Q1 for Q1 2022 Financial Earnings Transcript 2022 (opens in new window)

PARTICIPANTS

Corporate Participants

Suzanne Shepherd-Senior Vice President, Investor Relations and Sustainability, Assurant, Inc.Keith Demmings-President & Chief Executive Officer, Assurant, Inc.

Richard Dziadzio-Executive Vice President, Chief Financial Officer, Assurant, Inc.

Other Participants

Michael Phillips-Analyst, Morgan Stanley & Co.

Gary Ransom-Analyst, Dowling

Mark Hughes-Analyst, Truist Securities

Thomas McJoynt-Griffith-Analyst, Keefe, Bruyette & Woods

Jeff Schmitt-Analyst, William Blair

John Barnidge-Analyst, Piper Sandler

Grace Carter, Analyst, BofA Securities

MANAGEMENT DISCUSSION SECTION

Operator: Welcome to Assurant's First Quarter 2022 Conference Call and Webcast. At this time, all participants have been placed in a listen-only mode, and the floor will be opened for your questions following management's prepared remarks. [Operator Instructions]

It is now my pleasure to tuthe floor over to Suzanne Sheppard, Senior Vice President of Investor Relations and Sustainability. You may begin.

Suzanne Shepherd, Senior Vice President, Investor Relations and Sustainability, Assurant, Inc.

Thank you, operator and good morning, everyone. We look forward to discussing our first quarter 2022 results with you today.Joining me for Assurant's conference call are Keith Demmings, our President andChief Executive Officer, and Richard Dziadzio, our Chief Financial Officer.

Yesterday, after the market closed, we issued a news release announcing our results for the first quarter 2022. The release and corresponding financial supplement are available on assurant.com.We'll start today's call with remarks from Keith and Richard, before movinginto a Q&A session.

Some of the statements made today are forward looking. Forward-looking statements are based upon our historical performance and current expectations, and are subject to risks, uncertainties and other factors that may cause actual results to differ materially from those contemplated by these statements.

Additional information regarding these factors can be found in yesterday's earnings release, as well as inour SEC reports.

During today's call, we will refer tonon-GAAP financial measures, which we believe are important inevaluating the company's performance. For more details on these measures, the most comparable GAAP measures, and a reconciliation of the two, please refer to yesterday's news release and financial supplement as well as the Investor Day presentation materials that can be found on our website.

I will now tuthe call over to Keith.

Keith Demmings, President & Chief Executive Officer, Assurant, Inc.

Thanks Suzanne, and good morning, everyone. We are pleased with our performance for the first quarter, which demonstrates the resiliency and strength of our business during a period of macroeconomic and geopolitical uncertainty. Stronger than expected performance in our capital-light Connected Living and Global Automotive businesses within Global Lifestyle offset softer than expected results within Global Housing, mainly from our Specialty offerings.

The on-going growth of our fee-based, capital-light offerings across Global Lifestyle and Global Housing accounted for nearly 80 percent of segment earnings in 2021. This differentiates Assurant as both a service-oriented partner to our clients and a compelling investment, given our scaled customer base in markets with strong tailwinds. Our continued alignment with world-class partners and our ability to provide best-in-class products, services and customer experiences has positioned us well for expected profitable growth this year and over the long-term.

As we outlined at Investor Day in March, we have a clear vision for the future -- to be the leading globalbusiness services company supporting the advancement of the connected world. We aren't settling for thestatus quo-while we currently have scaled leadership positions in attractive and growing markets, we have our sights set on being the leader in all of the businesses in which we operate.

With that said, we believe the financial objectives we outlined for Assurant over the next three years are attractive and will be supported by our focus on market-leading innovation, business simplification, operational optimization and the benefits of scale. We believe this will lead to continued strong cash flow generation, earnings growth and financial outperformance. In Global Lifestyle, we remain focused on supporting our more than 250 million customers through our broad set of products and services across insurance, operations, mobile trade-in and repair, and comprehensive administrative services throughout Connected Living and Global Automotive.

