Primerica, Inc. Q1 FY2025 Earnings Call

Greetings, and welcome to the Primerica First Quarter 2025 Earnings Call. At this time all participants are in a listen-only mode. The question-and-answer session will follow the formal presentation. Please note, this conference is being recorded. It is now my pleasure to introduce Nicole Russell, SVP, Investor Relations. Thank you. You may begin.

Thank you, operator, and good morning, everyone. Welcome to Primerica's first quarter earnings call. A copy of our press release, issued last night along with other materials relevant to today's call are posted on the Investor Relations section of our website. Joining me on our call today are 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 obligations to update these statements to reflect new information, and refer you to our most recent Form 10-K filing, which may be 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 also reference certain non-GAAP measures, which we believe provide additional insight into the company's financial results. Reconciliation of non-GAAP measures to their respective GAAP numbers are included in our earnings release. I would now like to turn the call over to Glenn.

Thank you, Nicole. Good morning, everyone. Thanks for joining us this morning. In the first quarter of 2025, Primerica delivered strong financial results despite headwinds from external factors, including sustained cost of living pressures and heightened economic uncertainty during the quarter. Starting with a snapshot of financial results, adjusted net operating income for the quarter was $168 million, up 14% year-over-year, while diluted adjusted operating EPS increased 20% to $5.02. These results reflect the continued strength within our investment savings product business and the steady contribution from our Term Life business during the first quarter of 2025. The predictability of our business allowed us to return a total of $153 million to stockholders during the quarter through a combination of $118 million in share repurchases and $35 million in regular dividends. The strength of our business model, our commitment to the sales force, and the growing need for the financial education provided by our independent sales representatives resulted in record success during 2024. Following an outstanding year, we entered 2025 with solid business fundamentals and a clear understanding of the financial pressures affecting middle-income families. The recent increase in economic uncertainty has impacted our marketplace, pressuring recruiting and Term Life insurance sales during the first quarter. Since April, we're starting to see some resistance to investment sales momentum. Looking at distribution, we recruited a total of 100,867 individuals during the first quarter, representing a 9% decline year-over-year. Similarly, new life licenses declined 5% versus the prior year period. Both recruiting and licensing activity were softer-than-expected as uncertainty appears to be contributing to greater caution in decision-making. That said, it's important to note that both recruiting and licensing numbers are historically strong and continue to fuel growth in our sales force. The total number of life license representatives grew slightly since year-end and is up 7% compared to March 2024. We remain committed to growing our sales force and continue to expect around 3% growth during 2025. Looking at Term Life results, we issued 86,415 new Term Life policies during the first quarter, representing $28 billion in new Term Life protection for our clients, which was in line with prior year levels. Productivity at 0.19 policies per rep was just below our historical range. We believe that today's challenging environment is particularly difficult for representatives to navigate, especially those with less sales experience. Considering these dynamics, we expect 2025 full-year policies issued to be broadly in line with 2024 levels. At quarter end, we had a total of $957 billion of protection in place for middle-income families, and we are pleased to see that persistency has remained stable again this quarter. Turning next to the ISP segment. Total sales during the quarter were $3.6 billion, up 28% year-over-year, driven by strong demand across the board, including U.S. and Canadian mutual funds, variable annuities, and managed accounts. Net inflows for the quarter were very strong at $839 million versus $274 million in the prior year period. Client asset values ended the quarter at $110 billion, up 6% year-over-year and down 2% during the first three months of 2025 due to negative market performance. Our securities license sales force has done a good job keeping clients focused on their long-term goals and the importance of staying invested despite heightened market volatility. Preliminary sales results in April, while positive, are beginning to reflect the effects of continued market volatility and broader economic uncertainty. Considering our strong outperformance during the first quarter, we continue to expect full-year sales growth in the mid-to-high single-digits range during 2025. Our Mortgage business showed strong sales growth in both The U.S. and Canada during the first quarter of 2025. In The U.S., we had $93.5 million of closed loans, up 31%. We now have 3,269 licensed mortgage loan originators in 33 states. Our referral program in Canada had $43.3 million of closed loans, up 78%. While both programs are still relatively small, we believe their importance will continue to grow over time. The resilience of our business model, demonstrated over nearly 50 years, combined with our unwavering commitment to help middle-income families achieve financial independence, are the key drivers of our success. There will always be a need for financial education among underserved families, a group that is often overlooked by the broader financial services industry. This reality underscores the importance of our mission and the opportunity that lies ahead. We have confidence in our model and in our sales force's ability to continue meeting the needs of the communities we serve. With that, I'll hand it over to Tracy for the financial details.

