Hello everyone and thank you for joining the Primerica’s 3Q 2022 Earnings Conference Call. My name is [Derrick] [ph] and I'll be the operator for today. [Operator Instructions] I now have the pleasure of handing over to your host, Nicole Russell, Head of Investor Relations. Please go ahead, Nicole.

Thank you, [Derrick] [ph] and good morning, everyone. Welcome to Primerica's third 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 our Chief Executive Officer, Glenn Williams; and our Chief Financial Officer, Alison Rand. Glenn and Alison will deliver prepared remarks, and then we’ll 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 assumes no obligation to update these statements to reflect new information. We refer you to our most recent Form 10-K filings, as maybe modified by subsequent Form 10-Q 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 during this call, which we believe will provide additional insight into the company's operations. Reconciliations to non-GAAP measures to their respective GAAP numbers, are included at the end of the earnings press release, and are available on our Investor Relations website. I now turn the call over to Glenn.

Thank you, Nicole, and thanks, everyone, for joining us today. Third quarter results underscore the fundamental strengths of our business we continue to emerge as we move further away from the height of the pandemic. Our priorities remain focused on offering attractive Term Life products and serving investment clients in the face of difficult economic circumstances for middle income households, while we grow the size of our life license sales force. We are equally committed to building a successful senior health business and maintaining our capital return priorities, which include share buybacks. The highlights of our financial results show adjusted operating revenues of $676 million, declined 2% year-over-year influenced by significant equity market headwinds adversely impacting our ISP business. Diluted adjusted operating income per share of $3.02 grew 1% and ROAE remains solid at 23.8%. I will review our key business drivers and Alison will talk about how various crosswinds are impacting our financial results. As I noted during our earnings call in August, we focused this year's convention message on Primerica’s unique ability to serve the middle market, the attractiveness of our business model, and the importance of growing our life license sales force through recruiting and licensing. Building on the energy of the convention, we announced a series of recruiting incentives in the month of July that offer various licensing fee discounts. Our goal with these incentives was to generate increased excitement in the field about our business opportunity. The response to this promotion was even stronger than anticipated. In total, we added approximately 83,000 new recruits during the month of July. After this period of extraordinary results, we did not use any special incentives in August and September and recruiting returned to a more normalized level. This strong response to our business opportunity makes it clear that…

Thank you, Glenn, and good morning, everyone. Before we get started with a review of our core operating results, let me address the $60 million non-cash goodwill impairment charge recorded during the quarter. GAAP requires us to reform a goodwill impairment analysis annually for our senior health reporting unit, which we conducted as of July 1, 2022. The impairment charge reflects the calculated decline in the fair market value of our senior health business, which was primarily driven by an increase in the market based weighted average cost of capital used to discount the reporting units cash flows. The WACC was influenced by significant increases in current equity market risk premiums and interest rates. This charge has no impact on Primerica's cash flows or our ability to repurchase shares of our common stock, nor does it impact our plans for the senior health business as Glenn just discussed. Turning now to our operating results. Term Life segment operating revenues of 428 million grew 7% year-over-year, driven by a similar growth in adjusted direct premiums, while pretax income grew by 4%. The resulting Term Life operating margin was 19.3%, down slightly from 20% in the prior year period. As sales and persistency trends have normalized post-pandemic, [7%] [ph] growth in adjusted direct premiums. We can see this dynamic in the deceleration of ADP growth to an expected 8% for the full-year of 2022. We expect ADP growth to contract further in 2023 to around 6%, driven by a variety of factors. First, persistency is expected to continue its return to normal levels in 2023, while 2022 results benefited from lower lapse rates for part of the year. Second, while sales levels have normalized, strong sales in the first half of 2021 provided a tailwind to ADP growth in 2022. Finally, the…

[Operator Instructions] Our first question comes from Mark Hughes from Truist. Please go ahead, Mark.

Yeah. Thank you. Good morning. Hello. [Indiscernible].

A little late for that, Mark.

[Indiscernible] Your point about the new product launch on the new customer experience coming in October, when you think about the level of sales in 4Q, does that still represent a headwind and so you would anticipate as things normalize you would see some incremental momentum in Q1? How should we think about that?

Mark, we anticipate all the effort we put into this. This is going to give us a long-term benefit and long-term momentum. It's always a question of when it starts getting beyond the disruption of change and how significant it is when combined with all the other dynamics going on around us. So, I think the timing that you're mentioning makes sense. It will probably take us, you know the rest of this quarter to get through the expected and unexpected parts of change. I will say that we've been very pleased. Our team has done a fantastic job of preparing for the change and therefore, the disruption is kind of within the parameters that we had hoped for, but it is a change in a new set of understanding. There's a bit of sales that were in process. What do you do with those? So, the normal kinds of things you would expect, but hopefully we get through that by the end of this year, and then as we start next year, the new product is clearly a positive mixed in with the other headwinds we discussed, you know the economic conditions we do believe cost of living primarily is starting to pressure middle income families even more as it continues. And so, we're balancing those two, but that is – what you’ve described is what we would expect.

