Nelnet Reports Fourth Quarter 2009 Results
- Base net income of $3.94 per share for 2009 and $1.64 per share for the fourth quarter
- Fee-based revenue increased 13 percent
- Significant increase in volume of loans serviced for the Department of Education
- Strong balance sheet and cash position
LINCOLN, Neb., March 3 /PRNewswire-FirstCall/ -- Nelnet (NYSE: NNI) today reported base net income of $81.3 million, or $1.64 per share, for the fourth quarter of 2009, compared with $15.8 million, or $0.32 per share, for the same quarter a year ago. For the year ended December 31, 2009, the company reported base net income of $194.9 million, or $3.94 per share, compared with $81.1 million, or $1.65 per share, for 2008. Base net income excludes discontinued operations, restructuring charges, impairment expenses, and certain liquidity-related charges.
Base net income in the fourth quarter of 2009 includes pre-tax gains of $26.9 million, or $0.35 per share after tax, on the sale of $1.7 billion of federal student loans to the Department of Education (Department) and $22.7 million, or $0.30 per share after tax, from the company's repurchase of $302.1 million of asset-backed debt. Excluded from base net income in the fourth quarter of 2009 is a $32.7 million non-cash impairment charge related to goodwill and intangible assets of the company's direct marketing and list management business.
"After a challenging 2008, we ended 2009 significantly stronger and with renewed optimism for the future," said Mike Dunlap, Nelnet Chairman and Chief Executive Officer. "Our focus on our customers, associates, and continuing to diversify our company served us well. We are excited by our increasing fee-based revenue, significant increase in volume we service for the Department, and our strong balance sheet position. Together, these results have positioned us well for 2010."
Diversifying and increasing fee-based revenue
Total revenue from fee-based businesses for the fourth quarter of 2009 increased 13 percent to $77.3 million, or 62 percent of total revenue, and is compared with $68.4 million for the same period a year ago.
In the fourth quarter of 2009, Nelnet's fee-based revenue from the company's tuition payment plan, campus commerce, and lead generation businesses increased $5.0 million, or 16 percent, to $36.0 million, compared with the same period in 2008.
In September 2009, Nelnet began servicing student loans for the Department under a contract that will increase the company's fee-based revenue as the servicing volume increases. As of December 31, 2009, the company was servicing approximately $3.4 billion of loans on behalf of the Department, of which approximately $1.5 billion was incremental volume previously serviced by other companies. As of March 1, 2010, servicing volume for the Department has grown to $6.3 billion, up from $177 million at September 30, 2009.
Maximizing the value of existing portfolio
At December 31, 2009, net student loan assets were $23.9 billion. Substantially all of Nelnet's federal student loans are financed for the life of the loan at rates the company currently believes will generate significant future cash flow. In addition to loans held to term, Nelnet has liquidity for new loan originations through the Department's Loan Participation and Loan Purchase Programs, which will allow Nelnet to make loans to eligible students through the 2009-2010 academic year.
Narrower spreads and historically low interest rates are continuing to provide an opportunity for the company to generate substantial near-term value and cash flow from its student loan portfolio. For the fourth quarter of 2009, Nelnet reported net interest income of $80.5 million, compared with $38.5 million for the same period a year ago.
The company reported core student loan spread of 1.44 percent for the fourth quarter of 2009 compared with 0.90 percent for the same period of 2008 and 1.27 percent for the third quarter of 2009. Core student loan spread is benefiting from two factors: 1) lower interest rates increased fixed rate floor income to $38.9 million in the fourth quarter of 2009, compared with $12.3 million for the same period a year ago and $38.8 million in the third quarter of 2009, and 2) the disparity between three-month financial commercial paper rate (CP) and three-month LIBOR has tightened significantly.
