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[00:00:00] Ladies and gentlemen, thank you for standing by and welcome to the Loews corporation third quarter 2020 earnings conference call. At this time, all participants have been placed in a listen only mode. And the forum will be open for your questions following the presentation. If you would like to ask a question at that time, please press star one on your touchtone phone. If at any point your question has been answered, you may remove yourself from the queue by pressing the pound key. If you should require operator assistance, please. Press Star zero. Oh, now turn the call over to Mary Skafidas, vice president of investor relations and corporate communications for Lowe's.

[00:00:43] Thank you, Laurie, and good morning, everyone, and welcome to News Corporation's third quarter earnings conference call. A copy of our earnings release, earnings supplement and company overview may be sound on our website. Lows dotcom on the call this morning, we have our chief executive officer, Jim Tisch, and our chief financial officer, David Edelstein, following our prepared remarks. We will have a question and answer session with questions from shareholders. Before we begin, however, I will remind you that this conference call might include statements that are forward looking in nature. Actual results achieved by the company may differ materially from those made or implied in any forward looking statements due to a wide range of risks and uncertainties, including those set forth in our SEC filings. Forward looking statements reflect circumstances at the time they are made. The company expressly disclaims any obligation to update or revise any forward looking statements. This disclaimers only a brief summary of the company's statutory forward looking statements, disclaimers which is included in the company's filings with the FCC during the call today. We might also discuss non-GAAP financial measures. Please refer to our security filings and earnings supplement for reconciliation to the most comparable gap measures. There has been a slight modification to our earnings call format that was made in response to shareholder feedback. For a number of years now, we have taken questions from shareholders on an earnings call, either by incorporating the answers into our prepared remarks or answering them directly during our Q&A session. Recently, we've heard from shareholders that they prefer that we answer questions in the Q&A portion of the call instead of moving them into the prepared remarks. And we're happy to comply with this request. As a result, we will have a longer Q&A session. With that, I'd like to turn the call over to our CEO, Jim. Jim, over to.

[00:02:43] Thank you, Mary, and good morning. Let me start by focusing on capital allocation, specifically share buybacks. During our second quarter conference call, I emphatically stated my strong belief that the market was significantly undervaluing the shares. I also stated that while those plans to maintain a substantial liquidity position as our rainy day fund, we also would take advantage of the market's discount and continue to buy back our stock during the third quarter. We did just that, purchasing over five point four million shares of loans for about one hundred ninety five million dollars, while preserving ample liquidity and ending the quarter with about three and a half billion dollars in cash and investments. Maintaining high levels of liquidity is fundamental to our business model because it lets us both capture opportunity and withstand uncertainty and it's like any portfolio manager. We have to balance, retaining our liquidity with taking advantage of investment opportunities as they arise. Buying back shares is one of Lowes three capital allocation tools, with the other two being investing in our subsidiaries and buying another business with our stock trading considerably below our view of its intrinsic value, share repurchases have recently been our most attractive capital allocation option. That being said, our decision to buy back stock has not come at the expense of any of our subsidiaries. For example, we have provided capital to Lowes Hotels to help but ride out the effects of cozied on the hospitality industry. [00:04:33] All three other subsidiaries, you know, Boardwalk and Altium and Packaging have not recently required parent company capital. Instead, Boardwalk and Altium have largely used their free cash flow to finance growth opportunities. And CNN has chosen to pay dividends since it hasn't had a need for additional capital, as…

[00:09:50] Thank you, Jim, and good morning, everyone. For the third quarter, Lowe's reported net income of one hundred and thirty nine million, or 50 cents per share, up from seventy seventy two million or twenty four cents per share in last year's third quarter. The quarterly increase was driven by Santé, whose net income contribution doubled to one hundred and ninety two million. Let me provide some brief highlights on Sienna's quarter for more details. We encourage you to review the transcript from the company's investor call earlier this morning. The year over year earnings increase that Seanna was driven by two main factors. One, lower net reserve charges, Encinas life and group business associated with the long term care and structured settlement businesses and to higher net investment income and net investment gains. As Jim mentioned, Sienna's core property casualty business posted robust premium growth and strong underlying profitability in the quarter. However, total PNC underwriting results declined from Q3 2019 because of higher weather related catastrophe losses. [00:11:08] Catastrophe losses for the entire U.S. property casualty industry were elevated during the quarter led by three hurricanes. And the Midwest during the Western wildfires were also an industry event, but had little impact on CNN. Before leaving Santé, I would draw your attention to the company's rock solid investment portfolio, which at quarter end had a market value of forty nine billion, an average credit rating of single AA and a net unrealized gain of five billion dollars. About 94 percent of CNN fixed maturity investment portfolio is investment grade. [00:11:52] Again, please see CNRS transcript and shareholder materials for more details. Even though Diamond Offshore ceased being a consolidated subsidiary of Lowe's in this year's second quarter, it helped drive our third quarter year over year earnings…

