Nebraska | 001-31924 | 84-0748903 | ||
(State or other jurisdiction of incorporation) | (Commission File Number) | (I.R.S. Employer Identification No.) |
121 South 13th Street, Suite 100 Lincoln, Nebraska | 68508 | |
(Address of principal executive offices) | (Zip Code) |
Name: | James D. Kruger |
Title: | Chief Financial Officer |
• | GAAP net income $1.11 per share, $1.00 per share excluding adjustments |
• | Repurchased 947,794 shares for $45 million |
• | Board of Directors increased quarterly dividend to $0.16 per share |
• | Nelnet to acquire Great Lakes for $150 million |
Three months ended September 30, | ||||||
2017 | 2016 | |||||
(dollars in thousands, except share data) | ||||||
GAAP net income attributable to Nelnet, Inc. | $ | 46,303 | 84,294 | |||
Realized and unrealized derivative market value adjustments | (21,429 | ) | (47,093 | ) | ||
Unrealized foreign currency transaction adjustments | 13,683 | 4,831 | ||||
Net tax effect | 2,943 | 16,060 | ||||
Net income, excluding derivative market value and foreign currency transaction adjustments | $ | 41,500 | 58,092 | |||
Earnings per share: | ||||||
GAAP net income attributable to Nelnet, Inc. | $ | 1.11 | 1.98 | |||
Realized and unrealized derivative market value adjustments | (0.51 | ) | (1.10 | ) | ||
Unrealized foreign currency transaction adjustments | 0.33 | 0.11 | ||||
Net tax effect | 0.07 | 0.37 | ||||
Net income, excluding derivative market value and foreign currency transaction adjustments | $ | 1.00 | 1.36 |
Three months ended September 30, | ||||||
2017 | 2016 | |||||
(dollars in thousands) | ||||||
Net loss | $ | (4,602 | ) | (2,194 | ) | |
Net interest expense | 1,550 | 318 | ||||
Income tax benefit | (2,821 | ) | (1,344 | ) | ||
Depreciation and amortization | 3,145 | 1,630 | ||||
Earnings (loss) before interest, income taxes, depreciation, and amortization (EBITDA) | $ | (2,728 | ) | (1,590 | ) |
Three months ended | Nine months ended | ||||||||||||||
September 30, 2017 | June 30, 2017 | September 30, 2016 | September 30, 2017 | September 30, 2016 | |||||||||||
Interest income: | |||||||||||||||
Loan interest | $ | 191,755 | 189,488 | 193,721 | 562,451 | 567,775 | |||||||||
Investment interest | 5,129 | 3,589 | 2,460 | 11,335 | 6,674 | ||||||||||
Total interest income | 196,884 | 193,077 | 196,181 | 573,786 | 574,449 | ||||||||||
Interest expense: | |||||||||||||||
Interest on bonds and notes payable | 121,650 | 113,236 | 96,386 | 341,787 | 280,847 | ||||||||||
Net interest income | 75,234 | 79,841 | 99,795 | 231,999 | 293,602 | ||||||||||
Less provision for loan losses | 6,000 | 2,000 | 6,000 | 9,000 | 10,500 | ||||||||||
Net interest income after provision for loan losses | 69,234 | 77,841 | 93,795 | 222,999 | 283,102 | ||||||||||
Other income: | |||||||||||||||
Loan systems and servicing revenue | 55,950 | 56,899 | 54,350 | 167,079 | 161,082 | ||||||||||
Tuition payment processing, school information, and campus commerce revenue | 35,450 | 34,224 | 33,071 | 113,293 | 102,211 | ||||||||||
Communications revenue | 6,751 | 5,719 | 4,343 | 17,577 | 13,167 | ||||||||||
Enrollment services revenue | — | — | — | — | 4,326 | ||||||||||
Other income | 19,756 | 12,485 | 15,150 | 44,874 | 38,711 | ||||||||||
Gain from debt repurchases | 116 | 442 | 2,160 | 5,537 | 2,260 | ||||||||||
Derivative market value and foreign currency transaction adjustments and derivative settlements, net | 7,173 | (27,910 | ) | 36,001 | (25,568 | ) | (33,391 | ) | |||||||
Total other income | 125,196 | 81,859 | 145,075 | 322,792 | 288,366 | ||||||||||
Operating expenses: | |||||||||||||||
Salaries and benefits | 74,193 | 74,628 | 63,743 | 220,684 | 187,907 | ||||||||||
Depreciation and amortization | 10,051 | 9,038 | 8,994 | 27,687 | 24,817 | ||||||||||
Loan servicing fees | 7,939 | 5,620 | 5,880 | 19,584 | 20,024 | ||||||||||
Cost to provide communications services | 2,632 | 2,203 | 1,784 | 6,789 | 5,169 | ||||||||||
Cost to provide enrollment services | — | — | — | — | 3,623 | ||||||||||
Other expenses | 30,518 | 27,528 | 26,391 | 84,593 | 84,174 | ||||||||||
Total operating expenses | 125,333 | 119,017 | 106,792 | 359,337 | 325,714 | ||||||||||
Income before income taxes | 69,097 | 40,683 | 132,078 | 186,454 | 245,754 | ||||||||||
Income tax expense | 25,562 | 16,032 | 47,715 | 70,349 | 87,184 | ||||||||||
Net income | 43,535 | 24,651 | 84,363 | 116,105 | 158,570 | ||||||||||
Net loss (income) attributable to noncontrolling interests | 2,768 | 4,086 | (69 | ) | 8,960 | (165 | ) | ||||||||
Net income attributable to Nelnet, Inc. | $ | 46,303 | 28,737 | 84,294 | 125,065 | 158,405 | |||||||||
Earnings per common share: | |||||||||||||||
Net income attributable to Nelnet, Inc. shareholders - basic and diluted | $ | 1.11 | 0.68 | 1.98 | 2.97 | 3.70 | |||||||||
Weighted average common shares outstanding - basic and diluted | 41,553,316 | 42,326,540 | 42,642,213 | 42,054,532 | 42,788,133 |
As of | As of | As of | |||||||
September 30, 2017 | December 31, 2016 | September 30, 2016 | |||||||
Assets: | |||||||||
Student loans receivable, net | $ | 22,528,845 | 24,903,724 | 25,615,434 | |||||
Cash, cash equivalents, investments, and other receivables | 530,927 | 323,798 | 324,682 | ||||||
Restricted cash | 830,762 | 1,100,663 | 964,379 | ||||||
Goodwill and intangible assets, net | 188,054 | 195,125 | 198,276 | ||||||
Other assets | 690,122 | 656,798 | 566,840 | ||||||
Total assets | $ | 24,768,710 | 27,180,108 | 27,669,611 | |||||
Liabilities: | |||||||||
Bonds and notes payable | $ | 22,240,279 | 24,668,490 | 25,320,878 | |||||
Other liabilities | 397,991 | 440,693 | 367,637 | ||||||
Total liabilities | 22,638,270 | 25,109,183 | 25,688,515 | ||||||
Equity: | |||||||||
Total Nelnet, Inc. shareholders' equity | 2,111,851 | 2,061,655 | 1,972,085 | ||||||
Noncontrolling interests | 18,589 | 9,270 | 9,011 | ||||||
Total equity | 2,130,440 | 2,070,925 | 1,981,096 | ||||||
Total liabilities and equity | $ | 24,768,710 | 27,180,108 | 27,669,611 |
• | student loan portfolio risks such as interest rate basis and repricing risk resulting from the fact that the interest rate characteristics of the student loan assets do not match the interest rate characteristics of the funding for those assets, the risk of loss of floor income on certain student loans originated under the Federal Family Education Loan Program (the "FFEL Program" or "FFELP"), risks related to the use of derivatives to manage exposure to interest rate fluctuations, uncertainties regarding the expected benefits from purchased securitized and unsecuritized FFELP, private education, and consumer loans and initiatives to purchase additional FFELP, private education, and consumer loans, and risks from changes in levels of student loan prepayment or default rates; |
• | financing and liquidity risks, including risks of changes in the general interest rate environment and in the securitization and other financing markets for student loans, including adverse changes resulting from slower than expected payments on student loans in FFELP securitization trusts, which may increase the costs or limit the availability of financings necessary to purchase, refinance, or continue to hold student loans; |
• | risks from changes in the educational credit and services markets resulting from changes in applicable laws, regulations, and government programs and budgets, such as the expected decline over time in FFELP loan interest income and fee-based revenues due to the discontinuation of new FFELP loan originations in 2010 and potential government initiatives or legislative proposals to consolidate existing FFELP loans to the Federal Direct Loan Program or otherwise allow FFELP loans to be refinanced with Federal Direct Loan Program loans; |
