Nelnet Reports Fourth Quarter 2009 Results

LINCOLN, Neb., March 3 /PRNewswire-FirstCall/ -- Nelnet (NYSE: NNI) today reported base net income of $81.3 million, or $1.64 per share, for the fourth quarter of 2009, compared with $15.8 million, or $0.32 per share, for the same quarter a year ago. For the year ended December 31, 2009, the company reported base net income of $194.9 million, or $3.94 per share, compared with $81.1 million, or $1.65 per share, for 2008. Base net income excludes discontinued operations, restructuring charges, impairment expenses, and certain liquidity-related charges.

Base net income in the fourth quarter of 2009 includes pre-tax gains of $26.9 million, or $0.35 per share after tax, on the sale of $1.7 billion of federal student loans to the Department of Education (Department) and $22.7 million, or $0.30 per share after tax, from the company's repurchase of $302.1 million of asset-backed debt. Excluded from base net income in the fourth quarter of 2009 is a $32.7 million non-cash impairment charge related to goodwill and intangible assets of the company's direct marketing and list management business.

"After a challenging 2008, we ended 2009 significantly stronger and with renewed optimism for the future," said Mike Dunlap, Nelnet Chairman and Chief Executive Officer. "Our focus on our customers, associates, and continuing to diversify our company served us well. We are excited by our increasing fee-based revenue, significant increase in volume we service for the Department, and our strong balance sheet position. Together, these results have positioned us well for 2010."

Diversifying and increasing fee-based revenue

Total revenue from fee-based businesses for the fourth quarter of 2009 increased 13 percent to $77.3 million, or 62 percent of total revenue, and is compared with $68.4 million for the same period a year ago.

In the fourth quarter of 2009, Nelnet's fee-based revenue from the company's tuition payment plan, campus commerce, and lead generation businesses increased $5.0 million, or 16 percent, to $36.0 million, compared with the same period in 2008.

In September 2009, Nelnet began servicing student loans for the Department under a contract that will increase the company's fee-based revenue as the servicing volume increases. As of December 31, 2009, the company was servicing approximately $3.4 billion of loans on behalf of the Department, of which approximately $1.5 billion was incremental volume previously serviced by other companies. As of March 1, 2010, servicing volume for the Department has grown to $6.3 billion, up from $177 million at September 30, 2009.

Maximizing the value of existing portfolio

At December 31, 2009, net student loan assets were $23.9 billion.  Substantially all of Nelnet's federal student loans are financed for the life of the loan at rates the company currently believes will generate significant future cash flow. In addition to loans held to term, Nelnet has liquidity for new loan originations through the Department's Loan Participation and Loan Purchase Programs, which will allow Nelnet to make loans to eligible students through the 2009-2010 academic year.

Narrower spreads and historically low interest rates are continuing to provide an opportunity for the company to generate substantial near-term value and cash flow from its student loan portfolio. For the fourth quarter of 2009, Nelnet reported net interest income of $80.5 million, compared with $38.5 million for the same period a year ago.

The company reported core student loan spread of 1.44 percent for the fourth quarter of 2009 compared with 0.90 percent for the same period of 2008 and 1.27 percent for the third quarter of 2009. Core student loan spread is benefiting from two factors: 1) lower interest rates increased fixed rate floor income to $38.9 million in the fourth quarter of 2009, compared with $12.3 million for the same period a year ago and $38.8 million in the third quarter of 2009, and 2) the disparity between three-month financial commercial paper rate (CP) and three-month LIBOR has tightened significantly.  

Managing operating expenses

Management continues to effectively manage operating expenses. As a result, operating expenses, excluding restructuring and impairment charges, decreased $9.6 million, or 12 percent, for the three months ended December 31, 2009, compared with the same period in 2008.  Total operating expenses, excluding the impairment charge, for the fourth quarter of 2009 were $90.3 million.

GAAP net income

Nelnet reported GAAP net income for the fourth quarter of 2009 of $59.1 million, or $1.18 per dilutive share, compared with $31.0 million, or $0.63 per dilutive share, for the fourth quarter of 2008. For the year ended December 31, 2009, the company reported GAAP net income of $139.1 million, or $2.78 per dilutive share, compared with $28.7 million, or $0.58 per dilutive share, for 2008.