Thank you, Glenn, and good morning, everyone. Starting with the Term Life segment, operating revenues rose 4% year-over-year to $458 million, driven by 5% growth in adjusted direct premiums. Pretax operating income was $147 million, up 6% compared to the first quarter of 2024. All key financial ratios were in line with our expectations and consistent with the prior year period. These included the benefits and claims ratio at 58.2, the DAC amortization and insurance commissions ratio at 12%, the insurance expense ratio at 7.7%, and the operating margin at 22.1%. Overall, that remains above our long-term expectations, which we believe reflects the ongoing financial impact from higher cost of living pressures on middle-income families. Over the last two quarters, the trend has stabilized with persistently issued policies over the last year, largely in line with our long-term assumptions. We expect that overall persistency will continue to normalize over time. Turning to mortality. As noted on a number of occasions last year, claims experience continues to trend favorably relative to expectations. Given the relatively predictable nature of our Term Life business, we reiterate our full-year 2025 outlook to be consistent for adjusted direct premium (ADP) growth and key financial ratios. We expect ADP to grow around 5%, the benefits and claims ratio at around 58%, the debt amortization and insurance commissions ratio at around 12%, and operating margin around 22%. I want to remind investors that insurance expenses are subject to some seasonal variances. I will provide additional guidance on our expectations for the second quarter on a consolidated basis in a moment. Turning next to our Investment and Savings Product segment. Operating revenues of $291 million increased 19% from the prior year period, driven by both higher sales and growth in client asset values. Pretax income rose 24% to $81 million. Sales-based revenues increased 25%, slightly outpacing the 22% increase in revenue-generating sales, primarily driven by strong demand for variable annuities. Asset-based revenues increased 18% year-over-year compared to a 14% increase in average client asset value as we continue to benefit from a mixed shift towards products on which we earn higher asset-based commissions, including U.S. managed accounts and Canadian mutual funds sold under the principal distributor model. Sales commissions for both sales and asset-based products increased in close correlation with revenues. The Corporate and Other segment incurred a pretax adjusted operating loss of $8 million, compared to a loss of $12 million in the prior year period. The year-over-year change was driven by an increase in net investment income, primarily due to growth in the size of the portfolio. Finally, consolidated insurance and other operating expenses were $163 million, up 4% year-over-year. The growth in expenses was primarily driven by higher variable costs associated with growth in our Term Life and ISP segments and increased employee compensation costs from annual merit increases. First quarter expense levels were a couple of million dollars lower than planned due to timing of technology investments and other expenses. We expect these projects to ramp up in the coming months. As such, we're maintaining our full-year outlook for expenses to increase by around $40 million or 6% to 8% in 2025, with second quarter growth consistent with our full-year guidance. Our invested asset portfolio remained well-diversified with a duration of 5.1 years and an average quality of age. The portfolio had a net unrealized loss of $169 million as of March, modestly better than the prior year end as rates generally decreased during the quarter. We continue to believe that the remaining unrealized loss is a function of interest rates and not due to underlying credit concerns. We have the intent and the ability to hold these investments until maturity. We continue to generate significant deployable capital, reflecting the strength and consistency of our capitalized distribution model. The predictability of our cash flow is driven by our large in-force block of Term Life insurance policies, our use of reinsurance, which substantially reduces the mortality risk exposure, and our fee-based ISP business, which requires very little capital. This model supports our ongoing commitment to returning value to stockholders, while also enabling us to invest in long-term growth. Our holding company ended the quarter with $407 million in cash and invested assets. Primerica Life's estimated RBC ratio was 470%. We remain confident in our ability to sustain capital strength while supporting ongoing growth initiatives and continuing to return capital to stockholders. With that, operator, please open the line for questions.

Thank you. Our first question comes from the line of Ryan Krueger with KBW. Please proceed with your questions.

Hi, thanks. Good morning. My first question was on the dynamic you're seeing between Term Life sales and ISP sales. Just seems striking that you're seeing some pressures on Term Life given economic uncertainty and cost of living pressures, but then very strong production in ISP. What do you attribute this to?

