Q3 2022 Primerica Inc Earnings Call
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Hello, everyone and thank you for joining the permit pre may request <unk> 2022 earnings conference call. My name is <unk> and I'll be the operator for today before I hand, you over to your host Nicole Russell I would like to remind you that you would like to ask a question during the Q&A session at the end of the call. Please press star one on your <unk>.
Four key pad.
I now have the pleasure of handing you over to your host Nicole Russell head of Investor Relations. Please go ahead Michael.
Thank you Darius and good morning, everyone. Welcome to primary fifth 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, 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 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 assumes no obligation to update these statements to reflect new information.
We refer you to our most recent Form 10-K filing as well as excuse me 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'll 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 investors relations website I'll 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.
<unk> remained focus 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 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, two 1% and ROA remained solid at 23, 8%.
I'll review, our key business drivers and Allison will talk about how various cross winds are impacting our financial results.
As I noted during our earnings call in August we focus this year's convention message on primary because unique ability to serve the middle market. The attractiveness of our business model and the importance of growing our life licensed 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 will generate increased excitement in the field about our business opportunity.
Our response to this promotion was even stronger than anticipated in total we added approximately 83000, 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.
The strong response to our business opportunity. It makes it clear that individuals place a premium on the independents and flexibility that comes with building a primary business.
In total we added nearly a 128000 new recruits during the third quarter of 2022.
While we expect varying rates of licensing pull through based on the commitment level of these recruits results. So far suggest that individuals who joined primerica at a discounted fee or obtaining their life license at about half the rate of traditional recruits.
Our efforts to improve the licensing process are gaining traction and in the third quarter, we saw a 33% increase in new life licenses year over year.
Part of our success during the quarter can be attributed to the large number of recruits in the pipeline.
We also know that licensing success requires ongoing focus at both the company and field leadership levels.
In addition, we rely on our licensing coaches to assist with pre licensing work continuous communication with new recruits and close monitoring with progress tracking tools to keep recruits engaged and motivated.
We remain laser focused on growing the sales force and our efforts are showing solid progress since the beginning of the year. We increased the size of the sales force by nearly 4% to 134313 life licensed reps, which surpassed our prior estimate and marks the fourth consecutive quarter of growth.
The ongoing strength in recruiting along with the improvement noted in licensing gives us confidence that we can grow the sales force by more than 4% this year.
Focusing on the term life segment, we issued around 71000, new term life policies during the quarter or 6% fewer policies than in the prior year period.
While sales volume was below our forecast productivity remained in our historical range at <unk> policies per life licensed representative per month compared to 0.19 in the prior year period.
We believe that a combination of economic uncertainty and higher cost of living has started to impact middle income households, which in turn slowed sales momentum.
It may also have been some headwinds created by the Salesforce is anticipation of the launch of our new term life products at the end of October .
We are bringing this new generation of products to market. After spending the last few years monitoring developments in our industry to identify opportunities and to remain competitive.
We've seen significant developments in the underwriting and policy issue technology, and a shift toward prioritizing client and rep experience at the point of sale.
These industry wide trends, along with our ongoing efforts to accurately price products and resolve points of friction have led us to create and introduce this product set.
The sales force already has a high level of familiarity with many aspects of new products. The term links remain unchanged and we will continue to offer two products one focused on speed and convenience and the other are more traditionally underwritten product focus on value.
These new products include significant improvements that use advancements in technology now widely available in the industry.
Our goal was to underwrite risk more quickly while continuing to accurately match risk to price.
We revamped our underwriting class structure, expanding the number of rate classes from four to 10.
In doing so we were able to achieve our pricing goals without reducing our expected overall profits.
In addition, extensive efforts were made to simplify our entire application process for both clients and Representatives. The result is faster issue times and as simple and convenient process for purchasing term life insurance, while this new and innovative approach is gaining acceptance across the industry. We maintain our unique advantage of personal advice through.
Agent support.
We expect these new products to drive future growth. However, as with any change of this magnitude we anticipate a period of adjustment that could put short term pressure on life sales and productivity.
Combined with cost of living pressures in middle income households, we estimate fourth quarter sales to be about even with the prior year's levels.
Prolonged equity market volatility continues to erode investor confidence and pressure high speed results third.
Third quarter sales of $2 $2 billion or 23% lower than the prior year period, although still strong compared to historical third quarter sales levels.
Our clients' long term approach to retirement savings helped us maintain net flows of $714 million, which we believe compares favorably to industry trends.