While base net income is not a substitute for reported results under GAAP, base net income is the primary financial performance measure used by management to develop financial plans, allocate resources, track results, evaluate performance, establish corporate performance targets, and determine incentive compensation. The company utilizes base net income in operating its business because base net income permits management to make meaningful period-to-period comparisons by eliminating the temporary volatility in the company's performance that arises from certain items that are primarily affected by factors beyond the control of management.

A description of base net income and a reconciliation of GAAP net income to base net income can be found in supplemental financial information to this earnings release online at www.nelnetinvestors.com/results.cfm.

Nelnet will host a conference call to discuss this earnings release at 11:00 a.m. (Eastern) Thursday, March 4, 2010. To access the call live, participants in the United States and Canada should dial 888.427.9415, and international callers should dial 719.785.1751 at least 15 minutes prior to the call. A live audio webcast of the call will also be available at www.nelnetinvestors.com under the Events & Webcasts menu. A replay of the conference call will be available through March 14, 2010. To access the replay via telephone within the United States and Canada, callers should dial 888.203.1112. International callers should dial 719.457.0820. All callers accessing the replay will need to use the confirmation code 4363322. A replay of the audio webcast will also be available at www.nelnetinvestors.com.

This press release contains forward-looking statements based on management's current expectations as of the date of this release. These statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Because such statements inherently involve risks and uncertainties, actual results may differ materially from those expressed or implied by such forward-looking statements. Such risks include, among others, changes in the terms of student loans and the educational credit marketplace arising from the implementation of applicable laws and regulations, and from changes in such laws and regulations, adverse results in legal disputes, changes in the demand for educational financing or in financing preferences of educational institutions, students, and their families, increased financing costs and changes in the general interest rate environment. For more information, see the company's filings with the Securities and Exchange Commission, including the forward-looking statements contained in the company's supplemental financial information for the fourth quarter 2009. All information in this release is as of March 3, 2010. The company does not undertake any obligation to update or revise these forward-looking statements to conform the statement to actual results or changes in the company's expectations.

    
    
       
    Condensed Consolidated Statements of Income
    
    
                              Three months ended           Year ended
                      -------------------------------- ---------------------
                       December   September   December   December  December
                          31,         30,        31,        31,       31,
                         2009        2009       2008       2009      2008
                      ----------  --------- ---------- ---------- ---------- 
                      (unaudited) (unaudited) (unaudited)
    
    Interest income:
      Loan interest     $153,891    162,786    286,279    683,449  1,267,003
      Amortization of 
       loan premiums 
       and deferred
       origination 
       costs             (18,558)   (19,531)   (21,036)   (73,529)   (90,620)
      Investment 
       interest            1,477      1,943      8,084     10,287     37,998
                      ----------  --------- ---------- ---------- ----------
        Total interest 
         income          136,810    145,198    273,327    620,207  1,214,381
    