[00:19:28] Thank you, David. Let's move on to the Q&A section of the call. We have a number of questions to respond to from shareholders. The first one is from for Jim. Jim, have you considered buying in the outstanding shares of CNN to take advantage of the discount in stock?

[00:19:50] So what was this always believed by having a public valuation marker for Ciena? It's really important, especially to our shareholders, on a very rough basis. CNN comprises about half of the value of loans, with the other half being our net cash. The are our assessment of the value of Boardwalk of Altium and our total business impact and maybe even beyond just being a marker. There are other reasons to keep CNN as a public company first, and being public is important to attracting top talent the top executives want and top executives in any company want at least a portion of their compensation to be based on the performance of the shares of their company and by being public and able is to provide that incentive to its top talent. Secondly, we think this is very important. The transparency that comes from being public is important to Sienna's regulators as well as the rating agencies. As everybody knows, I think the TNA trades at a ridiculously low valuation, and yet the P and C industry stocks likewise traded a crazy valuation. And finally, our share repurchases of low stock allows us to take advantage of the discount valuation that CNN is trading at, as well as the discount in those shares for its non C.M.A assets. Not our job, but to what we like to call a very significant double discount in our share repurchases.

[00:21:48] Great, thank you, Jim. The next question has to do with the exceptional year for catastrophe losses in the insurance business. Jim, would you please discuss housing and the insurance industry are managing through these challenges?

[00:22:04] Well, Mary, you're certainly right, this has certainly been a banner year for cats and cat losses, not only for CNN but for the industry overall. There have been only four quarters over the past 40, 40 quarters where CNN has experienced net cuts coming in at or above one hundred and sixty million dollars, and two of those four quarters over the past 10 years occurred in 2020. FEMA through the through the third quarter are pretax cut losses were more than five hundred and thirty dollars million compared to just one hundred twenty eight million dollars last year. Even if you exclude the losses from covid and from civil unrest, which were roughly about two hundred and fifty million dollars, Sienna's year to date cut losses would still be running at more than twice last year's level and of course, well ahead of their plan. But despite these, these are really exceptional events and catastrophes, I'm impressed by how the PMC industry and also CNN are managing through it all. If someone had told me in January that 2020 would be filled with storms, fires, civil unrest and the pandemic, I would have told you that CNN would have a miserable year as a result. However, despite this litany of events, CNN is still quite profitable, with 400 million dollars of corporate income and 300 million dollars of net income through the third quarter. [00:23:54] And it continues to find profitable avenues for growth all the more so thanks to the hard rate market that the insurance industry is currently experiencing. Count losses come with the territory in the property tax to industry, and we believe that CMA is effectively managing its current exposure while also getting strong rate increases on CAD exposed businesses. So let me end this by adding one stray thought, the insurance industry has not hasn't always been financially prudent, and this is the advantage of being associated with a particular industry for over 40 years. I have a little historical perspective here. There were years back in the 70s, 80s and 90s when the industry did not have true capital discipline and they would write business at just about any price. Today, the industry is reacting to catastrophic events and low interest rates by getting rate increases where they are justified. In my view, this change is a result of an increased demand from equity investors for profitability, which has led to insurance manager management's increased focus on capital efficiency.

[00:25:27] Great, thank you, Jim. Next question also has to do with DNA focusing on seniors long term business, Jim. Could you tell us if you your assessment of seniors, long term care business and the risks that it poses to CMA antelopes?