Clients remain committed to their investment goals and we've seen little change in automatic monthly investments, which comprised about 20% of mutual fund sales.
Additionally, as we look at all lines of our investment business, we continued to see significant transactional volume, which signals continued demand for our products.
Given the current level of uncertainty our best estimate for the fourth quarter is for ISP sales to decline as much as 30% compared to Q4 of last year.
While this represents a decline compared to last year's record sales, it's worth noting that we expect 2022 to be our second best year for sales.
The Medicare annual enrollment period is underway and we continue to manage our health, our senior health business thoughtfully and with discipline.
As we enter our second AEP, we have approximately half the number of health licensed employee agents at <unk>. This year as we match our staffing levels to sales targets.
10 year is much higher than it was last year, approximately 60% of <unk> agents have been with us for one year or more compared to 40% last year.
We're also seeing improved agent efficiency.
Productivity is up approximately 30% compared to last year, we made significant progress in reducing acquisition costs and feel better about expense levels as we enter this year's AEP.
As the business scales, we estimate that leads generated by Prime Erika Representatives, who are certified to make referrals to <unk> to contribute on average between 10% and 15% of submitted applications.
After we complete this AEP will have a better understanding of the business and its profitability potential in the current environment.
Keeping an eye on the future we remain excited about the long term opportunity in the mortgage business. We have approximately 1900 mortgage license representatives across 24 states in which we originate mortgages and we plan to continue expanding into additional states in.
In the near term interest rates are pressuring first mortgage loan volumes with third quarter sales down 70% compared to the prior year period.
We continue executing against a plan that takes into account the reality of elevated interest rates with that I'll turn it over to Allison. Thank.
Thank you Diane and good morning, everyone before we get started with the review of our core operating results. Let me address the $60 million noncash goodwill impairment charge recorded during the quarter.
GAAP required that requirement goodwill impairment analysis annually for our senior health reporting unit, which we conducted as of July <unk> 2020 Tam.
The impairment charge reflects the calculated decline in fair market value of our senior healthcare.
Primarily driven by an increase in the market <unk> weighted average cost of capital used to discount our reporting units cashless.
The WAC was influenced by significant increases in current equity market risk premiums and interest rates.
This charge has no impact on primary cash flows or our ability to repurchase shares of our common stock nor does it impact our plans for the anyhow fitness as client gets attacked.
Turning now to our operating with term life.
Segment operating revenues were $128 million grew 7% year over year, driven by a similar growth in it yet.
Premium while pretax income was $5.
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As adults in term life operating margin was 19, 3% down slightly from 20% in the prior year period.
As sales and persistency trends had normalized pandemic that has growth in adjusted direct premiums we.
We can see this dynamic in the deceleration of ADP 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 adults benefited from lower lapse rates are a 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 Canadian exchange rate, which was relatively stable throughout 2022 drop in September and our planning assumption is that it remains at this current level in 2023.
Looking further into the future assuming mid single digit growth.
That's correct, we expect ADP growth to remain at around 6% per year for the next few years is.
This predictable revenue growth as a function of the size and stability of our in force premium base.
Ongoing benefit of increasing benefit riders, which act as a buffer.
Against any short term negative deviation from our expected southwest range.
Moving next to term life segment expense drivers.
DAC amortization ratio at 16% was generally in line with typical third quarter level.
We continue to see approximately 15% higher lapses on policies issued during the peak of the pandemic in the second quarter of 'twenty journey through the second quarter of 2021.
As this group of policies continued to make sure its impact on overall persistently low decline.
Policies issued in the most recent 12 months have generally experienced historical lapse rate.
While we continue to observe lapses slightly below historical levels on policies issued before the pandemic. We will continue to monitor persistency trends closely to see if any negative trends emerge from the economic pressure on middle income households.
We saw a significant reduction in excess nicks net claims during the quarter with net claims exceeding historical levels by approximately $2 million.
The excess net claims this period were split between Covid related deaths and normal volatility, while 14 million at the $16 million in excess net claims last year like related to Covid.
The third quarter benefits and claims ratio was 59, 5% compared to historical averages of approximately $58 five to 59.
The excess net claims and elevated late duration cricket boosting which required us to hold additional reserves contributed to the upward pressure on the benefits and claims ratio.
Finally insurance expenses were in line with expectations and lower than levels. We saw in the first half of 2020 as we resume our normal schedule of Salesforce leadership event at.