For the segment, we continue to expect Adjusted EBITDA growth in the low-double-digits for 2022, with average annual growth of 10 percent in 2023 and 2024. We anticipate Connected Living will lead our growth for the Lifestyle segment driven by our multi-dimensional strategy. Over the next three years, Connected Living should benefit from continued mobile and retail client expansion, an increase in fee-based trade-in and repair, as well as contributions from strategic M&A. We continue to be excited aboutopportunities to drive growth in our retail business as we think about longer term opportunities to serve the Connected Home.

As of May 1st, we are pleased to announce that we have expanded our relationship with one of our largest US retail partners. We moved beyond program underwriting and have expanded our services to provide for the end-to-end administration of the business, including call center support, claims management and oversight of service delivery. Not only does this allow us to deepen our relationship with a critical client, it allows us to continue to grow our retail business-while dramatically increasing our scale to support claims and customer service, further improving our relevance with the third party repair network that supports this business.

We now support a meaningfully larger number of appliance repairs, which we believe is strategically important to our ambitions to provide protection services to the evolving Connected Home. This partnership will support additional investments in digital tools and technology platforms that are key to our long-term vision. Global Auto is expected to benefit from our increased scale and strong national dealer, third-party administrator and international OEM partnerships. We will continue to invest in technology, integrating our systems and processes following several years of successful acquisitions.

Global Lifestyle will also continue to invest to expand our market-leading positions. We anticipate incremental spending related to the development of new products, such as our Connected Home offerings, and increased investments for new client implementations.

In Global Housing, the business is expected to grow mid to high-single-digits in 2023 and 2024. For 2022, we now expect mid-single digit growth given the sharing economy performance in the first quarter. Growth in Housing is expected to be led by our lender-placed business, an important provider of property protection in the U.S. housing market. This will be driven by efficiencies across our operating model that will position us to benefit from the modest increase to placement rates and REO volume recovery that we expect later this year. Together, these trends will create scale benefits with our large portfolio of over 30 million loans, which will drive lower expenses across the business. Multifamily housing remains an attractive long-term growth story, although 2022 will be pressured as we continue to make investments in our customer experience and technology. These investments should ultimately support the growth of our 2.6 millionrenters' policies and further penetrate the approximately 20 million U.S. renters market.

Lastly, our Specialty offerings are still expected to grow over the long-term, despite recent elevated losses in sharing economy from policies previously written under less favorable contract terms, including those from runoff clients. As we consider potential impacts from macro factors like inflation or supply-chain disruptions throughout Lifestyle and Housing, we have not experienced a material impact to Assurant overall. In our mobile business, where the availability of parts fluctuates, we are working proactively with large suppliers to keep higher levels of inventory on hand to ensure timely and cost-effective repairs for customers.

We will continue to monitor developments and any corresponding impact on our business as is necessary. Our ability to meet our business goals is supported by the successful execution of our ESG efforts. We recently published our 2022 Sustainability Report, highlighting our commitment to build a more sustainablefuture for all stakeholders through our ESG initiatives. We are continuing to advance our efforts, specifically within our strategic focus areas of talent, products and climate.

Our Sustainability Report showcases recent actions and recognitions, while also providing insight into theimpact of Assurant's sustainability efforts utilizing key ESG reporting frameworks such as SASB and TCFD. In addition to setting long-term targets for Lifestyle and Housing at our Investor Day, we also provided three key enterprise financial objectives -- Adjusted EBITDA, Adjusted earnings per share and cash generation.

For this year, we continue to expect to grow Adjusted earnings per share, excluding catastrophe losses, by 16 percent to 20 percent from the 12 dollars and 12 cents we reported in 2021. This will be driven by 8 to 10 percent Adjusted EBITDA growth from the $1.1 billion dollars in 2021 as well as disciplined capital deployment- through share repurchases including using the remaining net proceeds from last year's sale ofGlobal Preneed.