• | risks that the reported agreement to acquire Great Lakes Educational Loan Services, Inc. ("Great Lakes") may not be completed within the currently scheduled time frame or at all, the uncertain nature of the expected benefits from the acquisition and the ability to successfully integrate loan servicing operations and successfully maintain and increase allocated volumes of student loans serviced under existing and any future servicing contracts with the U.S. Department of Education (the "Department"), risks to the Company related to the Department's initiative to procure new contracts for federal student loan servicing, including the risk that the Company's joint venture with Great Lakes, or the Company on a post-Great Lakes acquisition basis, may not be awarded a contract, and risks related to the Company's ability to comply with agreements with third-party customers for the servicing of FFELP, Federal Direct Loan Program, and private education and consumer loans; |
• | risks related to a breach of or failure in the Company's operational or information systems or infrastructure, or those of third-party vendors, including cybersecurity risks related to the potential disclosure of confidential student loan borrower and other customer information; |
• | uncertainties inherent in forecasting future cash flows from student loan assets and related asset-backed securitizations; |
• | the uncertain nature of the expected benefits from the acquisition of Allo Communications LLC on December 31, 2015 and the ability to integrate its communications operations and successfully expand its fiber network in existing service areas and additional communities and manage related construction risks; |
• | 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 |
• | risks and uncertainties associated with litigation matters and with maintaining compliance with the extensive regulatory requirements applicable to the Company's businesses, reputational and other risks, including the risk of increased regulatory costs, resulting from the recent politicization of student loan servicing, and uncertainties inherent in the estimates and assumptions about future events that management is required to make in the preparation of the Company's consolidated financial statements. |
Three Months Ended | Nine months ended | ||||||||||||||
September 30, 2017 | June 30, 2017 | September 30, 2016 | September 30, 2017 | September 30, 2016 | |||||||||||
Interest income: | |||||||||||||||
Loan interest | $ | 191,755 | 189,488 | 193,721 | 562,451 | 567,775 | |||||||||
Investment interest | 5,129 | 3,589 | 2,460 | 11,335 | 6,674 | ||||||||||
Total interest income | 196,884 | 193,077 | 196,181 | 573,786 | 574,449 | ||||||||||
Interest expense: | |||||||||||||||
Interest on bonds and notes payable | 121,650 | 113,236 | 96,386 | 341,787 | 280,847 | ||||||||||
Net interest income | 75,234 | 79,841 | 99,795 | 231,999 | 293,602 | ||||||||||
Less provision for loan losses | 6,000 | 2,000 | 6,000 | 9,000 | 10,500 | ||||||||||
Net interest income after provision for loan losses | 69,234 | 77,841 | 93,795 | 222,999 | 283,102 | ||||||||||
Other income: | |||||||||||||||
Loan systems and servicing revenue | 55,950 | 56,899 | 54,350 | 167,079 | 161,082 | ||||||||||
Tuition payment processing, school information, and campus commerce revenue | 35,450 | 34,224 | 33,071 | 113,293 | 102,211 | ||||||||||
Communications revenue | 6,751 | 5,719 | 4,343 | 17,577 | 13,167 | ||||||||||
Enrollment services revenue | — | — | — | — | 4,326 | ||||||||||
Other income | 19,756 | 12,485 | 15,150 | 44,874 | 38,711 | ||||||||||
Gain from debt repurchases | 116 | 442 | 2,160 | 5,537 | 2,260 | ||||||||||
Derivative settlements, net | (573 | ) | (363 | ) | (6,261 | ) | (2,314 | ) | (18,292 | ) | |||||
Derivative market value and foreign currency transaction adjustments, net | 7,746 | (27,547 | ) | 42,262 | (23,254 | ) | (15,099 | ) | |||||||
Total other income | 125,196 | 81,859 | 145,075 | 322,792 | 288,366 | ||||||||||
Operating expenses: | |||||||||||||||
Salaries and benefits | 74,193 | 74,628 | 63,743 | 220,684 | 187,907 | ||||||||||
Depreciation and amortization | 10,051 | 9,038 | 8,994 | 27,687 | 24,817 | ||||||||||
Loan servicing fees | 7,939 | 5,620 | 5,880 | 19,584 | 20,024 | ||||||||||
Cost to provide communications services | 2,632 | 2,203 | 1,784 | 6,789 | 5,169 | ||||||||||
Cost to provide enrollment services | — | — | — | — | 3,623 | ||||||||||
Other expenses | 30,518 | 27,528 | 26,391 | 84,593 | 84,174 | ||||||||||
Total operating expenses | 125,333 | 119,017 | 106,792 | 359,337 | 325,714 | ||||||||||
Income before income taxes | 69,097 | 40,683 | 132,078 | 186,454 | 245,754 | ||||||||||
Income tax expense | 25,562 | 16,032 | 47,715 | 70,349 | 87,184 | ||||||||||
Net income | 43,535 | 24,651 | 84,363 | 116,105 | 158,570 | ||||||||||
Net loss (income) attributable to noncontrolling interests | 2,768 | 4,086 | (69 | ) | 8,960 | (165 | ) | ||||||||
Net income attributable to Nelnet, Inc. | $ | 46,303 | 28,737 | 84,294 | 125,065 | 158,405 | |||||||||
Earnings per common share: | |||||||||||||||
Net income attributable to Nelnet, Inc. shareholders - basic and diluted | $ | 1.11 | 0.68 | 1.98 | 2.97 | 3.70 | |||||||||
Weighted average common shares outstanding - basic and diluted | 41,553,316 | 42,326,540 | 42,642,213 | 42,054,532 | 42,788,133 |
As of | As of | As of | |||||||
September 30, 2017 | December 31, 2016 | September 30, 2016 | |||||||
Assets: | |||||||||
Student loans receivable, net | $ | 22,528,845 | 24,903,724 | 25,615,434 | |||||
Cash, cash equivalents, investments, and other receivables | 530,927 | 323,798 | 324,682 | ||||||
Restricted cash | 830,762 | 1,100,663 | 964,379 | ||||||
Goodwill and intangible assets, net | 188,054 | 195,125 | 198,276 | ||||||
Other assets | 690,122 | 656,798 | 566,840 | ||||||
Total assets | $ | 24,768,710 | 27,180,108 | 27,669,611 | |||||
Liabilities: | |||||||||
Bonds and notes payable | $ | 22,240,279 | 24,668,490 | 25,320,878 | |||||
Other liabilities | 397,991 | 440,693 | 367,637 | ||||||
Total liabilities | 22,638,270 | 25,109,183 | 25,688,515 | ||||||
Equity: | |||||||||
Total Nelnet, Inc. shareholders' equity | 2,111,851 | 2,061,655 | 1,972,085 | ||||||
Noncontrolling interest | 18,589 | 9,270 | 9,011 | ||||||
Total equity | 2,130,440 | 2,070,925 | 1,981,096 | ||||||
Total liabilities and equity | $ | 24,768,710 | 27,180,108 | 27,669,611 |
Three months ended | Nine months ended | ||||||||||||||
September 30, 2017 | June 30, 2017 | September 30, 2016 | September 30, 2017 | September 30, 2016 | |||||||||||
GAAP net income attributable to Nelnet, Inc. | $ | 46,303 | 28,737 | 84,294 | 125,065 | 158,405 | |||||||||
Realized and unrealized derivative market value adjustments | (21,429 | ) | 286 | (47,093 | ) | (22,381 | ) | 1,556 | |||||||
Unrealized foreign currency transaction adjustments | 13,683 | 27,261 | 4,831 | 45,635 | 13,543 | ||||||||||
Net tax effect (a) | 2,943 | (10,468 | ) | 16,060 | (8,837 | ) | (5,737 | ) | |||||||
Net income, excluding derivative market value and foreign currency transaction adjustments (b) | $ | 41,500 | 45,816 | 58,092 | 139,482 | 167,767 | |||||||||
Earnings per share: | |||||||||||||||
GAAP net income attributable to Nelnet, Inc. | $ | 1.11 | 0.68 | 1.98 | 2.97 | 3.70 | |||||||||
Realized and unrealized derivative market value adjustments | (0.51 | ) | 0.01 | (1.10 | ) | (0.53 | ) | 0.03 | |||||||
