LINCOLN, Neb., Aug. 4, 2016 /PRNewswire/ -- Nelnet (NYSE:
NNI) today reported GAAP net income of $26.2
million, or $0.61 per share,
for the second quarter of 2016, compared with GAAP net income of
$70.9 million, or $1.54 per share, for the same period a year
ago.
Excluding derivative market value and foreign currency
adjustments, net income was $48.0
million, or $1.13 per share,
for the second quarter of 2016, compared with $63.5 million, or $1.38 per share, for the same period in 2015. The
company reported an expense from derivative market value and
foreign currency adjustments of $21.8
million after tax, or $0.52
per share, for the second quarter of 2016, compared with income of
$7.4 million after tax, or
$0.16 per share, for the second
quarter of 2015. For additional information on these metrics,
see "Non-GAAP Performance Measures" below.
"While we are pleased with our operating results for the
quarter, we are focused on the future and the many opportunities we
have to grow and diversify our core fee-based businesses," said
Jeff Noordhoek, Chief Executive
Officer of Nelnet. "We are excited by the steady growth of our
payment processing segment, the opportunity to partner to respond
to the Department's servicing procurement process, and by the
reception for ALLO's communication products in existing and new
markets. The early success of ALLO, which increases our near term
expenses, and an aberration in short-term interest rates did impact
our earnings this quarter. However, we believe the future is bright
and continue to look for strategic investments to deploy capital
inside and outside our existing businesses that will generate
substantial value over the long term."
During the second quarter of 2016, Nelnet operated four primary
business segments, earning interest income on student loans in its
Asset Generation and Management segment, and fee-based revenue in
its Student Loan and Guaranty Servicing, Tuition Payment Processing
and Campus Commerce, and Communications segments.
Asset Generation and Management
For the second quarter of 2016, Nelnet reported net interest
income of $92.2 million, compared
with $105.1 million for the same
period a year ago. Net interest income included $39.5 million and $45.1
million of net fixed rate floor income in the second quarter
of 2016 and 2015, respectively. As a result of a widening in the
basis between the asset and debt indices in which the company earns
interest on its loans and funds such loans and a decrease in fixed
rate floor income as a result of an increase in interest rates,
core student loan spread decreased to 1.29 percent for the second
quarter of 2016, compared with 1.41 percent for the same period in
2015.
Student Loan and Guaranty Servicing
Revenue from the Student Loan and Guaranty Servicing segment was
$54.4 million for the second quarter
of 2016, compared with $63.8 million
for the same period in 2015.
The company's guaranty servicing and collection revenue has come
from two guaranty servicing clients. The contract with one
client expired on October 31, 2015.
Revenue from this client for the second quarter of 2015 was
$12.6 million. The other client
exited the guaranty business at the end of its contract term on
June 30, 2016. Revenue from this
client was $4.6 million and
$5.7 million for the second quarter
of 2016 and 2015, respectively. Going forward, the company will no
longer earn guaranty servicing and collection revenue.
As of June 30, 2016, the company
was servicing $153.8 billion of loans
for the U.S. Department of Education (Department), compared with
$141.5 billion of loans as of
June 30, 2015. Revenue from this
contract increased 10 percent to $37.1
million for the second quarter of 2016, up from $33.6 million for the same period a year ago. The
growth in the government servicing revenue partially offset the
decrease in the company's guaranty servicing and collection
revenue.
In April 2016, the Department's
Office of Federal Student Aid released information regarding a new
contract procurement process for the Department to acquire a single
servicing solution to support the management of federal student
financial aid, including the servicing of all student loans owned
by the Department. The contract solicitation process is divided
into two phases. Responses for Phase I were due on May 9, 2016.
On May 6, 2016, the company and
Great Lakes Educational Loan Services, Inc. (Great Lakes) submitted
a joint response to Phase I as part of a newly created joint
venture to respond to the contract solicitation process and to
provide services under the new contract in the event that the
Department selects it to be awarded with the contract. The joint
venture will operate as a new legal entity called GreatNet
Solutions, LLC (GreatNet). The company and Great Lakes each own 50
percent of the ownership interests of GreatNet. In addition to the
company, Great Lakes is one of four private sector companies
(referred to as Title IV Additional Services, or TIVAS) that
currently has a student loan servicing contract with the Department
to provide servicing for loans owned by the Department. On
June 30, 2016, the Department
announced which entities were selected to respond to Phase II of
the procurement selection process. GreatNet was one of three
entities selected.
