NAVI - Earnings call transcript Q1 2018

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Operator

Good morning. My name is Christie and I will be your conference operator today. At this time, I would like to welcome everyone to the Navient First Quarter 2018 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks there will be question-and-answer session. Instructions]. [Operator turn to now Fisher. conference the will Joe over I Please go ahead.

Joe Fisher

our Good Christie. me to Remondi, will Lown, open morning questions. remarks, Navient’s call their you, CFO. today and After our XXXX Jack up With welcome we call. and Thank prepared Chris earnings first are for the CEO quarter

here. due Before we forward-looking our SEC. materially Actual company’s a in results mind filings from statements. other refer factors. may different contain Listeners be with be on XX-K Form will of to begin, discussion keep This those of variety the the and discussed the the to those in and predictions, could future should expectations factors discussion

A GAAP we full turn refer page we conference earnings over description at navient.com. first and non-GAAP measures on will call, core you. this is call During now, supplemental XXXX Investors earnings, the GAAP disclosure. found Jack. reconciliation in will This to I be the a posted And results core quarter can to to measures of our earnings. call Thank our the

Jack Remondi

everyone morning, and you us today for Good and in for Joe. Thanks, Navient. joining your interest thank

this we strong the very quarter outlined results and on in delivered financial Our were January. potential

insight within and this new financial on each to in and our light greater segments. presenting a managing are also the potential We reflect legacy new quarter business performance shine new our businesses how business. new in of results provide business more format with to the you segments This that of the are we to focused the is designed

private the provide functions government guarantors Education. the a loan a provide report newly services federal the assets start the origination where in from in servicing our the our launched loans, educations strong this. our recovery education loan financial our consolidated and refi lending other work segment portfolio. segments and of The education and reflect our we and Our our corporate here to are; management federal is business. asset new FFELP Department consumer to results includes and business to and Starting portfolio and combine segment are including clients earnings servicing The and and lenders, liquidity we includes various centralized healthcare off very processing our segment we overhead we we markets, processing XXXX basis, our business on

and per we Our tax share build lower area, tax results focused strong $X.XX made was acquisitions in by the corporate improve The with adjusted rates XXXX performance earnings efficiency. core loan each management to and in driven of act. and student from implemented expense our business the off the operating efforts

in For student improving quarter operating expense, lower evidenced to refi the new and improvement strong margin loan in points In credit example, year I’m fell improving efficiency originations quality, a basis continued operating delivered volume, when the student improving in excellent Highlights In business delivered margins, by growth in loan we the in for education in and to million value in recognition origination we and the student accounting in million expenses processing quarter quality and environment. improving our rules. strong the XXXX loan margin revenue consumer student originations taxes. $XX very business of success refi a the charge-offs. with X.XX% in meaningful reduction federal lending, and a exclude of ability excited very and we from loan you grow see XX% segment, from XX basis quarter, very X% decline this lines, continue acquired portfolios comparable $XXX first almost this include quarter. refi operating ago our stable on credit the

rapidly. in more to to transaction to desire customers deliver ABS of completed the savings loan analysis refi cost clearly amortize recent an products who have Chris high processing, and results and debt here in And ability workflow can create will our out business quarter. the skills ability meaningful their markets. those the his deploy and details The describe in first seen demonstrated leverage value performance the the be remarks. we to Our of have this and government student healthcare student set we in loans in In

acquire strong these combine to base skills organic been margins. deliver growth has and strategy foundational and to our operating Our the with attractive right

growth value increase a markets to overall. deliver represent the for And a large Both and scale revenue The for move EBITDA with can quarter XX%, prospects a organic this increased in and the led create XX% continue healthcare of an results to that lower segment. revenue markets million XXXX cost are opportunity attractive Our delivered include XX% growth XX%. this we Results or this we are and government to and partnership they very rate $XX very quarter demonstrating in services of higher efficiency us. to margin performance. model to and

margins. X.X%, fell revenue portfolio provision by The loan growth declined improve are see to quarter. rate specifically trends our designs, Our leverage workflow on to quality loan for more organic decade. core services the their In higher bright level this for lowest systems the the Credit $XX capital this in strong than of private another focus value constituents, XX%, and a clients service area to other use our was to deliver performance. data EBITDA quarter. analytics million not and $XX and to we intensive. while of the continued to also consumer to They exceptional more importantly, losses our continuing Most and segment charge-off in deliver strong spot million compliance our they year loan customers. for patients in expect growth full they I provide allow

allow most balances. they Our terms amortize and programs help to afford us outreach efforts programs that with their borrowers in payment can alternative importantly loan loan

group with services the data that to we and new comparable continue of We all loan borrower grades. continue income also plans to of shows, department lead federal student repayment and lowest enrollment support and success, in

combined servicing Lastly, submitted we and believe to round teaming RFP. here. the to We forward opportunity proposal and are millions of next-gen department one work achieve of goals best-in-class under our our this comprehensive enhance the look the services themselves proposal to help for and is our on success mission Education partners individuals we for financial communities. our their By the customers, of their delivering Department

investors. clients For our outstanding XXXX, we and for delivering are results focused on customers,

