LINCOLN, Neb., Nov. 9,
2016 /PRNewswire/ -- Nelnet (NYSE: NNI) today reported GAAP
net income of $84.3 million, or
$1.98 per share, for the third
quarter of 2016, compared with GAAP net income of $49.0 million, or $1.09 per share, for the same period a year
ago.
Net income, excluding derivative market value and foreign
currency adjustments, was $58.1
million, or $1.36 per share,
for the third quarter of 2016, compared with $64.3 million, or $1.43 per share, for the same period in
2015. For additional information on these non-GAAP metrics,
including reconciliations to GAAP net income, see "Non-GAAP
Performance Measures" below.
In the third quarter of 2016, the company revised its
methodology used to amortize premiums and accrete discounts on its
student loan portfolio. Under the revised policy, during the
third quarter of 2016, the company recorded an adjustment to
correct the net impact on prior periods that resulted in an
$8.2 million reduction to the
company's net loan discount balance and a corresponding increase in
interest income (a $5.2 million after
tax, or $0.12 per share, increase to
net income), which increased earnings per share from $1.24 to $1.36.
"For the third quarter, we reported solid revenue growth from
our payment processing and student loan servicing businesses," said
Jeff Noordhoek, Chief Executive
Officer of Nelnet. "In addition, we were able to invest capital for
the future in ALLO's fiber optic network, as well as repurchase
shares and increase our dividend."
During the third 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 third quarter of 2016, Nelnet reported net interest
income of $99.8 million, compared
with $112.0 million for the same
period a year ago. Net interest income included $41.5 million and $53.7
million of fixed rate floor income in the third quarter of
2016 and 2015, respectively. In addition, the company's
average balance of student loans decreased to $26.4 billion for the third quarter of 2016,
compared with $29.1 billion for the
same period in 2015. As a result of a widening in the basis
between the 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 1.26 percent for the third quarter of
2016, compared with 1.45 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 third quarter
of 2016, compared with $61.5 million
for the same period in 2015.
During the third quarter of 2016, the company had no guaranty
servicing and collection revenue. The company's guaranty
servicing and collection revenue previously came from two guaranty
servicing clients. The contract with one client expired on
October 31, 2015. Revenue from
this client for the third quarter of 2015 was $11.6 million. The other client exited the
guaranty business at the end of its contract term on June 30, 2016. Revenue from this client was
$4.1 million for the third quarter of
2015.
As of September 30, 2016, the
company was servicing $161.7 billion
of loans for the U.S. Department of Education (Department),
compared with $146.7 billion of loans
as of September 30, 2015.
Revenue from this contract increased 21 percent to $40.2 million for the third quarter of 2016, up
from $33.2 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 platform 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.
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 if awarded the contract by
the Department. 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
Servicers, 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 that GreatNet and two other entities were
selected to respond to Phase II of the procurement selection
process. On October 26, 2016,
the Department released the Phase II solicitation for its new
single servicer contract. Responses for Phase II are due
December 12, 2016. The
Department anticipates the servicing system contract will be
awarded by February 2017.
Tuition Payment Processing and Campus Commerce
For the third quarter of 2016, revenue from the Tuition Payment
Processing and Campus Commerce segment was $33.1 million, an increase of $2.6 million, or 9 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 $24.6
million, including $12.6
million for the third quarter of 2016. The company currently
plans to spend approximately $50
million total in network capital expenditures during 2016,
and anticipates total capital expenditures of approximately
$90 million in 2017, subject to
change based on customer demand for ALLO's services.
For the third quarter of 2016, ALLO recognized a net loss of
$2.2 million. The company
anticipates this operating segment will be dilutive to consolidated
earnings as it continues to build its network in Lincoln, Nebraska, due to large upfront
capital expenditures and associated depreciation and upfront
customer acquisition costs. ALLO's management uses earnings
before interest, income 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 third quarter of 2016, ALLO had negative
EBITDA of $1.6 million. For
additional information on this non-GAAP metric, including a
reconciliation to ALLO's GAAP net loss, see "Non-GAAP Performance
Measures" below.
Liquidity and Capital Activities
For the nine months ended September 30, 2016, the company
generated $258.8 million in net cash
provided by operating activities. In addition, as of
September 30, 2016 the company had $67.2 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 $112.6 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.
During the three months ended September
30, 2016, the company repurchased a total of 201,551 shares
of Class A common stock for $7.7
million, or $38.08 per
share. During the period October 1,
2016 through November 9, 2016,
the company repurchased an additional 212,994 shares of its Class A
common stock for $8.4 million, or
$39.48 per share. During the
period January 1, 2016 through
November 9, 2016, the company has
repurchased a total of 2,025,586 shares of its Class A common stock
for $68.5 million, or $33.84 per share.