Unrealized foreign currency transaction adjustments | 0.33 | 0.64 | 0.11 | 1.09 | 0.32 | ||||||||||
Net tax effect (a) | 0.07 | (0.25 | ) | 0.37 | (0.21 | ) | (0.13 | ) | |||||||
Net income, excluding derivative market value and foreign currency transaction adjustments (b) | $ | 1.00 | 1.08 | 1.36 | 3.32 | 3.92 |
(a) | The tax effects are calculated by multiplying the realized and unrealized derivative market value adjustments and unrealized foreign currency transaction adjustments by the applicable statutory income tax rate. |
(b) | "Derivative market value and foreign currency transaction adjustments" include (i) both the realized portion of gains and losses (corresponding to variation margin received or paid on derivative instruments that are settled daily at a central clearinghouse under new rules effective January 3, 2017) and the unrealized portion of gains and losses that are caused by changes in fair values of derivatives which do not qualify for "hedge treatment" under GAAP; and (ii) the unrealized foreign currency transaction gains or losses caused by the re-measurement of the Company's Euro-denominated bonds to U.S. dollars. "Derivative market value and foreign currency transaction adjustments" does not include "derivative settlements" that represent the cash paid or received during the current period to settle with derivative instrument counterparties the economic effect of the Company's derivative instruments based on their contractual terms. |
• | Loan Systems and Servicing ("LSS") - referred to as Nelnet Diversified Solutions ("NDS") |
• | Tuition Payment Processing and Campus Commerce ("TPP&CC") - referred to as Nelnet Business Solutions ("NBS") |
• | Communications - referred to as Allo Communications ("Allo") |
(b) | Total revenue includes "net interest income after provision for loan losses" and "total other income" from the Company's segment statements of income, excluding the impact from changes in fair values of derivatives and foreign currency transaction adjustments. Net income excludes changes in fair values of derivatives and foreign currency transaction adjustments, net of tax. For information regarding the exclusion of the impact from changes in fair values of derivatives and foreign currency transaction adjustments, see "GAAP Net Income and Non-GAAP Net Income, Excluding Adjustments" above. |
• | As of September 30, 2017, the Company was servicing $207.8 billion in FFELP, government owned, and private education and consumer loans, as compared with $193.2 billion of loans as of September 30, 2016. |
• | Revenue increased in the three and nine months ended September 30, 2017 compared to the same periods in 2016 due to growth in private education and consumer loan servicing volume from existing and new clients. In addition, revenue increased for the nine months ended September 30, 2017 compared to the same period in 2016 due to an increase in revenue on the government servicing contract. The increase in revenue for the nine months ended September 30, 2017 compared to the same period in 2016 was partially offset by the loss of guaranty servicing and collection revenue on June 30, 2016. |
• | Revenue from the government servicing contract decreased to $38.6 million for the three months ended September 30, 2017 compared to $40.2 million for the same period in 2016, and increased to $117.4 million for the nine months ended September 30, 2017, compared to $112.5 million for the same period in 2016. The decrease for the three months ended September 30, 2017 compared to the same period in 2016 was due to a decrease in application volume for the Company's administration of the Total and Permanent Disability Discharge (TPD) program during the third quarter of 2017. The increase for the nine months ended September 30, 2017 compared to the same period in 2016 was due to an increase in TPD and Direct Loan Consolidation program application volume, the transfer of borrowers to the Company from a not-for-profit servicer who exited the loan servicing business in August 2016, and the shift in the portfolio of loans serviced to a greater portion of loans in higher paying repayment statuses. As of September 30, 2017, the Company was servicing $171.6 billion of student loans for 5.9 million borrowers under this contract. |
• | Revenue from private education and consumer loan servicing increased to $7.6 million for the three months ended September 30, 2017 compared to $4.1 million for the same period in 2016, and increased to $20.5 million for the nine |
• | The Company's remaining guaranty servicing and collection client exited the FFELP guaranty business at the end of their contract term on June 30, 2016. After this customer's exit from the FFELP guaranty business effective June 30, 2016, the Company has no remaining guaranty servicing and collection revenue. Guaranty servicing and collection revenue earned from this customer in the nine months ended September 30, 2016 was $9.6 million. |
• | The Company's government servicing contract is currently set to expire on June 19, 2019. In April 2016, the Department announced a new contract procurement process for the Department to acquire a single servicing platform to manage all student loans owned by the Department. |
• | Before tax operating margin decreased in 2017 compared to 2016 due to operating expenses incurred related to GreatNet and an increase in personnel to support the increase in volume of loans serviced for the government entering repayment status. |
• | On October 18, 2017, the Company entered into an agreement to purchase 100 percent of the outstanding stock of Great Lakes for a purchase price of $150.0 million in cash. The transaction is scheduled to close on January 1, 2018, subject to customary closing conditions. After the transaction settles, Great Lakes and the Company will maintain their distinct brands, servicing operations, and operational teams, and each will continue to compete for new student loan volume under its respective existing contract with the Department. Over time, shared services teams will integrate and technology systems will be leveraged to support both the Great Lakes and the Company's servicing operations. The operating results of Great Lakes will be included in the Loan Systems and Servicing operating segment. |
• | Revenue increased in the three and nine months ended September 30, 2017 compared to the same periods in 2016 due to increases in the number of managed tuition payment plans, campus commerce customer transactions and payments volume, and new school customers. |
• | Before tax operating margin for the three months ended September 30, 2017 and 2016 was 26.1 percent and 25.4 percent, respectively, and for the nine months ended September 30, 2017 and 2016 was 30.7 percent and 30.2 percent, respectively. This segment is subject to seasonal fluctuations. Based on the timing of when revenue is recognized and when expenses are incurred, revenue and operating margin are higher in the first quarter as compared to the remainder of the year. |
• | For the three months ended September 30, 2017 and 2016, Allo recorded net losses of $4.6 million and $2.2 million, respectively, and for the nine months ended September 30, 2017 and 2016 recorded net losses of $11.1 million and $3.3 million, respectively. The Company anticipates this operating segment will be dilutive to consolidated earnings over the next several years as it continues to build its network in Lincoln, Nebraska, due to large upfront capital expenditures and associated depreciation and upfront customer acquisition costs. |
