Navient (NAVI) 23 Jan 192018 Q4 Earnings call transcript

Ladies and gentlemen, my name is Lance, and I will be your operator for today’s conference. At this time, I would like to welcome everyone to the Navient Fourth Quarter 2018 Earnings Call. All lines have been placed on a listen-only mode to prevent any background noise. Later, there will be a question-and-answer session. [Operator Instructions] I would like to turn the call over to Joe Fisher.

begin. may You

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

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

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

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

a fourth Our capped year. quarter strong results

$X.XX. full core of adjusted share share $X.XX to brings earnings Our per per our earnings year

and XXXX revenue driven improving Our systems growing operating originating flows, that value the by cash fee and have efficiency. strategies expertise, demonstrate results we data maximizing create loans, to high our quality

margins, in additions, strong maintaining capital and XXXX returning fee contributions actions growth, loan of sheet, to significant also by commitment value shareholders. capital our a net to company, This operating including areas creating all performance, focus produce balance Our loan demonstrate commitment and interest management. the opportunities capital our student supporting from appropriately revenue portfolio on efficiency origination meaningful and manage

debt. we on loan reduced We three-month refinanced at $X unsecured For hedging issue our benefited that on return from for to net we to facilities our overall margin consumer and implemented and exposure. segments our cost interest in existing cash billion funds successful debt. lower in retired efforts repurchased example, temporary unsecured strategies and rates, developed need lower funding our executed federal and our solutions LIBOR positions improved costs, our high one-month, We the or raise

originated $X.X loans. includes billion $XX student X.X over billion In we to we nearly or loans. XXXX, added in loans last During refi acquired student three This our in billion the portfolio. have years, in

Our our expertise ability new capabilities. our of platform, generate operational earnest to combined loans and successfully demonstrates refi with strength the funding origination

lower interest to of achieving led in continued Importantly, portfolios we our delinquency rates. and focused the quarter. in were net margin and FFELP of the strong innovative had jobs customer loans, improve, the to new highest in refi the able year strategies Credit Loan margins to Private driven improving improve steadily fourth trends our data market the charge-offs

For Loan Healthcare and and in both of Services from In lowest revenue full contribution XX% also declined plus XX-day the we to delinquency to acquisition rate year years. example, Business growth delivered XXXX organic fee rates our the Total Duncan XX charge-offs businesses. FFELP X.X% of increased million at in Private over in XX% levels XXXX XX% Government segment, portfolio and of Processing are our revenues our solutions. $XXX benefited our

this in margins EBITDA increasing in Our to segment XXXX. improved over XX% also XX%

driven data clients and these markets. over to our skills to in continue workflow account our strategies value to leverage XXX deliver processing, We resolution and

on where we to We was delivered another strategies are these solutions experience, operating always efficiency an million. and developing operating apples-to-apples customer basis, $XXX On goals. XX% year and to expenses new XXXX declined improve

complex customers digital by stakeholders. benefit process. income greatly application innovate It’s automate a This our loan and prime a all to that benefits new launched a driven flow continue out and repayment for all We of digital very processes how student website we customers also a FFELP our application. process for dramatically example rolled simplifying

XXXX included ratios, to did goals capital our Finally, We strengthening while to our in both. continuing our return investors. capital

X.XX paid repurchased from $XX.X ratio dividends X.XX year times million improved or shares ago. and $XXX We a of Our million of X% to TNA outstanding. shares

have we brief results, to moment celebrate clearly now While XXXX a focused we on XXXX. taken are