Our our goals are businesses and operating and flows, to business create to growing efficiency. improve value cash by continuing refi processing our maximize

about promise quarter’ This results to talked we in begin the potential and January. on deliver

to will share repurchases. include strong dividends capital return results As to our shareholders improve financial beyond ratios, our capital we additional

in that Our price. call. value interest and goal to your the recognized your create share this to morning, is in questions for later is Thank forward Chris. the look you

Chris Lown

Thanks you call today’s to thank interest everyone Jack, you in Navient. for and on

of XXXX; During as results financial EPS greater will the X, as statements $X.XX call first year on referencing segments first in found the my prepared to the have can we growth the $X.XX the have reporting website will in company’s how in on filing three which our first presentation we and mentioned, remarks, Jack for segments earnings they Starting full XXXX. business. reported adjusted was in I core a beginning ago. Navient’s section. And quarter from would I be to with to investor value quarter the slide will quarter review be the underlying changed provide these manage visibility with investors XX-Q, of with and historical new provide conjunction we In our years compared

interest end, income a related slide loans associated contained million XXXX. a tax X. lower on million in segment with first $XXX in a our in previously modified reporting, to year. federal in the mid of year margin Let’s to for month beginning At Core fee The the this primarily of partially strategy was mitigated to in new full dislocation XX% and has hedged XXs. one of year high quarter. offset now last was net a the the The year. expenses compared by the were XX new month education risk XX LIBOR be with first to for our recent quarter expect The move was quarter by decrease a disclosed points the versus $XXX reduced in operating a quarter the interest in FFELP three contract. NIM implemented been $XX ago loan million versus hedging We basis now new the remainder basis first to points quarter for earnings rates rate, terms student

increased the XXX first our $XX to of with basis million our quarter, to let’s margin segment Now first million Core interest points net consumer earnings in the slide $XX from in lending expectations. consumer quarter In turn lending was line XXXX. this the X in segment. in

XXX NIM year full expect points. to to continue basis approximately be We

rates. additional feds to bias negatively to in closely However, previously, and slide On have as continue the newly rising loans. is refinanced detail long funding we monitor of to discussed appendix, the Navient we we profitability originated provide education a term environment XX the and

provided from on these private continue approach on we loans loan The transition to the portfolio, transaction. As to slide ABS facilities outstanding this to build based student spread recent securitizations and are on loans we expect X%. our our economics most

as the to decline significant to the delinquency a an number with year rates of elevated we with use year, natural continued prior We credit our year-over-year, by to Due believe ago. ultimately XX% in disasters, to We delinquencies this over to of the disaster very year. private loan compared are from losses lead quality, improvement charge-off declining quarter. pleased continue and quarters, total a last a compared seen current will forbearance the level this education three higher have

slightly still with $X last rest see that the to are billion projections. our original below higher portfolio year, charge-offs for associated we of expect also We acquired XXXX the but

be provision the to we the remainder low losses of range for for As in loan that a anticipate year. to result, the mid-$XX million quarterly

X prior slide XX% business in our grew to from segment segment. revenues the to continue this Let’s Fee services review year.

of acquisition grew revenue XX% the Duncan year-over-year. non-education organically fee Excluding Solutions,

of margins to year from result EBITDA and XX% XX% also last a base. our client increased growing as focus continued on our expenses Our

growth government achieve opportunities XX% year-over-year. continue revenue on healthcare in least cycle services our growth of management guidance and both revenue We see at to and pace to organic

for to $XXX expenses on additional million. detail reported total turn first slide of a Let’s X quarter

quarter, we improve and incurred continued the to efficiency. and During with restructuring in our of costs connection other efforts reduce reorganization operating $X million expenses

and related the of case This legal expenses virtually matters. stem quarter’s regulatory were from $X related all CFPB million, which

and closer restructuring of in first regulatory of the $XXX which million. expenses, related to costs look were quarter XXXX we year million to operating ago. second Taking compared at expenses Excluding in a million half in the quarter $XXX operating $XX Solutions reported first totaled acquired Duncan costs, these a earnest

accounting forward. going expense party investment third service revenue found and a segment. billion adopted of quarter, related new portfolio to recognition the be fee expenses $X Navient. Further base accretive fee standard the to details $X can will loan We of earnings $X million be contracts in of impacted our $X million one-time in also a resulted in to which $XX in We primarily first increase federal incurred operating million million and the servicing This release. earnings that the full transfer the in education

result, to resulting This in $XXX new only alter $X.XX recognition As be does expenses million revenue a guidance billion now newly regulatory expect adopted $X our we XXXX. $XX accounting for guidance standards, XXXX between to and costs. and of guidance higher operating than restructuring million $X.XX the our excluding EPS for not accounting previous

originated we Let’s organically. available our end, of activity. in In acquired turn in FFELP highlights $XXX million to over the education million $XXX slide million private billion facilities. and quarter, financing of capacity our we facilities $X.X with loans our At had quarter X, $XXX which

in of deal we We capacity. effectively expect to In more excess to transactions expenses XXXX size further quarter, for facilities issued XXXX. FFELP billion. were at our manage first reduce These XX% re-offer that associated of tighter were two transactions two the financed ABS FFELP with spreads the unutilized in $X our

refi XX re-offer also securitization across our to of led spread investor of private year. a education transaction that significant to ABS consisted There first issued the of points, any basis swaps loan We spread refinance student this interest a were benchmark tighter capital loans. entirely that structure

weighted facilities previous refinancing the $XXX a included $XXX a raised lower In than of of million points that addition, of million average XXX $X.X nearly we This ABS our at that funds our repurchase cost net closed of facilities. basis billion new existing was of facilities. cash

