Good morning, and thank you for attending today’s Primerica’s First Quarter 2022 Earnings Webcast. My name is Austin, and I'll be the moderator for today. All lines will be muted during the presentation portion of the call, with an opportunity for questions and answers at the end. [Operator instructions]. I’d like to now pass the conference over to our host, Nicole Russell, Head of Investor Relations. Nicole, please go ahead.

Thank you, Austin, and good morning, everyone. Welcome to Primerica's first quarter earnings call. A copy of our earnings press release, along with materials that are relevant to today's call, are posted on the Investor Relations section of our website. Joining our call today are Chief Executive Officer, Glenn Williams; and our Chief Financial Officer, Alison Rand. Glenn and Alison will deliver prepared remarks, and then we will open the call for your 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 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 these non-GAAP measures to their respective GAAP numbers, are included at the end of our press release, and are 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 Primerica's results in the first quarter reflect the ongoing middle market need for our financial solutions and the strength of our business model. As the post-COVID business environment continues to emerge, our methods are evolving and our mission remains unchanged. We're seeing strong response to our business opportunity and recruiting numbers that remain elevated compared to pre-COVID levels, although down from their peaks during the last two years. Our efforts to improve licensing pull-through are beginning to show results, pushing our license sales force number above 130,000 once again. Results for Term Life Insurance sales and investments are normalizing on slightly different tracks, yet both remain above pre-COVID levels. And results indicate that our mission to serve the financial needs of middle-income families, is more important than ever. As we look more closely at our financial results, the resilience of our business model is clear. Our main lines of business continue to deliver solid results, despite the unknowns of the post-pandemic environment, while our newly acquired Senior Health business, presents an area where more work is still needed. As we continue to transition to a more normalized operating environment, we are experiencing a temporary period of elevated cost in certain operating expenses. Alison will expand on this trend in her prepared remarks. Starting on Slide 3, adjusted operating revenues of $693 million, increased 9% year-over-year, as both our core Term Life Insurance and investment businesses, benefit from two-plus years of strong sales and robust equity market appreciation. Diluted adjusted operating income per share of $2.11, fell $0.33 compared to last year's first quarter, due to a $0.37 loss in our newly acquired Senior Health business, and temporarily elevated overall operating expenses. Turning to Slide 4, recruiting remains quite strong versus pre-pandemic…

Thank you, Glenn, and good morning, everyone. Our financial results for the quarter continue to reflect revenue growth in the Term Life and Investment Savings Product segments, which have benefited from strong sales and persistency during COVID, as well as favorable equity markets. Both segments experienced lagging pretax income growth, with elevated insurance and operating expenses being a key factor. Additionally, the Senior Health segment continued to be pressured by increased churn, resulting in a loss being recognized for the quarter. Let me now expand on each of these earnings drivers. In the Term Life segment on Slide 8, operating revenues of $418 million, increased 10%, driven by a 10% increase in adjusted direct premiums. Pretax income grew 4%, as year-over-year trends were negatively impacted by normalizing persistency and elevated insurance expenses. Starting with persistency, we continue to see policy retention normalize as COVID fears subside. The business issued in the first year of that pandemic, which is now in its second duration, has demonstrated weaker performance this quarter. This is not particularly surprising, as the business was issued in the height of the pandemic. Persistency for policies issued in the last 12 months, is trending in line with pre-pandemic levels, as policies issued prior to the pandemic continue to see very strong persistency, with lapses around 20% below, lower than pre-pandemic levels. DAC amortization is most sensitive to lapses in the early durations, and as such, the persistency levels experienced this quarter, resulted in the DAC ratio rising to 15.3%, from 13.3% in the prior year period. Note that the current DAC ratio remains favorable compared to our pre-pandemic range of approximately 16% for the first quarter. On a year-over-year basis, the net impact of persistency on pretax operating income was minor, as higher DAC amortization was largely offset…

Thank you. [Operator Instructions] Our first question is from Ryan Krueger of KBW. Ryan, your line is open.

Good morning. My first question was on the Senior Health outlook. Appreciate the updated commentary on the rest of the year. I guess, how are you at this point thinking about how this could translate into earnings as we move to 2023?

