks. Our primary market risk has been interest rate risks which impacts the fair value of our Initial Public Offering, including amounts in the Trust Account, have been invested in U.S. government treasury bills, notes or bonds with a maturity of 185 days or less or in certain money market funds that invest solely in U.S. treasuries. Due to the short-term nature of these investments, we believe there is no associated material exposure toliabilities as well as interest rate risk.risks associated with our investments in fixed maturities.ITEM 4. CONTROLS AND PROCEDURESEvaluation of Disclosure Controls and ProceduresThe term “disclosure controls areand procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act refers to controls and procedures that are designed with the objective of ensuringto ensure that information required to be disclosed in our reports filed under the Exchange Act, such as this Quarterly Report, is recorded, processed, summarized and reported within the time periods specifiedby a company in the SEC’s rules and forms. Disclosure controls are also designed with the objective of ensuringreports that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.Evaluation of Disclosure Controls and ProceduresOur management evaluated, with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures as of September 30, 2020, pursuant to Rule 13a-15(b) of the Exchange Act. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, 2020, our disclosure controls and procedures were effective at a reasonable assurance level and, accordingly, provided reasonable assurance that the information required to be disclosed by us in reports filedit files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.41Our management, with the participation of our Chief Executive Officer, Chief Financial Officer, and Chief Accounting Officer evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective at the reasonable assurance level as of the end of the period covered by this report solely due to the material weakness in our internal control over financial reporting due to the insufficient risk assessment of the underlying accounting treatment for certain complex financial instruments, as described below.A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.On April 12, 2021, the Acting Director of the Division of Corporate Finance and the Acting Chief Accountant of the SEC issued “Staff Statement on Accounting and Reporting Considerations for Warrants Issued by Special Purpose Acquisition Companies” (the “Statement”). The Statement indicated that when certain features are included in warrants issued in special purpose acquisition company (“SPAC”) transactions, the warrant “should be classified as a liability measured at fair value, with changes in fair value each period reported in earnings.” Management analyzed and evaluated INSU’s financial statements previously filed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 and concluded that there was a material misstatement related to the accounting for complex financial instruments in the historical financial statements of INSU for the year ended December 31, 2020. We have filed a Current Report on Form 8-K under Item 4.02 that includes a statement of non-reliance on such historical financial statements and filed an Amendment No. 1 to Annual Report on Form 10-K/A for the year ended December 31, 2020 with the SEC on June 2, 2021.Prior to the issuance of the Statement, management had concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of the end of the period covered by the Annual Report on Form 10-K filed with the SEC on March 31, 2021. However, in response to the guidance in the Statement, management re-evaluated INSU’s disclosure controls and procedures as of December 31, 2020 and concluded that INSU’s disclosure controls and procedures were not effective at the reasonable assurance level as of December 31, 2020 due to a material weakness in internal control over financial reporting due to the insufficient risk assessment of the underlying accounting treatment for certain complex financial instruments.Our evaluation of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q included consideration of the guidance set forth in the Statement. Based on the items discussed in the Statement, our Chief Executive Officer and Chief Financial Officer concluded that as of September 30, 2021, we did not design and maintain effective controls over financial reporting relating to the accounting treatment for complex financial instruments, as discussed above.Notwithstanding this material weakness, management has concluded that our financial statements included in this Quarterly Report on Form 10-Q present fairly, in all material respects, our financial position, results of operations and cash flows for the periods presented in accordance with GAAP.Remediation PlanWe are taking steps to remediate the material weakness by, among other things, devoting significant effort and resources to the remediation and improvement of our internal control over financial reporting as it relates to the accounting treatment for complex financial instruments. We have enhanced these processes to better evaluate our research and understanding of the nuances of the complex accounting standards that apply to our securities and financial statements. We have provided enhanced access to accounting literature, research materials and documents and increased communication among our personnel and third-party professionals with whom we consult regarding complex accounting applications. These actions are subject to ongoing review by senior management and Audit Committee oversight. As we continue