Tuition Payment Processing and Campus Commerce
For the second quarter of 2016, revenue from the Tuition Payment
Processing and Campus Commerce segment was $30.5 million, an increase of $2.8 million, or 10 percent, from the same period
in 2015. The increase in revenue was primarily driven by growth in
managed tuition payment plans, transaction and payments volume, and
new school customers. This operating segment serves 10 million
students and families at almost 12,700 K-12 schools and 800
colleges and universities.
Communications
In March 2016, Allo Communications
began the build-out of its fiber optic network in Lincoln, Nebraska, resulting in year to
date capital expenditures of $12.0
million, including $9.2
million for the second quarter of 2016. The company
currently plans to spend approximately $50
million total in network capital expenditures during 2016,
subject to change based on customer demand for ALLO's services.
For the second quarter of 2016, ALLO recognized a net loss of
$0.7 million. The company anticipates
this operating segment will be dilutive to consolidated earnings in
2016 due to large upfront capital expenditures and associated
depreciation and upfront customer acquisition costs. As discussed
further under "Non-GAAP Performance Measures" below, ALLO's
management uses earnings before interest, taxes, depreciation, and
amortization (EBITDA) to eliminate certain non-cash and
non-operating items in order to consistently measure performance
from period to period. For the second quarter of 2016, ALLO
recognized interest expense of $0.2
million, an income tax benefit of $0.4 million, and depreciation and amortization
of $1.4 million, resulting in EBITDA
for the second quarter of 2016 of $0.4
million.
Liquidity and Capital Activities
For the quarter ended June 30,
2016, the company generated $175.2
million in net cash provided by operating activities. In
addition, as of June 30, 2016 the
company had $59.3 million in cash and
cash equivalents and a portfolio of available-for-sale and trading
investments, consisting primarily of student loan asset-backed
securities, with a fair value of $141.5
million.
The company intends to use its liquidity position to capitalize
on market opportunities, including student loan acquisitions,
strategic acquisitions and investments, expansion of ALLO's
telecommunications network, and capital management initiatives such
as stock repurchases and dividend distributions. The timing and
size of these opportunities will vary and will have a direct impact
on the company's cash and investment balances.
The company's Board of Directors authorized a new stock
repurchase program in May 2016 to
repurchase up to a total of five million shares of the company's
Class A common stock during the three-year period ending
May 25, 2019. The new program
replaced the prior stock repurchase program, and as of June 30, 2016, 4,992,360 shares remained
authorized for purchase by the company under the new program.
Consistent with the prior program, shares may be repurchased under
the new program from time to time in the open market or private
transactions, and the timing and amount of repurchases will depend
on market conditions, share prices, trading volumes, and other
factors, including compliance with credit agreements and securities
laws.
The company paid cash dividends of $5.1
million ($0.12 per share)
during the quarter ended June 30,
2016.
Board Declares Dividend
The Nelnet Board of Directors declared a third quarter cash
dividend on the company's outstanding shares of Class A common
stock and Class B common stock of $0.12 per share. The dividend will be paid on
Thursday, September 15, 2016, to
shareholders of record at the close of business on Thursday, September 1, 2016.
Non-GAAP Performance Measures
A reconciliation of the company's GAAP net income to net income,
excluding derivative market value and foreign currency adjustments,
is provided below.
|
Three months ended
June 30,
|
|
2016
|
2015
|
|
(dollars in
thousands, except share data)
|
|
|
|
GAAP net income
attributable to Nelnet, Inc.
|
$
26,150
|
70,909
|
Derivative market
value and foreign currency adjustments
|
35,207
|
(11,944)
|
Tax effect
|
(13,379)
|
4,539
|
Net income, excluding
derivative market value and foreign currency adjustments
|
$
47,978
|
63,504
|
|
|
Earnings per
share:
|
|
GAAP net income
attributable to Nelnet, Inc.
|
$
0.61
|
1.54
|
Derivative market
value and foreign currency adjustments
|
0.83
|
(0.26)
|
Tax effect
|
(0.31)
|
0.10
|
Net income, excluding
derivative market value and foreign currency adjustments
|
$
1.13
|
1.38
|
The company provides additional non-GAAP financial information
related to specific items management believes to be important in
the evaluation of its operating results and performance, including
specifically, the impact of unrealized gains and losses resulting
from changes in fair values of derivative instruments that 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 these financial instruments that are subject to
interest and currency rate fluctuations are subject to volatility
mostly due to timing and market factors beyond the control of
management, and affect the period-to-period comparability of the
results of operations. Accordingly, the company's management
utilizes operating results excluding these items for comparability
purposes when making decisions regarding the company's performance
and in presentations with credit rating agencies, lenders, and
investors. Consequently, the company reports this non- GAAP
information because the company believes that it provides
additional information regarding operational and performance
indicators that are closely assessed by management. There is
no comprehensive, authoritative guidance for the presentation of
such non-GAAP information, which is only meant to supplement GAAP
results by providing additional information that management
utilizes to assess performance. The tax effects of the derivative
market value and foreign currency adjustments are calculated by
multiplying those adjustments by the applicable statutory income
tax rate.
