Primerica, Inc.

Hello, I would like to welcome everyone to the Primerica Second Quarter Earnings Results Conference Call and Webcast. 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 at that time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star followed by the number two. Thank you. As a reminder, today's event is being recorded. But now I turn the conference over to Nicole Russell, Head of Investor Relations. Ms. Russell, you may begin your conference.

Thank you, Operator, and good morning, everyone. Welcome to Primerica's second quarter earnings call. A copy of our earnings press release, along with materials relevant to today's call, are posted on the Investor Relations section of our website, 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 duties 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 Form 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 be referencing certain non-GAAP measures, which we believe provide additional insight into the company's operations. Reconciliations of these non-GAAP measures to their respective GAAP numbers are included at the end of the earnings release and are also 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. Allison and I will provide a recap of our quarterly results and share with you how the COVID-19 pandemic is impacting our business. Second quarter results continue to reflect the strength and resilience of our business model, including the following financial highlights shown on slide three. Adjusted operating revenues during the quarter were $522 million, up 4% year-over-year, while adjusted net operating income was also up 4%. Diluted adjusted operating income per share was $2.44, which represents a 10% increase year-over-year, and ROAE was 25.6% compared to 25.1% in last year's second quarter. Before going into the details of the quarter, I'd like to provide an update on the market dynamics impacting our business, which you can see on slide four. First, the positives. We believe that our unique business model is demonstrating its strength during the COVID-19 disruption. The flexibility of our entrepreneurial business opportunity, combined with complementary business lines of life insurance, investments, and our emerging mortgage distribution business have positioned us to meet the needs of the middle market. Our efforts to make fundamental improvements and build momentum early in 2020 are also paying off in this unique environment. We have seen extraordinarily high interest in our financial solutions among Main Street consumers. During this period of limited mobility, many families are taking action to improve their financial game plans, which was reflected in the strong life insurance sales results we saw in the quarter. Our field and corporate leadership have responded to the environment with a high level of focus and specific action plans to drive business. For example, adding the efficiency and reach of web conferencing to our traditional face-to-face model has not only allowed us to continue to meet clients' needs, it has also allowed us to extend our reach across the US and Canada through the use of non-resident licenses. While we're excited about these positive trends, we're also closely monitoring some potential headwinds and recognize the uncertainty that lies ahead. We know that change, both positive and negative, creates disruption that must be managed. In addition, distinguishing between the temporary and long-term impact of client sentiment, market forces, and the effectiveness of our incentive programs is more difficult to assess. Last quarter, we discussed two key challenges that we were anticipating for the second quarter and beyond. First was the disruption in our ability to obtain paramedical exams and other underwriting requirements for traditionally underwritten life products. I'm happy to report that our providers responded quickly and our underwriting capabilities in the U.S. are back at full capacity, while in Canada they are about 75% of normal. The second challenge we discussed, the testing, processing, and issuance of permanent life insurance licenses remains impaired in most states and provinces. I will discuss how licensing administrators are responding to this disruption in just a moment. We are confident that we will meet the challenges of the current delays, and we will leverage some of the necessary changes as long-term positives. However, in the near term, these adjustments are creating noise in our numbers for comparative purposes. We are positioning our incentives aggressively during this period of disruption to focus on activities within our control, such as recruiting and field training. As the licensing process begins to normalize, we will rebalance our incentives to add focus on permanent licensing. Now, let's look at our business by segment, beginning with distribution on slide five. The excitement created in our field by the $49 licensing fee during the last two weeks of March led us to continue the incentive into April. We then extended this incentive program into May and June as licensing delays became apparent. Aided by this incentive program, total recruits during the quarter were 133,123, up 54% over the second quarter of 2019. In addition to creating energy in the field, increased recruiting also brings access to warm markets where field training occurs, which added a tailwind to life sales. And to ensure that recruits remain engaged, we enhanced our field training program and increased the profile of our ancillary products that can be sold without a license. As I mentioned earlier, the licensing process remains compromised. To date, 26 states have responded to processing delays in the normal permanent licensing process by issuing temporary licenses. We are preparing to convert as many as possible of those temporary licenses to permanent licenses once the licensing infrastructure reopens. But at this time, it's too early for us to project our rate of success