Yes, Ryan. One of the beauties of our complementary business model is that our two main lines of business often react differently under the same circumstances, and that gives us a unique balance. You're right, they're pretty much at an extreme right now, as we have our life insurance momentum decelerating and a very strong quarter in ISP, although we're seeing some deceleration due to the uncertainty. Cost of living, as we've talked about before, impacts our life insurance business fairly quickly, because families, often middle-income families, are making priority decisions on whether to buy and keep a term policy. If they have some additional disposable income, they might start a systematic investment plan, generally fairly small. And when money gets tight, those two things come into question. The larger sale business, particularly rollover business and movement of larger blocks of money, is not impacted nearly as much by cost of living. People aren't making a rollover decision based on whether the cost of gas went up this month. They're not. They're looking for a better investment or different features of the investment. One of the things we've mentioned before is our variable annuity business is particularly strong, and that's because of the guarantees. Often, there's a flight to guarantees in times of uncertainty. We are seeing some of that. So the businesses do react differently, specifically to cost of living. The uncertainty tends to be a headwind for both, because when people are not sure what's about to happen, they tend to wait and see. And that can impact Term Life sales and impact even recruiting as we've seen. It's beginning to slow down some of the movement of money, even the rollovers and transfers in the ISP business. That said, I hope that uncertainty is a relatively short phenomenon. If we can get some clarity and direction, with some decisions about tariffs and so forth, hopefully this is a fairly short-term dilemma that could be resolved during this year and then we can get some more certainty and clarity going forward.

Thanks. And related follow-up, 5% to 10% ISP sales outlook for the year, that's certainly much lower than you had for the first quarter. Are you kind of assuming that there's some ongoing headwinds the rest of the year because of the volatility that we're seeing and that's embedded in your outlook?

Yes. We make the outlook based primarily on today's conditions because we're not sure what might happen next. I mean, uncertainty is the word that's going to be used at a record pace, I think this quarter by companies and others. So we tend to look out. But we also had an extremely strong last two quarters last year. So the comparisons to try to get the same percentage growth that we saw in the first quarter result in much bigger numbers. So it's a combination of the very strong finish last year and the comparison in the kind of decelerating percentages, as well as assuming that the disruption and uncertainty we're experiencing today is probably going to continue for a while. I hope it doesn't, but we make our plans assuming it will.

Our next question comes from the line of Wilma Burtis with Credit Suisse. Please proceed with your questions.

Hi. Good morning. This is a little bit of a follow-up on Ryan's question, but you've talked before about how your clients tend to be a little bit slower to react to market news. Just can you talk about how people have been thinking about things and how you're seeing that now, especially in April? Thanks.

We do believe, Wilma, as you point out, that in general, most of our clients react a little more slowly, particularly the middle-income clients. But even those that have fairly large assets, we always teach long-term investing, buy and hold. Most of our accounts by far are retirement accounts, so they have a long-term time horizon. So we're not in an environment where people are moving in and out, like day traders or other more frequent traders might be. So I would expect our people to buy and hold and react more slowly. We do see that. But after the noise gets so loud or lasts so long, we see people start to take a wait-and-see attitude, and that does start to slow down some of the momentum. So I think it's catching up with us now. I do think that again, it could be short-lived, if we get some clarity quickly. But we're assuming that we're going to be under the current conditions for most of this year as we make our plans going forward.

Thank you. And then, can you just talk a little bit about the recruiting environment or a little bit more about the recruiting environment, especially going forward? Is there maybe a situation where the Primerica opportunity becomes more attractive as people maybe look for a little bit more income or that kind of thing? Thanks.

Sure. As we've talked about many times before, some disruption and dissatisfaction actually helps our recruiting. So when people are frustrated or they fear for job loss, they look for alternatives. I think we've benefited from that over the last few years. We do need to remember that the uncertainty is new, but the cost of living pressures are not new. It's something that families have been dealing with for a number of years. But there is a point, I believe, where when you just don't know what's going to happen next, you stop and think a little longer. And that's what we believe we're seeing both on the recruiting side compared to last year. People are being a little more considerate, whether they're buying a term insurance policy or if they're about to invest the effort, whether they have little money but feel tremendous effort in building a business. They are in a wait-and-see mode. Again, it's possible that this could be short-lived, that clarity could come quickly, but we're assuming it lasts for some time. That's why we've taken the edge off some of our expectations for the year. On the other side of that, once clarity does come back, people will remember the disruption and that becomes a recruiting tailwind. So when we do get some clarity, people start feeling better, money is not quite so tight, the future direction is clearer. We will remind people of what they just went through. You don't want to experience that with no control. You want to take control of your future, and it becomes a recruiting message. So we will turn a positive into a negative whenever we can when delivering our message about our entrepreneurial opportunity.