A reconciliation of ALLO's GAAP net loss to earnings before
interest expense, income taxes, depreciation, and amortization
(EBITDA), is provided below.
|
Three months
ended
|
|
June 30,
2016
|
|
(dollars in
thousands)
|
Net loss
|
$
(721)
|
Interest
expense
|
205
|
Income tax
benefit
|
(442)
|
Depreciation and
amortization
|
1,378
|
Earnings before
interest expense, income taxes, depreciation, and amortization
(EBITDA)
|
$
420
|
EBITDA is a supplemental non-GAAP performance measure that is
frequently used in capital-intensive industries such as
telecommunications. ALLO's management uses EBITDA to
compare ALLO's performance to that of its competitors and to
eliminate certain non-cash and non-operating items in order to
consistently measure performance from period to period. EBITDA
excludes interest expense and income taxes because these items are
associated with a company's particular capitalization and tax
structures. EBITDA also excludes depreciation and amortization
expense because these non-cash expenses primarily reflect the
impact of historical capital investments, as opposed to the cash
impacts of capital expenditures made in recent periods, which may
be evaluated through cash flow measures. The company reports EBITDA
for ALLO because the company believes that it provides useful
additional information for investors regarding a key metric used by
management to assess ALLO's performance, and it provides
supplemental information about ALLO's operating performance on a
more variable cost basis. There are limitations to using EBITDA as
a performance measure, including the difficulty associated with
comparing companies that use similar performance measures whose
calculations may differ from ALLO's calculations. In addition,
EBITDA should not be considered a substitute for other measures of
financial performance, such as net income or any other performance
measures derived in accordance with GAAP.
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, but are not limited to: 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; the uncertain nature of expected
benefits from FFELP and private education loan purchases and
initiatives to purchase additional FFELP and private education
loans; financing and liquidity risks, including risks of changes in
the securitization and other financing markets for student loans;
risks related to adverse changes in the company's volumes under the
company's loan servicing contract with the Department to service
federally owned student loans; risks related to the Department's
initiative to procure a new contract for federal student loan
servicing to acquire a single servicing solution to service all
loans owned by the Department, including the risk that the
Company's joint venture with Great Lakes may not be awarded the
contract; changes in the educational credit and services
marketplace resulting from changes in applicable laws, regulations,
and government programs and budgets; the uncertain nature of the
expected benefits from the acquisition of ALLO and the ability to
successfully integrate its communications operations and
successfully expand its fiber network in existing service areas and
additional communities; risks and uncertainties related to
initiatives to pursue additional strategic investments and
acquisitions, including investments and acquisitions that are
intended to diversify the company both within and outside of its
historical core education-related businesses; 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 second quarter ended June 30, 2016. All forward-looking
statements in this release are as of the date of this release.
Although the company may voluntarily update or revise its
forward-looking statements from time to time 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
|
|
Six months
ended
|
|
June 30,
2016
|
|
March 31,
2016
|
|
June 30,
2015
|
|
June 30,
2016
|
|
June 30,
2015
|
Interest
income:
|
|
|
|
|
|
|
|
|
|
Loan
interest
|
$
184,067
|
|
189,988
|
|
175,835