I'll start, then, Glenn, if you want to fill in any commentary, that'd be great. So, at this point, we haven't done full projections for 2023, because quite frankly, we're evaluating all the steps we're taking this year to see what will happen. But being optimistic that these changes that we're making will take and will help grow the business. We would then look next year to start growing the sales volumes again. This year, as Glenn has said, we're very specifically holding back on volumes as we look through the operating model. One thing we want to make sure we do is constrain the cash that we put towards or the capital that we put towards this business, until we feel more comfortable that the operating model is one that we think is a good solution for the future. At that point, once we're comfortable, we feel much better about putting more capital into the business, which it will take to grow the business. As we all know, this is a business where the commissions come in over time, but all these real acquisitions are largely front-end loaded. So, again, we are being very cautious about doing that this year. And as we see successes in our various approaches towards improving churn, improving relationship with the client, reducing contract acquisition costs, we'll sort of put our foot back on the accelerator and take it off the brakes as well. So, as we progress to the year and see traction on our efforts, I will provide further insights into 2023.

Yes, I agree. I think it's a very deliberate process. And so, Alison has described it very well.

Thanks. And then on Term Life sales, how would - I guess, how were you thinking - I think you commented that in the second quarter, you expect a 10% year-over-year decline. How are you thinking about momentum as you move to the back half of the year after you have the convention?

Yes, I think we'll have some positives, Ryan, in the comparisons. We got less significant performance last year to compare to, and some pretty positive momentum going this year. So, I think you see those comparisons improving as we go throughout the year. I think the convention will be helpful. The types of announcements we make at the convention are designed to try to increase excitement and productivity. And then you add that to the less aggressive growth from previous year, and I think you get some continued improvements in the comparisons as this year progresses.

Thank you.

Our next question is from Dan Bergman of Jefferies. Dan, your line is open.

Good morning. So, your prepared remarks on Term Life persistency were really helpful. I just wanted to see if you could provide a little more color on what you're seeing in that block of policies issued in the first year of the pandemic, it sounded like drove the weakness. And I apologize if I missed it, but any color on how persistency on that cohort of policies compared to typical levels for pre-pandemic vintages. And is there any risk we could see a similar trend emerge in the more recent vintage of policies issued later on in the pandemic? Just any color on what you're seeing in kind of how the blocks are performing would be great.

Sure. So, it's interesting. When we first entered the pandemic and sales level skyrocketed, a lot of our commentary and our question was, how is this block of business going to be performing? And we knew that some of it was purchases happening straight out of fear, and there was likely to be some level of weakening persistency on that block. I didn't give the exact numbers in my prepared remarks, but I can share them now. On the second - on that block of business that's in its second duration, I’d say it's about 5% worse than what we typically would've seen on a second duration block pre-pandemic. So, while it is certainly not performing as strongly as historical trends, it's not that far off that I have too much concern about it becoming a real issue across the board. And I would say, on the first-year persistency, it's still actually favorable to pre-pandemic levels. So, given that a lot of those policies were purchased sort of a little bit later in the cycle, when - I don't want to say COVID became an everyday phenomenon, I don't want to take - say that lightly, but where it became more a routine thought in people's lives, I feel a little bit more confident that that business will perform. And again, it is currently performing better than pre-pandemic first duration policy. So, even if it weakens a little bit, it would still weigh pretty much in line with the historical trends. So, all in all, I'm actually very pleased with what we're seeing. And I do think it's interesting to look at the policies that are in their third duration or later. Those are policies that were issued prior to the pandemic. And just across the board, we're seeing, like I said, 20% better persistency. So, the people who prior to the pandemic understood the need for insurance, still absolutely understand the need, and in fact, are holding on to their policies even longer than before. So, all in all, we think it's pretty positive.

Got it. That's really helpful. Thank you. And then, I just wanted to see if you could provide some more detail on the outlook for recruiting. Just curious if you're seeing any impact from the tight labor market and wage inflation on your ability to bring in new recruits. And I believe in the prepared remarks, you mentioned some changes in recruiting incentives. Just wanted to see if you could expand on that initiative.

