February 25, 2016

Nelnet Reports Fourth Quarter 2015 Results

- GAAP net income $1.86 per share, $1.31 per share excluding adjustments
- Repurchased nearly one million shares of stock during the quarter and an additional 1.4 million shares to date in 2016
- 12 percent increase in Tuition Payment Processing and Campus Commerce revenue
- Completed acquisition of Allo Communications

LINCOLN, Neb., Feb. 25, 2016 /PRNewswire/ -- Nelnet (NYSE: NNI) today reported GAAP net income of $83.4 million, or $1.86 per share, for the fourth quarter of 2015, compared with GAAP net income of $73.6 million, or $1.59 per share, for the same period a year ago.

Excluding derivative market value and foreign currency adjustments, net income was $59.0 million, or $1.31 per share, for the fourth quarter of 2015, compared with $74.3 million, or $1.60 per share, for the same period in 2014.  The company reported income from derivative market value and foreign currency adjustments of $24.4 million after tax, or $0.55 per share, for the fourth quarter of 2015, compared with an expense of $0.7 million after tax, or $0.01 per share, for the fourth quarter of 2014.  During the fourth quarter of 2014, the company recognized income of approximately $11.0 million after tax, or $0.24 per share, related to non-core gains primarily related to debt repurchases and sales of student loan assets.

"We delivered another strong quarter, however, we are not driven by short-term considerations; we are focused on long-term value creation by growing core operations," said Jeff Noordhoek, chief executive officer of Nelnet. "We increased our book value and invested in diversified business prospects. During the quarter, we deployed significant capital to repurchase our stock at what we believe were attractive prices and acquired Allo.  We are excited by Allo's potential to deliver meaningful shareholder value."

During 2015, Nelnet operated three 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 and Tuition Payment Processing and Campus Commerce segments.

Asset Generation and Management

Historically low interest rates continue to provide the opportunity for the company to generate substantial cash flow from its student loan portfolio. For the fourth quarter of 2015, Nelnet reported net interest income of $112.2 million, compared with $112.5 million for the same period a year ago.  Net interest income included $45.2 million and $49.2 million of fixed rate floor income in the fourth quarters of 2015 and 2014, respectively.

During 2015, the company purchased $4.0 billion in Federal Family Education Loan Program (FFELP) and private student loans, including $200.4 million during the fourth quarter of 2015, bringing its total student loan portfolio to $28.3 billion as of December 31, 2015.

Student Loan and Guaranty Servicing

Revenue from the Student Loan and Guaranty Servicing segment was $56.7 million for the fourth quarter of 2015, compared with $56.5 million for the same period in 2014.

As of December 31, 2015, the company was servicing $147.3 billion of loans for 5.8 million borrowers on behalf of the U.S. Department of Education (Department), compared with $133.6 billion of loans for 5.9 million borrowers as of December 31, 2014. Revenue from this contract increased 5 percent to $33.9 million for the fourth quarter of 2015, up from $32.3 million for the same period a year ago. The growth in the government servicing revenue partially offset the continued expected run off of the company's commercial servicing portfolio and the impact of federal legislative changes that reduced the revenue earned by guaranty agencies.

The majority of the company's guaranty servicing revenue has come from two guaranty servicing clients. The contract with one client expired on October 31, 2015, and the other client has notified its servicer partners that it intends to exit the FFELP guaranty business at the end of its contract term on June 30, 2016.

Tuition Payment Processing and Campus Commerce

For the fourth quarter of 2015, revenue from the Tuition Payment Processing and Campus Commerce segment was $27.6 million, an increase of $2.9 million, or 12 percent, from the same period in 2014. The increase in revenue was primarily driven by growth in managed tuition payment plans, campus commerce transaction volume, and new school customers.   This operating segment provides services for almost 9,400 K-12 schools and 800 colleges and universities, serving over nine million students and families.

Stock Repurchases

During the year ended December 31, 2015, the company repurchased a total of 2,449,159 shares of Class A common stock for $96.2 million, including 918,567 shares for $29.5 million during the fourth quarter.

During the period of January 1, 2016 through February 25, 2016, the company repurchased a total of 1,430,720 shares of Class A common stock for $45.9 million.

Acquisition of Allo Communications

On December 31, 2015, the company completed its acquisition of Allo, a privately held Nebraska-based telecommunications company.  Allo provides pure fiber optic service directly to homes and businesses for internet, television, and telephone services. The acquisition of Allo provides additional diversification of the company's revenues and cash flows outside of education.  In addition, the acquisition leverages the company's existing infrastructure, customer service capabilities and call centers, and financial strength and liquidity for continued growth.  The company anticipates investing significant capital to continue expansion of Allo's fiber network in existing service areas and in other communities.

Nelnet purchased 92.5 percent of the ownership interests of Allo for total cash consideration of $46.25 million. The remaining 7.5 percent of the ownership interests of Allo is owned by Allo management, who has the opportunity to earn an additional 11.5 percent (up to 19 percent in total) of the total ownership interests based on Allo's financial performance.