[00:25:45] Sure, as I said in my prepared remarks, CNN is long term care exposure is likely the biggest reason why CNN's valuation lags its peers. And as I also said, for the past seven years, CNN has been actively managing its long term care book of business in order to reduce risk and also in order to optimize results. Since 2015, Sienna's exposure to long term care has been materially reduced with the number of active policies declining by over 30 percent. Additionally, over the past few years, CNN has been able to further reduce its risk profile of its long term care block of business by achieving meaningful premium rate increases and also offering policyholders attractive options to reduce benefits in return for reduced future premiums being over Bustillo. Now, Moralez, on their call today focused on long term care. And I suggest that everyone review their remarks and look at the significant information on long term care that's posted on Sienna's website. Let me make two additional comments on the net reserve charge that CNN took in the third quarter. First, and really very significantly, a thirty seven million dollar net charge on a block this size is actually quite modest. And secondly, the charge was attributable to the historically low level of interest rates that we're currently experiencing with these latest estimated changes going forward. CNN is assuming that a 10 year Treasury note will trade at slightly over one percent three years from now and likely likewise in 2013. CNN is assuming that the 10 year note will yield what historically is a paltry two and three quarter percent, in my opinion. FEMA is taking a very, very conservative view on future interest rates, which hopefully means that they won't have to adjust for lower interest rates again going forward.

[00:28:17] Thank you, Jim. The next question also staying on the CNN topic, dazzlers expect to get a special dividend from CNN.

[00:28:28] So we still have a quarter to go in 2020. So it's really too early to be making any specific comments about whether or not CNN will pay a special dividend. It's been an extraordinary year for cattle losses, that's for sure. I can't speak for the CNN board, which hasn't had a discussion about special dividends. And we still have four months to go until the board actually makes a decision on special dividend. So I guess we'll just have to wait and see what happens.

[00:29:07] Ok, we're switching to Boardwalk, the shareholder would like to know our growth projects slowing in the midstream space. Can you comment on that, Jim?

[00:29:20] Yeah, from everything the boardwalk is saying, it's very likely that there will be a slowdown. In fact, I would say we're in the middle of a slowdown for larger scale projects because our customers are moving out their final investment decisions. However, Boardwalk expects to continue seeing smaller growth opportunities with power and industrial customers, primarily due to a boardwalk pipeline's proximity to some of our industrial gas customers.

[00:30:03] Thank you. The next question is for David. David, there have been several recent bankruptcies of exploration production companies. Can you please comment on the financial strength of Boardwalk's customers?

[00:30:16] Sure. Mary, thanks. Over the past several years, Boardwalk has focused on diversifying its customer base to include more end users such as power plants, industrial customers and LNG off takers, a strategy that proved beneficial this year. By diversifying in this way, Boardwalk's has been able to strengthen the overall credit profile of its customer base. More than 70 percent of boardwalk's revenue backlog is derived from investment grade companies and boardwalk at letters of credit or other types of collateral from some of its customers that are not investment grade or are unrated, which provide an additional measure of security. In 2020 and this year, one of Boardwalk's customers declared bankruptcy and another seems to be on the verge because of the credit protections in place for these customers and importantly, the ability to remarket any return capacity. These bankruptcies will not have a material financial impact on the company. Stepping back since the pandemic hit in mid-March, Boardwalk has maintained uninterrupted service to its customers while simultaneously taking measures to ensure the safety of its employees and its operations. At the end of the third quarter, Boardwalk had well over nine billion in contracted revenues, with over 600 million of net new contracts added to backlog during 2020.

[00:32:04] Right, we have another question for our CFO, David. Can you provide an update on the cash needs of those hotels?

[00:32:13] Absolutely. And Jim already commented on it. But let me just provide a little more detail. When Lozado suspended operations at almost all its properties in the early spring. We estimated that negative cash flow would average around 25 million per month. We went on to say that Masra would reopen a property if doing so was expected to improve that property's cash flow. [00:32:44] Loews Hotels has responded to the pandemic induced sudden downturn by transforming its operating model, including dramatically reducing property level and management company expenses. As we all know, properties began coming back online during the second quarter. 13 properties resumed operations during Q2, another six during Q3 and one more hotel last week. As anticipated, Loews Hotels cash flow has improved as properties have resumed, operations expenses have been managed aggressively and capital spending has been right sized for the current environment. While the company continues to generate negative cash flow, it is significantly less than the 25 million per month cited in April. I'd be remiss in not mentioning how difficult the past eight months have been for those hotels, team members, thousands of employees were furloughed when the pandemic struck and less than half of the furloughed team members have returned to active duty. Early on, those hotels put programs in place to assist this affected team members, including a multi-million dollar relief fund as well as King, as well as continuing to provide medical insurance for furloughed employees for several months. Additionally, Loews Hotels has instituted enhanced safety and well-being standards and protocols for team members and guests. And as a reminder, in solidarity with all those hotels, team members being financially impacted by this crisis, all three members of our office of the president, Jim, John and Andrew Tisch, reduced their salaries by 50 percent as of April 1st and their bonuses by 50 percent for the entire year. Back to you, Mary.