Sure. I'd love to, Dan. Yes. The comments on recruiting incentives were indicated as, as we were coming into and coming out of the pandemic with completely unknown uncharted territory, we were using recruiting incentives pretty heavily, because you might recall, before the pandemic started, we were - had a momentum surge going or feeling good about our business in late ‘19 and early ‘20. And as we thought the pandemic might be short at one time, we said, let's try to bridge that and continue the momentum. So, we were aggressively using incentives and discounts, and then we continued to do that as the pandemic lengthened. Now, we're finding the fundamental strength in our business and it's - we're pleased with it. And so, we're easing back on the more significant pandemics and using - sorry, significant incentives, and using more normal incentives, kind of regular things, a little extra credit on a leadership event, and that kind of thing, is not nearly as leveraged. And so, what we're doing is, we're kind of weaning ourself off of all of those really impactful recruiting incentives. And what we're finding is, very strong fundamentals in our recruiting business. And so, that was the nod toward a more focused use of incentives now. And so, we believe, in looking at our numbers, you've got more fundamentally sound numbers because they're not being as influenced by incentives as they were in previous years. Now, more specifically to your question about what we're seeing in the market, as I said in my prepared remarks, nothing gives us recruiting momentum like success of our business model. And so, while we certainly need to always be conscious of the tremendous loss of the pandemic, it did drive productivity. It drove success of our field leaders…

Got it. That's really helpful. Thank you.

Our next question is with Mark Hughes of Truist. Mark, your line is open.

Yes, thank you. Good morning, Glenn. Alison, the Term Life margin, the 20%, 21% operating margin in 2Q, pretty strong. How does that trend over the balance of the year if we get more normalization and these factors that benefit ratio, maybe DAC, normalizes a little bit more? Is that a good level to think about or would more normalize be maybe a little higher, a little lower?

The second quarter is traditionally our strongest margin quarter. Just historically, persistency is very good in the second quarter, which obviously brings down that DAC ratio from seasonality perspective. So, I do expect the second quarter to be a little bit elevated. As a slight offset to that, you do have the higher operating expenses that I was mentioning earlier. I believe last quarter we gave the guidance that we thought we'd be around 20% for the full year. And at this point, we're not changing that.

Okay. And then, Glenn, you were - I think you talked about a 10% year-over-year decline in new policies issued. Was that for 2Q?

Yes. That was just for 2Q.

2Q. And then I think you said as the year progresses, you would see those numbers improve or get marginally better.

That's right. Quarter by quarter, we expect that difference to be smaller and become more in line with last year.

Okay. I think that's it for me. Appreciate it. Thank you.

Our next question is with Andrew Kligerman of Credit Suisse. Andrew, your line is open.

Good morning. Question on the rep count. Historically, when you've had these biannual conferences, what kind of a boost does it give you in subsequent quarters to rep count? What's kind of been a historic boost level? And then, with that said, I think you've been saying in the back half of the year, you could see a very low single digit year-over-year pickup in your rep count. Is that still the trajectory?

Yes. Andrew, we are seeing some success in our pull-through rate, as I mentioned in my remarks. And so, we're a little more optimistic now than we were last quarter. And I think I made a comment to that effect in my prepared remarks. But what we see around the convention, in years gone by, we saw significant differences. I'm talking about over the period of last 10 years, in momentum before convention and after convention. And we really didn't feel like that was a healthy dynamic. We worked very hard to have the maximum momentum before the convention and better momentum coming out, but not a huge difference between the two. And I think we've succeeded in that over the years. So, you're not going to see night and day difference in the first - the second quarter versus the third quarter, the first six months versus the last six months. However, we do make announcements at the convention and run incentives coming out of the convention. And so, what you're likely to see, as I mentioned in my remarks, is, as everybody comes out of the field, including travel for a period of a week to 10 days to attend, you see a little lull in all activity around the event itself. And then, based on the announcements we make and the excitement we generate and the vision we cast for the future at the event, you see some pretty strong momentum immediately after the convention. So, to your sales force size question, what we would expect is strong recruiting coming out of the convention. That's usually what we see, and we play into that because the recruiting dynamic with incentives is probably the easiest one to move. One of the reasons we've worked so hard on our licensing pull-through, and one of the reasons I'm glad we're seeing positive impact of that now, is because we need that in place so that when those large numbers of recruits come in, we're prepared to deal with them and try to get a reasonable pull-through rate of the recruiting surge that we would expect after an event. And all of that, nets out to improving our net sales force size and growth. So, you don't see the growth in the numbers. The licensing process is a one-month to a four-month process, and in some provinces in Canada, even longer than that. So, it's not something you see immediately after the event. But in the second half of this year and into the first half of next year, you would expect to see the strong recruiting front end of the pipeline. And the good pull-through we're experiencing, give us some positive momentum in sales force size over that extended period.