XX the addition in to announced by whole outstanding notes $X.X quarter, due our make In April million a of effective also we reducing June. billion $XXX unsecured maturities call for in

our As unsecured next a XXXX. until isn’t maturity result, January

to million share are Let’s compared quarter or primary to financial in and or costs. we growth strong across in on refi our our business turn core derivative of $X.XX X; and financing per And and highlighted credit difference the for continued call was and GAAP results with open of earnings were quarter related reported operating alliance the will XXXX. with marks quarter between by GAAP net robust GAAP business I positions. income the results that, quality, In slide per summary, results first $XX first this $X.XX processing net $XXX a income up our efficiencies of the board questions. The and improvement in million share

Operator

[Operator Instructions] from ahead. go Your with Please question first DeVries Mark comes Barclays.

Mark DeVries

billion This a the rate guided above on you do harder start to. a what going quarter’s Is forward originations implied you or that rate get good you than kind was to off run expected? of X consolidation run of

Jack Remondi

here first and continue start we seeing are in great trends certainly we be what to we this to similar Well year. the a off so to got the expect to quarter far

now we same pace at surpass a – billion at left clearly guidance the but we’re Our is that. right on to $X.X

Mark DeVries

Is that activity would there seasonality be bigger kind of any which suggest quarter in than normal? this might

Jack Remondi

No.

Mark DeVries

Jack if kind benchmarks to the and rate current a of us the nuance closer rise might higher? the enough have of you change Okay. sense addressable and or market rate X% rates sit give how that both that your there, X% at to you of move can

Jack Remondi

loan selecting trends customers amortize their cash to generally to of in that demonstrated looking school that that sufficient program take terms that terms more a by strong profiles. flows more faster. them are your been and are the standard their advantage years, looking federal programs them are the have customers the debt of rapidly education of taking and to are earnings a [out] And fact number majority their loans very the their than of lot better to of than give for rate the these pay advantage Well a of refinance and are have off that and employment

of of market combination who for that over that a outstanding from the that are attended to look have here place schools think graduate of rising at the balances The are next we their we don’t and rates down products I activities from said opportunities last are primarily really been have over see of those coming I the slowing been graduates, loan folks as quarters increase expected couple though the you are refinancing where continue even couple number when quarters. have to years.

So in meaningful about opportunity we’re and optimistic the to ability the play a role this fix.

Mark DeVries

to I I And you got then heard private a bps, think. indicated finally qualified in that for Chris, you XXX still I think (inaudible) you that

You type of of you give embedded in to if kind you’re of are kind rate just at the rates a assuming. what negatively NIM rates, us higher higher and what could what guidance assumptions could of moves than sense materially buy happen that

Chris Lown

bias fighting shifted Sure, pretty earnings the so that so move two are January and negative we in our guidance plan our obviously rate meaningfully January, we and in increases. call our original in after had

well. the is timing and So rate matters four expectation as of obviously now the for

So there a but stem is lot negative doing to to well. that a there bias try is we’re as bias,

So matters XXX dates comfortable we point rates is guidance. we the and at basis feel of if just that the NIM considering But do something as the fed it’s debt look do sooner, when well. raised maintaining

have probably the continue to raises monitor biggest just that. of will we Number So impact.

Mark DeVries

take in I from excess before need it of XXX any we kind of be would that that guidance? from would should raises So see four erosion we to

Chris Lown

as I to are to strategies other to we than I some employing think be that things actually less would do mentioned NIM. try that. solidify No, it But that other

to side to try lot So rate rising that [switch] environment. a of it’s on work our still

Operator

comes ahead. KBW. next Sakhrani from Sanjay question Your Please go with

Sanjay Sakhrani

we the happening there I you’re and the and changed just Jack, you is meaningful just M&A potential guess in that’s I’m curious. how and for for market the about what’s first When think talk about place could competitive acquisitions, positioned? environment maybe qualitatively anything portfolio

Jack Remondi

the side this the certainly when that purchasing funding In ABS those know legacy you own opportunities the capabilities place private these sold that as opportunity. We a should its’ so portfolios. purchasing part view their older as large The not most so we’ve volume I as to projected the competitive loan franchise say financial the or are and in cash last would arena that and portfolios. have and terms environment of equation well flows, phase portfolios the The made disciplined in FFELP no we for had on portfolios, market would has and more as expected very the decline. and rate definitely been expect businesses institutions longer where be basically and buying pricing five portfolios of in the years

they the that we And generate we so don’t find returns participate. if don’t attractive,

that will at portfolios competitive game opportunities forces. is our or stage this be So somewhat the by be will in purchase view and the modest impacted

Sanjay Sakhrani

And that for or we’ve Is in the we larger heard from about market? an actually as are and some that sort potentially in XXXX, of you maybe market. the towards the look window players avenue reengaging retrenching of

Jack Remondi

about talking --? portfolios FFELP for You’re or

Sanjay Sakhrani

private. For

Jack Remondi

loan or loan originations? sales In

Sanjay Sakhrani

Origination.

