Primerica, Inc.
Q1 2021 Earnings Call Transcript

Published: 8 May 2021

[Operator:]

Ladies and gentlemen, thank you for standing by, and welcome to the Primerica Quarter one 2020 Earnings Results Conference Call and Webcast. Please be advised that today's conference is being recorded. I would now like to turn the conference over to your speaker today, Nicole Russell, Head of Investor Relations. Thank you. Please go ahead.

[Nicole Russell:]

Thank you, operator, and good morning, everyone. Welcome to Primerica's first quarter earnings call. A copy of our earnings 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 up 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.

[Glenn Williams:]

Thank you, Nicole, and thanks, everyone, for joining us. First quarter results reflect a very strong start to 2021. The fundamental strength in our business model continues to build and we have benefited in part to consumers' response to the COVID pandemic. Year-over-year term life sales were up 16%, investment and savings product sales were up 27%, and recruiting is up 12%. We are also seeing steady progress in mortgage sales, and we've received an enthusiastic response from our sales force, employees and other constituents to our newly announced intent to acquire e-TeleQuote, which will add a senior health solution to the products we offer to middle-income families. Let me expand on these themes. Starting on slide three, adjusted operating revenues of $637 million increased 18% compared to the first quarter of 2020, while diluted adjusted operating income per share of $2.44 rose 19%. ROAE also increased to 22.2% compared to 21.8% in last year's first quarter. Turning next to slide four. Continuing its strong momentum, recruiting was up double digits as nearly 95,000 individuals joined Primerica during the first quarter of 2021. Our efforts to improve and communicate the appeal of our business opportunity are reinforced by our recent success and heightened career uncertainty caused by the pandemic. We continue to see a record response from individuals seeking freedom and control in their work lives. The licensing process continues to create a bottleneck for individuals trying to obtain a permanent life license. During the first quarter, nearly 11,000 individuals obtained a life license, less than we would normally have anticipated given our success in recruiting. The licensing process we see emerging out of COVID has both positive and negative repercussions.

[Alison Rand:]

Thank you, Glenn, and good morning, everyone. Starting with our Term Life segment on slide seven. Operating revenues of $382 million increased 17% year-over-year, and pre-tax operating income of $88 million was 6%. COVID continues to impact results with strong demand for protection products, driving sales growth and policy persistency. The significant level of death claims this quarter more than offset these benefits with the term life margin declining to 17.4% in the quarter from 19% in the prior year period. COVID did not have a significant impact on Term Life results in the first quarter of 2020. As Glenn noted earlier, sales growth continued at double-digit pace. The compounding of sales growth and strong policy retention over the last year moved adjusted direct premium growth to 16% year-over-year and added $9 million to pre-tax income during the quarter. Looking more closely at persistency, we continue to see strong policy retention and aggregate lapse rates about 20% lower year-over-year. First duration persistency saw lower year-over-year increases than other durations, partially due to the strong first duration persistency we were already experiencing in the first quarter of 2020 prior to the onset of COVID.

[Operator:]

Your first question comes from the line of Jeff Schmitt with William Blair.

[Jeff Schmitt:]

Hi Good Morning. Last quarter, you'd mentioned you thought 4,200 individuals with either temporary or extended licenses wouldn't pursue a permanent license. And that dropped to 2,400 this quarter. Did those all drop off in the quarter? Is that the differential? Or is there a change in that estimate at all?

[Glenn Williams:]

No, that's -- it's just part of the process that we started. It's on the slope, kind of the glide path that we talked about last quarter. It is dependent when they drop out based on how quickly states react. Whether they're continuing -- a small number of states are continuing to issue a very small number of temporary new licenses, almost negligible. But there are a number of states that had -- just have an open end on the deadline of their extended renewals, and that's the vast majority of kind of what is hanging out there the longest, but it is happening at the slope that we anticipated. This is just more of that process we described last quarter.

[Jeff Schmitt:]

Okay. Okay. It is kind of moving in line with your expectations. Okay.

[Glenn Williams:]

Exactly. Yes.

[Jeff Schmitt:]

And then looking at the ISP margins, they continue to be really good at 28.4%. I think it's the highest first quarter result in 10 years. Could you speak to your outlook there? I mean is that just leveraging technology, higher asset base? I know that the other operating expenses have held flat for while now. I think they were flat in 2020. They're again flat in the first quarter. So could you maybe speak to your outlook there? And are investments being held off in that other -- operating expenses that's driving that or what maybe driving that?