Very helpful, Glenn. And then, maybe thinking more long-term, more broadly, the rep count was around 130,000 in 2018 and 2019 before the chaos of the pandemic. And you're still there, which in a lot of ways, is a great thing. And so, the question is, Glenn, a as we think longer term, are there any levers or initiatives that you're thinking about that might give Primerica this substantial growth off of that 130,000 number?

Yes, I think Andrew, at this size, there's not a magic potion or magic pill. It is the blocking and tackling, because you're dealing with a percentage increase on a very large number. And we do believe that there is a demand in the marketplace that continues to support growth in the size of our sales force. The middle market is still chronically underserved, in spite of our best efforts, and a handful of other companies possibly. So, the marketplace, the addressable market is still strong. And the attractiveness of our business model through all kinds of economic conditions and world events, continues to be appealing. So, we think we have the fundamentals in place, and we'll use the opportunities that we see to try to add momentum to that as they appear. we don't have a game plan that says, there'll be a huge momentum shift all of a sudden based on one announcement or one change, but we've got some fundamental strength in our process that I'm pleased with. And I do think we can take advantage of the things that I mentioned to accelerate the growth. We have this - we've generally grown historically from plateau to plateau. We were at 100,000 for a long time. We went fairly quickly to 120 and plateaued there, and we got all the same questions. And then we went to 130 and unfortunately, just as we were beginning to break out of that plateau a little bit, COVID hit. And so, we're getting the same questions now, but we believe there's another plateau in front of us that's much higher than where we are today.

Awesome. I'm expecting 230,000. Anyway, if I could sneak one quick question in. After a banner year last year, and Investment and Savings Products were - sales were up well into the double digits. And this year, you posted a good first quarter at 7%, and you've been guiding for mid-single digits. Given the volatility in the markets right now, and they are quite volatile, how are you thinking about that guidance?

Yes. As I said in my prepared remarks, we are seeing even more volatility than we would've ever anticipated, as everyone is, of course. And it's a little more significant headwind than when we talked last quarter. And that's why we said, right now, we're projecting full year to be flattish with last year as a result of things slowing. And again, at Primerica, it's not just the amount of volatility. It's the duration. If this passes fairly quickly, then it's less impactful. If it stays out there and remains volatile for a long period of time, the longer it's out there, the more it slows us down. So, it's not just the amount that we're seeing right now, which is higher than we expected. It'll all tie into the duration and how long it lasts. But right now, all that into the recipe, we're looking at what we think is probably something pretty close to flat with last year for the full year.

That's great. Thanks so much.

Our next question is with Mark Hughes of Truist. Mark, your line is open.

Yes. Thank you. When we think about expenses next year, the rate of increase, obviously tapering, I think you talked about a 4% increase in the fourth quarter. Is that a good way to think about 2023, you won't have the convention cost? Should it be low, mid-single digit expense growth next year? Any obvious things you would highlight to influence that number?

Yes. Let me break that into sort of two buckets. So, some of our expenses, I always talk about a growth-related category. So, things like, if our premiums grow, our premium taxes grow. If our assets under management grow, administration fees grow. So, there are certain things that we call very - that we look at that are very tied to revenue growth. So, to the extent we think we're going to have 5%, 10%, 15%, 20% growth in some of those underlying dynamics, we would have the same growth in expense. So, you have to sort of take that bucket separately. And you can see it, specifically on the ISP side, we lay those out for you in the financial supplements. You can get a good sense of what percentage of the expenses are really very much tied to a revenue source versus a more general operating. But when you look at sort of the core general operating expenses, I think historically, we'd like to be in, I'd say, the 4% to 6% range. And that is because of things like maybe annual merit increases, which tend to be, let's say, 3%-ish, but we always have the ongoing need to invest in technology, which has been a little bit higher on the range, maybe more like 9%, 10%. So, with all that said, I think historically on the things that aren't tied to pure growth in our revenue sources, we'd like to be in the mid-single digits. So, let's say some are between 4% to 6%. That's our target. But again, there’s a large chunk of expense that you really need to look at what your assumptions are on the revenues before determining what the expenses will be. Does that help?

Appreciate it. Thank you. It does. Thank you.

That concludes the conference call. Thank you for your participation. You may now disconnect your line.