And then in the Senior Health business, Alison, do you have any guidance around approved plans or any comments around lifetime value per plan? Should it be – at least lifetime value should it be similar to what we saw in the third quarter?

So, there is some seasonality associated with LTV’s just based on what you're selling in a given period. And part of the third quarter was obviously pre-AEP. So, those were policies that were most likely people who were turning 65 in the like. So, we got a relatively short amount of LTV because they all renew January 1. Theoretically, LTV should be higher in the fourth quarter and the first quarter in AEP and OEP. The big unknown and what we're waiting and marketing for and again this is why we are very slowly building this business is, we have yet to see what happens with ultimate placement rates during AEP, we won't know that till January. And we also won't know until January what renewed at the annual renewal cycle, which is January 1. So, we'll have a lot better clarity and the first of those items goes into the LTV. The second is more of a tail adjustment type of item. So, by the time we report in February, I think we'll have a pretty darn good clearer picture on LTV because we'll have good clarity into placement rates. What we will still be getting information on is the renewal cycle because those start really getting reported at the very end of January and into February. So, given the timing of earnings, we'll still be digesting that information. So, it's still yet to be told. We are seeing some positive signs as Glenn mentioned. So, far productivity looks good, and we're getting positive feedback, but again, until we see placements and ultimately then renewal rates on the book of business, it's going to be hard to determine what the forward look is.

The next question comes from Andrew Kligerman from Credit Suisse. Please go ahead, Andrew.

Good morning. How are you?

Doing great. How about you?

Excellent. Great to be talking to you. I was kind of curious, so you're rolling out a new term product. You rolled it out in October Glenn. I wasn't quite clear on what's different about it and what might give you optimism once you, kind of get through the setup in the fourth quarter? What might give you optimism about that particular product driving some sales growth next year?

Yes. We actually – we did some testing throughout the month of October, but we released the product on the 26 of October. So, it was at the very end of October. And what we see, Andrew, just to give you a little bit of a background about how we do this. We always have possibilities for improvements of our products in a shoot that we're always working or looking for an opportunity to make an adjustment, make change based on what we see in the marketplace or just point some friction that we've identified in our own system, but as we surveyed the market, a couple of years ago, we recognized there were a number of opportunities emerging and none of them are innovations that are unique to Primerica, but I believe what Primerica strength is, is combining innovations and creating a new set of innovations that's unique in the industry and it was a pretty long list of improvements. And so we saw the emerging technology and the underwriting innovation, and we also felt like it's always critical to have a focus on simplification of the interaction both for the client and with the sales process and our agent. And so, we implemented a lot of new technology, for example, client identification and security technology [indiscernible] two factor authentication. We had a DocuSign process that's safer and eliminates paper. We've got technology that creates a more convenient interaction with the client’s bank. So, that's more accurate and less prone to mistakes at application time. And then we've also improved our own technology, our MyPrimerica client web app so that we can start a relationship with clients at the point of sale that they can continue both through the agent and with us online or through the app. And…

Very helpful, Glenn, and that sounds exciting. If I shift over to the Medicare area, e-TeleQuote, it’s interesting, Alison mentioned the agent team is now half of what it was. What drove that agent reduction? Was it intentional? Was there a lot of attrition? How did that come about over the course of the last 12 months?

Yes, Andrew, that was absolutely intentional. I mean there is attrition in the process, so you can get there by just letting the numbers [try] [ph], but if you do that only, you don't get to the right people left. And so, what we wanted was to have our most experienced, most effective and productive people remaining, obviously selling the most profitable businesses, we can measure it. And so, we worked deliberately. We did – we let some folks go. We didn't replace other people as they went and we wound up with a more experienced, more productive group. It's not just productive, the top line sales, but also measuring about which reps we thought were going to give us the best persistency as we all know that's one of the challenges in the whole industry look going forward. And so as much as you can anticipate that, we put all of that together and said, this is the group we want to lead us through this ADP. And so, we feel like we've got the right group and the right size after that process.

And despite that Glenn, do you think there's a possibility that you could grow the top line more than last year with half the reps?

No. I don't think our top line, compared to last year. We're in a very different environment now where we're focused on the right size, not just as larger numbers as we can generate. So, I don't think it's going to be top line sales growth. I do think we're going to feel much better about the quality of what we sell this year than we did last year. And then once we feel like we get the quality and profitability where we have some confidence in it, then we can take a look at how fast we're going to grow the business after that.