• | Revenue from Allo for the three months ended September 30, 2017 and 2016 was $6.8 million and $4.3 million, respectively, and for the nine months ended September 30, 2017 and 2016 revenue was $17.6 million and $13.2 million, respectively. The increase in revenue was primarily due to additiional residential households served, which increased to 16,394 as of September 30, 2017 from 8,745 as of September 30, 2016. |
• | For the three and nine months ended September 30, 2017, Allo's capital expenditures were $29.4 million and $78.4 million, respectively. The Company anticipates total network capital expenditures of approximately $30.0 million in the fourth quarter of 2017 and approximately $100.0 million in 2018; however, such amounts could change based on customer demand for Allo's services. The number of residential households passed, which represents the estimated number of single residence homes, apartments, and condominiums that Allo already serves and those in which Allo has the capacity to connect to its network distribution system without further material extensions to the transmission lines (but have not been connected) increased to 54,815 as of September 30, 2017 as compared to 30,962 as of December 31, 2016. The total households in current markets that Allo plans to expand its network to make services available is 137,500. |
• | During the three months ended September 30, 2017 compared to the same period in 2016, the average balance of student loans decreased $3.2 billion, to $23.2 billion, due primarily to the amortization of the student loan portfolio, partially offset by limited portfolio acquisitions from third parties. The Company acquired $37.5 million and $142.4 million of student loans during the three and nine months ended September 30, 2017, respectively. |
• | Core student loan spread was 1.17% for the three months ended September 30, 2017, compared to 1.26% for the same period in 2016. The decrease in core student loan spread was primarily due to a decrease in fixed rate floor income and an increase in derivative settlements paid related to the Company's 1:3 basis swaps. |
• | Due to historically low interest rates, the Company continues to earn significant fixed rate floor income. During the three months ended September 30, 2017 and 2016, and nine months ended September 30, 2017 and 2016, the Company earned $24.6 million, $41.5 million, $84.4 million, and $131.7 million, respectively, of fixed rate floor income. |
• | Provision for loan losses for federally insured loans was $7.0 million for the three months ended September 30, 2017. During the three months ended September 30, 2017, the Company determined an additional allowance was necessary related to a $1.6 billion (principal balance as of September 30, 2017) portfolio of federally insured loans that were purchased in 2014 and 2015, and recognized $5.0 million (pre-tax) in provision expense related to these loans. |
• | During the third quarter of 2017, the Company incurred $2.8 million (pre-tax) in expenses related to conversion fees to |
• | Whitetail Rock Capital Management, LLC, the Company's SEC-registered investment advisor subsidiary, recognized investment advisory revenue of $5.9 million, $1.5 million, $11.7 million, and $3.4 million in the three months ended September 30, 2017 and 2016 and nine months ended September 30, 2017 and 2016, respectively. These amounts include performance fees earned from the sale of managed securities or managed securities being called prior to the full contractual maturity. |
• | As of September 30, 2017, the Company had cash and cash equivalents of $254.4 million. In addition, the Company had a portfolio of available-for-sale investments, consisting primarily of student loan asset-backed securities, with a fair value of $75.4 million as of September 30, 2017. |
• | For the nine months ended September 30, 2017, the Company generated $230.3 million in net cash from operating activities. |
• | Forecasted undiscounted future cash flows from the Company's student loan portfolio financed in asset-backed securitization transactions are estimated to be approximately $1.93 billion as of September 30, 2017. |
• | As of September 30, 2017, there was $210.0 million outstanding on the Company's $350.0 million unsecured line of credit and $140.0 million was available for future use. The unsecured line of credit has a maturity date of December 12, 2021. |
• | During the nine months ended September 30, 2017, the Company repurchased a total of 1,363,571 shares of Class A common stock for $63.3 million ($46.44 per share), including a total of 947,794 shares of Class A common stock repurchased for $45.1 million ($47.62 per share) during the three months ended September 30, 2017. Certain of these repurchases were made pursuant to a trading plan adopted by the Company in accordance with Rule 10b5-1 under the Securities Exchange Act of 1934. |
• | During the first quarter of 2017, the Company initiated a cash tender offer to purchase any and all of its outstanding unsecured Hybrid Securities. The aggregate principal amount of notes tendered to the Company was $29.7 million. The Company paid $25.3 million to redeem these notes, and recognized a $4.4 million (pre-tax) gain. In addition, during the three and nine months ended September 30, 2017, the Company repurchased $14.7 million and $18.8 million of its own asset-backed debt securities and recognized gains of $0.1 million and $1.1 million, respectively. |
• | During the nine months ended September 30, 2017, the Company paid cash dividends of $17.6 million ($0.42 per share), including $5.8 million ($0.14 per share) during the three months ended September 30, 2017. In addition, the Company's Board of Directors has declared a fourth quarter 2017 cash dividend on the Company's outstanding shares of Class A and Class B common stock of $0.16 per share. The fourth quarter cash dividend will be paid on December 15, 2017 to shareholders of record at the close of business on December 1, 2017. |
• | The Company intends to use its liquidity position to capitalize on market opportunities, including FFELP and private education and consumer loan acquisitions; strategic acquisitions and investments; expansion of Allo's telecommunications network; and capital management initiatives, including stock repurchases, debt repurchases, and dividend distributions. The timing and size of these opportunities will vary and will have a direct impact on the Company's cash and investment balances. |
• | Income earned on certain investment activities |
• | Interest expense incurred on unsecured debt transactions |
• | Other product and service offerings that are not considered reportable operating segments including, but not limited to, Whitetail Rock Capital Management, LLC, the Company's SEC-registered investment advisor subsidiary |
Three months ended September 30, 2017 | |||||||||||||||||||||
Loan Systems and Servicing | Tuition Payment Processing and Campus Commerce | Communications | Asset Generation and Management | Corporate and Other Activities | Eliminations | Total | |||||||||||||||
Total interest income | $ | 147 | 5 | 1 | 194,968 | 3,903 | (2,139 | ) | 196,884 | ||||||||||||
Interest expense | — | — | 1,551 | 121,074 | 1,165 | (2,139 | ) | 121,650 | |||||||||||||
Net interest income | 147 | 5 | (1,550 | ) | 73,894 | 2,738 | — | 75,234 | |||||||||||||
Less provision for loan losses | — | — | — | 6,000 | — | — | 6,000 | ||||||||||||||