Jack Remondi

Sorry, I to was purchase responding portfolio before. opportunities

think future. large we’re obviously an market of be those I look to equation, space. play and players market in for the We place origination the attractive opportunity place less dominated that aggressive in seeing the one by as us the being in at certainly three potentially of that players side is

certainly distinct in infrastructure play We ability this of in skillsets, different see look restricts looking there, we until to the profiles a the understand ourselves from borrowers risk advantage. and place, definitely non-compete that our spaces the and at existing we performance competitive the that have have we’re having we us when that if we something there participating But it’s that XXXX. at infrastructure, the

Sanjay Sakhrani

the they’ve year-over-year. we expansion remainder segment, questions processing of the or two margins how that Can the on of for what from quite you. it what (inaudible) but in the in have what Chris, you? overtime? then to (inaudible) expect these them done around potential an One, just to you segment sort updated business might margin and Obviously you levels any And dots given points? for And moderate levels well is and then affect XXXX,

Chris Lown

The new what synergies We’ve franchises. segment, businesses, couple these acquired to drive think margins business. a to and business processing that these obviously margin we in as XX% our are from in together business forward. perspective. that If that and historically good to this originating as focus opportunity look expansion but driving going feel all development the XX% opportunity sure, producing as through and we forward and mid-to-high other about the fairly these had On comparable but you we’ve we seeing we’ve for able BPS on been well at numbers margins them look value towards owned EBITDA is it’s it’s to through to expect get from come attractive in starting in way margin to years the of I a attractive so businesses of very we’re margins only these perspective at we very the teens guided today it, you’re businesses there actually

On happening obviously are perspective, very closely. the monitoring we what’s [CESO]

given recently, still on a You the they announcements about rating the saw CESO. of from lot haven’t think of how guidance implementation some the regulators agencies

around at on but time. do anything that, our to work We and else have starting analysis don’t this are we plan our to

Operator

Please Your next ahead. go Tarkan Michael Compass Point. question with comes from

Michael Tarkan

as losses. of to and understand about in-school portfolios down but now guidance are repayment flat. loan three that so that already charge-offs do start you’ve helpful, a side, given and longer flowing quarters through year on loans loans. provision sequentially mixing you trend earnest be eventually and for better The of and relative TDR this comment, a of TDRs then reserved should X.X% think term in then your reserves but when reserves portfolio in as loans credit life is CESO for the are straight you’re we come do storms, higher down how on basis follow-up positioned over just Should the XX% that some with the has on especially Just

Jack Remondi

other the blending product the only and A clearly you look but the very performance few in and refi our comments not the have product, there, the reserve can comments trust, impact an see in refi at trust, and strong. will your but around of you cleaved the trust,

to So continue. we’d that expect the trend you’re seeing

rest is the provided expectation --? and that for the to With second year. our your we was guidance that regard So of

Michael Tarkan

On CESO and TDR.

Jack Remondi

billion roughly private way So if for a look is of XX mentioned it we inevitably the having CESO provisioned as non-TDR. so by have portfolio impacted given in plus a and a TDR we portfolio. fairly That other and XX billion still loan portfolio, at help. $XX portfolio two-year be and reserve portfolio is billion mean window you $XX our meaningful is XX billion a given you does the large portfolio either. of impacted won’t we But does be that not that that will size TDR to But

Michael Tarkan

loss just loans follow-up, loans? compens’ you do forward. but low, year the know two have with as the for a really to then earnest reserving about how is we And I should those think

what kind do reserves for stabilize? those earnest where you build then do and of Just

Jack Remondi

information that forward look pretty finance with we additional sort Actually if see model trust could of identically as way for that that we the in out going you it. originations have projected appendix, and you you can the and the

the slide little XX you some information on you appendix to So numbers. give got a in

Chris Lown

we discuss it’s of as loan know losses we impact portfolio number internally wrong, charge-offs TDR The see The We and will economics running give the to depending XX% CESO private losses and credit implementation the our of this of our right. side the impacts portfolio. it’s in That’s our all a life portfolio to this loan going is on we with life CESO because projection in be which small customers. what overall. here our expect a challenge portfolio any of equation is vary right, the in be what XX% of is are we of legacy legacy to definitely rates running day, of fraction

trying something a target. provide perhaps a that’s gauge we to and versus broader range narrow are that So just

Operator

with Moshe from comes Suisse. go Please question next ahead. Your Orenbuch Credit