Our next question comes from the line of Jack Matten with BMO Capital Markets. Please proceed with your questions.

Hi, thank you. Good morning. Just one more follow-up on the ISP growth outlook. I'm just curious, are you seeing any particular products more impacted than others? I mean, I know in recent quarters, you've been seeing a mix shift towards more higher margin products. Just wondering how we should think about that dynamic moving forward?

Yes. As we're accustomed to seeing, Jack, when things get bumpy, the guarantees of variable annuities and index-linked variable annuities become very attractive. We are seeing that as sort of our lead product that we've sold for a long time. It's a mix shift in that direction. Our managed account business is a newer business and it's a fast-growing product line, not just in Primerica but in the industry. We're seeing good percentage growth in that simply because it's new and it's a great addition to our product line. If we call it new, it's been a decade, but it's newer than the other product lines. So that's what we're seeing; we're seeing faster growth in variable annuities because of the guarantees and then we're seeing some fast percentage growth in our managed account because it's a newer, smaller business that's got great momentum.

Got it. Thank you. And just one on capital, can you just talk about what drove the nice uptick in the RBC ratio to 470 this quarter, up from 430, I think last quarter? Was there anything notable going on that drove that result?

Good morning, Jack. On the RBC ratio and our capital position, overall, our RBC ratio is a function of some of the state regulatory requirements for where we domicile, and sometimes we have some variation on that. But overall, we believe in having a strong capital position, both for our insurance businesses as well as for our overall company. So when you look at the RBC ratio, obviously, there's some quarterly ups and downs variations. But overall, our line of thinking is that we need strong capital to support our growth and, more importantly, also to maintain a strong rating. In a time of any sort of potential uncertainty, our capital position is very important. You should also look at the HoldCo capital that we have. By and large, we believe that given any sort of growth for the long term, as well as facing any sort of potential downturn, we have the resiliency and a strong capital position to absorb any uncertainties and downside risks.

Thank you. Our next question comes from the line of John Barnidge with Piper Sandler. Please proceed with your questions.

Good morning. Appreciate the opportunity. My question here is, how do you view the health of the economy in Canada? You talked about moderation in sales in April, I believe. Is that experience any different between your U.S. business and your Canada business?

I think, John, speaking as an expert who lived in Canada for 15 years, although I'm not really an expert, I think there are more similarities than there are differences in the countries in most questions, and I think this is one of them. I think the two economies are very similar. There's uncertainty in both, although one segment of uncertainty has been removed with the election in Canada, giving us clarity of who the leadership is. We have a great business in Canada. We've been doing business there for 39 years. We have a very strong and experienced leadership team, both in our sales force and in our corporate office. Unfortunately, we're viewed by Canadians as a Canadian company, since we have the strong presence there. We're anticipating that the timing might be a little different in the impact of some things, but it's going to be a very similar set of dynamics. Our business in Canada generally reacts very much like our business in the U.S. The two investment businesses, for example, are tracking very closely to each other in growth. I would say that our Distribution Building and Term business has been exceptionally strong this year in Canada following a period coming out of the pandemic where Canada reacted more slowly, so they're catching up. Again, there are a handful of differences, but at the same time, we would expect the results to be similar in direction and in quantity. So we're just as optimistic about the future in Canada as we are here.

Appreciate that answer. And my follow-up question, in light of a dynamic macro environment, how do you think about your presence in the market repurchasing stock versus maybe your expectations coming into the year? Thank you.

Good morning, John. In terms of the stock purchase program, we have announced the program for 2025 at $450 million and there's a nice healthy growth from last year. The way we look at the repurchase program is to provide consistent, resilient, and predictable returns on capital for our stockholders. We typically try not to play and time the market, and we also like to be able to provide the type of strength on the ability to return, based on multi-year stress tests as a premise. So, we don't believe there's any risk to our program that's announced for 2025, and our thesis really is to maintain a predictable pattern, which is very helpful for investors.