in converting licenses. In addition, 23 states have also extended the renewal dates of existing licenses due to COVID-19 crisis. These extensions prevented a number of our REPS licenses from expiring during the quarter. The total number of new licenses issued during the quarter was 12,250 of 12% year-over-year. Our sales force ended the quarter at 134,157 of 4% year-over-year and included both 3,400 COVID temp licenses and 4,400 licenses with extended renewal dates. It's too early for us to accurately project the normalized size of our sales force as doing so would require us to know the number of COVID temporary licenses that will convert to permanent licenses as well as how many licenses will renew when states resume normal operations. The length of time before the licensing infrastructure returns to normal will also impact these outcomes. We believe that certain challenges today could become long-term positives. The growing acceptance of remote license testing is one such example. Historically, testing has been done at exam centers, most of which are currently operating at limited capacity. Today, remote testing is alleviating some of the pressure caused by the COVID-19 pandemic and is currently available in all states and provinces for securities licensing and in 14 states for life licensing. We anticipate the rollout of remote life license testing to continue with five states and seven Canadian provinces coming soon. This is an exciting development for the future because remote testing adds flexibility to the licensing process. Another challenge that could turn into a long-term positive for our business is the ad deficiency with which our reps can interact with clients. Our rapid adjustment to remote client interactions has had a positive impact on recruiting and sales. Transactions completed using web conferencing technology are identical, whether the client is next door or hundreds of miles away, so many of our representatives are now able to extend their geographical reach. Salesforce members do require a non-resident life license to fill life insurance outside their home states, which can be readily obtained in order to make out-of-state sales. During the quarter, our representatives received more than 8,000 non-resident licenses, up 400% from the same period last year. This new trend positively impacted non-resident sales and recruiting. Our term life business on slide six reflected the middle market's heightened interest in protecting their families with life insurance. Our ability to assess their needs and complete life insurance transactions remotely led to a 20% increase in issued policies during the second quarter. Our business model, product set, transaction technology, and educational approach positioned us well for these unique times. Our Salesforce leadership also reacted quickly by increasing their level of engagement. Together, these dynamics resulted in a productivity rate of .24 policies per life insurance license representative per month. While the second quarter is usually seasonally strong, the second quarter of 2020 was exceptional by comparison. Slide 7 summarizes the results from our investment and savings product segment. Sales of $1.7 billion declined 13% compared to the second quarter of 2019, which was in line with our expectations. While market volatility kept many investors on the sidelines and we saw fewer, larger investment trades, Investors with automatic monthly investments largely continued dollar cost averaging throughout the quarter. Net client inflows of $600 million were more than double last year's second quarter as clients remained invested during the market's volatility and continued their long-term investment plans. Redemptions were noticeably lower than expected at $1.1 billion. Client asset values ended the quarter at $68 billion, up $9 billion compared to the March quarter end. as the market rebounded from the first quarter correction, while average client asset values, which more closely correlate to revenues, were flat year over year at $64.6 billion. With the second quarter behind us, I'd like to take a few moments to discuss what we're seeing so far in the third quarter and then talk about our expectations for the second half of 2020. Due to continued disruptions with the licensing process, we extended our $49 licensing fee discount through the end of July. While there are still delays in the process, we return to the $99 licensing fee in August as we begin to balance our messaging to include greater emphasis on licensing. Projecting how long states will continue to issue temporary licenses and extend renewal dates is very difficult. It's also too early to anticipate how much disruption the delays in the process will create in our permanent licensing pull-through rate. We believe these anomalies may persist through the remainder of 2020. July showed continued momentum in recruiting and life sales. Investment sales also showed signs of improvement, but year-over-year ISP sale comparisons will be difficult due to the strength of last year's second half. Based on current trends, we would expect new issue policies to increase between 12% and 18% in the second half of the year, which would result in a full year 2020 over 2019 growth of around 15%. Our ISP business, We would expect sales to decline by approximately 10% to 15% compared to the second half of 2019, resulting in full-year sales decline in the low to mid single digits compared to the previous year. Beyond our insurance and investment business, our recently launched mortgage distribution business is beginning to show early signs of success, and we've gained valuable insight and experience. Our focus is on refinancing mortgages and consumer debt, in an effort to assist families with consolidating and accelerating payments on their debt loads. Today, we are active in four states and plan to continue expanding our program in the future. With that, I'll turn it over to Allison.