Managing operating expenses
Management continues to effectively manage operating expenses. As a result, operating expenses, excluding restructuring and impairment charges, decreased $9.6 million, or 12 percent, for the three months ended December 31, 2009, compared with the same period in 2008. Total operating expenses, excluding the impairment charge, for the fourth quarter of 2009 were $90.3 million.
GAAP net income
Nelnet reported GAAP net income for the fourth quarter of 2009 of $59.1 million, or $1.18 per dilutive share, compared with $31.0 million, or $0.63 per dilutive share, for the fourth quarter of 2008. For the year ended December 31, 2009, the company reported GAAP net income of $139.1 million, or $2.78 per dilutive share, compared with $28.7 million, or $0.58 per dilutive share, for 2008.
While base net income is not a substitute for reported results under GAAP, base net income is the primary financial performance measure used by management to develop financial plans, allocate resources, track results, evaluate performance, establish corporate performance targets, and determine incentive compensation. The company utilizes base net income in operating its business because base net income permits management to make meaningful period-to-period comparisons by eliminating the temporary volatility in the company's performance that arises from certain items that are primarily affected by factors beyond the control of management.
A description of base net income and a reconciliation of GAAP net income to base net income can be found in supplemental financial information to this earnings release online at www.nelnetinvestors.com/results.cfm.
Nelnet will host a conference call to discuss this earnings release at 11:00 a.m. (Eastern) Thursday, March 4, 2010. To access the call live, participants in the United States and Canada should dial 888.427.9415, and international callers should dial 719.785.1751 at least 15 minutes prior to the call. A live audio webcast of the call will also be available at www.nelnetinvestors.com under the Events & Webcasts menu. A replay of the conference call will be available through March 14, 2010. To access the replay via telephone within the United States and Canada, callers should dial 888.203.1112. International callers should dial 719.457.0820. All callers accessing the replay will need to use the confirmation code 4363322. A replay of the audio webcast will also be available at www.nelnetinvestors.com.
This press release contains forward-looking statements based on management's current expectations as of the date of this release. These statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Because such statements inherently involve risks and uncertainties, actual results may differ materially from those expressed or implied by such forward-looking statements. Such risks include, among others, changes in the terms of student loans and the educational credit marketplace arising from the implementation of applicable laws and regulations, and from changes in such laws and regulations, adverse results in legal disputes, changes in the demand for educational financing or in financing preferences of educational institutions, students, and their families, increased financing costs and changes in the general interest rate environment. For more information, see the company's filings with the Securities and Exchange Commission, including the forward-looking statements contained in the company's supplemental financial information for the fourth quarter 2009. All information in this release is as of March 3, 2010. The company does not undertake any obligation to update or revise these forward-looking statements to conform the statement to actual results or changes in the company's expectations.
Condensed Consolidated Statements of Income
Three months ended Year ended
-------------------------------- ---------------------
December September December December December
31, 30, 31, 31, 31,
2009 2009 2008 2009 2008
---------- --------- ---------- ---------- ----------
(unaudited) (unaudited) (unaudited)
Interest income:
Loan interest $153,891 162,786 286,279 683,449 1,267,003
Amortization of
loan premiums
and deferred
origination