We on costs. deliver by yield stable student loan focusing the reducing expect to margins funding portfolios our in both and

billion a to is for Refi loans. Demand loans, billion best dollars including month strong at over ever. least be goal up Our FFELP January with billion student remains our $X our product $X in and in of shaping to add refi

end the benefit can to. we from market who We will of restrictions on also

We from new in-school ROE’s a planned we product. loan continue we launch risk low this digit believe, to this to can Later product. generate year, double

an Our that a to give families. an offering lending develop meets us need insights highly market capabilities and borrowing responsible and us. for for an in-school opportunity promotes is opportunity The competitive important attractive many

mid-to-high that deliver generate will equity. returns We believe that have credit insights expertise can marketing we assets and the teens on infrastructure, unique

and to year Our at is our and in-school refi leveraging in generate modest. from excited deliver least XXXX. is value our target this to about attractive $XXX infrastructure skills am risk low to I It disperse lending assets products. and

and these performance We year continue. off position trends both strong positive loan a see to expect performance we and to credit also our are starting FFELP expect and in strong in portfolios, consumer the

XXXX. our improve again results to operating efficiency efforts in will deliver ongoing Our

develop simpler continue total segments, and adjusted origination Even in We servicing in and business loan our expense to automation growth solution operating tools, with new will again to tools our new process, customers. implement deliver decline our XXXX. and

the to shareholders generation and dividends questions only look three call. to to repurchases. off strong and excited share Though will and later value million our ability your and start the position I to through year, weeks a Finally, are into the return strong our are about in capital we allow investors. customers forward us flow starting $XXX nearly to deliver for our cash

detailed a review Chris of this let results. call for turn more over the quarter’s Now me to

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

review can the on I remarks, and on quarter fourth core for company’s will call quarter. ago three. the referencing website in year prepared was the in I found Starting fourth XXXX. year be results the the will versus quarter be slide full presentation, Investor Adjusted CPS $X.XX my section. the earnings from During $X.XX which

adjusted the was For year from operating few quality of core $X.XX. $XXX credit and improving A refinance full originations EPS include expenses. loan key quarter lower adjusted highlights million, the

and effective of million a we addition, $X.X tax $XX unsecured XX% that then lower from In in the gain quarter repurchase from billion of of rate debt. benefited

the metrics highlighted and on business its to four. on and These targets use metrics For and the targets XXXX, measure units. slide providing we are additional we key transparency success are for the company

measures end portfolio Mae generating are interest opportunities amortize, the private and education success. of of these ROE’s across key with on loans focused improving our coupled mid to As organic our and fee-based net continues federal charge-offs non-compete reducing from businesses, to maximize margins remain growth portfolio our flows. our segments should company. the for nascent managing generate EBITDA margins attractive Sallie cash businesses, With education to legacy our teens and of with Contributions origination regard the loan the we

to our tangible X.XX X.XX returned net asset In of addition, to ratio to is remain we times capital that times shareholders. excess committed and ensuring range

are loan portfolios. on mentioned maximizing slide, education laser cash we our previous focused on the from As the flows

and X of billion acquisitions. be versus generated projections an primarily Mae. cash we XXXX and Sallie our seen additional from flows at slide loan on can XXXX enhanced financing between These are As flows activities five, cash generated original separation through education

acquisitions. this appendix can cash of found flow projections of the Our be presentation originations in include or benefits the loan updated do not and future

year. net to declined move fourth the provision consistent reporting fourth is for year. Federal interest rates segment a $XXX Core Loans as slide year transactions a $XXX quarter. recovery ended year revenue earnings on This year we for and significantly high numerous the the million result at points third from growth of guidance. collections in over points XX% loans Education throughout margin for the from expectations, executed the The the billion of ago. financing were increased with our This increase basis Let’s to from on of the six. XX FFELP XX% the proactive margin have beginning full Contingency million the for our positive declined the with net quarter the from asset quarter. This inventory XX delinquency was by ago prior our year. basis $XX full contributed was trend The year interest the end quarter and

million $XXX Lending segment for the Now Core let’s and the full seven million turn $XX were and year. our to quarter in slide earnings Consumer segment. for this

of quarter, for and million the Refinance of we Education $XXX $X.X XXXX. billion During all Loans originated

