Primerica, Inc.

Good day. My name is Alison and I will be your conference operator today. At this time, I would like to welcome everyone to the Primerica Q1 2020 earnings results conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, please press star, then two. Thank you. At this time, I would like to turn the conference over to Nicole Russell, Senior Vice President of Investor Relations. You may begin your conference.

Thank you, Alison, and good morning, everyone. Welcome to Primerica's first quarter earnings call. A copy of the press release, along with materials that are relevant to today's call, are posted on our investor relations section of our website at investors.primerica.com. Joining our call today are our Chief Executive Officer, Glenn Williams, and our Chief Financial Officer, Allison Rand. Glenn and Allison will deliver prepared remarks, and then we will open the call up for questions. During our call, some of our comments may contain forward-looking statements in accordance with the safe harbor provisions of the Securities Litigation Reform Act. The company does not assume any duty to update or revise these statements to reflect new information. We refer you to our most recent Form 10-K filing as modified by subsequent 10-Q filings for a list of risks and uncertainties that could cause actual results to materially differ from those expressed or implied. We will also reference certain non-GAAP measures. which we believe provide additional insight into the company's operations. Reconciliations of non-GAAP measures to their respective GAAP numbers are included at the end of the earnings press release and available on our investor relations website. I would now like to turn the call over to Glenn.