|
|
374,055
|
|
347,779
|
Investment
interest
|
2,185
|
|
2,029
|
|
1,887
|
|
4,214
|
|
4,092
|
Total interest
income
|
186,252
|
|
192,017
|
|
177,722
|
|
378,269
|
|
351,871
|
Interest
expense:
|
|
|
|
|
|
|
|
|
|
Interest on bonds and
notes payable
|
94,052
|
|
90,408
|
|
72,626
|
|
184,460
|
|
144,180
|
Net interest income
|
92,200
|
|
101,609
|
|
105,096
|
|
193,809
|
|
207,691
|
Less provision for
loan losses
|
2,000
|
|
2,500
|
|
2,150
|
|
4,500
|
|
4,150
|
Net interest income after provision for
loan losses
|
90,200
|
|
99,109
|
|
102,946
|
|
189,309
|
|
203,541
|
Other
income:
|
|
|
|
|
|
|
|
|
|
Loan and guaranty
servicing revenue
|
54,402
|
|
52,330
|
|
63,833
|
|
106,732
|
|
121,644
|
Tuition payment
processing, school information,
and campus commerce revenue
|
30,483
|
|
38,657
|
|
27,686
|
|
69,140
|
|
62,366
|
Communications
revenue
|
4,478
|
|
4,346
|
|
—
|
|
8,824
|
|
—
|
Enrollment services
revenue
|
—
|
|
4,326
|
|
12,680
|
|
4,326
|
|
26,053
|
Other
income
|
9,765
|
|
13,796
|
|
11,985
|
|
23,559
|
|
23,393
|
Gain on sale of loans
and debt repurchases
|
—
|
|
101
|
|
1,515
|
|
101
|
|
4,390
|
Derivative market value and foreign currency
adjustments, net
|
(35,207)
|
|
(22,154)
|
|
11,944
|
|
(57,361)
|
|
14,081
|
Derivative
settlements, net
|
(5,495)
|
|
(6,537)
|
|
(5,442)
|
|
(12,031)
|
|
(10,657)
|
Total other
income
|
58,426
|
|
84,865
|
|
124,201
|
|
143,290
|
|
241,270
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
Salaries and
benefits
|
60,923
|
|
63,242
|
|
58,787
|
|
124,165
|
|
119,837
|
Depreciation and
amortization
|
8,183
|
|
7,640
|
|
6,501
|
|
15,823
|
|
12,163
|
Loan servicing
fees
|
7,216
|
|
6,928
|
|
7,420
|
|
14,144
|
|
15,036
|
Cost to provide
communications services
|
1,681
|
|
1,703
|
|
—
|
|
3,384
|
|
—
|
Cost to provide
enrollment services
|
—
|
|
3,623
|
|
10,395
|
|
3,623
|
|
21,194
|
Other
expenses
|
29,409
|
|
28,376
|
|
32,725
|
|
57,783
|
|
62,826
|
Total operating
expenses
|
107,412
|
|
111,512
|
|
115,828
|
|
218,922
|
|
231,056
|
Income before
income taxes
|
41,214
|
|
72,462
|
|
111,319
|
|
113,677
|
|
213,755
|
Income tax
expense
|
15,036
|
|
24,433
|
|
40,356
|
|
39,469
|
|
77,986
|
Net income
|
26,178
|
|
48,029
|
|
70,963
|
|
74,208
|
|
135,769
|
Net income
attributable to noncontrolling interests
|
28
|
|
68
|
|
54
|
|
97
|
|
95
|
Net income
attributable to Nelnet, Inc.
|
$
26,150
|
|
47,961
|
|
70,909
|
|
74,111
|
|
135,674
|
Earnings per common
share:
|
|
|
|
|
|
|
|
|
|
Net
income attributable to Nelnet, Inc. shareholders - basic and diluted
|
$
0.61
|
|
1.11
|
|
1.54
|
|
1.73
|
|
2.94
|
Weighted average common shares outstanding - basic and
diluted
|
42,635,700
|
|
43,088,092
|
|
45,946,415
|
|
42,861,896
|
|
46,127,207
|
Condensed
Consolidated Balance Sheets
|
|
|
|
(Dollars in
thousands)
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
As
of
|
As
of
|
As
of
|
|
June 30,
2016
|
December 31,
2015
|
June 30,
2015
|
Assets:
|
|
|
|
Student loans
receivable, net
|
$
26,539,604
|
28,324,552
|
28,095,775
|
Cash, cash
equivalents, investments, and notes receivable
|
345,249
|
367,210
|
428,028
|
Restricted cash and
investments
|
1,096,817
|
977,395
|
975,673
|
Goodwill and
intangible assets, net
|
201,453
|
197,062
|
163,984
|
Other
assets
|
532,675
|
552,925
|
511,555
|
Total
assets
|
$
28,715,798
|
30,419,144
|
30,175,015
|
Liabilities:
|
|
|
|
Bonds and notes
payable
|
$
26,399,686
|
28,105,921
|
27,998,615
|
Other
liabilities
|
409,896
|
421,065
|
370,908
|
Total
liabilities
|
26,809,582
|
28,526,986
|
28,369,523
|
Equity:
|
|
|
|
Total Nelnet, Inc.
shareholders' equity
|
1,897,300
|
1,884,432
|
1,805,192
|
Noncontrolling
interests
|
8,916
|
7,726
|
300
|
Total
equity
|
1,906,216
|
1,892,158
|
1,805,492
|
Total
liabilities and equity
|
$
28,715,798
|
30,419,144
|
30,175,015
|
(code #: nnif)
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visit:http://www.prnewswire.com/news-releases/nelnet-reports-second-quarter-2016-results-300309641.html
SOURCE Nelnet