to and increase demand strong and credit to in have new originations. on continued coupon healthy this we average rate our continued We see product, performance

was refi additional lending expect expand the least XXXX basis at year The originations. about our consumer line full opportunities billion $X excited We are in interest in points, XXX product of our margin expectations. and to with net

financing loans refinance ago. compared Consumer Our million our and margins represented or resulted initiatives Lending our to loan interest education originated or X% net operational legacy XX% in year billion on end newly and both At $X.X improving products. of a year have $XXX refinance portfolio,

to of higher the X.X% refinance a Our mix quality the NIM of for result XXXX is towards guidance our X.X% portfolio of loans. shifting

inventory by ago prior revenues slide $XXX year collections we is XX%. margins XX% full eight quarter, the from EBITDA primarily federal XX% services local year, to segment high-teens. continue Fee from year expect the the and of a Processing contracts. segment. the review EBITDA on at Business our contingent grew revenue million, with Let’s placements improving increased In increase of in margins to result XXXX, government least The from with

high-teens tolling mitigate the Healthcare this of anticipate discussed in contract segment, revenue growth segment we in XXXX. loss overall our will While growth the in previously

slide additional focus nine expenses. to on on Let’s color turn provide our to continued

decline average resulted of education XX% total full operating the expense the initiatives ongoing adjusted our our in For the loan exceeding portfolio. decline in operating an year, expenses, in balance

excluding $XXX the impact second operating reserve between expect the year-over-year costs of decline, we XXXX, non-cash and million, one-time the regulatory million excluding release restructuring is expenses, which XXXX. X% of when in of contingency a quarter $XXX For

slide our activity. financing to Let’s turn highlights XX, which

million company under million remaining the share shares for our $XXX quarter, million we and have the repurchase authority of repurchased During $XXX $XX.X program.

this times. we while our X.XX tangible to asset Importantly, ratio did increasing net

billion XXXX, actively our make X.XX debt continue a to operate $X.X within of calls market transactions. In quarter, unsecured we range. to fourth the ratio open we [ph] repurchased times expect to TNA to times For and X.XX

to transactions loan maturities by quarter, totaling As to $XX in quarter. $X.X core taking the also issued of the earnings a we actions, XXXX the In realize two of our while education private billion, of dislocation advantage ABS recent market were million these result we gain able billion. $X.X reduce the

to of year, billion education of ABS, For loan all $X private issued XXXX. for we the full million compared $XXX

XXXX $XXX guidance restructuring excludes year margin slide mid least Before $XXX XXXX, basis $XXX turning to XXX regulatory in earnings and points full margin with with million, full $X.XX, at XX, associated like we to costs expected business to year EBITDA which expenses on expenses. low of points, $X.XX million, full and margins between high-teens. loan $X education loan and XXs, year between private million results, GAAP and the processing per in I’d between share refinance the year revenue billion originations In XXX operating basis education least private and net full FFELP interest at core our and recap full interest year expenses the expect of

$XXX loss share, Let’s compared GAAP of in The the per quarter net of $XX capital XX. we quarter fourth across $XX marks derivative meaningfully to executed and the our with our executed core position share in to slide turn primary on results developed and transactions, shareholders. a earnings between GAAP bolstered net successfully per financing reduced or We million earnest capital GAAP in expenses on income returned the related and differences nearly million XXXX fourth a In or our position. operating XXXX. of plan, are results loss multiple $X.XX recorded company, $X.XX summary, of business to million

to execute now XXXX forward another calls year. and questions. the on addition, our plans are In I look well-positioned we will for successful open to

the from KBW. comes of [Operator Sakhrani Instructions] from Your question Sanjay line first

line open. Your is

factors kind might on channel, origination in-school would guess, guys in Thanks. are, or actually third-parties more. in-line you have avenues growth first Good guess, targets whether some there question you talked, there. the far? Could you morning. you through What driving is put talk out just other weaker there. the the to had about, historically, come I about I have my obviously, so discussions accelerate be of Jack what

or that really an area we first bring and view and market there’s our our to So, really -- loans years. in long. the the us all, this particular marketplace differentiate seen of I change a opportunity of based for products we expertise whole in this in us attractive our so insights as from strong data an on lot also opportunity a hasn’t that for servicing think XX for really last innovation