Net interest income (loss) after provision for loan losses | 147 | 5 | (1,550 | ) | 67,894 | 2,738 | — | 69,234 | |||||||||||||
Other income: | |||||||||||||||||||||
Loan systems and servicing revenue | 55,950 | — | — | — | — | — | 55,950 | ||||||||||||||
Intersegment servicing revenue | 10,563 | — | — | — | — | (10,563 | ) | — | |||||||||||||
Tuition payment processing, school information, and campus commerce revenue | — | 35,450 | — | — | — | — | 35,450 | ||||||||||||||
Communications revenue | — | — | 6,751 | — | — | — | 6,751 | ||||||||||||||
Other income | — | — | — | 2,753 | 17,003 | — | 19,756 | ||||||||||||||
Gain from debt repurchases | — | — | — | 116 | — | — | 116 | ||||||||||||||
Derivative settlements, net | — | — | — | (382 | ) | (191 | ) | — | (573 | ) | |||||||||||
Derivative market value and foreign currency transaction adjustments, net | — | — | — | 7,702 | 44 | — | 7,746 | ||||||||||||||
Total other income | 66,513 | 35,450 | 6,751 | 10,189 | 16,856 | (10,563 | ) | 125,196 | |||||||||||||
Operating expenses: | |||||||||||||||||||||
Salaries and benefits | 38,435 | 17,432 | 4,099 | 392 | 13,834 | — | 74,193 | ||||||||||||||
Depreciation and amortization | 549 | 2,316 | 3,145 | — | 4,040 | — | 10,051 | ||||||||||||||
Loan servicing fees | — | — | — | 7,939 | — | — | 7,939 | ||||||||||||||
Cost to provide communications services | — | — | 2,632 | — | — | — | 2,632 | ||||||||||||||
Other expenses | 10,317 | 4,224 | 2,278 | 1,451 | 12,248 | — | 30,518 | ||||||||||||||
Intersegment expenses, net | 7,774 | 2,219 | 470 | 10,659 | (10,559 | ) | (10,563 | ) | — | ||||||||||||
Total operating expenses | 57,075 | 26,191 | 12,624 | 20,441 | 19,563 | (10,563 | ) | 125,333 | |||||||||||||
Income (loss) before income taxes | 9,585 | 9,264 | (7,423 | ) | 57,642 | 31 | — | 69,097 | |||||||||||||
Income tax (expense) benefit | (4,937 | ) | (3,520 | ) | 2,821 | (21,904 | ) | 1,978 | — | (25,562 | ) | ||||||||||
Net income (loss) | 4,648 | 5,744 | (4,602 | ) | 35,738 | 2,009 | — | 43,535 | |||||||||||||
Net loss (income) attributable to noncontrolling interests | 3,408 | — | — | — | (640 | ) | — | 2,768 | |||||||||||||
Net income (loss) attributable to Nelnet, Inc. | $ | 8,056 | 5,744 | (4,602 | ) | 35,738 | 1,369 | — | 46,303 |
Three months ended June 30, 2017 | |||||||||||||||||||||
Loan Systems and Servicing | Tuition Payment Processing and Campus Commerce | Communications | Asset Generation and Management | Corporate and Other Activities | Eliminations | Total | |||||||||||||||
Total interest income | $ | 120 | 3 | 1 | 191,367 | 3,362 | (1,776 | ) | 193,077 | ||||||||||||
Interest expense | — | — | 1,104 | 113,073 | 835 | (1,776 | ) | 113,236 | |||||||||||||
Net interest income | 120 | 3 | (1,103 | ) | 78,294 | 2,527 | — | 79,841 | |||||||||||||
Less provision for loan losses | — | — | — | 2,000 | — | — | 2,000 | ||||||||||||||
Net interest income (loss) after provision for loan losses | 120 | 3 | (1,103 | ) | 76,294 | 2,527 | — | 77,841 | |||||||||||||
Other income: | |||||||||||||||||||||
Loan systems and servicing revenue | 56,899 | — | — | — | — | — | 56,899 | ||||||||||||||
Intersegment servicing revenue | 9,952 | — | — | — | — | (9,952 | ) | — | |||||||||||||
Tuition payment processing, school information, and campus commerce revenue | — | 34,224 | — | — | — | — | 34,224 | ||||||||||||||
Communications revenue | — | — | 5,719 | — | — | — | 5,719 | ||||||||||||||
Other income | — | — | — | 3,057 | 9,429 | — | 12,485 | ||||||||||||||
Gain from debt repurchases | — | — | — | 442 | — | — | 442 | ||||||||||||||
Derivative settlements, net | — | — | — | (165 | ) | (198 | ) | — | (363 | ) | |||||||||||
Derivative market value and foreign currency transaction adjustments, net | — | — | — | (27,412 | ) | (135 | ) | — | (27,547 | ) | |||||||||||
Total other income | 66,851 | 34,224 | 5,719 | (24,078 | ) | 9,096 | (9,952 | ) | 81,859 | ||||||||||||
Operating expenses: | |||||||||||||||||||||
Salaries and benefits | 40,506 | 16,901 | 3,411 | 363 | 13,447 | — | 74,628 | ||||||||||||||
Depreciation and amortization | 546 | 2,346 | 2,600 | — | 3,547 | — | 9,038 | ||||||||||||||
Loan servicing fees | — | — | — | 5,620 | — | — | 5,620 | ||||||||||||||
Cost to provide communications services | — | — | 2,203 | — | — | — | 2,203 | ||||||||||||||
Other expenses | 8,879 | 4,853 | 1,772 | 1,827 | 10,195 | — | 27,528 | ||||||||||||||
Intersegment expenses, net | 8,324 | 2,136 | 496 | 10,043 | (11,046 | ) | (9,952 | ) | — | ||||||||||||
Total operating expenses | 58,255 | 26,236 | 10,482 | 17,853 | 16,143 | (9,952 | ) | 119,017 | |||||||||||||
Income (loss) before income taxes | 8,716 | 7,991 | (5,866 | ) | 34,363 | (4,520 | ) | — | 40,683 | ||||||||||||
Income tax (expense) benefit | (4,918 | ) | (3,037 | ) | 2,229 | (13,057 | ) | 2,751 | — | (16,032 | ) | ||||||||||
Net income (loss) | 3,798 | 4,954 | (3,637 | ) | 21,306 | (1,769 | ) | — | 24,651 | ||||||||||||
Net loss (income) attributable to noncontrolling interests | 4,226 | — | — | — | (141 | ) | — | 4,086 | |||||||||||||
Net income (loss) attributable to Nelnet, Inc. | $ | 8,024 | 4,954 | (3,637 | ) | 21,306 | (1,910 | ) | — | 28,737 |
Three months ended September 30, 2016 | |||||||||||||||||||||
Loan Systems and Servicing | Tuition Payment Processing and Campus Commerce | Communications | Asset Generation and Management | Corporate and Other Activities | Eliminations | Total | |||||||||||||||
Total interest income | $ | 37 | 2 | — | 194,701 | 2,370 | (930 | ) | 196,181 | ||||||||||||
Interest expense | — | — | 318 | 95,383 | 1,615 | (930 | ) | 96,386 | |||||||||||||
Net interest income | 37 | 2 | (318 | ) | 99,318 | 755 | — | 99,795 | |||||||||||||
Less provision for loan losses | — | — | — | 6,000 | — | — | 6,000 | ||||||||||||||
Net interest income (loss) after provision for loan losses | 37 | 2 | (318 | ) | 93,318 | 755 | — | 93,795 | |||||||||||||
Other income: | |||||||||||||||||||||
Loan systems and servicing revenue | 54,350 | — | — | — | — | — | 54,350 | ||||||||||||||
Intersegment servicing revenue | 11,021 | — | — | — | — | (11,021 | ) | — | |||||||||||||
Tuition payment processing, school information, and campus commerce revenue | — | 33,071 | — | — | — | — | 33,071 | ||||||||||||||
Communications revenue | — | — | 4,343 | — | — | — | 4,343 | ||||||||||||||
Enrollment services revenue | — | — | — | — | — | — | — | ||||||||||||||
Other income | — | — | — | 4,265 | 10,886 | — | 15,150 | ||||||||||||||
Gain from debt repurchases | — | — | — | 2,160 | — | — | 2,160 | ||||||||||||||
Derivative settlements, net | — | — | — | (6,028 | ) | (233 | ) | — | (6,261 | ) | |||||||||||
Derivative market value and foreign currency transaction adjustments, net | — | — | — | 42,546 | (284 | ) | — | 42,262 | |||||||||||||
Total other income | 65,371 | 33,071 | 4,343 | 42,943 | 10,369 | (11,021 | ) | 145,075 | |||||||||||||
Operating expenses: | |||||||||||||||||||||
Salaries and benefits | 32,505 | 15,979 | 2,325 | 486 | 12,448 | — | 63,743 | ||||||||||||||
Depreciation and amortization | 557 | 2,929 | 1,630 | — | 3,878 | — | 8,994 | ||||||||||||||
Loan servicing fees | — | — | — | 5,880 | — | — | 5,880 | ||||||||||||||
Cost to provide communication services | — | — | 1,784 | — | — | — | 1,784 | ||||||||||||||
Cost to provide enrollment services | — | — | — | — | — | — | — | ||||||||||||||
Other expenses | 8,784 | 4,149 | 1,545 | 1,769 | 10,143 | — | 26,391 | ||||||||||||||
Intersegment expenses, net | 5,825 | 1,616 | 279 | 11,146 | (7,845 | ) | (11,021 | ) | — | ||||||||||||