Moshe Orenbuch

Maybe particularly your return, the markets capital discuss had little could had generating these the you but again refi given first what about context guys you on the core be success how then least annualized at front, in think and kind you’ve the digit bit at the quarter thoughts the capital you’ve rate. loans in about would a portfolio of to that FFELP an seems double of success declining

Chris Lown

As year. earnings second either in of had in TNA you in the expected of the being that level at at return our the to confident saw presentation, by the the X.XX our rose quarter back in guidance X.XX we ratio feel expectation times X.XX times. year-end more or We half to stock and our buying to

As take are the but I and of in confident be committed will where guidance call beyond is given, of if factors we capital you generating opportunity excess number think mentioned, very a that, the clearly guidance in quarter. the do there we moving last advantage we’ll we’ve little there is an that we maybe a see more feel last we gave capital

Moshe Orenbuch

And does at at in a where different stock price versus itself a point something in thinking the the it back about of is current terms could to future be stock in that, factor level at levels time? buying

Chris Lown

at buying lower price at price fourth a look question prefer to today’s a no and and prefer advantage take versus stock is of present stock ones. here take stock the also to we for But a we’d third There’s a we’d opportunities back lower going be prices stock higher higher price themselves certainly we’re quarter But stock how factor and repurchases. and might what total. in one obviously

Moshe Orenbuch

the groups cost it’s that really is a significantly just government bit of how But a in kind and could guess probably there because metrics. a and I And about most of XX for the not on your financials the the about regrouping little which separate talk the quarter is higher than your a difficult the of other matter, to think relates to loan of it essential and through of history how restated that went segment. cost some little segment in number you’d had million is that allocations before you you

Jack Remondi

cost is trending focus are at ABS got quarter. transaction, on well. cost bunker focus the those are think facilities overall transactions overhead down the a managing around to our being OpEx. credit the side need them costs debt that expenses in as putting private part on continue little we We refinanced talked to but side efficiency. than to of interest are centralized financing from here sign to than of bit focus also in I managing We FFELP improving by better here, the repurchase as about we funding efficiency portfolio, the on to that a our our the the impact not prior operating operating materially than we make some the we and another fields, unsecured more down. maintaining Chris on of that can our example much lower we look earnings as drag equation cost more the do on during distributing the responsible focus of financing and liquidity completed making in move sure things just lower pricing they we’re the on equation capacity And substantially the buckets lines to liquidity term about and of reduce the efforts what rather in for caused we and maintain ABS programs to but is

improved All of contributing which are efficiency. operating to

Chris Lown

found uncontrollable cost really get and were Well were and lot other time were actually that costs of that costs couldn’t And with where on were within to control we that and there leaders bucket some moved segments a could down. they to I them overhead we in sure do that the historically think business can that that there they we what costs manage. embedded their I and spend is make could then them try really that and control manage to in trying the focus Jack they

units. really of we accountable all can costs exercise so that embedded be the and take our it held So an are business alignment was charge that within

Moshe Orenbuch

following by the that understand on at you of in centralized those much the particularly kind given slide be businesses fixed to what of government segment as performance segment that, costs business. much versus then how of up kind I helpful would terms how of the of particularly the extremely X of and we’re Just that each on looking servicing think those variable are showed was on question

Chris Lown

and we’ll That’s [review] a comment. thought good to that that’s a as think good

Jack Remondi

to And not be because not doesn’t point, something is, understand are does our point your reduce but to I focused appears cost want fixed do we I there. out efforts on reduce mean it. to just a it ways

Operator

Your question next ahead. Citi. from Cyganovich Please Arren with go comes

Arren Cyganovich

guess The is down FFELP the higher year? I What’s margin remainder in coming, little this still bit quarter. for a lower that last, driving somewhat of I but the think past than guidance

Jack Remondi

are moderate our a rising equalize so the an had FFELP guidance. of expectations. just than amortization benefit again the we expected. disasters are XXs seeing portfolio at we we the curve amortization NIM to look natural the couple partially although so rate a with which FFELP FFELP premium there and overtime, the rises in that also the on rising that we a saw environment index we stop see on mismatch than mid-to-high And forbearance that portfolio result in and and as slower being asset there’s you little then of portfolio slower rate better would when and and that resulted benefits a little in things There is expect similar of the One, NIM margin to premium a that

Arren Cyganovich

of hedge – that includes time? that put you to continue the expectations over in that the Is rising past place hedging hedge that on

Jack Remondi

for risk So we’ve mitigated the as hedged. (inaudible) XXXX we’re mostly one

we But the did that eliminate come hedging portfolio. last all risk play it the on NIM. portfolio. to So risk an given or much in activity really that impact year we’re in FFELP from the really really doesn’t neutralize the to bolster to FFELP do doesn’t benefit It

Arren Cyganovich

For portfolio? the remaining life the of

Jack Remondi

have through versus by basis contract we hedging XXXX. remaining inevitably we nine going out hedged these in and the in are are but buying keep wider XXXX to we once to actually we months XXXX hedge in going to out, starts that having For XXXX. facing are Obviously what a and six

Arren Cyganovich

terms a standpoint. color the your just maybe are And a some the bit timing around little then you combined and expectations in from can give contract on nuances gen of that of of next a RFP, what