Our consumer the through focus to a direct school approach is channels.

is which And the approach. in products, similar our So to cycle. that typically is would of take origination marketing million the disbursements $XXX the the year represents place it just refi product digital that we half an do first way volume first academic a is

So full academic and total originations million. about would booked in XXXX processed year $XXX

number room you And and Okay. do to that what think might that? there’s better accelerate that do on

borrowers. if market opportunities you first look certainly, Well, will on here, the focus be time at our

But existing have them I these previously So -- way in we we work expect education the any we can. are, borrowed as would that lender. said, expectations I many their students will families to are and certainly in who private hard modest beat think, marketplace and borrower to these return many

part one And part or hit product, on strong expecting ending the just result of that is just this is there of and opportunities follow-up you the the Could -- guys a optimism going just as without forward? you Is obviously, Okay. non-compete lie to Thanks. a talk opportunities there, about refi you more even targets? the the those where very year of that same. year had are

have really really the One -- borrowing or PLUS still rates based for they strong income also of pay So, interest as market an that job marketplace students good levels I into opportunity an refinancing have materially them quality the expanding that for certainly loans. January equation perspective. couple for experienced on that it’s reduce and Grad opportunity and expired a the credit rate there’s high is combination move from the still paying us in opportunities loan non-compete paying us their of a it’s the side very That’s those expect in on and on sources. the recent I as represents interest progression relatively a graduate question opportunity markets. school graduates of in XXXX loans they -- think more who education two And so here is an different generally an come the effectively the to are the Xst, very, on their been private

you. Thank

You are welcome.

from Compass comes the Michael Your of Tarkan next question from line Point.

open. Your line is

my questions. taking for Thanks

earnest? I Thanks Just touch of on towards on earnest, And you the curious credit the around if as on just if unpack versus mix for think going you you reserves side continuing you on can about to in-school to -- versus reserving what am the legacy kind the are the product? of portfolio on to maybe for color be how in guidance. sort charge-off are Private. can reserves how you think about

strong credit So but are refi we particularly in Board, which in -- strong across very seeing portfolio. the trends performance the performance really

in and the really have economy. the TDR difficulty we though the seasoning a provided function push losses that the Our of historic to see -- that’s in and portfolio who a of have got continue have we our borrowers -- very you past. past to non-TDR the then, of The are outperformance strong come of credit the experienced the portfolio continue segment below to in that credit the is course, These are portfolio. really new on continuing from levels some coming portfolio legacy guidance lows losses into and

to payments find loan manageable the them balance. really these we As programs loss customers you the in have with consumers contrast solutions sure to to and been has particularly to loan And life there, to make sure this able them. work here the think I put credit affordable expectations would connect that that -- are to amortizing their as we and make for Federal still reserved able work to are biggest that that been we is that I innovative for solutions full Loan make with know, we are compared portfolio of continue find but the performance strong loan,

moving that that make themselves towards they progress and So are debt forward. down paying seeing

there. the are combination in the those So drivers

Thanks.

