Welcome to Primerica Second Quarter 2024 Earnings Call and Webcast. At this time, all participants are in a listen-only mode. The question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the call over to Nicole Russell, SVP Investor Relations. Thank you. You may begin.

Thank you, operator, and good morning, everyone. Welcome to Primerica’s second quarter earnings call. A copy of our earnings press release, along with other materials 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, Tracy Tan. Our comments this morning may contain forward-looking statements in accordance with the Safe Harbor provisions of the Securities Litigation Reform Act. We assume no obligation to update these statements to reflect the information and refer you to our most recent Form 10-K filing, as may be modified by subsequent Forms 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, which we believe provide additional insight into the company's operations. Reconciliation of non-GAAP measures to their respective GAAP numbers are included at the end of our earnings 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 this morning. Primerica reported another strong quarter with solid distribution momentum and double-digit adjusted operating earnings growth. The appeal of our entrepreneurial business opportunity continues to resonate, supporting our ability to grow distribution. Primerica remains well positioned to serve more middle-income families in the U.S. and Canada. Let's start with the highlights of our financial results. Adjusted net operating income of $163 million increased 12%, compared to the prior year period, while diluted adjusted operating income per share of $4.71 increased 18%. These results reflect the stability and continued growth in term-wide premiums and very strong sales in our investment and savings product segment. During the second quarter, we repurchased $143 million of our common stock and paid $26 million in regular dividends. During the first two quarters of 2024, Primerica has returned a total of $304 million to stockholders through a combination of share repurchases and dividends. Looking more closely at our distribution results, during the second quarter we recruited over 96,000 individuals, a 12% increase, compared to the prior year period. We also saw a 14% increase in licensing with 14,402 reps obtaining a new life license, helping propel our sales force to 145,789 life license representatives as of June 30, 2024, up 6% year-over-year. Leveraging the excitement of our convention, we discounted our life licensing fee during the last half of July and beginning of August to maximize momentum in recruiting and licensing. We have a proven process in place to keep new recruits engaged and help them prepare for their licensing exam. Given our continued progress, we now anticipate full-year growth in the size of our sales force to be around 5% during 2024. Turning next to our sales results, during the second quarter, we issued over…

Thank you, Glenn. Good morning, everyone. Before I begin my review of second quarter results, I want to remind everyone that our reported second quarter financials included several items related to our decision to active the senior health business, which impacted GAAP results for the quarter. The operating performance for our core business was strong. As you can see on slide seven, several non-cash items relating to senior health were recorded during the quarter. These included a total of $254 million to write-off the remaining goodwill intangibles partially offset by $24 million of net tax-related benefits. The quarter also included a $50 million insurance proceeds from a settlement of claims under a representation and warranty policy. We excluded these items from our adjusted operating results to provide comparability to other periods. During the third quarter, we will incur additional restructuring costs associated with a senior health exit and the amount it still in development. These charges will also be excluded from our adjusted operating numbers. From third quarter forward, we will start to exclude senior health from operating performance reporting for both current and prior periods. Turning now to our second quarter results. Operating revenues of $427 million in the term life segment rose 4%, compared to the prior year period, driven by 5% growth in adjusted direct premiums. Pre-tax operating income of $148 million increased 5%. Looking at our key financial ratios, the benefit and claims ratio of 57.4% was largely in line with the prior year period. Although favorable overall due to a $4 million remeasurement gain largely driven by better-than-expected claims experience. The DAC amortization ratio of 11.8% and the insurance expense ratio of 7.6% remains consistent with the prior year period. Finally, the operating margin of 23.1% was unchanged, compared to the prior year period. Looking…

Thank you. At this time, we'll be conducting a question-and-answer session. [Operator Instructions] Our first questions come from the line of Wilma Burdis with Raymond James. Please proceed with your questions.

Good morning, Wil.

Hey, good morning. Could you just talk a little bit about the recruiting trends? They've been very, very strong ever since the convention. And just talk a little bit more about what we should expect to see in the back half of the year? Thanks.

Certainly. Well, our convention certainly served its purpose. We're very excited about the impact of it. As we talked about before, we try to use it to maximize momentum prior to the event with the anticipation of the event. Obviously, have a great event itself and then have activity magnifiers, if you will, after the event. And I think we executed well on all of that. We've seen very strong recruiting activity going in, as we reported, in an excellent second quarter. And we're making stronger recruiting activity indicated with July and the first part of August. So we're expecting that momentum in our distribution room to continue to grow led by recruiting. We are feeling much better than several years ago with the pull-through rate and licensing, so our state and province, as well as our own licensing processes are running well. So we're continuing as we indicated to experience and expect that growth in the 5% range, 6% range, something in there for the full-year. And so that would indicate a strong second-half of the year as well. So we expect the momentum to continue and we think we've got all the ingredients in place to make that happen.