The company paid cash dividends of $5.1
million, or $0.12 per share,
during the three months ended September 30,
2016.
Board Declares 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 $0.14 per share. The dividend will be paid on
Thursday, December 15, 2016, to
shareholders of record at the close of business on Thursday, December 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
September 30,
|
|
2016
|
|
2015
|
|
(dollars in
thousands, except share data)
|
GAAP net income
attributable to Nelnet, Inc.
|
$
|
84,294
|
|
|
48,955
|
|
Derivative market
value and foreign currency adjustments
|
(42,262)
|
|
|
24,780
|
|
Tax effect
|
16,060
|
|
|
(9,416)
|
|
Net income, excluding
derivative market value and foreign currency adjustments
|
$
|
58,092
|
|
|
64,319
|
|
|
|
|
|
Earnings per
share:
|
|
|
|
GAAP net income
attributable to Nelnet, Inc.
|
$
|
1.98
|
|
|
1.09
|
|
Derivative market
value and foreign currency adjustments
|
(0.99)
|
|
|
0.55
|
|
Tax effect
|
0.37
|
|
|
(0.21)
|
|
Net income, excluding
derivative market value and foreign currency adjustments
|
$
|
1.36
|
|
|
1.43
|
|
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 (loss)
before net interest expense, income taxes, depreciation, and
amortization (EBITDA), is provided below.
|
Three months
ended
September 30, 2016
|
|
(dollars in
thousands)
|
|
|
Net loss
|
$
|
(2,194)
|
|
Net interest
expense
|
318
|
|
Income tax
benefit
|
(1,344)
|
|
Depreciation and
amortization
|
1,630
|
|
Earnings (loss)
before interest expense, income taxes, depreciation, and
amortization (EBITDA)
|
$
|
(1,590)
|
|
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 third quarter ended September 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
|
|
Nine months
ended
|
|
September 30,
2016
|
|
June 30,
2016
|
|
September 30,
2015
|
|
September 30,
2016
|
|
September 30,
2015
|
Interest
income:
|
|
|
|
|
|
|
|
|
|
Loan
interest
|
$
|
193,721
|
|
|
184,067
|
|
|
187,701
|
|
|
567,775
|
|
|
535,480
|
|
Investment
interest
|
2,460
|
|
|
2,185
|
|
|
1,456
|
|
|
6,674
|
|
|
5,548
|
|
Total interest
income
|
196,181
|
|
|
186,252
|
|
|
189,157
|
|
|
574,449
|
|
|
541,028
|
|
Interest
expense:
|
|
|
|
|
|
|
|
|
|
Interest on bonds and
notes payable
|
96,386
|
|
|
94,052
|
|
|
77,164
|
|
|
280,847
|
|
|
221,344
|
|
Net interest
income
|
99,795
|
|
|
92,200
|
|
|
111,993
|
|
|
293,602
|
|
|
319,684
|
|
Less provision for
loan losses
|
6,000
|
|
|
2,000
|
|
|
3,000
|
|
|
10,500
|
|
|
7,150
|
|
Net interest
income after provision for loan losses
|
93,795
|
|
|
90,200
|
|
|
108,993
|
|
|
283,102
|
|
|
312,534
|
|
Other
income:
|
|
|
|
|
|
|
|
|
|
Loan and guaranty
servicing revenue
|
54,350
|
|
|
54,402
|
|
|
61,520
|
|
|
161,082
|
|
|
183,164
|
|
Tuition payment
processing, school information, and campus commerce
revenue
|
33,071
|
|
|
30,483
|
|
|
30,439
|
|
|
102,211
|
|
|
92,805
|
|
Communications
revenue
|
4,343
|
|
|
4,478
|
|
|
—
|
|
|
13,167
|
|
|
—
|
|
Enrollment services
revenue
|
—
|
|
|
—
|
|
|
13,741
|
|
|
4,326
|
|
|
39,794
|
|
Other
income
|
15,150
|
|
|
9,765
|
|
|
12,282
|
|
|
38,711
|
|
|
35,675
|
|
Gain on sale of loans
and debt repurchases
|
2,160
|
|
|
—
|
|
|
597
|
|
|
