Attached files
| file | filename |
|---|---|
| 8-K - 8-K - NELNET INC | nni11614form8-k.htm |
| EX-99.2 - SUPPLEMENT - NELNET INC | exhibit992-nnix11614x10qxs.htm |
Nelnet Reports Third Quarter 2014 Results
• | GAAP net income $1.84 per share, $1.45 per share excluding adjustments |
• | Servicing $130.8 billion student loans for 5.8 million borrowers under government contract |
• | 32 percent increase in payment processing revenue driven by RenWeb acquisition |
LINCOLN, Neb., November 6, 2014-Nelnet (NYSE: NNI) today reported GAAP net income of $85.2 million, or $1.84 per share, for the third quarter of 2014, compared with GAAP net income of $62.8 million, or $1.35 per share, for the same period a year ago.
Excluding derivative market value and foreign currency adjustments, net income was $67.2 million, or $1.45 per share, for the third quarter of 2014, compared with $69.0 million, or $1.48 per share, for the same period in 2013. The company reported income from derivative market value and foreign currency adjustments of $18.0 million after tax, or $0.39 per share, for the third quarter of 2014, compared with an expense of $6.2 million after tax, or $0.13 per share, for the third quarter of 2013.
"We are pleased to be delivering strong financial results consistently over many quarters,” said Jeff Noordhoek, Nelnet Chief Executive Officer. “In the third quarter, we continued the trend by reporting solid earnings, growing our servicing volume, and maximizing the value of our loan portfolio. As a result, we are strategically positioned to provide excellent customer experiences and to deploy capital in existing and new businesses."
Nelnet operates four primary business segments, earning interest income on student loans in its Asset Generation and Management operating segment, and fee-based revenue in its Student Loan and Guaranty Servicing, Tuition Payment Processing and Campus Commerce, and Enrollment Services operating segments.
For the quarter ended September 30, 2014, the company experienced strong performance from its student loan portfolio, which offset the expected decrease in net income from the servicing segment.
Asset Generation and Management
Historically low interest rates continue to provide the opportunity for the company to generate substantial near-term value and cash flow from its student loan portfolio. For the third quarter of 2014, Nelnet reported net interest income of $117.5 million, compared with $104.9 million for the same period a year ago. Net interest income included $49.2 million and $37.8 million of fixed rate floor income in the third quarters of 2014 and 2013, respectively.
Year to date, the company has purchased $5.6 billion of student loans, bringing its total student loan portfolio to $28.7 billion as of September 30, 2014.
Student Loan and Guaranty Servicing
Under the company's servicing contract with the U.S. Department of Education (Department), the number of borrowers serviced increased 13 percent as of September 30, 2014 and the revenue increased 20 percent for the third quarter of 2014, when compared with September 30, 2013 and the third quarter of 2013, respectively. The company was servicing $130.8 billion of loans for 5.8 million borrowers on behalf of the Department as of September 30, 2014, compared with $106.9 billion of loans for 5.1 million borrowers as of September 30, 2013. Revenue from this contract increased to $31.2 million for the third quarter of 2014, up from $26.0 million for the same period a year ago. The growth in government servicing revenue partially offset the continued expected run off of the company’s commercial servicing portfolio and anticipated impact of legislative changes that reduced the revenue earned by guaranty agencies for collections. As a result, total revenue from the company's Student Loan and Guaranty Servicing segment decreased 18 percent, or $11.9 million, to $52.7 million for the third quarter of 2014, down from $64.6 million for the third quarter of 2013. As the volume of loans serviced under the Department servicing contract continues to grow and loans serviced under the legacy commercial programs continue to run off, the company expects the operating margins to tighten accordingly.
Tuition Payment Processing and Campus Commerce
For the third quarter of 2014, revenue from the company's Tuition Payment Processing and Campus Commerce segment was $26.4 million, an increase of $6.5 million, or 32 percent, from the same period in 2013. The increase in revenue was the result of the acquisition of RenWeb in June 2014, in addition to increases in managed tuition payment plans, campus commerce transaction volume, and new school customers. Operating margin for this segment decreased in the third quarter of 2014 as compared to the same period in 2013 due to lower margins on new services and the amortization of intangible assets from recent acquisitions.