Got it. Thank you so much.

Certainly. Thank you.

[Operator Instructions] We have a question from Dan Bergman from Jefferies. Dan, please go ahead. Your line is now open.

Good morning, Dan.

Good morning. Good morning. I guess just to start maybe following up around the prior questions, around the Term Life sales. I just wanted to see if there's anything you could add on top of your prepared remarks around the likely drivers of the pressure you saw in the term policies issued, specifically any sense of how much of an impact you're seeing from inflation, economic, uncertainty weighing on your customer base versus some of those other items you mentioned like any sales dip ahead of that new product? And just if inflation and economic uncertainty remain in place for a period of time going forward, should we expect Term Life sales to remain under pressure or do you have some confidence that the potential upside from things like the new product can help offset any headwind?

Well, Dan, that's – the question is, we've got both the positives and negatives in the process in trying to estimate which one will overpower the other is the tricky part. We've been asked about the cost of living impact on middle income, I think for the last two earnings calls, and in both times I expressed that we were pleasantly surprised that we weren't seeing pressure that we could attribute to that, but we do feel like that the length of time, the high cost of living has been pressuring middle income families, it is starting to weigh on them. If you're familiar with our financial security monitor that we do each quarter, which is a survey of middle income families, which we do for the exact purpose of understanding the struggles they have financially, our findings this quarter came back and said they reported to a 75% of the families we surveyed said they're cutting back on non-essential spending. 47% said they're cutting back [or pausing] [ph] on savings, and almost 30% said they're using their credit cards more. And so, while it's difficult to quantify, that tells us there's clear pressure financially on these families that could impact their ability to free-up disposable income to buy insurance among other things. And so, we do believe it's out there. It's very difficult to quantify and of course we work to offset to help offset that by helping clients reprioritize and maybe give up some of the things that are less important and keep these priorities like their financial game plan at the top of their priority list or add it to their priority list. So, we're always working to push back against that resistance, but it's pretty strong. We do believe that our, you know things that we do like our new product set gives us another ability to push back, but it's pretty hard to tell, which one is going to win the tug of war in 2023 right now. So, that's why we've given you the outlook for the fourth quarter that we think is about flat. I will note if you look back pre-pandemic, we're still playing above the realm, compared to 2019 and particularly in the quarter. So, that's a positive, but it's definitely one that's difficult to give an exact number on.

Got it. That's really helpful. Thank you. And then maybe just on licensing, we've typically calculated the licensing pull-through rate based on a one quarter lag for the new recruits. And I think on this basis, the licensing rate should – a really sizable step-up from recent quarters is the highest it's been in a while. So, is there any more color you can provide on what you're seeing here? I mean is there any catch up from, kind of reopening of in-person licensing prep and also just given that the third quarter recruiting was pretty concentrated early in the quarter? I think with a lot in July. Did the current quarter [indiscernible] couldn't drive any of the benefit in the strong number of new licenses that we got in the third quarter? It sounded like that might have been the case based on your prepared remarks, but any more color you can give on the licensing front would be helpful.

Sure. We are seeing positive impact of our ongoing efforts. I mean, licensing is truly a blocking and tackling process where we continue to try to look for every opportunity for an incremental gain. And because there's a lot of human nature it’s taking those recruits and getting them to go to class and study and many haven't done that in decades quite honestly. And so, we have had success there both from getting people back in the class, which we believe is more effective and people studying online. A lot of that is in the accountability of our – that happens in our offices across the U.S. and Canada, holding those people accountable, scheduling them, making sure they show up at class and complete class. And so, it's a lot of those fundamentals. We are seeing improvement. We've got a lot higher focus on the importance of licensing based on the communications to inform our field leadership, that's always important. So, we feel like we are making process with focus and with a better process. But it's an incremental approach and you're right, we load the pipeline with recruits. As we mentioned, that extraordinary number of recruits from July came in at a discounted rate and historically that means they're a little less committed and they don't attend class, complete class, take exams, and pass exams at the same rate as those that have paid a full licensing fee. So, we're trying to take all that into account, but we've got good momentum and we anticipate being able to continue it through the next quarters as we see it.

Got it. Thanks so much.

Certainly.

We have another question from Mark Hughes from Truist.

Mark, welcome back. I thought we might have lost you at the end earlier. Mark, are you there?

Mark, your line is now open, Mark. Mark, could you check you are not muted by any chance? It appears we have lost connection of Mark. In that regard, we have no further questions at this moment. So, I'm going to end today's call. Thank you everyone for joining. You may now disconnect your lines.