At seven 5% the insurance expense ratio is largely in line with historical trends.
As we look ahead to the fourth quarter, we expect the benefits and claims ratio to remain slightly elevated versus historical levels, reflecting the pandemic fading impact on results.
At this point, we do not see any notable COVID-19 pull forward effect on mortality with all.
We expect the DAC ratio that will be in line with pre pandemic historical levels, reflecting seasonally higher lapses in the fourth quarter.
Finally, the pretax margin, which is generally lower in the fourth quarter is expected to be around 19%.
We continue to make progress on our <unk> implementation for 2023 and plan to provide full year margin and performance ratio guidance on your al DTI. When we report fourth quarter results in February .
As a reminder, while the new accounting standard modifies the emergence of profit. It has no impact on cash flows or the economics of our business we.
We expect to recognize higher profit under Ti largely due to higher deferred acquisition costs are amortized.
Turning to the investment savings product segment, economic headwinds and market volatility continue to significantly impact ISP results with revenue generating product sales down, 28% and average client assets assets down 10% year over year opt.
Operating revenues and pretax income was down 14% and 16% respectively.
With the ongoing market volatility it remains difficult to forecast future results.
Client asset values ended October at around 83 billion and assuming market levels remain unchanged for the remainder of the quarter, we expect fourth quarter asset based net revenues declined by approximately $9 million year over year.
As Glenn noted earlier, we expect to see sales volumes in the fourth quarter decline as much as 30%, which will reduce sales based net revenues by $6 million year over year.
Turning next to the senior House segment, we continued to execute a deliberate plan to grow their business slowly as they gain experience with the evolving senior health sector.
During the quarter, we saw both high Ltvs and higher Ltvs and lower constant contact acquisition costs on a sequential quarter basis with the LTV and CAC ratio closing to get below one.
We also recognized about $2 5 million of marketing development revenues from our carrier partners and a 1.7 million positive tail revenue guesstimate and annual carrier Perrier enacted commission rate increases applicable to a large part of the in force book.
But the Medicare annual enrollment period, now well underway, we expect fourth quarter operating earnings for the senior health segment to generally breakeven, we do not anticipate a need to provide funding to <unk> in 2022 as cash tax benefits from net operating losses will be sufficient to cover the segment operation.
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And our corporate and other distributed products segment with $4 million year over year increase in pre tax operating loss was driven by lower earnings in the mortgage business as interest rate headwinds have slowed sales as well as operating expenses that were higher operating expenses that were allocated to the segment.
Consolidated insurance and other operating expenses were $8 6 million or 7% higher than adjusted insurance and other operating expenses in the prior year.
The year over year increase primarily reflects the cost to support growth in elsewhere and term life fitness higher employee related costs and ongoing investments in technology.
As expected expense growth has started to normalize from the elevated levels experienced earlier in the year.
Looking ahead to the fourth quarter, we expect insurance and other operating expenses to grow approximately 6% driven by growth in our business and employee related costs.
Finally, our invested asset portfolio remains well diversified with an average rating of a and a duration of four eight years.
Rising interest rates and to a lesser extent changes in credit spreads continued to impact fixed income prices with our invested asset portfolio ending the period at an unrealized loss of $321 million.
We regularly evaluate the portfolio for a possible credit impairment and we've taken very few this year.
Do not believe the large unrealized loss is due to significant credit concerns with our holdings.
We continue to have the ability and intent to hold these investments until maturity at less than five years of relatively short duration of our portfolio means that a significant portion of our portfolio will mature over the next few years.
On the plus side rising rates have provided the opportunity for higher reinvestment rate and we have seen in the last several years, which will benefit net investment income over time.
During the quarter the reinvestment rate on our longer term insurance company portfolios averaged about five 5% almost 300 basis points above the third quarter of last year.
Liquidity at the holding company remains strong with invested assets in cash of $239 million and primary life statutory risk based capital ratio is estimated to be 450% as of September 30th.
We repurchased $97 million of our common stock during the quarter and we anticipate repurchasing the remaining $32 million of our authorization by the end of the year with that I will open the call up to questions.
Yes.
Thank you Sir if you would like to ask a question. Please press <unk> one in central Keith Let's now maybe change your mind piece pushed also would like to.
Two questions. Please make sure your phone for mid to low teens.
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First question comes from much Mark Hughes from choice. Please go ahead Laura.
Yes, hi, good morning.