Jack Remondi

most So bid individual and components to chose bid to for all the the services to chose people of drive on We bid comprehensive importantly basically on all of a of and segments, on in seeking lower provides the contract of levels department and drive components. management Education. can basis for for believe can individual is other also that both cost success conversions of of components. the We terms the the portfolios in Department or components, of basis the probably that for borrower outcomes the comprehensive higher

hear restrictions discussion this and coming this and on selection if that play two processes the can is the issue to including a will of noise terms as looking fair operate how details some and to of expectation for out. But one you and will from department and they department the then we timing, summer fully a have specifics timeline contract they’re Congress amount round later In around that. submission, this timelines for more on the from for there’s of the the

Arren Cyganovich

financials. And I the impact I understand fully ongoing here. don’t disclosure to revenues were timing at contracts focuses expenses, higher specifically bit and still through here the a it is with also one, representing those quite higher the little there Can what what does pertaining impact that about; the looking ASC read and talk you in XXX, the represent?

Chris Lown

through XXX our what came million up a from is becomes that gross expenses that revenues. a us really and of And it majority which majority think of for expenses up XX a portfolio you contract adjustment of coming pass-through So our of of business. guidance gross and the basically if the PM our the on of is management revenues

were XXXX, versus it right to XXX. a accelerated tails of in the the there, management That the is though little ends as increase first to we just realize the revenue a portfolio particular acceleration was adjustment result of over that becoming that of a off XXXX. that until adjustment. because quarter and XXX result and the of of XXX the majority to up actually really more expenses as of You’re delta expecting the where between a expenses in And revenue there little in one there was throughout contract adoption

Jack Remondi

Chris I that color those to particular were process that referring than is little that now netted by more think of so a against gross contract just more nothing will effectively the add (inaudible). the expenses in PM a expenses there. pass-through this revenue contract In is and revenues up equal an amount

Operator

America Bank question next go ahead. with of Our Yield. High from Mark Please comes Hammond

Mark Hammond

quick. pretty questions Three and

the consumer allocation the one debt unsecured federal what’s first the other the between is, So new segments, of segments? and with

Chris Lown

FFELP perspectives. is minor legacy product majority also allocated We refi reality the the number well of the is from debt portfolio. unsecured as obviously is some the portfolio, the aligned the but debt the The of at the allocations unsecured unsecured portfolio, portfolio private the look as lot and allocations against refi that today, a is But private there a specifically of portfolio. to against versus

Jack Remondi

the And liquidity portfolio.

Chris Lown

portfolio. And the liquidity

Mark Hammond

other portfolio liquidity segment, the that’s right? that And in

Chris Lown

That’s right.

Mark Hammond

And and funding, assets the that’s that, know that of liabilities. part for unsecured it be just, debt but trying to is exactly? get I funding is what’s funding what sense a would just

Jack Remondi

The meet cash is of portfolio liquidity our maturing to there debts. needs

do one balance maturity anticipation have sitting the an is of larger Chris final be equal we did in we cash in we his maturity. XXXX. did the mentioned things that we call on If debt for in not of that comments would a So, that debt of

that It securitization if in debt. and rates if allocated the impact cash very advance is short advance but in of versus the we’re funds. about FFELP But get the we sitting we – of look the process. where so unsecured debt that we by at were on and and therefore negative rate minimize how at look it high March you and portfolios allocation the XX, transactions really affectively term of consumer able levels debt of unsecured drag on is So cost the that calling lower we the substantially actually they investments unsecured

Chris Lown

buffers can we’re it on that manage be liquidity and with sure run that see maturity, we sheet, our balance in we liquidity inevitably you also And compliance just buffers to require to as etcetera, prudent. make to but mentioned Jack

of management that the it’s maintain our business the and meet that obligations, ratings. we really ensure fund to can just So

Mark Hammond

consumer on why reason there education more specific moving to then segment chose the any like it with name lending And lending name is calling the broader be the segment? as change, oppose you

Jack Remondi

I’ll they acquired the space. just space take in that. The reality mortgage the when of and a originate sell the personal small it very on loan Earnest originating acquired, of were amount business that assets unsecured to we we

these loans, are We like that be potentially that loans to that think are originated not sheet these So balance are sell. can model we model, grown.

reality order on opportunity And you’re of exploring lending. us consume And but accomplish there the primarily to products education/refi we segment, is an to originate basis and number a correct, so to are to sell in today grow the for broader it the we opportunity. need the that those is businesses,

Mark Hammond

we And purchasing then portfolios. on, hear or purchasing delinquent them? last loans is Has one considered performing Navient ever talk typically on consumer collecting then about of portfolios loan non-performing and

Jack Remondi

it. space something no to to That have plans and that many years in we exited were business was we ago, return but

Operator

with [Operator Jefferies. Please next from Instructions] Your John question ahead. comes Hecht go

John Hecht

trying those ways, prospects you on growth some that to those us of was about some to about Duncan quarter. some XX Earnest same each related cost the then get How segments. costs is, got are need a of scalable question opportunities a I talked give in certain volume your to we’ve in of and there. related given And update can second but Duncan regards. You wonder it if where million we’ve address

