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A Texas Freeze Chilled Lemonade's Recent Results

By Brian Withers - Updated Jun 23, 2021 at 8:45AM

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But it doesn't impact the long-term opportunity.

Lemonade (LMND -3.34%) shareholders have been on a bit of a wild ride the last 12 months. The stock has ranged from a low of $44 to a high of $188. Currently, shares are down over 40% from their peak in January. The company reported first-quarter results in early May. Investors were mostly pleased with the outcome, but one number had everyone spooked. On a Fool Live episode recorded on May 12, Fool contributor Brian Withers reviews the recent quarter and how the rare freeze in Texas impacted the results.

Brian Withers: Let me talk about Lemonade, L-M-N-D. The stock is down considerably after earnings, and you know what? Every single number was great except one, and we will go over that.

So customers up 50 percent year-over-year, 10 percent quarter-over-quarter. That's pretty impressive. In-force premiums, the amount that they collect from those customers, up 89 percent year-over-year, up 18 percent quarter-over-quarter. Premiums per customer. So getting the customers to pay more because of multiple products or moving up from a rental to a home insurance, up 25 percent year-over-year, eight percent sequentially.

Annual dollar retention, this is a new metric that they've introduced this quarter which is very much a SaaS-like retention metric, which is of the customers last year that they had, what are they capturing from those same customers this year? The annual dollar retention was 81 percent, and we look at SaaS, companies we are looking at 100 percent plus number. But you know what? That's up from 70 percent a year ago and up 79 percent from last quarter. So it's considerably going up and as they introduce more products, they have life insurance now and they just announced they're going to do auto insurance. This will allow more of an umbrella and I think will continue to peak this number up over time.

Cash and investments, $1.2 billion up from $578 million at the end of the year, mainly due to the follow-on stock offering. What's really cool now is that non-rental products, including homeowners, pet health, and term life insurance represented about half of the new business in the quarter up from about a third.

Now here's the bummer that everybody latched onto that wasn't really exciting, was a sore point for the quarter, gross loss ratio. You want it to be below 100. That says that what you pay out for claims is less than you collect in premiums. That jumped 50 points to 121 percent, up from about 72 percent a year ago and 73 percent last quarter.

So if you live in Texas, you experienced a freeze, once-in-a-century freeze and the company that gets about a quarter of its premiums from Texas received a year's worth of claims in a few days and that totaled about $20 million. But because of reinsurance, the only hit to their loss this quarter was about five million.

The company is forecasting to be up about 76 percent in the claim premiums they collect over the full year and even with this loss, adjusted EBITDA loss is about the same as its projected for last quarter. So pretty positive result and you got to look past the one number this quarter. I think the long term as these guys get into these big markets of homeowners and auto insurance, the runway for this company is tremendous.

Brian Withers owns shares of Lemonade, Inc. The Motley Fool owns shares of and recommends Lemonade, Inc. The Motley Fool has a disclosure policy.

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