Total operating expenses | 47,671 | 24,673 | 7,563 | 19,281 | 18,624 | (11,021 | ) | 106,792 | |||||||||||||
Income (loss) before income taxes | 17,737 | 8,400 | (3,538 | ) | 116,980 | (7,500 | ) | — | 132,078 | ||||||||||||
Income tax (expense) benefit | (6,740 | ) | (3,192 | ) | 1,344 | (44,571 | ) | 5,443 | — | (47,715 | ) | ||||||||||
Net income (loss) | 10,997 | 5,208 | (2,194 | ) | 72,409 | (2,057 | ) | — | 84,363 | ||||||||||||
Net loss (income) attributable to noncontrolling interests | — | — | — | — | (69 | ) | — | (69 | ) | ||||||||||||
Net income (loss) attributable to Nelnet, Inc. | $ | 10,997 | 5,208 | (2,194 | ) | 72,409 | (2,126 | ) | — | 84,294 |
Nine months ended September 30, 2017 | |||||||||||||||||||||
Loan Systems and Servicing | Tuition Payment Processing and Campus Commerce | Communications | Asset Generation and Management | Corporate and Other Activities | Eliminations | Total | |||||||||||||||
Total interest income | $ | 361 | 10 | 2 | 568,661 | 10,026 | (5,274 | ) | 573,786 | ||||||||||||
Interest expense | — | — | 3,367 | 340,898 | 2,794 | (5,274 | ) | 341,787 | |||||||||||||
Net interest income | 361 | 10 | (3,365 | ) | 227,763 | 7,232 | — | 231,999 | |||||||||||||
Less provision for loan losses | — | — | — | 9,000 | — | — | 9,000 | ||||||||||||||
Net interest income (loss) after provision for loan losses | 361 | 10 | (3,365 | ) | 218,763 | 7,232 | — | 222,999 | |||||||||||||
Other income: | |||||||||||||||||||||
Loan systems and servicing revenue | 167,079 | — | — | — | — | — | 167,079 | ||||||||||||||
Intersegment servicing revenue | 30,839 | — | — | — | — | (30,839 | ) | — | |||||||||||||
Tuition payment processing, school information, and campus commerce revenue | — | 113,293 | — | — | — | — | 113,293 | ||||||||||||||
Communications revenue | — | — | 17,577 | — | — | — | 17,577 | ||||||||||||||
Other income | — | — | — | 9,152 | 35,722 | — | 44,874 | ||||||||||||||
Gain from debt repurchases | — | — | — | 1,097 | 4,440 | — | 5,537 | ||||||||||||||
Derivative settlements, net | — | — | — | (1,721 | ) | (593 | ) | — | (2,314 | ) | |||||||||||
Derivative market value and foreign currency transaction adjustments, net | — | — | — | (23,121 | ) | (133 | ) | — | (23,254 | ) | |||||||||||
Total other income | 197,918 | 113,293 | 17,577 | (14,593 | ) | 39,436 | (30,839 | ) | 322,792 | ||||||||||||
Operating expenses: | |||||||||||||||||||||
Salaries and benefits | 116,932 | 50,986 | 10,489 | 1,156 | 41,121 | — | 220,684 | ||||||||||||||
Depreciation and amortization | 1,644 | 7,053 | 7,880 | — | 11,109 | — | 27,687 | ||||||||||||||
Loan servicing fees | — | — | — | 19,584 | — | — | 19,584 | ||||||||||||||
Cost to provide communications services | — | — | 6,789 | — | — | — | 6,789 | ||||||||||||||
Other expenses | 28,333 | 14,072 | 5,422 | 4,269 | 32,497 | — | 84,593 | ||||||||||||||
Intersegment expenses, net | 23,496 | 6,430 | 1,472 | 31,114 | (31,673 | ) | (30,839 | ) | — | ||||||||||||
Total operating expenses | 170,405 | 78,541 | 32,052 | 56,123 | 53,054 | (30,839 | ) | 359,337 | |||||||||||||
Income (loss) before income taxes | 27,874 | 34,762 | (17,840 | ) | 148,047 | (6,386 | ) | — | 186,454 | ||||||||||||
Income tax (expense) benefit | (14,410 | ) | (13,210 | ) | 6,779 | (56,258 | ) | 6,749 | — | (70,349 | ) | ||||||||||
Net income (loss) | 13,464 | 21,552 | (11,061 | ) | 91,789 | 363 | — | 116,105 | |||||||||||||
Net loss (income) attributable to noncontrolling interests | 10,050 | — | — | — | (1,090 | ) | — | 8,960 | |||||||||||||
Net income (loss) attributable to Nelnet, Inc. | $ | 23,514 | 21,552 | (11,061 | ) | 91,789 | (727 | ) | — | 125,065 |
Nine months ended September 30, 2016 | |||||||||||||||||||||
Loan Systems and Servicing | Tuition Payment Processing and Campus Commerce | Communications | Asset Generation and Management | Corporate and Other Activities | Eliminations | Total | |||||||||||||||
Total interest income | $ | 80 | 7 | 1 | 570,390 | 6,527 | (2,556 | ) | 574,449 | ||||||||||||
Interest expense | — | — | 671 | 278,029 | 4,702 | (2,556 | ) | 280,847 | |||||||||||||
Net interest income | 80 | 7 | (670 | ) | 292,361 | 1,825 | — | 293,602 | |||||||||||||
Less provision for loan losses | — | — | — | 10,500 | — | — | 10,500 | ||||||||||||||
Net interest income (loss) after provision for loan losses | 80 | 7 | (670 | ) | 281,861 | 1,825 | — | 283,102 | |||||||||||||
Other income: | |||||||||||||||||||||
Loan systems and servicing revenue | 161,082 | — | — | — | — | — | 161,082 | ||||||||||||||
Intersegment servicing revenue | 34,436 | — | — | — | — | (34,436 | ) | — | |||||||||||||
Tuition payment processing, school information, and campus commerce revenue | — | 102,211 | — | — | — | — | 102,211 | ||||||||||||||
Communications revenue | — | — | 13,167 | — | — | — | 13,167 | ||||||||||||||
Enrollment services revenue | — | — | — | — | 4,326 | — | 4,326 | ||||||||||||||
Other income | — | — | — | 12,362 | 26,349 | — | 38,711 | ||||||||||||||
Gain from debt repurchases | — | — | — | 2,260 | — | — | 2,260 | ||||||||||||||
Derivative settlements, net | — | — | — | (17,596 | ) | (696 | ) | — | (18,292 | ) | |||||||||||
Derivative market value and foreign currency transaction adjustments, net | — | — | — | (8,763 | ) | (6,336 | ) | — | (15,099 | ) | |||||||||||
Total other income | 195,518 | 102,211 | 13,167 | (11,737 | ) | 23,643 | (34,436 | ) | 288,366 | ||||||||||||
Operating expenses: | |||||||||||||||||||||
Salaries and benefits | 96,851 | 45,859 | 4,792 | 1,504 | 38,902 | — | 187,907 | ||||||||||||||
Depreciation and amortization | 1,440 | 7,711 | 4,137 | — | 11,528 | — | 24,817 | ||||||||||||||
Loan servicing fees | — | — | — | 20,024 | — | — | 20,024 | ||||||||||||||
Cost to provide communications services | — | — | 5,169 | — | — | — | 5,169 | ||||||||||||||
Cost to provide enrollment services | — | — | — | — | 3,623 | — | 3,623 | ||||||||||||||
Other expenses | 31,635 | 13,122 | 3,110 | 4,766 | 31,540 | — | 84,174 | ||||||||||||||
Intersegment expenses, net | 18,168 | 4,690 | 610 | 34,791 | (23,823 | ) | (34,436 | ) | — | ||||||||||||
Total operating expenses | 148,094 | 71,382 | 17,818 | 61,085 | 61,770 | (34,436 | ) | 325,714 | |||||||||||||
Income (loss) before income taxes | 47,504 | 30,836 | (5,321 | ) | 209,039 | (36,302 | ) | — | 245,754 | ||||||||||||
Income tax (expense) benefit | (18,052 | ) | (11,718 | ) | 2,022 | (79,434 | ) | 19,998 | — | (87,184 | ) | ||||||||||
Net income (loss) | 29,452 | 19,118 | (3,299 | ) | 129,605 | (16,304 | ) | — | 158,570 | ||||||||||||
Net loss (income) attributable to noncontrolling interests | — | — | — | — | (165 | ) | — | (165 | ) | ||||||||||||
Net income (loss) attributable to Nelnet, Inc. | $ | 29,452 | 19,118 | (3,299 | ) | 129,605 | (16,469 | ) | — | 158,405 |
Three months ended | Nine months ended | ||||||||||||||
September 30, 2017 | June 30, 2017 | September 30, 2016 | September 30, 2017 | September 30, 2016 | |||||||||||
Variable student loan interest margin | $ | 46,683 | 49,425 | 57,442 | 139,082 | 159,932 | |||||||||
Settlements on associated derivatives (a) | (4,265 | ) | (2,279 | ) | (871 | ) | (7,598 | ) | (2,355 | ) | |||||
Variable student loan interest margin, net of settlements on derivatives | 42,418 | 47,146 | 56,571 | 131,484 | 157,577 | ||||||||||
Fixed rate floor income | 24,586 | 27,664 | 41,509 | 84,382 | 131,720 | ||||||||||
Settlements on associated derivatives (b) | 3,883 | 2,114 | (5,157 | ) | 5,877 | (15,241 | ) | ||||||||
Fixed rate floor income, net of settlements on derivatives | 28,469 | 29,778 | 36,352 | 90,259 | 116,479 | ||||||||||