costs (18,558) (19,531) (21,036) (73,529) (90,620)
Investment
interest 1,477 1,943 8,084 10,287 37,998
---------- --------- ---------- ---------- ----------
Total interest
income 136,810 145,198 273,327 620,207 1,214,381
Interest expense:
Interest on
bonds and
notes payable 56,262 76,016 234,868 384,862 1,026,489
---------- --------- ---------- ---------- ----------
Net interest
income 80,548 69,182 38,459 235,345 187,892
Less provision
for loan losses 6,000 7,500 7,000 29,000 25,000
---------- --------- ---------- ---------- ----------
Net interest
income
after
provision
for loan
losses 74,548 61,682 31,459 206,345 162,892
---------- --------- ---------- ---------- ----------
Other income
(expense):
Loan and guaranty
servicing
revenue 27,467 26,006 21,769 108,747 99,942
Tuition payment
processing and
campus
commerce revenue 13,521 12,987 12,175 53,894 48,155
Enrollment
services
revenue 31,209 30,670 29,257 119,397 112,405
Software services
revenue 4,740 4,600 4,773 21,164 24,115
Other income 28,669 11,094 4,988 68,152 22,775
Gain (loss) on
sale of loans, net 26,762 8,788 (3,988) 35,148 (51,414)
Derivative market
value, foreign
currency, and
put option
adjustments 5,265 2,826 46,348 (30,802) 10,827
Derivative
settlements,
net 479 4,914 9,668 39,286 55,657
---------- --------- ---------- ---------- ----------
Total other
income 138,112 101,885 124,990 414,986 322,462
---------- --------- ---------- ---------- ----------
Operating
expenses:
Salaries and
benefits 39,316 37,810 41,262 155,532 183,393
Other expenses 27,284 29,217 45,510 120,198 147,192
Cost to provide
enrollment
services 18,718 20,323 16,903 74,926 64,965
Impairment
expense 32,728 - - 32,728 18,834
Amortization of
intangible
assets 4,998 5,312 6,511 22,249 26,230
---------- --------- ---------- ---------- ----------
Total
operating
expenses 123,044 92,662 110,186 405,633 440,614
---------- --------- ---------- ---------- ----------
Income before
income taxes 89,616 70,905 46,263 215,698 44,740
Income tax
expense (30,553) (24,501) (16,103) (76,573) (17,896)
---------- --------- ---------- ---------- ----------
Income from
continuing
operations 59,063 46,404 30,160 139,125 26,844
Income from
discontinued
operations,
net of tax - - 837 - 1,818
---------- --------- ---------- ---------- ----------
Net income $59,063 46,404 30,997 139,125 28,662
========== ========= ========== ========== ==========
Earnings per
common share:
Basic:
Continuing
operations $1.18 0.93 0.61 2.79 0.54
Discontinued
operations - - 0.02 - 0.04
---------- --------- ---------- ---------- ----------
Net
earnings $1.18 0.93 0.63 2.79 0.58
========== ========= ========== ========== ==========
Diluted:
Continuing
operations $1.18 0.93 0.61 2.78 0.54
Discontinued
operations - - 0.02 - 0.04
---------- --------- ---------- ---------- ----------
Net
earnings $1.18 0.93 0.63 2.78 0.58
========== ========= ========== ========== =========
Weighted average
shares
outstanding
- basic 49,639,329 49,611,423 49,075,755 49,484,816 49,099,967
Weighted average
shares
outstanding
- diluted 49,838,374 49,808,856 49,289,186 49,685,143 49,324,278
Condensed Consolidated Balance Sheets
As of As of As of
December 31, September 30, December 31,
2009 2009 2008
----------- ---------- ----------
(unaudited)
Assets:
Student loans receivable, net $23,926,957 23,764,263 25,413,008
Student loans receivable -held
for sale - 1,627,794 -
Cash and cash equivalents 338,181 334,293 189,847
Restricted cash and investments 717,233 849,419 1,158,257
Goodwill 143,717 175,178 175,178
Intangible assets, net 53,538 59,803 77,054
Other assets 696,801 781,112 841,553
----------- ---------- ----------
Total assets $25,876,427 27,591,862 27,854,897
=========== ========== ==========
Liabilities:
Bonds and notes payable $24,805,289 26,586,093 26,787,959
Other liabilities 286,575 277,695 423,712
----------- ---------- ----------
Total liabilities 25,091,864 26,863,788 27,211,671
----------- ---------- ----------
Shareholders' equity 784,563 728,074 643,226
----------- ---------- ----------
Total liabilities and
shareholders' equity $25,876,427 27,591,862 27,854,897
=========== ========== ==========
(code #: nnif)
SOURCE Nelnet, Inc.
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