    Interest expense:
      Interest on 
       bonds and 
       notes payable      56,262     76,016    234,868    384,862  1,026,489
                      ----------  --------- ---------- ---------- ----------
        Net interest 
         income           80,548     69,182     38,459    235,345    187,892
    Less provision 
     for loan losses       6,000      7,500      7,000     29,000     25,000
                      ----------  --------- ---------- ---------- ----------
        Net interest 
         income 
         after 
         provision
         for loan 
         losses           74,548     61,682     31,459    206,345    162,892
                      ----------  --------- ---------- ---------- ----------
    Other income 
     (expense):
      Loan and guaranty 
       servicing 
       revenue            27,467     26,006     21,769    108,747     99,942
      Tuition payment 
       processing and 
       campus 
       commerce revenue   13,521     12,987     12,175     53,894     48,155
      Enrollment 
       services 
       revenue            31,209     30,670     29,257    119,397    112,405
      Software services  
       revenue             4,740      4,600      4,773     21,164     24,115
      Other income        28,669     11,094      4,988     68,152     22,775
      Gain (loss) on 
       sale of loans, net 26,762      8,788     (3,988)    35,148    (51,414)
      Derivative market 
       value, foreign 
       currency, and 
       put option 
       adjustments         5,265      2,826     46,348    (30,802)    10,827
      Derivative 
       settlements, 
       net                   479      4,914      9,668     39,286     55,657
                      ----------  --------- ---------- ---------- ----------
        Total other 
         income          138,112    101,885    124,990    414,986    322,462
                      ----------  --------- ---------- ---------- ----------
    Operating 
     expenses:
      Salaries and 
       benefits           39,316     37,810     41,262    155,532    183,393
      Other expenses      27,284     29,217     45,510    120,198    147,192
      Cost to provide 
       enrollment 
       services           18,718     20,323     16,903     74,926     64,965
      Impairment 
       expense            32,728          -          -     32,728     18,834
      Amortization of 
       intangible 
       assets              4,998      5,312      6,511     22,249     26,230
                      ----------  --------- ---------- ---------- ----------
        Total 
         operating 
         expenses        123,044     92,662    110,186    405,633    440,614
                      ----------  --------- ---------- ---------- ----------
        Income before 
         income taxes     89,616     70,905     46,263    215,698     44,740
    
    Income tax 
     expense             (30,553)   (24,501)   (16,103)   (76,573)   (17,896)
                      ----------  --------- ---------- ---------- ----------
        Income from 
         continuing 
         operations       59,063     46,404     30,160    139,125     26,844
     
    Income from 
     discontinued 
     operations, 
     net of tax                -          -        837          -      1,818
                      ----------  --------- ---------- ---------- ----------
        
        Net income       $59,063     46,404     30,997    139,125     28,662
                      ==========  ========= ========== ========== ==========
    Earnings per 
     common share:
      Basic:
        Continuing 
         operations        $1.18       0.93       0.61       2.79       0.54
        Discontinued 
         operations            -          -       0.02          -       0.04
                      ----------  --------- ---------- ---------- ----------
          Net  
           earnings        $1.18       0.93       0.63       2.79       0.58
                      ==========  ========= ========== ========== ==========
      Diluted:
        Continuing 
         operations        $1.18       0.93       0.61       2.78       0.54
        Discontinued 
         operations            -          -       0.02          -       0.04
                      ----------  --------- ---------- ---------- ----------
          Net 
           earnings        $1.18       0.93       0.63       2.78       0.58
                      ==========  ========= ========== ==========  =========
    Weighted average 
     shares 
     outstanding 
     - basic          49,639,329 49,611,423 49,075,755 49,484,816 49,099,967
    
    Weighted average 
     shares 
     outstanding 
     - diluted        49,838,374 49,808,856 49,289,186 49,685,143 49,324,278

    
    
    
    Condensed Consolidated Balance Sheets
    
                                          As of        As of         As of
                                       December 31, September 30, December 31,
                                           2009         2009          2008
                                       -----------   ----------    ----------
                                                    (unaudited)
    
    Assets:
      Student loans receivable, net    $23,926,957   23,764,263    25,413,008
      Student loans receivable -held
       for sale                                  -    1,627,794             -
      Cash and cash equivalents            338,181      334,293       189,847
      Restricted cash and investments      717,233      849,419     1,158,257
      Goodwill                             143,717      175,178       175,178
      Intangible assets, net                53,538       59,803        77,054
      Other assets                         696,801      781,112       841,553
                                       -----------   ----------    ----------
        Total assets                   $25,876,427   27,591,862    27,854,897
                                       ===========   ==========    ==========
    
    Liabilities:
      Bonds and notes payable          $24,805,289   26,586,093    26,787,959
      Other liabilities                    286,575      277,695       423,712
                                       -----------   ----------    ----------
        Total liabilities               25,091,864   26,863,788    27,211,671
                                       -----------   ----------    ----------
    
    Shareholders' equity                   784,563      728,074       643,226
                                       -----------   ----------    ----------
    
        Total liabilities and
         shareholders' equity          $25,876,427   27,591,862    27,854,897
                                       ===========   ==========    ==========

(code #: nnif)

SOURCE Nelnet, Inc.