Investment interest | 5,129 | 3,589 | 2,460 | 11,335 | 6,674 | ||||||||||
Corporate debt interest expense | (1,164 | ) | (837 | ) | (1,616 | ) | (2,800 | ) | (4,724 | ) | |||||
Non-portfolio related derivative settlements (c) | (191 | ) | (198 | ) | (233 | ) | (593 | ) | (696 | ) | |||||
Net interest income (net of settlements on derivatives) | $ | 74,661 | 79,478 | 93,534 | 229,685 | 275,310 |
(a) | Includes the net settlements paid/received related to the Company’s 1:3 basis swaps and cross-currency interest rate swap. |
(b) | Includes the net settlements paid/received related to the Company’s floor income interest rate swaps. |
(c) | Includes the net settlements paid/received related to the Company’s hybrid debt hedges. |
Company owned | $19,742 | $18,886 | $18,433 | $18,079 | $17,429 | $16,962 | $16,352 | $15,789 | $18,403 | ||||||||||||||||||
% of total | 12.2% | 10.7% | 10.1% | 9.8% | 9.0% | 8.7% | 8.2% | 7.9% | 8.9% | ||||||||||||||||||
Number of servicing borrowers: | |||||||||||||||||||||||||||
Government servicing: | 5,915,449 | 5,842,163 | 5,786,545 | 5,726,828 | 6,009,433 | 5,972,619 | 5,924,099 | 5,849,283 | 5,906,404 | ||||||||||||||||||
FFELP servicing: | 1,397,295 | 1,335,538 | 1,298,407 | 1,296,198 | 1,357,412 | 1,312,192 | 1,263,785 | 1,218,706 | 1,317,552 | ||||||||||||||||||
Private education and consumer loan servicing: | 202,529 | 245,737 | 250,666 | 267,073 | 292,989 | 355,096 | 389,010 | 454,182 | 478,150 | ||||||||||||||||||
Total: | 7,515,273 | 7,423,438 | 7,335,618 | 7,290,099 | 7,659,834 | 7,639,907 | 7,576,894 | 7,522,171 | 7,702,106 | ||||||||||||||||||
Number of remote hosted borrowers: | 1,611,654 | 1,755,341 | 1,796,783 | 1,842,961 | 2,103,989 | 2,230,019 | 2,305,991 | 2,317,151 | 2,714,588 |
Three months ended | Nine months ended | ||||||||||||||
September 30, 2017 | June 30, 2017 | September 30, 2016 | September 30, 2017 | September 30, 2016 | |||||||||||
Residential revenue | $ | 4,691 | 3,740 | 2,643 | 11,862 | 7,695 | |||||||||
Business revenue | 2,003 | 1,695 | 1,565 | 5,514 | 4,777 | ||||||||||
Other revenue | 57 | 284 | 135 | 201 | 695 | ||||||||||
Total revenue | $ | 6,751 | 5,719 | 4,343 | 17,577 | 13,167 | |||||||||
Net loss | $ | (4,602 | ) | (3,637 | ) | (2,194 | ) | (11,061 | ) | (3,299 | ) | ||||
EBITDA (a) | (2,728 | ) | (2,163 | ) | (1,590 | ) | (6,595 | ) | (514 | ) | |||||
Capital expenditures | 29,417 | 32,344 | 12,610 | 78,430 | 24,647 | ||||||||||
Revenue contribution: | |||||||||||||||
Internet | 46.7 | % | 45.6 | % | 40.5 | % | 44.6 | % | 38.5 | % | |||||
Television | 30.8 | 30.8 | 32.5 | 30.7 | 32.2 | ||||||||||
Telephone | 20.6 | 23.4 | 27.2 | 22.5 | 27.1 | ||||||||||
Other | 1.9 | 0.2 | (0.2 | ) | 2.2 | 2.2 | |||||||||
100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % |
As of September 30, 2017 | As of June 30, 2017 | As of March 31, 2017 | As of December 31, 2016 | As of September 30, 2016 | As of June 30, 2016 | As of March 31, 2016 | As of December 31, 2015 | |||||||||||||||||
Residential customer information: | ||||||||||||||||||||||||
Households served | 16,394 | 12,460 | 10,524 | 9,814 | 8,745 | 8,314 | 7,909 | 7,600 | ||||||||||||||||
Households passed (b) | 54,815 | 45,880 | 34,925 | 30,962 | 22,977 | 22,977 | 21,274 | 21,274 | ||||||||||||||||
Total households in current markets (c) | 137,500 | 137,500 | 137,500 | 137,500 | 137,500 | 137,500 | 137,500 | 28,874 |
(a) | Earnings (loss) before interest, income taxes, depreciation, and amortization ("EBITDA") is a supplemental non-GAAP performance measure that is frequently used in capital-intensive industries such as telecommunications. Allo's management uses 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. EBITDA excludes interest 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. The Company reports EBITDA for Allo because the Company believes that it provides useful additional information for investors regarding a key metric used by management to assess Allo's performance. 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, such as net income or any other performance measures derived in accordance with GAAP. A reconciliation of EBITDA from Allo's net loss under GAAP is presented in the table immediately below: |
Three months ended | Nine months ended | ||||||||||||||
September 30, 2017 | June 30, 2017 | September 30, 2016 | September 30, 2017 | September 30, 2016 | |||||||||||
Net loss | $ | (4,602 | ) | (3,637 | ) | (2,194 | ) | (11,061 | ) | (3,299 | ) | ||||
Net interest expense | 1,550 | 1,103 | 318 | 3,365 | 670 | ||||||||||
Income tax benefit | (2,821 | ) | (2,229 | ) | (1,344 | ) | (6,779 | ) | (2,022 | ) | |||||
Depreciation and amortization | 3,145 | 2,600 | 1,630 | 7,880 | 4,137 | ||||||||||
Earnings (loss) before interest, income taxes, depreciation, and amortization (EBITDA) | $ | (2,728 | ) | (2,163 | ) | (1,590 | ) | (6,595 | ) | (514 | ) |
(b) | Represents the number of single residence homes, apartments, and condominiums that Allo already serves and those in which Allo has the capacity to connect to its network distribution system without further material extensions to the transmission lines, but have not been connected. |
(c) | During the first quarter of 2016, Allo announced plans to expand its network to make services available to substantially all commercial and residential premises in Lincoln, Nebraska, and currently plans to expand to additional communities in Nebraska and surrounding states over the next several years. |
Three months ended | Nine months ended | ||||||||||||||
September 30, 2017 | June 30, 2017 | September 30, 2016 | September 30, 2017 | September 30, 2016 | |||||||||||
Investment advisory fees | $ | 5,852 | 2,294 | 1,535 | 11,661 | 3,367 | |||||||||
Peterson's revenue | 3,402 | 3,043 | 4,128 | 9,282 | 10,655 | ||||||||||
Borrower late fee income | 2,731 | 3,048 | 3,158 | 9,098 | 9,910 | ||||||||||
Realized and unrealized gains on investments classified as available-for-sale and trading, net | 2,468 | 392 | 506 | 3,185 | 1,444 | ||||||||||
Other | 5,303 | 3,708 | 5,823 | 11,648 | 13,335 | ||||||||||
Other income | $ | 19,756 | 12,485 | 15,150 | 44,874 | 38,711 |
Three months ended | Nine months ended | ||||||||||||||
September 30, 2017 | June 30, 2017 | September 30, 2016 | September 30, 2017 | September 30, 2016 | |||||||||||
1:3 basis swaps | $ | (2,172 | ) | (362 | ) | 523 | (1,836 | ) | 938 | ||||||
Interest rate swaps - floor income hedges | 3,883 | 2,114 | (5,157 | ) | 5,877 | (15,241 | ) | ||||||||
Interest rate swaps - hybrid debt hedges | (191 | ) | (198 | ) | (233 | ) | (593 | ) | (696 | ) | |||||
Cross-currency interest rate swap | (2,093 | ) | (1,917 | ) | (1,394 | ) | (5,762 | ) | (3,293 | ) | |||||
Total settlements - (expense) income | $ | (573 | ) | (363 | ) | (6,261 | ) | (2,314 | ) | (18,292 | ) |
Three months ended | Nine months ended | ||||||||||||||
September 30, 2017 | June 30, 2017 | September 30, 2016 | September 30, 2017 | September 30, 2016 | |||||||||||
Change in fair value of derivatives - income (expense) | $ | 21,429 | (286 | ) | 47,093 | 22,381 | (1,556 | ) | |||||||
Foreign currency transaction adjustment - income (expense) | (13,683 | ) | (27,261 | ) | (4,831 | ) | (45,635 | ) | (13,543 | ) | |||||
Derivative market value and foreign currency transaction adjustments - income (expense) | $ | 7,746 | (27,547 | ) | 42,262 | (23,254 | ) | (15,099 | ) |
As of | As of | As of | |||||||
September 30, 2017 | December 31, 2016 | September 30, 2016 | |||||||
Federally insured loans: | |||||||||