Chris Lown

the has add associated volume. that just leverage serve (inaudible) the that our we happened opportunities doing we than do word, infrastructure and lack Duncan, And the So different area we of as in base in effectively Earnest to is the capture particularly the down management of an that space although volume better variable that that that overhead have synergies analytics and would that and time leveraging over of become a cost we activities our the we incur the you in efforts digital student using for in to to, at period. related space. what both as side off in the the think mention In business QX data That’s piece had and kinds front. our systems them. cost – businesses example. strategy reporting here improve total is equation up running become overlap with workflows drive the that an Earnest efficiency we achievable. then that of Duncan this more In is build that margin The loan similar core cost definitely acquire opportunities a marketing would the seeing cost costs efforts the in we of of the components that’s loans done the some one of combination terms call and as the strategies make business those that servicing the equation larger there’s I do have phase the of of of analytics, I of last modeling in ramps work same on and to were processing to also we and in the efficient. and customer that’s origination it’s pretty significant. why and to have of one side that you QX in operating the broadly the to job strategies automate leverage BPS that excellent these as of versus space, QX things opportunities That and significant aggressively out metrics is, materially digital variable is with thing expansion more us would structures part a That’s and volume something opportunity are for in for working opportunity the in marketing, And you’re

John Hecht

can’t those but acquisition you the two? improvement or disclose at Earnest. us next recently am in what you that far a in down decline am wondering can I order drive you opportunity And to in year percentage follow-up quantify costs detail, type of some customer and how have you you kind of seen give the mentioned as over sure I can

Chris Lown

months. – company owned the five in we’ve efforts for Our now right the

it time process. can we strategies looking continue bit they little where more had a over those probably that there. to it’s say build definitely are to early too and digital to think efficient But to. on I and But how reduce we plans detailed drive models costs

terms course at more just process. you that become the as we where well efficient are the of underwriting volume the in is think headed. that Some through of loan pipelines the year that also moving about in more of you in later how I talk so originate product We’ll

Operator

ahead. go Your from comes question Please with Rick JPMorgan. Shane next

Rick Shane

to at that slightly, or trend some It new the will is should we come the consumer be $XX in expectation where that guess remainder strikes there mean of offset from going of that’s down compression that’s Is about by a suggests guidance business, that consumer net Impulsively see When of we the to probably provision that income slightly growth? I picked your the Is trend million the business look from little bit really lending in a business business. to flat the or the some that year. segment? those really me will growth. businesses up from the expense processing FFELP spread going compression in be the down FFELP outlook level. higher the business business probably commentary, of QX

Jack Remondi

segments, combination process. but segment have No the very portfolio loans that what had majority in revenues years. space individual loan in services the cash the correct earnings that That providing has derive XXXX, this of flows that It’s of a sense forecast is participants kind provide the business, loans that new of declining we either to in owning right. or that to business in that been provide expect FFELP come itself spread. loan as look XX from and activities. So is. the in And a when future growing refi, margins and opportunity have segment drive perhaps smaller that you’re would to lending and segments business the buying the were from of from business nationalized and is opportunities the a the education and the the could of purpose FFELP FFELP smaller. a the originations. overall been new but as of to growth, greater in federal in we of to business transparency we’ve becoming it performance originated at and in-school vast been alter of we where it efficiency, We’ve as from in our that operating see It’s the and coming expense well you we It’s our that process on driving by bit earnings the improving minimizing in reducing the a in we is BPS down focus those from coming coming segments pointed able to or consumer but portfolios, expand cost, primarily also interest component

we’re drivers and on focused those the that beyond. principal are really of for the So balance XXXX

Chris Lown

impact And benefit and have then also as will share to ’XX, per will return second ’XX to you well. as in which clearly capital half well as get earnings of in the

Rick Shane

this sounds sort of asset but there’s be the the back point FFELP compression. little of about sort in going want obviously XXXX the little year, of of to of nature talking some bit half of wasting a a the on repurchase. a final that math like understand I I put assume Look, envelope I’m the and that back it NIM in bit business, to

potentially move talk back sort on lending with assume going year preferred in earnings In be saw of about business at be to segment. in there’s in-school, back if to there’s getting there, that lists. you the expense we lenders going let’s additional the provision So that peak growth associated consumer to least you for expense, certainly

really, from where here understand XX the not low that So, Is the you And hit is, in trying walk EPS fine. sort of and you what terms again that’s realistically of be of XX year to the it us need you the incremental be this? to to flat the of gap sort it’s of at year $XX objectives that guidance. the are I’m But does the through again it revenue where think to the million. would that end and million million drive going of is end path perhaps to can on it for and way if growth business per quarter, is today

Jack Remondi

see is of from we looking generally the specifically organic Rick we’ve revenue XXXX, specifically. XX% the nationalized you increased the segment mid-way that see we’ve guidance for this revenue we’re certainly growth made in in business drive and and is everything from are revenue is expecting speaking there. the it and our that total you’ve space pressure margins are acquisition and on But the and and the the goal benefit generally business been We here frankly in through profitability was in EPS Those said increased revenue new segment, to why but that’s FFELP to since of created terms business highlighted things reasons Duncan Our XXXX. for correct, in of private XXXX. see grow one