Okay, thank you. And then one other thing we noticed was it seems like the mortgage balance has kicked up a little bit in the quarter. Could you talk a little bit about that and how the mortgage sales program is going? And is that something you expect to see some momentum if rates decline a little bit? A bunch of questions are there, but thanks for answering.

Certainly. Well, as you would expect, and I think as the industry is seeing as the expectation and ultimately we think the reality of rate cuts are ahead of us not very far into the future. We are seeing a significant increase in activity. We're approaching now about 3,000 mortgage loan originators licensed in the U.S. and we are seeing a significant increase in our business. That's still a very small business. We re-interred that business a few years ago and expected a -- just a build as we go process and of course interest rates spiked and that slowed things down. But now we are seeing the expected increase in activity and when we have increase in activity that creates an increase in interest among our sales force and does build momentum. So we're now focusing with the attention it's beginning to receive, you know, let's get more people licensed. We have the vast majority of states approved now, about 32, 33 states are approved in the U.S. We also have a mortgage referral program in Canada. It's a very different mechanism in Canada, but it serves the same purpose for our clients of helping them consolidate debt at a lower interest rate and accelerate payments, so they get themselves out of debt. So the client impact is very similar, but the business model is different in Canada. But it gives us good consistency on both sides of the border to use that mortgage impact on our other business, which is very positive in both countries. So we do expect that to continue to improve. Assuming we're right about interest rate cuts in the very near future in the U.S., we've already seen some in Canada, and we would expect that momentum to continue to grow. It's going to be an important part of our future.

Okay, thank you.

Thank you.

Thank you. Our next question has come from the line of Maxwell Fritscher with Truist Securities. Please proceed with your questions.

Good morning, Max.

Hey, good morning. I'm on for Mark Hughes. You mentioned the strong ISP sales were a result of solid demand for your products. Can you provide some more color on what you believe is driving that demand? Is it just the strong equity markets from Q1 and so people are more eager to buy some of these products?

Yes, Max, that's almost always, if not always, the primary driver. It's when there's confidence in the future based on what's happened in the recent past. Investors tend to make their move, move their assets or invest assets through on the sideline. So that's clearly the major part of what's happening right now. Although as the discussion we were having in the mortgage business, you've got to be in the right position on the field when the play happens. And I do think that much of the success in addition has been the preparation that our team has made, both in the home office and in the field to be ready when things turn. And so we've continued to focus on that business. We continue to get people licensed in that business. We continue to expand our product set where appropriate. It's not all about product set expansion, but where there's an improvement that's made in the product set, for example, on variable annuity guarantees, product providers are always introducing a new generation of products that has additional benefits for clients or plays out the current financial and economic conditions in a new way. And so we're seeing some fundamentals, as well as the shift in momentum, all come together at the same time. And we also see some pressure from the cost of living, a bit of a headwind on small investors. Those who are investing systematically, as we look at the number of new accounts open and the average size of those small accounts, those are being pressured by the cost of living. But that's being much more overwhelmed by the larger transactions, assets moving from other advisors to us and other products to us, banks and interest bearing accounts, those types of things to us. That is so significant. You really, in the total numbers, can't see the pressure on the small investor, but there is pressure on those small -- monthly systematic investors that they're struggling a little bit and we're doing our best to help them where we can.

Yes, thanks for that. And you kind of hit on this when answering Wilma’s question, but what is the impact of the convention on the licensing? Do you typically see the convention spur more recruits to complete their licensing?

Well, the easiest impact to identify is the attraction, the excitement of both our recruiters who go out after the convention with a new understanding of the opportunity of our business, a better vision of the future of where we're going as a company and the kind of business they can build, and that generally impacts top line recruiting the most. We get a very similar pull-through rate to licensing out of those recruits. And so when you have more recruits in the same pull-through rate, you get more licenses out of the effort. We will start to see the benefits on the licensing side probably August, September, October, and after that, because it takes some time for a recruit to matriculate through the training process. There's classroom training. There's self-study. There's the exam to take, sometimes multiple exams and some jurisdictions. So the first thing you see is top line recruiting increase. We're expecting a similar pull through rate even with a much higher recruiting. And we'll start to see that probably in the coming months and then on through the first of next year. So that's how you would expect that to kind of flow through the pipeline and impact licensing and ultimately the size of the salesforce. Though we're very excited about the opportunity, we do think that we have significantly increased the front end of that process and we'll see the results over the coming months.

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

Certainly.

Thank you. [Operator Instructions] Our next questions come from the line of Ian Ryave with Jefferies. Please proceed with your questions.

Good morning. Thank you.

Good morning, Ian.

Good morning. Thanks for taking my questions. Just first on the household budget index you recently published that it still remains over 100%? And how do you think about that as tracks with your expectations for new policies issued, but as well as lapses on policies? You cited the increased cost of living for some of the higher lapses this quarter, but we'd just like your thoughts on that?