2,260
|
|
|
4,987
|
|
Derivative market
value and foreign currency adjustments, net
|
42,262
|
|
|
(35,207)
|
|
|
(24,780)
|
|
|
(15,099)
|
|
|
(10,699)
|
|
Derivative
settlements, net
|
(6,261)
|
|
|
(5,495)
|
|
|
(5,878)
|
|
|
(18,292)
|
|
|
(16,535)
|
|
Total other
income
|
145,075
|
|
|
58,426
|
|
|
87,921
|
|
|
288,366
|
|
|
329,191
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
Salaries and
benefits
|
63,743
|
|
|
60,923
|
|
|
63,215
|
|
|
187,907
|
|
|
183,052
|
|
Depreciation and
amortization
|
8,994
|
|
|
8,183
|
|
|
6,977
|
|
|
24,817
|
|
|
19,140
|
|
Loan servicing
fees
|
5,880
|
|
|
7,216
|
|
|
7,793
|
|
|
20,024
|
|
|
22,829
|
|
Cost to provide
communications services
|
1,784
|
|
|
1,681
|
|
|
—
|
|
|
5,169
|
|
|
—
|
|
Cost to provide
enrollment services
|
—
|
|
|
—
|
|
|
11,349
|
|
|
3,623
|
|
|
32,543
|
|
Other
expenses
|
26,391
|
|
|
29,409
|
|
|
31,604
|
|
|
84,174
|
|
|
94,430
|
|
Total
operating expenses
|
106,792
|
|
|
107,412
|
|
|
120,938
|
|
|
325,714
|
|
|
351,994
|
|
Income before
income taxes
|
132,078
|
|
|
41,214
|
|
|
75,976
|
|
|
245,754
|
|
|
289,731
|
|
Income tax
expense
|
47,715
|
|
|
15,036
|
|
|
26,999
|
|
|
87,184
|
|
|
104,985
|
|
Net income
|
84,363
|
|
|
26,178
|
|
|
48,977
|
|
|
158,570
|
|
|
184,746
|
|
Net income attributable
to noncontrolling interests
|
69
|
|
|
28
|
|
|
22
|
|
|
165
|
|
|
117
|
|
Net income
attributable to Nelnet, Inc.
|
$
|
84,294
|
|
|
26,150
|
|
|
48,955
|
|
|
158,405
|
|
|
184,629
|
|
Earnings per common
share:
|
|
|
|
|
|
|
|
|
|
Net income
attributable to Nelnet, Inc. shareholders - basic and
diluted
|
$
|
1.98
|
|
|
0.61
|
|
|
1.09
|
|
|
3.70
|
|
|
4.03
|
|
Weighted average
common shares outstanding - basic and diluted
|
42,642,213
|
|
|
42,635,700
|
|
|
45,047,777
|
|
|
42,788,133
|
|
|
45,763,443
|
|
Condensed
Consolidated Balance Sheets
|
(Dollars in
thousands)
|
(unaudited)
|
|
|
As
of
|
|
As
of
|
|
As
of
|
|
September 30,
2016
|
|
December 31,
2015
|
|
September 30,
2015
|
Assets:
|
|
|
|
|
|
Student loans
receivable, net
|
$
|
25,615,434
|
|
|
28,324,552
|
|
|
28,954,280
|
|
Cash, cash
equivalents, investments, and notes receivable
|
324,682
|
|
|
367,210
|
|
|
350,508
|
|
Restricted cash and
investments
|
964,379
|
|
|
977,395
|
|
|
995,360
|
|
Goodwill and
intangible assets, net
|
198,276
|
|
|
197,062
|
|
|
161,586
|
|
Other
assets
|
566,840
|
|
|
552,925
|
|
|
583,661
|
|
Total
assets
|
$
|
27,669,611
|
|
|
30,419,144
|
|
|
31,045,395
|
|
Liabilities:
|
|
|
|
|
|
Bonds and notes
payable
|
$
|
25,320,878
|
|
|
28,105,921
|
|
|
28,757,954
|
|
Other
liabilities
|
367,637
|
|
|
421,065
|
|
|
452,042
|
|
Total
liabilities
|
25,688,515
|
|
|
28,526,986
|
|
|
29,209,996
|
|
Equity:
|
|
|
|
|
|
Total Nelnet, Inc.
shareholders' equity
|
1,972,085
|
|
|
1,884,432
|
|
|
1,835,153
|
|
Noncontrolling
interests
|
9,011
|
|
|
7,726
|
|
|
246
|
|
Total
equity
|
1,981,096
|
|
|
1,892,158
|
|
|
1,835,399
|
|
Total
liabilities and equity
|
$
|
27,669,611
|
|
|
30,419,144
|
|
|
31,045,395
|
|
(code #: nnif)
To view the original version on PR Newswire,
visit:http://www.prnewswire.com/news-releases/nelnet-reports-third-quarter-2016-results-300360093.html
SOURCE Nelnet