Rick Shane

that helpful ’XX rather than mind in rather could ’XX of I ’XX be going out ideal. back that include you least, models. numbers reconstruct would ’XX broken rolling But that if report out annually guys you them looks are numbers really way as go With and because when you at numbers the ’XX, and people their later, to each numbers. be everybody that would sooner than quarter, provide appreciate ’XX, sort Quarterly for the of at

Jack Remondi

thanks. Noted,

Operator

comes question ahead. Henry Please with next from Wedbush. Your Coffey go

Henry Coffey

had except more accurate your down the line in being very fact not you. of are modeling Is I’ve topic, that number all some the and look going The going then questions is thinking radically answers helpful. them, When achieving I thank That’s There’s categories the work, businesses goals revenue this effective fronts. consolidated that of be different. change really not to about and to going the consolidated lot and new an of to be on that them at of be you’ll it? a of to of but the obviously that breaking so breaking sort businesses, much. around of it’s for certain on P&L, way that

Jack Remondi

than what because amortizing sometimes pace business do with think right, much mix it’s’ segment, a in a sometimes its your and our largest and – I changing, are but as at ones then they one, faster, is we Well, they little quarter. course, of declining pretty expected this are a the growing federal is of your segment at that, amortizing it’s business, declining. expected, businesses that businesses that’s are line the the are of dollar paces components education growing largest the is different But other as dollar little to pieces other not and replace slower, for

has a one probably on bigger from business new and instances value margins the we with a the items the of profitability of many of and attractive I on business this smaller that. the fee might being think as I the coming spread which result and been been that appreciate dollars based coming your amortization on segments is the on comments be that’s smaller portfolio revenue and hope in provide you the are that is a is and that and profitability here replaced

the it breaking the And investors and the see investors, so attempt for in it gets opportunities. issues is that of has segments and been and in to to transparent to our I growth some results always as to easier of disclosed part challenge explained think those make more points the frankly mix

are So -. those

Henry Coffey

the and the questions I No, agree agree, FFELP, here. of then about – headed had completely, challenges you the the around the is just now this modelling about in I them. from to I’m you’ve of think it are loans – all I job about now thinking But had solved same, you actual

have I successful be former they FICOs I course. happened look then for numbers know is be I demographic. a have discussion of now far because On their the one redo with happened and challenging the issue their going student I something biggest our the who doing all at a mortgages invest working area the you’re just mortgage, an sort but loan some or So it’s work task to so like the a have actually getting is facing going still be you to the opened this to you But to already, because to where all work doing to but here. other know. innovations is are look going on so fantastic. this. is capital intellectual a DTI models, lot you this for – successful is ability we tend one it of of doing product and borrowers mortgage that horrible, it’s simplified maybe through buy/sell unrelated and with topic, it the professionals so be just When even to business buyer mortgage you’d this, get in

Jack Remondi

points on of this. a Well couple

the comments think I about things. there of and student impact are broad made debt

it that mortgage an in days. of they borrowers were with cycles. they’ve customers because here. relatively the have a few for biggest conforming how It’s debt distinct similar We denies activities, when That actually these out you that But borrower actually originated the modest alternative service a versus they delinquencies qualify be. In and just advocated broad we XX.X cross borrower and opportunity student mortgages bureau repayment to that and experience for at expect not a it prior that to challenge a and that have have released and event. exploring the change much we be soul we’re now this be to the potential is get and for stringent DTI in road, the and challenge us our mortgage what is actual inability but know, wider and prior the capital challenge look that one customers have down biggest to is this at and and survey criteria The that a on that is see intensive, to had we products attractive would of statistics. pilot details policy a and is determined the Earnest And not inability the issue to have our a It business and is on recession biggest than have concept. through report have and mortgage. job our be a are is facing the related could equation, very rates customers is as they coming have and credit their this great between intentions delinquency during to far to When no side think scale proven and is might underwriting our advantage services product. in delinquency see we owning we we of so we a demographic, and we opportunity go be servicing customers

Chris Lown

Very a solution. much technology

Henry Coffey

and supply the the intellectual delinquency are which you would Exactly, though side product technology equation? exploring created even be or not Would cycle the net of you’re of or a the means worth little going at going project high student be cycles bit, you capital. looking all to the a business side for loan down equal

Jack Remondi

very this hi-fi, Our These are hi-fi. a customers very go phase by are in income. very customers high

products, cross-selling that’s where be about would talking we’re we if So focused.

Operator

all it’s questions you for And have the that time. to this Joe. we Back

Joe Fisher

today’s Christie. you, Thank us We’d like on to everyone thank call. for joining

today’s follow-up This have you If feel free call. me. any contact to concludes other questions,

Operator

conference today’s call. concludes This

now may disconnect. You

Navient (NAVI) 25 Apr 182018 Q1 Earnings call transcript