Certainly. Well, we're very proud of the household budget index and the information it gives us to better serve clients. And you're exactly right, and it has ticked over a 100%. It's been hovering around a 100% the last several months. And of course, it's a measurement of the buying power of middle-income families is how we perceive it and so it's good news that it's back to kind of an even keel the challenges that doesn't necessarily address the compounding issues of the past, I mean, it would be the budget index was underwater if you looked at it retrospectively for months and months, several years. And so families dug a hole that they either filled by changing their buying habits or more likely by withdrawing savings or using credit. And so there is a challenge that's built up over time that still exists. And so families are now dealing with the compounding effect of the cost of living over inflation. Even when inflation slows down, the cost of living is not getting better, it's getting worse more slowly. And so prices are still going up, it's just the rate of increase is slow. That's better than the other way, but it's still not providing a lot of relief. So what we believe we're seeing is the buildup over time. Thank goodness it appears that there's not continuing buildup adding to the challenges, but families are struggling with the challenges that they've faced over the last several years. And at some point they get to the end of their credit line or they just can't live, they don't have any more savings to withdraw or it's doing too much damage to their savings for the future and then they start to really re-prioritize their spending habits and that's where we believe we've arrived in the last few months or few quarters is that the pressure is just compounding and now it's really starting to impact their spending habits when it comes to buying or keeping life insurance. As I stated earlier, even making systematic investments. And so that's kind of how we read that. We feel good that it's at least back to 100%, if it's a straight line from where our process began, it should be over 110%. If you look at it historically and kind of projected into the future where it should have been from pre-pandemic days. So not getting worse, but not getting particularly better, not yet filling in the hole that's accumulated. Still a lot of stress on families, but I'd certainly rather see it at or above 100% than where it's been in the past. So there is a little bit of a silver lining there.

So good morning, Ian. This is Tracy. I'll take the persistency question. So there are few points I'll help clarify that would possibly answer your question last. The first point is that we really don't have a real increase from first quarter to second quarter lapse. Second quarter, there's one event that I wanted to point out that caused some timing related fluctuation. There has been, before April, there had been a restriction from Florida that's related to a hurricane that happened August of last year. This is the last restriction order from Florida office of insurance regulations related to the August of 2023 Hurricane Idalia. And this particular restriction was extended multiple times until it expired in April. So that restriction required that we were to keep all the policies in force beyond grace period. So that cost some of the timing-related fluctuations on lapse. But when removing that one-time event, the lapse between first and second quarter was leveled. And so second quarter is really no real increase, and we are actually seeing it leveling. And then adding to Glenn’s point, the cost of living pressure on our clients remained a contributor to the elevated lapse. However, the lapse from the first duration remains well in line with our expectation prior to pandemic. And the other thing to point out is that it takes time to normalize, just like what we saw after the 2008 financial crisis. But when we look at accumulative persistencies, it is at normal range and even slightly better than prior to pandemic. And as a reminder, third quarter, we have our annual assumption review, and we will see when we go through the review process, if there's anything to share. Nevertheless, I will say that our ADP guidance already considered the elevated lapses. So the 5% to 6% range was pretty much well consistent with what we saw in second quarter. Hopefully that answers your question.

Yes, it does. Thank you so much. And just for a follow-up, I had a quick question on compliance protocols. Last earnings call, you mentioned that you had in annual office visits or audits? How are you making sure you have the policies and procedures and technology in place to make sure it's up to standards? And is this something you feel you should do more regularly than just annual office -- in-office visits? Thank you.

Sure, great question. And the annual office is a piece of an overall compliance plan that is extraordinarily thorough. We have a huge commitment to compliance and doing things right at Primerica and back that up with the people and the technology, as well as the process. And so it's a multi-layer plan. It starts with a significant surveillance process, real time, of our business. There are certain things that you can see spikes in business or maybe increase in lapses or changes of address. There are all kinds of warning signs that the industry has identified over the years that indicate that it's something you should take a look at. Most of the time you don't find there's anything wrong, there's a reason why it's happening, but it's a bit of an early warning system. So the first thing on the enforcement side is surveillance. And then we follow that up with regular communications about compliance. All rules are changing, so we've got an extensive communication process. And then the last thing is the safety net of let's go see it in person. Now more and more industry-wide, not just at Primerica, that's a combination of live in-office visits where you can kind of kick the tires and see things as they happen, as well as remote technology used to communicate and talk to people that are in offices, and so it's a combination of all of that. So we've got a very robust process in place that's multi-layered, and I think that the annual visit you described is appropriate in the context of that greater plan. But before it gets to the enforcement process, the best thing is to avoid challenges rather than identify them and correct them. And so from the very beginning, you know, we have…

Appreciate it. Thank you so much.

Certainly. Thank you for your question.

Thank you. We have reached the end of our question-and-answer session. And with that, that does conclude today's conference call. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.