Thank you. Our next question comes from the line of Mark Hughes with Truist Securities. Please proceed with your questions.

Good morning, Mark. Good morning, Glenn. Good morning, Tracy. The Corporate segment is doing better. It looks like just higher net investment income. Was there anything unusual in this quarter, or should that higher allocated net investment income carry through the balance of the year and help to support a better corporate expense or corporate performance?

Yes, Mark, our Corporate C&L segment really benefited from the investment portfolio. This is really a combination result for several things. One is the growth of the portfolio itself, which has been on a pretty healthy trajectory in the past. The second part is, we have moved off some of our investments as the securities matured into slightly higher yielding type of investments, without compromising our conservative risk profile. The majority of it is a fixed-income portfolio that well matches our life side of the business in terms of durations and risk profile, and we are relatively conservative. However, that being said, we are pursuing some higher yields without giving up the risk, and we maintain that good balance. I see this as a predictable around $40 million a quarter type of up or down in that range to support our C&L segment. I also believe that our investment portfolio in general keeps our capital very strong continuously while having a balanced and low-risk profile that supports our distribution business model, avoiding making that the main focus of our revenues.

And then when thinking about the Term business, did you provide guidance? I think in the past you've talked about growth in adjusted direct premium, for instance. Any reason to think the outlook has changed? I think the new sales, perhaps stabilizing, is a little bit different, but any updates on those performance measures within Term Life?

Yes, on the Term Life ADP guidance, even though we have seen some uncertainty and there are some headwinds on the recruiting/lending side, given the large size of our in-force block, any given year of new policies and premium is a very small slice of the overall income on the revenue that we bring in from Term Life. Considering the very stable nature of that business, there's really no material impact this year. I think our ADP guidance is going to be very consistent, around 5% growth. Also keep in mind that when we give out our guidance for ADP, we have already considered similar situations. So that's already been factored in. It's a very good defense business, and you can see that given its capital-light nature, very good defensive business in the long-term.

Thank you for that. And then maybe one more quick one, Glenn. I think you've touched on this, but the annuity sales versus the mutual funds seems like more broadly, there's been a growing demand for annuities as protection products, volatile markets make those more attractive. Do you think maybe that outperforms relative to your earlier experience?

I'm just thinking in comparison to earlier experience. So, this is a fairly common phenomenon. When things get a little bumpy and uncertain, we see a mix shift toward variable annuities. I'm not sure whether it will be more extreme this time. I think it depends on how long this goes on. The longer uncertainty continues, the more impact it has, at least on the investment side. So I'm not sure it’s much more extreme than it has in the past. It's a pretty natural phenomenon. We expect it. We see it, but I don't think it's too much different from past experiences.

Our next question comes from the line of Dan Bergman with TD Cowen. Please proceed with your questions.

Thanks. Good morning. I guess just a follow-up on your prepared remarks. I wanted to see if you could give a little more detail regarding what you're seeing regarding lapse rates across the term book. It sounded like they stabilized overall, but any more detail around what you're seeing, any differences across mortgages would be very helpful. I know it sounds like you expect normalization over time, but just given the recent uncertainty, is there a risk that this could take a step back before it gets better? Just any thoughts on the outlook, given that the uncertain environment would be much appreciated.

Yes. Good morning, Dan. Regarding lapse rates, the first thing I will say is that we continue to see higher lapses across multiple durations than our long-term actuarial assumptions, which were really the pre-pandemic level of lapse rates. Also, be reminded that during the pandemic, we had extraordinarily low lapse rates. Some of the elevation in the recent past since the pandemic has been the run-off of a relatively uncommitted population. Our lapses on policies issued within the last year have consistent lapse rates as our expectations. So cumulatively, persistency also is in line with the pre-pandemic period. This is when you consider both very low and very high lapse rates. Over the long haul, when you look at it cumulatively, it's still very reasonable to our expectations. In the last couple of quarters, we have seen stabilizing trends. For example, last quarter has seen a decrease from the recent past, which is a good trend that we are observing. We are going to need to give it more time. Even with the uncertainty faced by middle-income families, we are considering some of those higher lapses in our ADP guidance. So none of that is going to be new. We obviously expect that the trend will return to normal over time. That's really just relying on how quickly the economy can normalize for the middle-income family. In past financial recession-type situations, it may take a few years for middle-income families to get back on their feet. By and large, we've considered a lot of those higher elevations in our guidance. Our ADP growth outlook remains the same, and we also believe the overall cumulative trend is within expectations.