to evaluate and work to improve our internal control over financial reporting, management may implement additional measures to address the material weakness or modify the remediation efforts described above and will continue to review and make necessary changes to the overall design of our internal controls. The weakness will not be considered remediated, until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. We expect that the remediation of this material weakness will be completed prior to the end of fiscal year 2021.Changes in Internal Control Overover Financial ReportingThereDuring the three months ended September 30, 2021, there were no changes in our internal control over financial reporting, (as such term is definedbesides those previously mentioned in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the most recent quarterRemediation Plan section above, that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.42PART II - OTHER INFORMATIONITEM 1. LEGAL PROCEEDINGS.None.From time to time, we are involved in various legal proceedings arising from the normal course of business activities, some of which, to date, have related to insurance claims made against us. Other than as described below, our management believes that there are currently no extra contractual or non-claim related litigation the outcome of which, we believe, if determined adversely to us, would individually or taken together have a material adverse effect on our business, operating results, cash flows or financial condition.ITEM 1A. RISK FACTORS.Factors that could cause our actual results to differ materially from those in this Report includeFACTORSOther than the additional risk factors described in our final prospectus filedbelow related to the Proposed Transaction with the SEC on September 4, 2020. As of the date of this Report, other than as described below,Lemonade, there have been no material changes to the risk factors disclosedRisk Factors described in Part I, Item 1A. "Risk Factors" in our final prospectusAmendment No. 1 to Annual Report on Form 10-K/A for the year ended December 31, 2020, filed with the SEC.The securitiesannouncement and pendency of the Proposed Transaction may result in disruptions to our business.The Agreement generally requires us to operate our business in the ordinary course pending completion of the Proposed Transaction and restricts us from taking certain specified actions without Lemonade’s consent until the Proposed Transaction is completed or the Agreement is terminated. These restrictions may affect our ability to execute our business strategies and attain financial and other goals and may impact our financial condition, results of operations and cash flows.Further, in connection with the Proposed Transaction, our current and prospective employees may experience uncertainty about their future roles with us following the consummation of the Proposed Transaction, which may materially adversely affect our ability to attract, motivate and retain key personnel.The pendency of the Proposed Transaction could also result in disruptions to our business relationships with customers, suppliers and other business partners, which could have an adverse impact on our revenues, cash flows and results of operations. Parties with which we investhave business relationships may choose to delay or defer certain business decisions, seek alternative relationships with third parties or seek to alter their present business relationships with us while the funds heldProposed Transaction is pending. Parties with whom we otherwise may have sought to establish business relationships may seek alternative relationships with other parties.The pursuit of the Proposed Transaction may place a significant burden on our management and internal resources, and will divert management’s time and attention from our day-to-day operations and the execution of our other strategic initiatives. This could adversely affect our financial results. In addition, we have incurred and will continue to incur other significant costs, expenses and fees for professional services and other transaction costs in connection with the Proposed Transaction, and many of these fees and costs are payable regardless of whether or not the Proposed Transaction is consummated.Any of the foregoing could adversely affect our business, our financial condition, and our results of operations.The Proposed Transaction may not be completed within the intended timeframe, or at all, and the failure to complete the Proposed Transaction could adversely affect our, results of operations, financial condition, and the market price of our common stock.There can be no assurance that the Proposed Transaction will be completed in the Trust Accountintended timeframe, or at all. The Agreement contains a number of conditions that must be satisfied or waived prior to the completion of the Proposed Transaction, including, among others, adoption of the Agreement by the affirmative vote of the holders of a majority of the outstanding shares of our common stock, and applicable regulatory approvals. There can be no assurance that all required approvals will be obtained or that all closing conditions will otherwise be satisfied. Even if all required approvals are obtained and all closing conditions are satisfied, we can provide no assurance as to the terms, conditions, and timing of such approvals or that the Proposed Transaction will be completed in a timely manner or at all. Many of the conditions to completion of the Proposed Transaction are outside of our control, and we cannot predict when or if these conditions will be satisfied. Even if regulatory approval is