Just that as we mix towards and percentage we or the to that in ‘XX earnest? expect loans mean, a your continue relates follow-up, Should as lower shifts it should drift reserves to of expect ‘XX and repayment. as I a as more to

Yeah.

which -- not see is as seasonal, will should we expectations, the than our that as it should performing refi transpire. you as XXXX towards quality seeing great is manage addition, and think basis, I mentioned, you portfolios, parts. that a but on are on change -- that for Obviously, into what our moving One amortized, seasoned two shift, loan product result. obviously, better heading well. these we But this in performance the mix higher to and all are are we better how loans said Jack

And an just in-school then do across go-to-market strategy product, me, or what you view just of to the opportunity is scale bit Do there the there’s back think generally Thanks. competitors. Okay. your you where curious and kind last am pricing I environment is faster? one the of competitive product for to little a kind the

there. be So year officially later the launching until as marketing bit reserve year a our academic this we cycle I I’d begins strategy approach XXXX, and think ‘XX rather we launch little this the and product will

Understood. Thank you.

next Your from of from comes question line Moshe the Suisse. Orenbuch Credit

open. is line Your

Great.

is could us first in XXXX? is -- kind you all, of buyback of for tell guidance how on Just, much guidance, just the your in

million have our the authority of in in what’s we that’s I all in remaining the mentioned, have guidance. -- $XXX as there’s Well, That’s authority.

and the how But how what of ratio, than having -- some about your that think guidance, the do not do more guess, I to that, that of between given TNA And are great. that the In trade-off you possibility choices are about do about think available greedy. asset sound growth you we you how that and like, making? at the you X.XX think

still Moshe, in in still we transition know, a make into we way lot the in regulators from all to I prepared, sure rating and from are a to we manage still as a make there’s that and process trying want possible that all all you that questions in and that for we of to business least think, are the sure well seasonal return determine. and all heading year, is as that that are the capital the we we markets, are are agencies trying at to disruptive through to

about And historically, talked times top times talked probably X.XX about end be of at I have so, I the that. range, X.XX the to wanting have to

amount plus, about to we able seasonal impactful. in hopefully, a a as transition million have is mentioned, of to the going capital way that nearly think I are through $XXX XXXX, which return in Jack being least

do capital So, pretty perspective where from you and to a committed about business think have trying And business a as think and I return the when ourselves good a compelling give think, a then refi are with in shareholders. new excess process. capital we we obviously, or a as that opportunity, generation capital significant allocation now Again, position as plus of that’s plan allocation We if you think, capital pretty products still that that is of we excess business that is to in capital versus low-to-mid-teens as a guidance. the a think believe well capital lot there what -- place return about generate opportunity returning amount in-school is about, the I at ROE from what an an scale transparency strong to cash we that should pretty manage to we doing. are we I But some you have talked that shareholders. find would, excess

So what but time. it’s a about it’s great a we that’s question, think -- the all

guess, December the points. got the being you on, to data, the highest earlier -- quarter. follow-up at square of securitization I And with and can showed kind that’s fourth I now is the kind to lower which on comment over wanted a down have of expectation? guess I the Jack so road margins I made maybe in Just that of think, of kind with buying square margins the that year year those you know refi the business XX things of in basis X.X% securitization, you [ph]. X.X% in kind key of

quarter a So the in there’s rising margins, our QX hedging rate show securitized up what a fourth not would activities have originations effectively in and been we in -- environment, don’t spreads. the securitization

the are of cost pressured a are to to on environment, hedging But but Fed I the focus of does, are the We it’s those the that we highest margins definitely part funds not, not fourth more a a up we course, margin said, had securitize it’s rising don’t what benefit doing. rapidly the were of when those there. effort consumers, So mid to the of it’s show just markets reported environment improving of we go in made particularly hedges as quarter. Margins in the rate what XXXX. we the in rate rates when fixed pressure, we and saw year and offering in rising concerted those,

But in mean, I we usually… am that, I are can there understand from because I take offline. it the hedging that if not securitizations, benefits not are sure maybe

in… locking are You

yeah. money, …some

with funds. detail four offline transfer if allow or hedge more cost of months issuing making can later over are debt derivative that consumer you you rate well, fixed are locking don’t we [ph]. take it accounting derivative you locking later, the -- and and months three in if hedge if you in a don’t until the -- to that hedging rate, We two transaction, the are into well, loans or are but rules trans to months through Well, now understand not to a that offering a can a you you securitization that