Allo's management has historically used earnings before interest, taxes, depreciation, and amortization (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.  The company expects Allo will continue to have year over year increases in EBITDA. For the years ended December 31, 2015 and 2014, prior to the company's acquisition of Allo, Allo had EBITDA of $4.3 million and $3.0 million, respectively.  Due to large upfront capital expenditures and associated depreciation, the company currently anticipates that Allo will be slightly dilutive to the company's consolidated net income during 2016.

Divesture of Sparkroom

On February 1, 2016, the company sold its membership interests in Sparkroom, which included the company's inquiry management products and services within the Nelnet Enrollment Solutions business, for total cash consideration of $3.0 million. This sale will not have a significant impact to net income in future periods.

Year-End Results

GAAP net income for the year ended December 31, 2015 was $268.0 million, or $5.89 per share, compared with GAAP net income of $307.6 million, or $6.62 per share, for 2014.  Excluding derivative market value and foreign currency adjustments, net income in 2015 was $250.2 million, or $5.50 per share, compared with $284.2 million, or $6.12 per share, for 2014. The derivative market value and foreign currency adjustments were income of $17.8 million after tax, or $0.39 per share, during 2015, compared with income of $23.4 million after tax, or $0.50 per share, for 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 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 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.

EBITDA is a non-GAAP performance measure that is frequently used in capital-intensive industries such as telecommunications.  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. 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 reported 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 recent 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; 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, including adverse effects on the Company's guaranty servicing contracts; the uncertain nature of the expected benefits from the acquisition of Allo and the ability to successfully integrate its telecommunications 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 fourth quarter ended December 31, 2015. 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


Year ended


December 31,
 2015


September 30,
 2015


December 31,
 2014


December 31,
2015


December 31,
2014

Interest income:










Loan interest

$

190,778



187,701



182,783



726,258



703,007


Investment interest

2,303



1,456



1,770



7,851



6,793


Total interest income

193,081



189,157



184,553



734,109



709,800


Interest expense:










Interest on bonds and notes payable

80,866



77,164



72,061



302,210



273,237


Net interest income

112,215



111,993



112,492



431,899



436,563


Less provision for loan losses

3,000



3,000



3,500



10,150



9,500


Net interest income after provision for loan losses

109,215



108,993



108,992



421,749



427,063


Other income (expense):










Loan and guaranty servicing revenue

56,694



61,520



56,538



239,858



240,414


Tuition payment processing, school information, and campus commerce revenue

27,560



30,439



24,688



120,365



98,156


Enrollment services revenue

16,181



19,500



17,791



70,705



82,883


Other income, net

6,685



6,523



12,906



27,630



54,002


Gain on sale of loans and debt repurchases, net

166



597



3,594



5,153



3,651


Derivative market value and foreign currency adjustments, net

39,350



(24,780)



(1,082)



28,651



37,703


Derivative settlements, net

(7,715)



(5,878)



(4,566)



(24,250)



(21,843)


Total other income

138,921



87,921



109,869



468,112



494,966


Operating expenses:










Salaries and benefits

64,862



63,215



60,609



247,914



228,079


Cost to provide enrollment services

10,137



12,534



11,343



45,535



53,307


Loan servicing fees

7,384



7,793



7,212



30,213



27,009


Depreciation and amortization

7,203



6,977



5,644



26,343



21,134


Other

27,637



30,419



30,098



119,212



122,981


Total operating expenses

117,223



120,938



114,906



469,217



452,510


Income before income taxes

130,913



75,976



103,955



420,644



469,519


Income tax expense

47,395



26,999



30,036



152,380



160,238


Net income

83,518



48,977



73,919



268,264



309,281


Net income attributable to noncontrolling interest

168



22



308



285



1,671


Net income attributable to Nelnet, Inc.

$

83,350



48,955



73,611



267,979



307,610


Earnings per common share:










Net income attributable to Nelnet, Inc. shareholders - basic and diluted

$

1.86



1.09



1.59



5.89



6.62


Weighted average common shares outstanding - basic and diluted

44,834,662



45,047,777



46,390,402



45,529,340



46,469,615


 

Condensed Consolidated Balance Sheets

(Dollars in thousands)

(unaudited)



As of


As of


As of


December 31,
2015


September 30,
2015


December 31,
2014

Assets:






Student loans receivable, net

$

28,324,552



28,954,280



28,005,195


Cash, cash equivalents, investments, and notes receivable

367,210



350,508



366,190


Restricted cash and investments

977,395



995,360



968,928


Goodwill and intangible assets, net

197,062



161,586



168,782


Other assets

619,686



583,661



589,048


Total assets

$

30,485,905



31,045,395



30,098,143


Liabilities:






Bonds and notes payable

$

28,172,682



28,827,603



28,027,350


Other liabilities

421,065



382,393



345,115


Total liabilities

28,593,747



29,209,996



28,372,465


Equity:






Total Nelnet, Inc. shareholders' equity

1,884,432



1,835,153



1,725,448


Noncontrolling interest

7,726



246



230


Total equity

1,892,158



1,835,399



1,725,678


Total liabilities and equity

$

30,485,905



31,045,395



30,098,143


 

(code #: nnif)

 

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SOURCE Nelnet

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