Nelnet Reports Second Quarter 2011 Results

- Base net income of $1.04 per share for the quarter

- Tuition payment processing and campus commerce revenue increased 15 percent

- Revenue from government servicing contract increased $5.8 million to $11.9 million

- Third quarter dividend of $0.10 per share

Aug 09, 2011, 07:00 ET from Nelnet

LINCOLN, Neb., Aug. 9, 2011 /PRNewswire/ -- Nelnet (NYSE: NNI) today reported base net income of $50.0 million, or $1.04 per share, for the second quarter of 2011, compared with $58.3 million, or $1.17 per share, for the same quarter a year ago. For the six months ended June 30, 2011, the company reported base net income of $106.7 million, or $2.21 per share, compared with $114.2 million, or $2.30 per share, for the same period in 2010. Base net income in 2010 excludes restructuring charges.

"The second quarter of 2011 showed progress toward core objectives and strong results," said Mike Dunlap, Nelnet Chairman and Chief Executive Officer. "We are focused on growing our core businesses of loan servicing, payment processing, education planning, and loan financing; driving diversification; enhancing the customer experience; and operating with financial discipline as we grow."  

Growing our core and driving diversification

During the second quarter of 2011, revenue from Nelnet's tuition payment processing and campus commerce business increased $2.0 million from the second quarter of 2010, or 15 percent, to $14.8 million. The company's K-12 tuition payment processing business increased the number of private, faith-based schools it works with by 8 percent, or more than 370 schools, through the acquisition of school contracts from Tuition Management Systems on June 30, 2011.

In September 2009, Nelnet began servicing student loans for the Department of Education (Department) under a contract that will increase the company's fee-based revenue as the servicing volume increases. At June 30, 2011, the company was servicing $38.8 billion of loans for 2.7 million borrowers on behalf of the Department, compared with $12.9 billion of loans for 1.5 million borrowers on June 30, 2010. Revenue from this contract increased to $11.9 million for the second quarter of 2011, up from $6.1 million for the same period a year ago.  

The company's enrollment services revenue decreased to $32.3 million in the second quarter of 2011, from $35.4 million in the second quarter of 2010. Enrollment services revenue is being affected by the current regulatory uncertainty in the for-profit college industry which has caused schools to decrease their marketing spending.

Maximizing the value of existing portfolio

At June 30, 2011, net student loan assets were $23.2 billion. Substantially all of Nelnet's federal student loans are financed for the life of the loan at rates the company believes will generate significant future cash flow in excess of $1.6 billion.  

Historically low interest rates are continuing to provide the company opportunities to generate substantial near-term value and cash flow from its student loan portfolio. For the second quarter of 2011, Nelnet reported net interest income of $88.7 million, compared with $97.4 million for the same period a year ago.

In July 2011, the company purchased the residual interest in $1.9 billion of federal student loans from an affiliate of Greystone & Co., Inc., increasing its student loan assets to more than $25.0 billion.

Operating with financial discipline

Operating expenses decreased $7.7 million, or 7.1 percent, to $100.6 million in the second quarter of 2011, from $108.2 million in the second quarter of 2010.  Over time, the company anticipates increasing operating expenses with discipline to support revenue growth in its fee-based businesses.

GAAP net income

Nelnet reported GAAP net income for the second quarter of 2011 of $37.1 million, or $0.76 per dilutive share, compared with $50.0 million, or $0.99 per dilutive share, for the second quarter of 2010. For the first six months of 2011, the company reported GAAP net income of $92.0 million, or $1.89 per dilutive share, compared with $104.3 million, or $2.08 per dilutive share for the same period in 2010.

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.

Board of Directors approves dividend

The Nelnet Board of Directors declared a third quarter cash dividend on the company's outstanding shares of Class A common stock and Class B common stock of $0.10 per share. The dividend will be paid on September 15, 2011, to shareholders of record at the close of business on September 1, 2011. Nelnet currently has 37.0 million shares of Class A common stock and 11.5 million shares of Class B common stock outstanding.