[00:34:51] Thank you, David. Staying with those hotels, Jim, this next question is for you. It's about hotels looking to buy or sell any hotels and how had covid impacted its development projects?

[00:35:05] So first, let me talk about those hotels with long term growth strategy. The company, as we've said before, is focused on growth in two ways. The first one, by investing in and developing hotels with built in demand drivers like it has done so successfully with Universal Studios and also in Arlington, Texas. And secondly, the company is focused on developing and operating hotels for the group business while the hotel recovery is currently powered by leisure travel. We really do believe that the corporate travel, along with meetings and events, will come back as a pandemic wave. But before the pandemic hits, most hotels have begun to evaluate their portfolio and to sell a few hotels that didn't align with the current growth strategy. And they continue to do so opportunistically, including one hotel that was sold earlier this year in Canada. At the start of this year, those hotels had three projects under development and scheduled for opening this week, this year. Two of those hotels, the line by Loews in St. Louis and the Kansas City Hotel have already opened in. The hotels are doing just fine in light of the current environment for hotels. The third hotel under development is the 2000 room and summer dockside in Suites, which is located in Universal Universal's Orlando theme park. This property is in the final stage of development and its opening date will be announced very soon. The hotel will be our Ace Hotel on the universal campus, and we'll bring our Universal Room down to nearly 9000 rooms or just about half of the total rooms in the Rose Hotel system alone. Hotels, they continue to remain focused on its strategy of developing hotels in markets that have unique built in demand generators and potential for group business.

[00:37:41] Thank you, Jim. The next one is for you as well. Can you please comment on when you expect to see the hotel industry recover from the effects of the pandemic with Lozes? Would Loews Hotels this recovery lead or lag the industry's recovery?

[00:37:57] And I'm reminded of the old saying he who lives by the crystal ball, the fall to the ground glass, but all Sally forth anyway. Industry analysts believe that a full recovery is anywhere from two to five years in the future. But the truth is, a recovery in hospitality is highly dependent upon how and when the pandemic is contained at the end of the third quarter. As we said before, Loews Hotels had 21 hotels that had already resumed operations. Although there's been a steady increase in demand, occupancy rates still remain considerably below historic Norm. That's really important. Occupancy rates are still below historic norms. The recovery is currently being led by Lesia business and more than half of Loews Hotels assets that well into that category, such as our properties, the Universal Orlando campus, as well as other assets like the Lowes Miami Beach Hotel and a lot of biros in Arlington, Texas, which just hosted the World Series. We're seeing, in fact, a lot more driving business than we really ever seen before. Urban center properties are still lagging due to a reduction in corporate travel, but we believe a lot of hotels, properties with unique demand generators will recover more quickly than our urban properties.

[00:39:39] Ok, thank you, Jim. And our last question is for David. David, how has covid-19 affected your packaging business? Altium, can you please give us an update?

[00:39:50] Sure. I mentioned this in my remarks, but let me go over it again. Demand for the company's products has been strong overall. There are certain products that benefited from covid actually product segments such as household chemicals, beverages and personal care. And there were others that were somewhat weakened by covid. Those would include automotive, commercial foodservice and school dairy, although I would point out that the weaker segments began to rebound in the third quarter. Two bright spots this year for Altium, our Invision, the company's recycling business, and Altium health care, a business created from recent acquisitions that diversifies Altmans with a growing pharmaceutical packaging market. And as I mentioned earlier, Invision has been experiencing its best performance since 2014. And as for Altium health care, it's exceeding expectations due to strong synergies, as well as continued progress on operational efficiencies and other savings initiatives. As a result, Altium health care is ahead of plan for the year despite covid-19. So I would say net. The company's overall results are running modestly above plan, a plan that was finalized pre pandemic. And I would go on to say that commercially, all Temes new business efforts have been very successful over the past few months. I think the company is winning new accounts by differentiating itself, by demonstrating reliability, continued innovation and customer focus during this difficult covid period. So we hope that this focus on new business in the new business wins should benefit financial results in future periods. Back to you, Mary.

[00:41:57] Thanks, David. Thank you, David and Jim, this concludes the close call. As always, thanks to all of you for your continued interest. Please feel free to reach out to me with any additional questions at M Scafidi settler's dot com. A replay will be available on our website WLOS dot com in approximately two hours. Over to you to and the call.

[00:42:21] Thank you for participating in the Loews Corporation, third quarter, 2020 earnings conference call you now disconnect your lines and have a wonderful day.