Navient (JSM) Q2 2025 Earnings Call July 30, 2025 08:00 AM ET Speaker0Good day and thank you for standing by. Welcome to the Navient Second Quarter twenty twenty five Earnings Conference Call. At this time, participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. To ask a question during the session, you will need to press 11 on your telephone.You will then hear an automated message advising your hand is raised. To withdraw your question, please ...

Financial Performance - Navient reported a GAAP net income of $14 million and core earnings net income of $21 million for 2Q 2025[12] - The company's core EPS is projected to be $0.95 - $1.05, including net expenses of $0.24 per share related to transition agreements[13] - Navient distributed $40 million to shareholders through dividends and share repurchases in 2Q 2025[31] Strategic Actions and Cost Reductions - Navient is on track to achieve 80% of its expense reduction target before 2026, aiming for approximately $400 million in expense reductions[9, 8] - Total expenses for 2Q 2025 were $100 million, compared to $182 million in 2Q 2024, reflecting cost reduction efforts[26, 24] - The company has reduced employee headcount by more than 80% from YE2023 through 2Q25 as part of its strategic actions[4] Segment Results - Federal Education Loans generated a net income of $30 million in 2Q 2025, compared to $28 million in 2Q 2024[14] - Consumer Lending reported a net income of $26 million in 2Q 2025, compared to $60 million in 2Q 2024, with $500 million in Private Education Loan originations[15, 16] - The Business Processing segment is no longer providing services following divestitures, with transition services expected to be mostly complete by the end of 2025[21] Loan Portfolio and Cash Flows - Total projected loan portfolio undiscounted cash flows after repayment of secured financings are $11.8 billion over the next 20 years[49] - The FFELP portfolio has projected cash flows of $2.1 billion through the end of 2029 and $5.4 billion over the next 20 years, assuming a 7% CPR for Stafford Loans and 5% for Consolidation Loans[52] - The Private Education Loan portfolio has projected cash flows of $3.5 billion through the end of 2029 and $6.4 billion over 20 years, assuming a 10% CPR[55]

Core Viewpoint - Robbins LLP is investigating The J.M. Smucker Company for potential violations of securities laws and breaches of fiduciary duties by its officers and directors [1]. Group 1 - The investigation is focused on whether certain officers and directors of The J.M. Smucker Company have acted against the interests of shareholders [1]. - The J.M. Smucker Company is involved in the manufacturing and marketing of food products across the United States [1]. - Shareholders who have incurred losses in their investments are encouraged to contact Robbins LLP for information regarding their rights [1]. Group 2 - Robbins LLP operates on a contingency fee basis, meaning shareholders do not pay any fees or expenses unless they recover losses [2]. - The firm has a history of helping shareholders recover over $1 billion since its inception in 2002 [2]. - Robbins LLP is recognized as a leader in shareholder rights litigation, focusing on improving corporate governance and holding executives accountable [2].

Core Viewpoint - Robbins LLP is investigating The J.M. Smucker Company for potential violations of securities laws and breaches of fiduciary duties by its officers and directors [1]. Group 1: Company Overview - The J.M. Smucker Company manufactures and markets food products across the United States [1]. Group 2: Legal Investigation - The investigation by Robbins LLP aims to determine if there have been any violations of securities laws by the company's executives [1]. - Shareholders who have incurred losses in their investments are encouraged to contact Robbins LLP for information regarding their rights [1]. Group 3: Robbins LLP Background - Robbins LLP has been active in shareholder rights litigation since 2002, focusing on helping shareholders recover losses and improve corporate governance [2]. - The firm has successfully obtained over $1 billion for shareholders since its inception [2].