This press release contains forward-looking statements within the meaning of federal securities laws.  These statements are based on management's current expectations as of the date of this release, and are subject to known and unknown risks and uncertainties that may cause actual results or performance to differ materially from those expressed or implied by the forward-looking statements.  Such risks include, among others, risks related to the company's student loan portfolio such as interest rate basis and repricing risk and the use of derivatives to manage exposure to interest rate fluctuations; the company's funding and liquidity requirements to satisfy asset financing needs; the company's ability to maintain and increase volumes under its loan servicing contract with the Department to service federally owned student loans; changes in the student loan and educational credit and services marketplace resulting from the implementation of or changes in applicable laws and regulations; changes in the demand or preferences for educational financing and related services by educational institutions, students, and their families; uncertainties inherent in forecasting future cash flows from student loan assets and related asset-backed securitizations; and changes in general economic and credit market conditions.  For more information, see the "Risk Factors" sections and other cautionary discussions of risks and uncertainties included in documents filed or furnished by the company with the Securities and Exchange Commission, including the cautionary information about forward-looking statements contained in the company's supplemental financial information for the second quarter of 2011.  All information in this release is as of the date of this release. Although the company may from time to time voluntarily update or revise its forward-looking statements to reflect actual results or changes in the company's expectations, the company disclaims any commitment to do so except as required by securities laws.

Condensed Consolidated Statements of Income

Three months ended

Six months ended

June 30,

March 31,

June 30,

June 30,

June 30,

2011

2011

2010

2011

2010

(unaudited)

(unaudited)

(unaudited)

(unaudited)

(unaudited)

Interest income:

Loan interest

$

146,827

147,347

167,902

294,174

318,950

Amortization of loan premiums and deferred origination costs

(7,893)

(9,989)

(12,549)

(17,882)

(28,630)

Investment interest

856

726

1,304

1,582

2,305

Total interest income

139,790

138,084

156,657

277,874

292,625

Interest expense:

Interest on bonds and notes payable

51,054

52,307

59,243

103,361

110,102

Net interest income

88,736

85,777

97,414

174,513

182,523

Less provision for loan losses

5,250

3,750

6,200

9,000

11,200

Net interest income after provision for loan losses

83,486

82,027

91,214

165,513

171,323

Other income (expense):

Loan and guaranty servicing revenue

37,389

35,636

36,652

73,025

73,046

Tuition payment processing and campus commerce revenue

14,761

19,369

12,795

34,130

30,177

Enrollment services revenue

32,315

33,868

35,403

66,183

68,674

Software services revenue

4,346

4,777

5,499

9,123

9,843

Other income

6,826

6,492

8,496

13,318

15,756

Gain on sale of loans and debt repurchases

8,307

8,759

8,307

18,936

Derivative market value and foreign currency adjustments

(16,813)

1,116

(7,231)

(15,697)

(3,126)

Derivative settlements, net

(3,522)

(4,152)

(3,377)

(7,674)

(5,800)

Total other income

75,302

105,413

96,996

180,715

207,506

Operating expenses:

Salaries and benefits

42,881

43,912

40,962

86,793

81,606

Cost to provide enrollment services

22,140

22,839

24,111

44,979

46,136

Depreciation and amortization

6,769

6,776

9,728

13,545

20,511

Restructure expense

72

1,269

Other expenses

28,767

26,105

33,348

54,872

62,403

Total operating expenses

100,557

99,632

108,221

200,189

211,925

Income before income taxes

58,231

87,808

79,989

146,039

166,904

Income tax expense

(21,106)

(32,928)

(29,996)

(54,034)

(62,589)

Net income

$

37,125

54,880

49,993

92,005

104,315

Earnings per common share:

Net earnings - basic

$

0.76

1.13

1.00

1.90

2.08

Net earnings - diluted

$

0.76

1.13

0.99

1.89

2.08

Weighted average shares outstanding:

Basic

48,302,779

48,171,317

49,735,398

48,237,411

49,726,099

Diluted

48,488,046

48,363,035

49,934,648

48,425,886

49,923,680

Condensed Consolidated Balance Sheets

As of

As of

As of

June 30,

December 31,

June 30,

2011

2010

2010

(unaudited)

(unaudited)

Assets:

Student loans receivable, net

$

23,228,778

23,948,014

24,746,932

Student loans receivable - held for sale

84,987

1,995,869

Cash, cash equivalents, and investments (trading securities)

148,005

327,037

305,778

Restricted cash and investments

675,182

757,285

706,965

Goodwill

117,118

117,118

143,717

Intangible assets, net

37,564

38,712

48,708

Other assets

664,864

620,739

620,054

Total assets

$

24,871,511

25,893,892

28,568,023

Liabilities:

Bonds and notes payable

$

23,605,413

24,672,472

27,428,772

Other liabilities

277,314

314,787

265,306

Total liabilities

23,882,727

24,987,259

27,694,078

Shareholders' equity

988,784

906,633

873,945

Total liabilities and shareholders' equity

$

24,871,511

25,893,892

28,568,023

(Code #: nnif)

SOURCE Nelnet



RELATED LINKS

http://www.nelnet.com