Thanks.

from line from comes the question Hanley. of next Barrow Giambrone Mark Your

is line open. Your

morning. Good

Mark. Hi,

been of expect sheet? asked, there? long is loan the for those loans, on concise and information to my stay you the but what’s did quarter life the balance Congratulations on what one of is I questions the How the going on. refinance great have have Most question of

constant, but weighted half go of average So the life loans, three cycle securitizations a these four as so weighted those is years classless, life they obviously, average through of well the to and terms the and loan loans a our and and we seen. from been have return it’s that’s The what fast this have a we risk so is expectation speeds pretty do perspective off that’s pretty paying attractive. relatively think

Great. much. Thanks Okay. very

Mark. Thanks,

Your the next of Hammond America Bank question High from Mark from comes line of Yields.

line open. is Your

Thanks. origination, except Hi, Jack, to finance it Joe. quick get how far ones, loans ramps your originations in-school for a those so do two as you the had in-school, Chris trying and as I am existing facilities up? just private near-term loan I will in sense collateral, the in-school

there today different So are disbursement as a can and is new so there of facilities amount us significant hold. is -- that we is assets to different uncommon it it’s an if warehouse we very loan, perspective, different lot obviously with financing isn’t loan type loan don’t from attractive capital an This are their attracted loan, you But this be and about finance a there it’s looking out will in-school contemplate is this well to a a well. structure, as of structuring opportunities. to warehouses continue are who I a tell discussing banks

ones. the five-year the but and of repurchased of happen not bonds are share, base Okay. to in [ph] was And five-year there, I regarding know then, only my it’s that dated second able to XQ. longer be you Navient out mention which Would bonds are the XXXX loan repurchased.

wondering So you can if I share? was

Right.

it dislocation. It we you look offered bond as think derivative said perspective, allocation term was was a foreign the at we and currency opportunity We of against So capital means the that it attractive was this very is a a was bond, it had that the there it. a capital XXXX. bond, the I and was -- at about a as past price in in were from which against there

what cost that attractive, to as looked from all I it are perspective represented denominated perspective, a or our retire five-year -- a at so discount currency return was to P&L we foreign as what issue benefit from at versus so What was to a team very those seven-year we that look that bond. was. And that the the new decided

Got Thank Much appreciated. you. it.

[Operator Instructions] line comes Shane Morgan. the of J.P. Your question next Rick from from

Your line is open.

for a on perspective an go the questions the Thanks GAAP $XX through, this understand I want can gain. guys core million gain guys. from the we million also, it bonds, a about my income? if response. I think, want a in part difference? started from basis reported understand help should us just color But touch of gain and you last $XX morning. a you provide taking Hey, retirement I make sort just reported to on to some the of why core we sure you to And you think that as of

what core derivatives Yeah. numbers it just really there The our in a versus normally. primary and the issue for see accounting derivative you difference is is a difference so in GAAP

unwind we as it and the just can it’s it’s offline, So just that that. simple take of mean, I

Got it. terms this in And of to about how terms income? think in of core

gain. The

Yeah.

things hear this include to again thoughts because in from the to you’d add want mean, think want subtract about just I core I we your why to, income, recurring and opposed core and income we As when core? on suggests

of mean a and perspective are it. I you about within income. core from saying, and go from again, of that that it falls what it would think our within definition back falls understand to it but I perspective. net definition I – it definition just

derivative expect something on in under repeat a quarter. benefit the We transactions, example, mark-to-market GAAP. are is single not was investors so for see every that it’s we But we not it, that can related to exclude a highlighting issue that

Got it.

distinction. you, guys. makes a Thank That Okay. sense. That’s good

the at questions no are There continue. Fisher, moment. Joe please

us We’d today’s call. Lance. to like thank for on joining Thanks, everyone

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

call. you for concludes Thank conference This today’s joining.

disconnect. now You may