[Glenn Williams:]

Yes. I think we have seen some operating expense change a little differently in the ISP segment as -- it's driven by our investments and our technology improvements, other costs that we experienced in maturing that business and growing it because, as you point out, it's growing at a very healthy rate. And so you -- we are seeing a little bit of that concentrated there.

[Alison Rand:]

Yes. And one thing to think about, and it's normalized out for this year, but over the last several years, I've mentioned that we renegotiated several of our contracts with our business partners, people who help us with record keeping and the like, all of which resulted in lower operating expenses, which we saw pretty significant reductions over the last several years. We've also hit, obviously, certain breakpoints with the size of our assets under management, which has also reduced some of the cost to operate. So that could be what you're seeing. I wouldn't say from the standpoint of our philosophy toward making investments in that business that anything has changed.

[Jeff Schmitt:]

Okay. Okay, that’s helpful. Thank you for being answering speed.

[Glenn Williams:]

Glad to help.

[Operator:]

Your next question comes from the line of Mark Hughes with Truist.

[Glenn Williams:]

Good morning Mark.

[Mark Hughes:]

Good morning Glenn, Good Morning All. I came in a little bit late, but did you give any color on or early thoughts about Q2 term life sales?

[Glenn Williams:]

Yes, we did. We talked about the fact that as we discussed in the previous quarter's discussion, that we do expect to see second quarter and full year sales are going to start to decline some. And so we think the full year is probably at a 5% lower than the elevated levels of 2020. So we start to see some evidence of that by the end of the second quarter and then it will kind of continue through the last half of the year.

[Alison Rand:]

Yes. But an interesting thing that you also commented on, just if he missed the language, was that we do feel like where we're going to land is above where we were pre-COVID. So I think that's --

[Glenn Williams:]

About 9%, 10% above pre-COVID levels.

[Mark Hughes:]

Yes. And did I hear you properly? You said kind of the decline maybe starting at the end of the second quarter?

[Glenn Williams:]

Yes, exactly. You of course see it in the second quarter report is what we're anticipating now start to evidence itself. And then by the end of the year, you'd be at about a 5% lower than last year's elevated COVID levels.

[Mark Hughes:]

Yes. Yes. How about -- Alison, did you give any color on the operating expenses for the full year? I think you said $113 million anticipated in 2Q. I guess the ETQ acquisition aside, how do we think about expenses for the full year?

[Alison Rand:]

Yes. I gave some estimates last quarter. Those numbers have not changed. We came in just slightly below expectation in the first quarter, but absolutely believe it to be timing. So overall, the full year color that I provided last quarter remains unchanged. And with regard to e-TeleQuote again, obviously, some costs will be operated out that are associated with the deal itself. But we haven't layered in anything either on the revenue or expense side with regard to that transaction at this time.

[Mark Hughes:]

Okay. And then are you gearing up for -- the sales force, are you prepping them for the e-TeleQuote? When we think about this year, given the July close, I know fourth quarter is obviously a strong period for that business. How engaged is your sales force going to be this year based on whatever groundwork you might be doing now?

[Glenn Williams:]

Right. Well, we're certainly aware, Mark, of the uniqueness of the enrollment period that happens at the end of the year. And so our game plan is to get our pilot out operating around the time of the transaction closing. The distribution agreement operates a little separately from the rest of the transaction, and that's delivery. And assuming that we have good success, that our process can be as simple as we'd like for it to be, we do want to be in a position where we can take advantage of the annual enrollment period. But we are being realistic about how much -- there's not much time to get ready. And we want to make sure that anything we do in a new business line doesn't negatively impact the success that we're having in our current business lines. So we're going to try to moderate that expectation just a little bit based on those two considerations. But we are trying to get to a certain point where we can assess how successful we might be during an annual enrollment period. And then as we look forward into future years, when we have some maturity in the business, we'll be better at projecting once we have that first year's experience. So we're aware of it and preparing for it, but we're also realistic in our expectations of how much we can get done with the time we have.

[Mark Hughes:]

Understood. Thank you.

[Glenn Williams:]

Glad to help.

[Operator:]

At this time there are no further questions. That does conclude today’s conference. You disconnect at this time. Thank you for participating.