Amortization of intangible assets in this segment was $2.0 million and $0.8 million for the third quarters of 2014 and 2013, respectively.
Operating Expenses
The company reported consolidated operating expenses of $117.4 million for the third quarter of 2014, compared with $107.6 million for the same period in 2013.
Board of Directors Approves Dividend
The Nelnet Board of Directors declared a fourth quarter cash dividend on the company's outstanding shares of Class A common stock and Class B common stock of $0.10 per share. The dividend will be paid on Monday, December 15, 2014, to shareholders of record at the close of business on Monday, December 1, 2014.
Non-GAAP Performance Measures
The company provides additional non-GAAP financial information related to specific items management believes to be important in the evaluation of its operating results, including specifically, the impact of unrealized gains and losses resulting from changes in fair values of derivative instruments which do not qualify for “hedge treatment” under GAAP and foreign currency transaction gains or losses resulting from the re-measurement of the company's Euro-denominated bonds to U.S. dollars. The company believes these point in time estimates of asset and liability values related to financial instruments that are subject to interest and currency rate fluctuations, and items whose timing and/or amount cannot be reasonably estimated in advance, affect the period to period comparability of the results of the company's fundamental business operations on a recurring basis. Accordingly, the company provides operating results excluding these items for comparability purposes.
Forward-looking and Cautionary Statements
This press release contains forward-looking statements within the meaning of federal securities laws. These statements are based on management's current expectations as of the date of this release and are subject to known and unknown risks and uncertainties that may cause actual results or performance to differ materially from those expressed or implied by the forward-looking statements. Such risks include, among others, risks related to the company's student loan portfolio such as interest rate basis and repricing risk, the use of derivatives to manage exposure to interest rate fluctuations, and the uncertain nature of expected benefits from recent FFELP loan purchases; the company's funding requirements to satisfy asset financing needs; risks related to the company's ability to maintain and increase volumes under the company’s loan servicing contract with the Department to service federally owned student loans; changes in the educational credit and services marketplace resulting from changes in applicable laws, regulations, and government programs and budgets; risks related to the recent reduction in government payments to guaranty agencies to rehabilitate defaulted FFELP loans and services in support of those activities; and changes in general economic and credit market conditions. For more information, see the "Risk Factors" sections and other cautionary discussions of risks and uncertainties included in documents filed or furnished by the company with the Securities and Exchange Commission, including the cautionary information about forward-looking statements contained in the company's supplemental financial information for the third quarter ended September 30, 2014. All forward-looking statements in this release are as of the date of this release. Although the company may from time to time voluntarily update or revise its forward-looking statements to reflect actual results or changes in the company's expectations, the company disclaims any commitment to do so except as required by securities laws.
Consolidated Statements of Income
(Dollars in thousands, except share data)
(unaudited)
Three months ended | Nine months ended | ||||||||||||||
September 30, 2014 | June 30, 2014 | September 30, 2013 | September 30, 2014 | September 30, 2013 | |||||||||||