Thank you, Nicole, and thanks, everyone, for joining us today. I trust that all of you, your families, and your coworkers are safe and healthy as we all continue to navigate through the COVID-19 disruption. Today, Allison and I will provide a recap of our first quarter with comments on how the COVID-19 pandemic impacted these results. After this update, we will focus in more detail on how we are positioning our business to succeed during the stay-at-home orders and beyond by capitalizing on our unique strengths and adapting quickly to overcome obstacles. First quarter results were strong, driven by growing momentum during January, February, and the first half of March. While the emergence of the COVID-19 crisis in mid-March has brought about some significant changes to our business processes, the disruption occurred late in the quarter, resulting in minimal impact to many of our metrics. On slide number three of the presentation, adjusted operating revenues were $541 million, up 10% compared to the first quarter of 2019, while adjusted net operating income was up 13%. Diluted adjusted operating income per share was $2.05, which represents an 18% increase year over year, and ROAE was 21.8% compared to 20.3% in last year's first quarter. On the capital deployment front, we repurchased $90 million of our common stock during the first quarter. Given the strength of our capital and liquidity position, which Allison will discuss later in the call, we believe we will meet our targeted repurchases for the year of $250 million. Turning to slide four, we ended the quarter with a total of 130,095 life-licensed representatives. Recruiting trends remained positive in the first quarter, boosted by independent business application fees discounted to $49 for the first 20 days of January and the last 11 days of March, which drove recruiting activity. We recruited a total of 84,762 new reps during the quarter, which represents a 34% increase compared to the first quarter of 2019. Licensing trends were also robust with an additional 10,599 new life licenses, a 5% increase compared to the same period last year. However, the stay-at-home orders did have a negative impact on the first quarter licensing totals due to the need to postpone live licensing preparation classes and testing providers closing their testing centers. During my comments on the longer-term COVID-19 impact, I will expand on this issue. On slide five, we see the result of our extraordinarily strong start to the year reflected in the numbers of policies issued. During the first quarter, we issued 71,318 new life insurance policies, an 11% improvement compared to the first quarter of 2019. Productivity at .18 policies per life insurance license representative per month improved noticeably compared to the .16 productivity rate in the first quarter of 2019. More importantly, The quarter also marks the reversal of the deceleration trend in productivity experienced over the last few years. Our investments and savings product segment had another solid quarter. Results for this segment are highlighted on slide six. Record sales of $2.2 billion during the quarter increased 28% compared to the first quarter of 2019. Variable annuities remain the largest contributor to the year-over-year growth due to the attractive nature of living benefits and income guarantee features. Mutual funds and managed accounts also saw strong continued demand. Client asset values, which include approximately 75% equities and 25% fixed income, ended the current quarter at $59 billion, down 7% year-over-year and down 16% compared to our all-time high of $70.5 billion set on December 31, 2019. This sharp decline in assets is due to the severe market correction that began in mid-February. Average client asset values, which more closely correlate to revenues, increased 8% to $66.6 billion year-over-year. During the quarter, net inflows were $543 million, which reflects strong year-over-year sales growth and redemptions that were in line with the growth in client asset values. We believe our redemption rate remains among the lowest in the industry. Now with the quarter behind us, let me share with you our plans to preserve our momentum during this health and economic disruption. Turning to slide seven, our business is prepared for a range of crisis situations with robust business continuity plans that allow us to respond quickly and pivot to a remote work setting. Within a short period, we were able to successfully transition over 90% of our employees out of our home office buildings while implementing a significant health and safety protocol to protect those still working in our offices. In addition, we've continuously advised our sales force on appropriate safety precautions. As we built our business over the past 43 years, we've deliberately added capabilities which both improve productivity and also offer optionality in the event of major marketplace changes. For example, Prior to the emergence of COVID-19, 95% of business transactions were submitted and processed electronically from the point of sale, including applications for new recruits, life insurance, and investments. While our representatives traditionally completed the sales process in person, the Turbo App technology we use allows for remote electronic signatures and remote delivery of all required disclosure documents. The digital transaction capability has been quickly combined with digital client interaction capability using web conference tools widely available to our sales force and to clients. By using our digital transaction technology and interacting with clients digitally rather than in person, we've increased our remote recruiting and sales from about 5% of total prior to the stay-at-home orders to a point where the clear majority of interactions is being done remotely today. One of Primerica's key advantages in leading our sales force is our communication system. During this crisis, we've expanded our technology to add significant web conferencing options to our broadcast TV, online, social media, and print communications. This combination has allowed us to provide direction and confidence to our sales force to keep them focused and active during this chaotic period. Our greatest strength, especially in times of disruption, is our sales force. As entrepreneurs, they're uniquely flexible, adaptable, and innovative. In addition, our leadership culture creates a natural reaction to crisis that includes strong communication and clear direction. We've seen our sales force place top priority on the safety and health of their teams and their clients. They've also adapted to remote interaction capabilities for recruiting and training their teams while continuing to serve clients. Our business has historically been considered a face-to-face model. Today we see that, because of our field force, we can succeed as a remote model as well. While Primerica continues to succeed, we've adapted certain of our business processes to the current disruption. Let me provide a few examples. Unlike recruiting, where we have a significant degree of control, the licensing process relies heavily on third parties for testing and state or provincial agencies for licensing. Since most test centers are closed due to the pandemic, The delays in the licensing timeline could result in recruits losing interest prior to completing the licensing process. We have taken a multifaceted approach to dealing with this challenge. First, we extended and enhanced our field training bonus program, which encourages new recruits to begin the business building process. Second, we raised the profile of our non-licensed products so that recruits are more aware of options to earn income during the extended life licensing process. Third, because live licensing classes are now limited, we've expanded the reach of online offerings for licensing exam preparation. Finally, we've taken a leading role within the industry to request that states offer alternatives to the traditional licensing process, such as temporary licenses and remote testing options. We're not yet in a position to project the full impact of this crisis on the growth of our sales force. Recruiting is exceptionally strong, aided by special incentives, New licenses are being negatively impacted currently, and the long-term impact of new licensing alternatives is not yet known. For now, we are focused on keeping energy levels high and recruits engaged while keeping them focused on ultimately becoming permanently life licensed. We're already developing our plan for dealing with the backlog of state and provincial exams that is building during the delay. COVID-19 is also impacting our issued life policy process. The traditional underwriting methods, which rely heavily on third parties for paramedical exams, have been scaled back. We are working on alternative solutions to help clients navigate through the process, such as having them complete paramedical exams at clinics rather than in-home. In addition, our rapidly underwritten life product, TermNow, can provide an appropriate solution for many clients. This product, which has been available since 2011, is a fully underwritten product that relies on database underwriting with the face amount limited to $300,000 or less. Historically, TermNow represented approximately 65% of U.S. policy sales volume. We're seeing increased demand for this product with close to 75% of U.S. volume now being directed toward TermNow. We're also assisting our existing policyholders who are experiencing financial hardship due to COVID-19. We work with these clients on the timing and frequency of premium payments to provide as much flexibility as possible. While many are able to find a premium payment plan that is convenient during the crisis, it is too early to know how persistency will be impacted. We are monitoring this situation closely. Now let's take a moment to talk about the future. Our ability to quickly respond to the crisis has played an important role in sustaining our momentum. Results so far in the second quarter suggest around a 9% quarterly increase in recruiting, as both second quarter periods benefited from the $49 discounted IBA fees, and a 5% increase in policies issued year over year due to a strong start in April. High levels of field leadership engagement, strong field training activity of new recruits, and our ability to issue term now policies in spite of underwriting disruptions are contributing to sales strength. Our ISP business had a record first quarter, but we've begun to experience headwinds in April. We expect second quarter sales to be approximately 15% lower than second quarter 2019 as market disruptions continue to cause a headwind. Our reps have successfully transitioned to digital transactions combined with remote client interaction technology to serve their clients in our ISP business as well. As we look beyond the month of April, we believe we're well positioned to withstand the temporary impact of the current disruption, although it is still too early to project the full impact of a potential long-term economic downturn. We expect to refine our projections for recruiting and the size of our sales force, as well as term life and investment sales once the economy reopens. While these are unquestionably difficult times for our clients, our sales force, and our home office employees, We remain steadfast in our mission to help middle-income families become properly protected and financially secure. The health and well-being of our people is our top priority. We are leveraging technology in new and innovative ways to reach clients and new recruits, and we're making full use of our communication tools to keep the field informed and motivated. In these confusing times, clients' needs for our products and services have never been greater. With that, I'll now turn it over to Allison.