obtained, it is possible that conditions will be imposed that could bearresult in a material delay in, or the abandonment of, the Proposed Transaction or otherwise have an adverse effect on us.If the Proposed Transaction is not completed within the intended timeframe or at all, we may be subject to several material risks. The price of our common stock may decline to the extent that current market prices reflect a market assumption that the business combination will be completed. In addition, some costs related to the Proposed Transaction must be paid whether or not the Proposed Transaction is completed, and we have incurred, and will continue to incur, significant costs, expenses and fees for professional services and other transaction costs in connection with the Proposed Transaction. In addition, the Proposed Transaction has resulted in the diversion of management’s attention and other resources, for which we will have received little or no benefit if completion of the Proposed Transaction does not occur. We may also experience negative rate of interest,reactions from our investors, customers, partners, suppliers, and employees related to the Proposed Transaction.43We could also be subject to litigation related to the Proposed Transaction, which could reduceprevent or delay the valueconsummation of the assets heldProposed Transaction and result in trust such thatsignificant costs and expenses.In addition to the per-share redemption amount received by public stockholdersabove risks, if the Agreement is terminated under certain circumstances, we may be less than $10.00 per share.The proceeds held inrequired to pay Lemonade a termination fee equal to $12.5 million. If the Trust Account are invested only in U.S. government treasury obligations with a maturityProposed Transaction is not consummated, there can be no assurance that these risks will not materialize and will not materially adversely affect our stock price, business, financial condition, results of 185 daysoperations or less or in money market funds meeting certain conditions under Rule 2a-7 under the Investment Company Act, which invest only in direct U.S. government treasury obligations. While short-term U.S. government treasury obligations currently yield a positive rate of interest, they have briefly yielded negative interest rates in recent years. Central banks in Europe and Japan pursued interest rates below zero in recent years, and the Open Market Committee of the Federal Reserve has not ruled out the possibility that it may in the future adopt similar policies in the United States. In the event that we are unable to complete our initial business combination or make certain amendments to our Amended and Restated Certificate of Incorporation, our public stockholders are entitled to receive their pro-rata share of the proceeds held in the Trust Account, plus any interest income not released to us, net of taxes payable. Negative interest rates could impact the per-share redemption amount that may be received by public stockholders.ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.Unregistered Sales of Equity SecuritiesOn September 8, 2020, we consummated our Initial Public Offering of 23,000,000 Units, which includes the full exercise by the underwriters of the over-allotment option to purchase an additional 3,000,000 Units. The Units were sold at an offering price of $10.00 per Unit, generating total gross proceeds of $230,000,000. Cantor Fitzgerald & Co. acted as sole book running manager and Northland Capital Markets acted as co-manager of the offering. The securities sold in the offering were registered under the Securities Act on a registration statement on Form S-1 (No. 333-240205 and 333-248567). The SEC declared the registration statement effective on 2020.Simultaneously with the consummation of the Initial Public Offering and the option to purchase additional Units, we consummated a private placement of 540,000 Placement Units to our Sponsor and Cantor at a price of $10.00 per Placement Unit, generating total proceeds of $5,400,000. Such securities were issued pursuant to the exemption from registration contained in Section 4(a)(2) of the Securities Act.Of the gross proceeds received from the Initial Public Offering, the closing of the over-allotment option and the Placement Units, $230,000,000 was placed in the Trust Account.We paid a total of $4,000,000 in underwriting discounts and commissions and $433,916 for other costs and expenses related to the Initial Public Offering. In addition, the underwriters agreed to defer up to $9,800,000 in underwriting discounts and commissions.For a description of the use of the proceeds generated in our Initial Public Offering, see Part I, Item 2 of this Form 10-Q.Not applicable.ITEM 3. DEFAULTS UPON SENIOR SECURITIES.None.Not applicable.ITEM 4. MINE SAFETY DISCLOSURES.Not applicable.ITEM 5. OTHER INFORMATION.None.
Not applicable.44ITEM 6. EXHIBITS.The following exhibits are filed as part of, or incorporated by reference into, this Quarterly Report on Form 10-Q.* Furnished herewith and not deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.45(1)Previously filed as an exhibit to our Current Report on Form 8-K filed on September 9, 2020.*Filed herewith.**Furnished.17SIGNATURESPursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.INSU ACQUISITION CORP. IIMETROMILE, INC. Date: November 13, 202015, 2021By: /s/ John M. ButlerRegi VengalilName: John M. ButlerTitle:Chief Executive Officer(Principal Executive Officer)Date: November 13, 2020/s/ Joseph W. Pooler, Jr.Name: Joseph W. Pooler, Jr.Title:Regi Vengalil
Chief Financial Officer
(Principal Financial Officer)1846