For 2023 and 2024, we expect to grow average Adjusted earnings per share by 12 percent or more with double-digit average Adjusted EBITDA expansion, both excluding reportable catastrophes. Through the first quarter, we completed approximately 85 percent of the $900 million dollars of Preneed proceeds we intend to retuand expect to retuthe balance by the end of the second quarter. At the end of March, holding company liquidity totaled $738 million dollars after returning $280 million dollars in share repurchases and common stock dividends.

Over the next three years, as the business continues to grow, we expect to generate approximately $2.9 billion dollars of cash from our business segments, providing us with around $2.2 billion dollars of deployable capital. We'll continue to be disciplined about capital deployment with the objective of maximizing long-term returns -- taking a balanced approach between investments in growth and returning capital to shareholders. Our goal is to maintain greater capital flexibility as we see attractive M&A for growth. We might hold higher levels of cash depending on the opportunities we have in front of us, but we won't accumulate cash without line of sight to value-creating opportunities. We'll continue to retuexcess capital through share buybacks.

Overall, we're pleased with our performance in the first quarter. We're confident in our ability to continue to expand earnings and cash flow. This will allow us to continue to invest in our business and sustain our track record of returning excess capital to shareholders over the long term.

I will now tuthe call over to Richard to review the first quarter results and our 2022 outlook. Richard?

Thank you, Keith, and good morning, everyone. Adjusted EBITDA, excluding catastrophes, totaled $302 million dollars, equal to the first quarter of 2021. Performance was driven by strong growth across Global Lifestyle which was offset by higher non-CAT loss experience in Global Housing, primarily from our Specialty offerings. For the quarter, we reported Adjusted earnings per share, excluding reportable catastrophes of $3 dollars and 80 cents, up 17 percent from the prior-year period driven by buybacks and a $9 million-dollar non-recurring tax benefit from one of our international businesses.

Now let's move to segment results starting withGlobal Lifestyle. The segment reported Adjusted EBITDA of $217 million dollars in the first quarter, a year-over-year increase of 13 percent -- driven by continued earnings expansion in both Connected Living and Global Automotive. Connected Living earnings increased by $16 million dollars or 13 percent year-over-year. The increase was primarily driven by continued mobile expansion in North America device protection programs from cable operator and carrier clients, including more favorable loss experience and subscriber growth; as well as an increase in global mobile devices serviced, including higher trade-in volumes from continued carrier promotions.

In Global Automotive, earnings increased $9 million dollars or 12 percent, from three items; higher investment income; favorable loss experience in select ancillary products; and continued growth in our U.S. national dealer and third-party administrator channels-including growth of 5 percent in global vehicles protected. As we look at revenues, Lifestyle revenues increased by $99 million dollars or 5 percent, aligning with our expectation that revenue would increase mid-single digits year-over-year. This was driven by continued growth in Global Automotive and Connected Living.

In Global Automotive, revenue increased 9 percent, reflecting strong prior-period sales of vehicle service contracts. Even with a decline in U.S. auto sales year-over-year, net written premiums increased 4 percent as we continued to benefit from higher attachment rates on used vehicles. Within Connected Living, revenue increased 2 percent from higher mobile fee income driven by our global mobile devices serviced. Devices serviced encompasses the devices we touch in our trade-in, repair, and dynamic fulfillment ecosystem.

In the first quarter, the number of global mobile devices serviced increased by 800 thousand, or approximately 13 percent to 6.8 million. This was led by higher trade-in volumes supported by new phone introductions and carrier promotions from the introduction of 5G devices as well as initial service and repair volumes. In terms of mobile subscribers, growth in North American subscribers was partially offset by declines in runoff mobile programs previously mentioned, which also impacted mobile devices protected, sequentially.

For full year 2022, we continue to expect Lifestyle Adjusted EBITDA growth to be low double-digits compared to the $714 million dollars in 2021. Connected Living is expected to be the key driver of Adjusted EBITDA growth, driven by global expansion in existing and new clients across device protection and trade-in and upgrade programs. This will be partially offset by strategic investments to support new business opportunities and client implementations as well as unfavorable impacts from foreign exchange in Asia

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Assurant Inc. published this content on 05 May 2022 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 05 May 2022 17:29:09 UTC.