The move.
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[laughter], so little light for that Mark.
Uh huh.
Turning to the tunnel.
Your point about the new product launch the new customer experience.
Coming in in October .
When you think about the level of sales for Q does that still represent a headwind and so you would anticipate as things normalize you.
We would see some incremental momentum in Q1.
Should we think about that.
Mark we anticipate all the effort we put into this is going to give us a long term benefit of the 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 I think the timing that you are <unk>.
<unk> makes sense it will probably take us 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 in there.
Therefore, the disruption is kind of within the parameters that we had hoped for but it is a change and 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 of the new product is clearly a positive mixed in with the other hidden wins, we discussed the economic conditions, we do believe our cost of living primarily.
You're starting to pressure middle income families even more as it continues and so we're balancing those two but that is what you described is what we would expect.
And then in the.
Senior health business.
If you have any guidance around approved plans or any comments around <unk>.
Lifetime value.
Per our plan should it be at least license.
Lifetime value should be similar to what we saw in the third quarter.
So there is some seasonality associated with Ltvs, just based on what you're selling in a given period and part of the third quarter was obviously pre tent at pre AEP. So those were policies that were most likely people who are turning 65 and the like so we got a relatively short.
Amount of.
Of LTV, because they'll all renew January one theoretically ltvs should be higher in the fourth quarter and the first quarter in AEP and O E P.
The big unknown, and what we're waiting and monitoring 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 renews at the annual renewal cycle, which is January one so we'll have a lot better clarity and the first of those items goes into the LTV and the second is more of a tail adjustment type of items.
By the time, we report in February I think we'll have a pretty darn good clearer picture on LTV, because we will have good clarity into placement rate, 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 <unk>.
Curious so given the timing of earnings will still be digesting that information. So its still yet to be told what we are we are seeing some positive signs as Glenn mentioned, you know so far productivity looks good.
And we're getting positive feedback, but again until we see placement and ultimately then renewal rates on that on the book of business, it's going to be hard to determine what the forward look is.
The next question comes from Andrew Pinkelman.
<unk> Suisse. Please go ahead Andrew.
Hello, and good morning.
How are you.
Got you.
Excellent great to be talking to you.
I was kind of curious so you're rolling out a new.
Turn product.
Hold 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 set up in the fourth quarter, what might give you optimism about that particular product driving some sales growth next year.
Yes.
Actually we did some testing throughout the month of October , but we released the product on the 26th 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 shoe that we're always working on looking for an opportunity to make an adjustment make a change based on what we see in the marketplace or just points of friction that we've identified in our old system, but as we survey the market a couple of years ago, we recognize we're a number of opportunities emerging and.
None of them are innovations that are unique to prime miracle, but I believe what prime Erika strength is combining new innovations in creating a new set of innovations that unique in the industry and it was it was a pretty long list.
Of improvement and so we saw the emerging technology in the underwriting innovation.
And we also felt like is always critical to have a focus on simplification of the interaction both for the client with the sales process and our agent and so we implemented a lot of new technology. For example, quiet identification and security technology. We went to a two factor authentication, we had a dog.
<unk> process are safer and eliminates paper.
We've got technology that creates a more convenient interaction with our clients bank. So that's more accurate and less prone to mistakes that application time.
And then we've also improved our own technology are my primary Erika client whereby out 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 so there was a lot of front end technology as well as the underwriting process that I mentioned in my prepared remark.
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More underwriting classes moving from four to 10 gives us more ability to personalize the pricing of the client to their exact risk and the challenge is generally.
Keeping it simple and convenient safe precision is the enemy of simplicity and more precisely we get with the process generally the more complex a gift and so what we wanted to do with all these new things, but have a simpler experience and so that's why it took so long, but it's pretty significant change and we did go through an entire simplification process we brought in outside.
Language experts to help us with the actual wording owner application the wording in our policies. We go into a question and answer format for the policy the clients get so that everything is as intuitive as possible. So none of that in and of itself is something that you go well that single piece was revolutionary but you put it all together and it is being viewed by our.
Salesforce is a significant improvement in our product, which generates excitement that generates confidence there feel better about growing talking to people that maybe they wouldn't have gone to talk about life insurance with the old product set.
And so all of those are the positives.
But it's enough change that it's going to take us a while to work that through the system and as we said in March question. We think we can get that done by the end of the year. Because there was also some familiarity with the product and so the bottom line is we believe we've got an innovative product probably as innovative product is available in the market based on the reinsurers were working with them their reactions it's unique.
