LINCOLN, Neb., May 12, 2008 /PRNewswire-FirstCall via COMTEX News Network/ --
Nelnet, Inc. (NYSE: NNI) today reported a GAAP net loss for the first quarter of 2008 of $69.8 million, or $1.42 per share, compared with GAAP net income of $14.8 million, or $0.29 per share, for the first quarter of 2007. The GAAP net loss included restructuring related charges of $26.3 million, a loss related to the sale of loans and loans held for sale of $47.5 million, and unrealized losses related to derivative market value, foreign currency, and put option adjustments of $57.4 million.
Base net income excluding discontinued operations, restructuring related charges, and the loss on the sale of loans and reduction in fair value of loans held for sale for the first quarter of 2008 was $15.3 million, or $0.31 per share, compared with base net income of $24.7 million, or $0.48 per share, in the first quarter of 2007. The company defines base net income as GAAP net income
excluding derivative market value, foreign currency, and put option adjustments, amortization of intangible assets, compensation related to business combinations, and variable-rate floor income.
"Our results in the first quarter reflect the further deterioration of the financial markets and environment for student loans," said Mike Dunlap, Chairman and Chief Executive Officer of Nelnet. "Fortunately, we have made the strategic transformation from a student loan company to an education services company in recent years to diversify and increase our fee-based revenue and reduce our reliance on net interest income. We are pleased with the performance of our fee-based businesses and the success of our diversification strategy.
"In this difficult financial environment, we have been proactive in our decisions to manage operating expenses and ensure liquidity. We will continue to
assess the financial markets and political situation, and will make the changes necessary to maintain our financial strength and position the company for long-term success."
Fee-based Revenue
In the first quarter of 2008, fee-based revenue represented 83 percent of Nelnet's total revenue. This is an increase from the first quarter of 2007 when fee-based revenue represented 53 percent of total revenue.
Fee-based revenue for the first quarter of 2008 was $78.8 million compared with $76.2 million in the first quarter of 2007. During the first quarter, a decrease in loan and guarantee servicing income was offset by an increase in other fee-based income generated primarily by the Tuition Payment Processing and Campus Commerce operating segment and the Enrollment Services and List Management operating segment.
In the first quarter of 2008, loan and guarantee
servicing income was $26.1 million, down from $30.5 million in the first quarter of 2007.
Other fee-based income increased to $45.9 million for the first quarter of 2008, up from $40.0 million in the same period a year ago. Within other fee- based income, Tuition Payment Processing and Campus Commerce revenue increased by $2.1 million, or 17 percent, to $13.8 million for the first quarter of 2008 and Enrollment Services and List Management revenue increased by $2.3 million, or 9 percent, to $27.2 million for the quarter.
Operating Expenses
Operating expenses were $128.8 million in the first quarter of 2008 compared with $121.2 million for the same period a year ago. However, excluding restructuring and impairment charges, operating expenses were $102.5 million for the first quarter of 2008, a decrease of $18.7 million, or 15.4 percent, from the same period a year
ago.
Net Interest Margin and Student Loan Assets
Due to the capital market disruption as well as the legislative cuts to the Federal Family Education Loan (FFEL) Program which decreased the margin on loans originated after October 1, 2007, the company experienced a reduction in core student loan spread and related net interest income. The company reported core student loan spread of 0.73 percent for the first quarter of 2008 compared with 1.29 percent in the same period of 2007 and 0.93 percent for the fourth quarter of 2007. As a result, Nelnet reported net interest income for the first quarter of 2008 of $16.5 million compared with $68.0 million for the first quarter of 2007.
From December 31, 2007, net student loan assets decreased by $414.8 million to $26.3 billion at March 31, 2008. In the first quarter of 2008, Nelnet sold an $857.8 million (par value)
portfolio of FFEL Program student loans at a discount to par resulting in the recognition of a loss of $30.4 million. Another portfolio, including $428.6 million (par value) of FFEL Program student loans, was sold at a discount to par on April 8, 2008. This portfolio is presented as "held for sale" on the March 31, 2008 balance sheet and is valued at the lower of cost or fair value. Nelnet recognized a loss of $17.1 million during the first quarter of 2008 as a result of marking these loans to fair value.
Non-GAAP Performance Measures
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 http://www.nelnetinvestors.com/releases.cfm?reltype=Financial.
Nelnet will host a conference call to discuss this earnings release and provide a business update
in conjunction with the company's annual meeting of shareholders on May 22, 2008. The conference call will begin at 10:30 a.m. (Eastern). To access the call live, participants in the United States and Canada should dial 877.604.9669 and international callers should dial 719.325.4860 at least 15 minutes prior to the call. A live audio Web cast of the call will also be available at http://www.nelnetinvestors.com under the conference calls and Web casts menu. A replay of the conference call will be available between 1:30 p.m. (Eastern) on May 22, 2008 and 11:59 p.m. (Eastern) May 30, 2008. 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 9440399. A replay
of the audio Web cast will also be available at
http://www.nelnetinvestors.com.