Stafford and other | $ | 4,534,588 | 5,186,047 | 5,353,052 | |||||
Consolidation | 17,952,696 | 19,643,937 | 20,189,881 | ||||||
Total | 22,487,284 | 24,829,984 | 25,542,933 | ||||||
Private education loans | 226,629 | 273,659 | 276,432 | ||||||
22,713,913 | 25,103,643 | 25,819,365 | |||||||
Loan discount, net of unamortized loan premiums and deferred origination costs | (119,572 | ) | (129,507 | ) | (131,601 | ) | |||
Non-accretable discount | (13,532 | ) | (18,570 | ) | (20,760 | ) | |||
Allowance for loan losses – federally insured loans | (39,398 | ) | (37,268 | ) | (37,028 | ) | |||
Allowance for loan losses – private education loans | (12,566 | ) | (14,574 | ) | (14,542 | ) | |||
$ | 22,528,845 | 24,903,724 | 25,615,434 |
Three months ended September 30, | Nine months ended September 30, | |||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||
Beginning balance | $ | 23,390,300 | 26,754,560 | 25,103,643 | 28,555,749 | |||||||
Loan acquisitions | 37,532 | 52,667 | 142,386 | 238,595 | ||||||||
Repayments, claims, capitalized interest, and other | (446,588 | ) | (660,074 | ) | (1,643,049 | ) | (1,989,806 | ) | ||||
Consolidation loans lost to external parties | (267,331 | ) | (327,766 | ) | (889,067 | ) | (940,413 | ) | ||||
Loans sold | — | (22 | ) | — | (44,760 | ) | ||||||
Ending balance | $ | 22,713,913 | 25,819,365 | 22,713,913 | 25,819,365 |
Three months ended September 30, | Nine months ended September 30, | |||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||
Variable student loan yield, gross | 3.62 | % | 2.93 | % | 3.44 | % | 2.87 | % | ||||
Consolidation rebate fees | (0.85 | ) | (0.83 | ) | (0.84 | ) | (0.83 | ) | ||||
Discount accretion, net of premium and deferred origination costs amortization (a) | 0.07 | 0.06 | 0.07 | 0.06 | ||||||||
Variable student loan yield, net | 2.84 | 2.16 | 2.67 | 2.10 | ||||||||
Student loan cost of funds - interest expense | (2.09 | ) | (1.44 | ) | (1.91 | ) | (1.36 | ) | ||||
Student loan cost of funds - derivative settlements (b) (c) | (0.07 | ) | (0.01 | ) | (0.04 | ) | (0.01 | ) | ||||
Variable student loan spread | 0.68 | 0.71 | 0.72 | 0.73 | ||||||||
Fixed rate floor income, gross | 0.42 | 0.63 | 0.47 | 0.64 | ||||||||
Fixed rate floor income - derivative settlements (b) (d) | 0.07 | (0.08 | ) | 0.03 | (0.07 | ) | ||||||
Fixed rate floor income, net of settlements on derivatives | 0.49 | 0.55 | 0.50 | 0.57 | ||||||||
Core student loan spread | 1.17 | % | 1.26 | % | 1.22 | % | 1.30 | % | ||||
Average balance of student loans | $ | 23,188,577 | 26,368,507 | 23,948,108 | 27,305,128 | |||||||
Average balance of debt outstanding | 22,892,789 | 26,235,053 | 23,687,067 | 27,188,069 |
(a) | In the third quarter of 2016, the Company revised its policy to correct for an error in its method of applying the interest method used to amortize premiums and accrete discounts on its student loan portfolio. Under the Company's revised policy, as of September 30, 2016, the constant prepayment rate used by the Company to amortize/accrete student loan premiums/discounts was decreased. During the third quarter of 2016, the Company recorded an adjustment to reflect the net impact on prior periods for the correction of this error that resulted in an $8.2 million reduction to the Company's net loan discount balance and a corresponding increase in interest income. The impact of this adjustment was excluded from the above table. |
(b) | Derivative settlements represent the cash paid or received during the current period to settle with derivative instrument counterparties the economic effect of the Company's derivative instruments based on their contractual terms. Derivative accounting requires that net settlements with respect to derivatives that do not qualify for "hedge treatment" under GAAP be recorded in a separate income statement line item below net interest income. The Company maintains an overall risk management strategy that incorporates the use of derivative instruments to reduce the economic effect of interest rate volatility. As such, management believes derivative settlements for each applicable period should be evaluated with the Company’s net interest income (student loan spread) as presented in this table. The Company reports this non-GAAP information because it believes that it provides additional information regarding operational and performance indicators that are closely assessed by management. There is no comprehensive, authoritative guidance for the presentation of such non-GAAP information, which is only meant to supplement GAAP results by providing additional information that management utilizes to assess performance. See "Derivative Settlements" included in this supplement for the net settlement activity recognized by the Company for each type of derivative for the periods presented in this table. |
(c) | Reflects the net settlements paid/received related to the Company’s 1:3 basis swaps and cross-currency interest rate swap. |
(d) | Derivative settlements include the net settlements paid/received related to the Company’s floor income interest rate swaps. |
(a) | The interest earned on a large portion of the Company's FFELP student loan assets is indexed to the one-month LIBOR rate. The Company funds a majority of its assets with three-month LIBOR indexed floating rate securities. The relationship between the indices in which the Company earns interest on its loans and funds such loans has a significant impact on student loan spread. This table (the right axis) shows the difference between the Company's liability base rate and the one-month LIBOR rate by quarter. |
Three months ended September 30, | Nine months ended September 30, | |||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||
Fixed rate floor income, gross | $ | 24,586 | 41,509 | 84,382 | 131,720 | |||||||
Derivative settlements (a) | 3,883 | (5,157 | ) | 5,877 | (15,241 | ) | ||||||
Fixed rate floor income, net | $ | 28,469 | 36,352 | 90,259 | 116,479 | |||||||
Fixed rate floor income contribution to spread, net | 0.49 | % | 0.55 | % | 0.50 | % | 0.57 | % |
(a) | Includes settlement payments on derivatives used to hedge student loans earning fixed rate floor income. |
Fixed interest rate range | Borrower/lender weighted average yield | Estimated variable conversion rate (a) | Loan balance | |||||||
3.5 - 3.99% | 3.92 | % | 1.28 | % | $ | 1,090 | ||||
4.0 - 4.49% | 4.20 | % | 1.56 | % | 1,408,663 | |||||
4.5 - 4.99% | 4.71 | % | 2.07 | % | 851,229 | |||||
5.0 - 5.49% | 5.22 | % | 2.58 | % | 539,482 | |||||
5.5 - 5.99% | 5.67 | % | 3.03 | % | 379,443 | |||||
6.0 - 6.49% | 6.19 | % | 3.55 | % | 437,761 | |||||
6.5 - 6.99% | 6.70 | % | 4.06 | % | 421,737 | |||||
7.0 - 7.49% | 7.17 | % | 4.53 | % | 150,722 | |||||
7.5 - 7.99% | 7.71 | % | 5.07 | % | 252,994 | |||||
8.0 - 8.99% | 8.18 | % | 5.54 | % | 584,749 | |||||
> 9.0% | 9.05 | % | 6.41 | % | 202,455 | |||||
$ | 5,230,325 |
(a) | The estimated variable conversion rate is the estimated short-term interest rate at which loans would convert to a variable rate. As of September 30, 2017, the weighted average estimated variable conversion rate was 3.11% and the short-term interest rate was 125 basis points. |
Maturity | Notional amount | Weighted average fixed rate paid by the Company (a) | |||||
2018 | $ | 1,350,000 | 1.07 | % | |||
2019 | 3,250,000 | 0.97 | |||||
2020 | 1,500,000 | 1.01 | |||||
2025 | 100,000 | 2.32 | |||||
$ | 6,200,000 | 1.02 | % |
(a) | For all interest rate derivatives, the Company receives discrete three-month LIBOR. |
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