Yes. That's very, very helpful. Thank you. And then maybe one more on the ISP business, if I could. I guess despite the market volatility, if my math is right, I think your full-year guidance still implies something like flattish sales growth for the rest of the year against a pretty tough comp given that you had nice growth in 2024. Is there any way to frame what it would take in the markets for there to be a more material decline in sales over the rest of the year? I mean, if that's a business that has shown some sales volatility in the past. For example, in 2022, you had a drop in sales after a really strong year in 2021. So how confident are you that this 2024 sales level is relatively sustainable going forward? A little bit of a broad question, but any thoughts would be much appreciated.

Yes. As we view how our business has been reacting, again, some of these pressures that we're seeing this year were there last year. The uncertainty, I think, is new. That's what we are trying to layer on and assess. But we don't have an exact formula that says if the market drops 20%, here's what we would expect. That would definitely impact us. We assume we get sort of a flattish market. It seems like it goes way up and goes way down from day to day or week to week. If it were down 5% or 10%, you would see a further slowing of our business. But to gauge that and do the math is tricky. That's why we'll update our full-year number by quarter so you can see what we are thinking for the coming quarters. We avoid making predictions about that. It would take something more severe than we're seeing now. How to quantify that is difficult.

Our next question is coming from the line of Suneet Kamath with Jefferies. Please proceed with your questions.

Good morning, Glenn. So I wanted to go back to your prepared remarks. I think it was when you were talking about the Term Life business. I believe you used the word resistance, that we're seeing some resistance. To me, that sounds like a stronger word than the phrase 'we're seeing people take a pause.' I just want to ensure I'm not reading too much into that, and if you could provide any color in terms of what that means, that would be helpful. Thanks.

Yes. This is us trying to quantify human behavior, which is a little tricky at best. What we're seeing, in addition to the cost of living pressures, which we have been facing for several years and have successfully overcome, I think our results would have been better in past years if it had not been for those pressures. Now we have uncertainty, which creates a wait-and-see type of behavior, as we believe we're seeing. You're right. It's hard to quantify the impact of the word resistance. But what we see is we've got a growing sales force, which means we have new salespeople in the marketplace. Overcoming objections is part of what salespeople do, but this is a particularly hard objection to overcome. It’s about not being sure what the economic situation means for their job or family, leading them to say, 'Check back with me next quarter.' That's a particularly tough challenge for a brand-new salesperson. Whether we characterized that with the word resistance or not, it's just another objection that a salesperson has to deal with when sitting down with families and helping them through the process of prioritizing tight budgets. It is a dynamic that is difficult but not insurmountable. Again, uncertainty can resolve itself with clarity or it can lead to people getting used to it after a while. We have some optimism that this doesn't go on forever, but it is a phenomenon we're currently observing in the numbers.

That makes sense. So resistance in terms of customers, not in terms of recruits, is kind of the message.

Exactly. You can even get some recruits with wait-and-see. If you're thinking about starting a new business and the effort it takes to build a new Primerica business, and you're unsure what the economic environment will be, that's hard at the best of times. But it appears that if I have an opinion for the next three months, that might discourage me from starting. People are looking for reasons to procrastinate, and uncertainty provides a great one. It’s just another extra dynamic to deal with that is relatively new this year. On the ISP side, we had a very strong April, not at the percentage growth that we reported in the first quarter, but still significant growth. We assume that that momentum continues for some time. It doesn’t just turn on a dime and stop. We got a pretty good read on how we think this quarter shapes up, and so, we see no cliffs in sight. We believe we have some momentum. We run a disciplined and lean organization expense-wise, which means we don’t have a lot of excess. It makes it a bit harder to cut expenses. However, we have a strategy to reduce expenses as needed if necessary. We believe we can overcome the headwinds, and it’s not on the top of our list for the game plan for the rest of the year.

Thank you. We have reached the end of our question-and-answer session. With that, I would like to bring the call to a close. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.