Simple, which is perfect for the middle market and it's also more convenient for the client and agent and no change to profitability. So.
That was quite a recipe of all put together, it's taken us some time and it will take us a little time to implement but when we come out the other side I think there's going to be a much higher level of confidence and excitement among our sales force and a higher level of acceptance with the client because the process is as easy as you can find in the industry right now to protect your payment on the term insurance. So we work with.
Feel pretty good about it.
Very helpful. Glenn in that sounds exciting.
If I shift over to the <unk>.
Medicare area.
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It's interesting Alison mentioned.
The agent.
<unk> is now half of what it was what drove that agent reduction was it.
Intentional.
There are a lot of attrition.
How did that come about.
Of course of the last 12 months.
Yes, Andrew that was absolutely intentional I mean, there is attrition in the process. So you can you can get there by just letting the numbers of trials, but if you do that only you don't get to the right people lift.
And so what we wanted was to have our most experienced most effective and productive people remaining.
Those are obviously still the most profitable businesses, we can measure it.
So we work 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 theres not just productive with top line sales, but also measuring.
Rips, we thought we're going to give us the best.
The best Persistency as we all know that is one of the challenges in the gold industry.
Look going forward 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 AEP 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 theres a possibility that you could grow the top line more than last year.
We.
Half the rest.
No I don't think were I don't think our top line compared to last year, where we are in a very different environment now where we're focused on the right side is not just as larger numbers as we can generate so I don't think it's going to be topline sales growth I do think we're going to feel much better about the quality of what we saw.
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 want to grow the business after that.
Got it thank you so much.
Certainly thank you.
As a reminder, that's awesome questions Pease brushed off Hooper, London Central key thoughts.
Thoughtful about women typical coupons.
We have a question from Doug <unk> from Jefferies. Please go ahead. Your line is now open.
Good morning, Dan Good morning, good morning.
I guess just to start maybe following up on the prior questions around the term life sales I just wanted to see if theres 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 and economic uncertainty weighing on your customer base versus some of those other items you mentioned like what can I say any sales dip out of that new product.
Just on inflation and economic uncertainty remain in place for a period of time going forward.
Should we expect sales to remain under pressure or do you have some confidence that the potential upside from things like the new product and help offset any headwinds.
Well. That's the question is we've got both the positives and negatives in the process and trying to estimate which one will overpower the others the tricky part.
We've been asked about the cost of living impact, though middle income I think for the last two earnings calls and both times I expressed that we were pleasantly surprised that we've worked 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.
If you are familiar with our financial security monitor that we do each quarter.
As 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 are cutting back on nonessential spending 47% said they are cutting back or policy on savings and almost 30% said they are 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 can.
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 re prioritize and maybe give up some of the things that are less important.
These priorities like their financial game plan at the top of their priority list or added to their priority list. So we're always working to push back against that resistance, but it's pretty strong. We do believe that are things that we do like our new products. It gives us another ability to push back.
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 thinks about flat I will note. If you look back pre pandemic, we're still playing above the room compared to 2019 and particularly in the quarter. So that's a positive but it is.
Definitely one that's difficult to give an exact number.
Got it that's really helpful. Thank you.
And then.
Maybe just on licensing we typically calculated.
Licensing pull through rate based on a one quarter lag for the new recruits and I think on this basis. The licensing rates showed 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 their current cornerstone recruiting drive any of the benefit and 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 that would be helpful.
Sure.
We are seeing positive impact of our ongoing efforts I mean licensing is a 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 is taking those recruits and getting them to go to class and studying many haven't done that in decades quite honestly.
And so we have had success there both in getting people back into class, which we believe is more effective than people studying online a lot of that is in the accountability of 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 there'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 are we feel like we are making process with focus and with a better process.
And but it's an incremental approach and youre right, we lowered the pipeline with recruits as we mentioned that.
That extraordinary number of recruits from July came in at a discounted rate and historically that means they are 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.
We went through the next quarters, we see it.
Got it thanks, so much.
Certainly.
We have another question from Mark Hughes from choice.
Mark Welcome back I thought we might have lost you at the end of the earlier.
Mark are you there market.
Line is now open Marc.
Mark could you check not limited by any chance.
It appears you have this collection of more.
The growth in that regard we have no further questions at this moment so.
Today's call. Thank you everyone for joining you may now disconnect your lines.
Okay.