Interest income: | |||||||||||||||
Loan interest | $ | 187,862 | 175,466 | 158,675 | 520,224 | 472,277 | |||||||||
Investment interest | 1,562 | 1,482 | 1,562 | 5,023 | 4,662 | ||||||||||
Total interest income | 189,424 | 176,948 | 160,237 | 525,247 | 476,939 | ||||||||||
Interest expense: | |||||||||||||||
Interest on bonds and notes payable | 71,937 | 69,235 | 55,315 | 201,176 | 171,800 | ||||||||||
Net interest income | 117,487 | 107,713 | 104,922 | 324,071 | 305,139 | ||||||||||
Less provision for loan losses | 2,000 | 1,500 | 5,000 | 6,000 | 15,000 | ||||||||||
Net interest income after provision for loan losses | 115,487 | 106,213 | 99,922 | 318,071 | 290,139 | ||||||||||
Other income (expense): | |||||||||||||||
Loan and guaranty servicing revenue | 52,659 | 66,460 | 64,582 | 183,876 | 180,261 | ||||||||||
Tuition payment processing and campus commerce revenue | 26,399 | 21,834 | 19,927 | 73,468 | 61,694 | ||||||||||
Enrollment services revenue | 22,936 | 20,145 | 22,563 | 65,092 | 76,343 | ||||||||||
Other income | 7,650 | 15,315 | 8,613 | 41,096 | 30,317 | ||||||||||
Gain on sale of loans and debt repurchases | — | 18 | 2,138 | 57 | 10,900 | ||||||||||
Derivative settlements, net | (4,834 | ) | (6,214 | ) | (6,688 | ) | (17,277 | ) | (23,229 | ) | |||||
Derivative market value and foreign currency adjustments, net | 29,037 | 7,784 | (9,960 | ) | 38,785 | 47,841 | |||||||||
Total other income | 133,847 | 125,342 | 101,175 | 385,097 | 384,127 | ||||||||||
Operating expenses: | |||||||||||||||
Salaries and benefits | 61,098 | 53,888 | 48,712 | 167,470 | 144,049 | ||||||||||
Cost to provide enrollment services | 14,178 | 13,311 | 14,668 | 41,964 | 51,097 | ||||||||||
Depreciation and amortization | 5,493 | 5,214 | 4,340 | 15,490 | 13,037 | ||||||||||
Other | 36,676 | 40,377 | 39,887 | 112,680 | 109,193 | ||||||||||
Total operating expenses | 117,445 | 112,790 | 107,607 | 337,604 | 317,376 | ||||||||||
Income before income taxes | 131,889 | 118,765 | 93,490 | 365,564 | 356,890 | ||||||||||
Income tax expense | 46,513 | 43,078 | 30,444 | 130,202 | 123,637 | ||||||||||
Net income | 85,376 | 75,687 | 63,046 | 235,362 | 233,253 | ||||||||||
Net income attributable to noncontrolling interest | 157 | 693 | 216 | 1,363 | 1,101 | ||||||||||
Net income attributable to Nelnet, Inc. | $ | 85,219 | 74,994 | 62,830 | 233,999 | 232,152 | |||||||||
Earnings per common share: | |||||||||||||||
Net income attributable to Nelnet, Inc. shareholders - basic and diluted | $ | 1.84 | 1.61 | 1.35 | 5.03 | 4.98 | |||||||||
Weighted average common shares outstanding - basic and diluted | 46,432,680 | 46,529,377 | 46,496,612 | 46,496,309 | 46,593,241 | ||||||||||
Condensed Consolidated Balance Sheets
(Dollars in thousands)
(Unaudited)
As of | As of | As of | |||||||
September 30, 2014 | December 31, 2013 | September 30, 2013 | |||||||
Assets: | |||||||||
Student loans receivable, net | $ | 28,701,344 | 25,907,589 | 24,729,592 | |||||
Cash, cash equivalents, and investments | 222,359 | 255,307 | 284,054 | ||||||
Restricted cash and investments | 940,343 | 902,699 | 768,621 | ||||||
Goodwill and intangible assets, net | 169,076 | 123,250 | 124,050 | ||||||
Other assets | 665,527 | 582,004 | 630,611 | ||||||
Total assets | $ | 30,698,649 | 27,770,849 | 26,536,928 | |||||
Liabilities: | |||||||||
Bonds and notes payable | $ | 28,737,456 | 25,955,289 | 24,858,455 | |||||
Other liabilities | 303,636 | 371,570 | 300,560 | ||||||
Total liabilities | 29,041,092 | 26,326,859 | 25,159,015 | ||||||
Equity: | |||||||||
Total Nelnet, Inc. shareholders' equity | 1,657,289 | 1,443,662 | 1,377,863 | ||||||
Noncontrolling interest | 268 | 328 | 50 | ||||||
Total equity | 1,657,557 | 1,443,990 | 1,377,913 | ||||||
Total liabilities and equity | $ | 30,698,649 | 27,770,849 | 26,536,928 | |||||
Contacts:
Media, Ben Kiser, +1-402-458-3024, or Investors, Phil Morgan, +1-402-458-3038, both of Nelnet, Inc.