This press release contains forward-looking statements and information based on management's current expectations as of the date of this document. When used in this press release, the words "anticipate," "believe," "estimate," "intend," and "expect" and similar expressions are intended to identify forward-looking statements. These forward-looking statements are subject to risks, uncertainties, assumptions, and other factors that may cause the actual results to be materially different from those reflected in such forward-looking statements. These factors include, among others, the risks and uncertainties set forth in "Risk Factors" and elsewhere in the company's Quarterly Report on Form 10-Q and the company's Annual Report on Form 10-K for the year ended December 31, 2007, changes in
the terms of student loans and the educational credit marketplace
arising from the implementation of, or changes in, applicable laws and regulations, which may reduce the volume, average term, special allowance payments, and costs of yields on student loans under the FFEL Program or result in loans being originated or refinanced under non-FFEL programs or may affect the terms upon which banks and others agree to sell FFEL Program loans to the company. In addition, a larger than expected increase in third party consolidations of the company's FFELP loans could materially adversely affect the company's results of operations. The company could also be affected by changes in the demand for educational financing or in financing preferences of lenders, educational institutions, students, and their families; changes in the general interest rate environment and in the securitization markets for education loans, which may increase the costs or limit the
availability of financings necessary to initiate, purchase, or carry education loans; losses from loan defaults; changes in prepayment rates, guaranty rates, loan floor rates, and credit spreads; the uncertain nature of the expected benefits from acquisitions and the ability to successfully integrate operations; and the uncertain nature of estimated expenses that may be incurred and cost savings that may result from the company's strategic restructuring initiatives. The reader should not place undue reliance on forward-looking statements, which speak only as of the date of this press release. Additionally, financial projections may not prove to be accurate and may vary materially. The company is not obligated to publicly release any revisions to forward-looking statements to reflect events after the date of this press release. Although the company may from time to time voluntarily
update its prior forward-looking statements, it disclaims any commitment to do so except as required by securities laws.
Condensed Consolidated Statements of Operations
Three months ended
March 31, December 31, March 31,
2008 2007 2007
(unaudited) (unaudited) (unaudited)
(dollars in thousands, except share data)
Interest income:
Loan interest $336,572 437,128 418,113
Variable-rate floor income 18,818 2,416 -
Amortization of loan premiums
and deferred origination
costs (25,404) (23,878) (21,059)
Investment interest 11,680 18,988 21,425
Total interest income 341,666 434,654 418,479
Interest expense:
Interest on bonds and notes
payable 325,141 390,399 350,495
Net interest income 16,525 44,255 67,984
Less provision for loan losses 5,000 4,550 2,753
Net interest income after
provision for loan losses 11,525 39,705 65,231
Other income:
Loan and guaranty servicing
income 26,113 32,953 30,466
Other fee-based income 45,913 44,572 40,029
Software services income 6,752 5,647 5,748
Other income 1,429 1,873 6,879
Loss on sale of loans and
reduction in fair value
related to loans held for sale (47,493) - -
Derivative market value,
foreign currency, and put
option adjustments (57,361) 14,940 (12,130)
Derivative settlements, net 40,763 11,577 4,240
Total other income 16,116 111,562 75,232
Operating expenses:
Salaries and benefits 53,843 54,621 61,704
Other expenses 49,600 59,256 52,887
Amortization of intangible
assets 6,560 6,412 6,638
Impairment expense 18,834 - -
Total operating expenses 128,837 120,289 121,229
Income (loss) before income
taxes (101,196) 30,978 19,234
Income tax expense (benefit) (31,371) 11,810 7,264
Income (loss) from continuing
operations (69,825) 19,168 11,970
Income (loss) from
discontinued operations,
net of tax - (159) 2,810
Net income (loss) $(69,825) 19,009 14,780
Earnings (loss) per share,
basic and diluted:
Income (loss) from
continuing operations $(1.42) 0.39 0.23
Income (loss) from
discontinued operations,
net of tax - - 0.06
Net income (loss) $(1.42) 0.39 0.29
Weighted average shares
outstanding 49,051,745 49,047,048 50,982,187
Condensed Consolidated Balance Sheets and Financial Data
As of As of As of
March 31, December 31, March 31,
2008 2007 2007
(unaudited) (unaudited)
(dollars in thousands)
Assets:
Student loans
receivable, net $26,321,345 26,736,122 25,013,045
Student loans receivable
- held for sale 423,651 -- --
Cash, cash equivalents,
and investments 1,968,764 1,120,838 1,332,060
Goodwill 175,178 164,695 191,214
Intangible assets, net 92,897 112,830 153,039
Other assets 1,037,981 1,028,298 917,434
Total assets $30,019,816 29,162,783 27,606,792
Liabilities:
Bonds and notes payable $29,129,133 28,115,829 26,537,482
Other liabilities 352,576 438,075 458,192
Total liabilities 29,481,709 28,553,904 26,995,674
Shareholders' equity 538,107 608,879 611,118
Total liabilities and
shareholders' equity $30,019,816 29,162,783 27,606,792
Shareholders' equity to
total assets 1.79% 2.09% 2.21%
(code #: nnif)
SOURCE Nelnet, Inc.
http://www.nelnet.com
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