Strategic Actions - Navient is planning to outsource student loan servicing to create a variable expense model and facilitate corporate cost reduction[3] - The company is exploring strategic options for its business processing division, including potential divestment, to further reduce corporate costs[3] - Navient intends to streamline shared services infrastructure and corporate footprint, beginning in 2024 and implementing over the next 18 to 24 months[3] Financial Performance & Key Business Components - Navient's Net Interest Income (NII) decreased by 67.7% from $2667 million in 2014 to $862 million in 2023[9] - The company's P/E multiple declined by 30.2% from 9.6x in 2014 to 6.7x in 2023[10] - Legacy loan portfolios have decreased from $134 billion in 2014 to $46 billion in 2023[7] - Earnest's net revenue after provision for loan losses increased by 207% from $60 million in 2020 to $184 million in 2023[45] - The company projects $12878 million in loan cash flows net of secured financing, with approximately 50% expected in the next 5 years[22] Earnest Brand & Financial Counseling Platform - Earnest has successfully developed a distinct brand and market positioning, with attributes like empathetic, ethical, and fair[35] - The number of users on Earnest's financial counseling platform has increased from 405 thousand in 2019 to 1748 thousand in 2023[38]

"A year ago, we announced three ambitious strategic actions – outsourcing servicing, divesting our business processing businesses, a non- strategic asset, and a more cost efficient and streamlined structure. We are pleased to say that we achieved our 2024 objectives against an aggressive timeline. These actions provide clear line of sight to our expense reduction targets, deliver value and position us for the future. We accomplished these steps while at the same time achieved strong loan origination growth, ...

Financial Data and Key Metrics Changes - The company reported first quarter core earnings per share of $0.25, adjusting for regulatory and restructuring expenses to $0.28, with net expenses of $0.06 expected to be eliminated after the completion of transition services agreements [15][22] - The net interest margin (NIM) for the Federal Education Loan segment was 61 basis points, an increase of 18 basis points from the previous quarter, exceeding the guided range of 45 to 60 basis points [15][16] - The allowance for loan loss for the entire education loan portfolio was $753 million, with provisions of $8 million for FFELP loans and $22 million for private education loans primarily driven by higher delinquency rates [19][22] Business Line Data and Key Metrics Changes - Strong loan origination growth was noted, with refinancing loan volume doubling year-over-year, resulting in a 46% increase in originations compared to the last quarter [8][9] - The consumer lending segment's net interest margin was 276 basis points, slightly down from 277 basis points in the previous quarter, with total originations nearly doubling to $580 million compared to $259 million a year ago [17][18] - The company completed the sale of its government services business, contributing to a significant reduction in operating expenses and employee count, with a reduction of approximately 1,300 employees [10][11] Market Data and Key Metrics Changes - The company observed a decrease in prepayment activity, with prepayments at $256 million in the quarter compared to $1.6 billion a year ago, indicating a shift in borrower behavior due to the end of federal loan forgiveness programs [16][32] - Greater than ninety-day delinquency rates increased to 10.2%, while the charge-off rate improved to 10 basis points and forbearance rates decreased to 14.4% [16] Company Strategy and Development Direction - The company aims to achieve further cost reductions in 2025, focusing on capital deployment to grow earnings and return capital to shareholders [7][12] - The strategic actions taken in 2024, including divestitures and outsourcing, are expected to enhance operational efficiency and visibility into expense reduction objectives [10][11] - The company is confident in its ability to grow without needing an expansion of products, focusing on high credit quality borrowers and digital distribution [27][80] Management's Comments on Operating Environment and Future Outlook - The management acknowledged the current macroeconomic uncertainty, stating that the outlook for the year remains dependent on various factors, including interest rates [13][14] - The company has not yet seen significant changes in loan origination volume or prepayments in April, maintaining its full-year guidance of $1.8 billion in originations [14][58] - Management expressed confidence in achieving full-year core earnings guidance of $1 to $1.2 per share, despite market volatility [22] Other Important Information - The company repurchased 35 million shares under its existing authority, indicating a more opportunistic approach to share repurchases compared to previous programmatic strategies [12][22] - The transition services agreements related to the divestment of the BPS business are expected to be largely complete by the second quarter of the year [11][40] Q&A Session Summary Question: Changes in Grad PLUS program and potential impacts - Management discussed the complexity of proposed changes in federal education policy and expressed confidence in their ability to grow with existing products [26][27] Question: Increase in provisions for delinquent balances - Management attributed the increase in provisions to general macroeconomic impacts and the normalization of credit statistics post-pandemic [31][32] Question: Strategic actions and expense reduction timeline - Management confirmed the target of $400 million in expense reductions and provided a timeline for achieving these savings [38][40] Question: NIM expectations and delinquency management - Management indicated expectations for NIM to stabilize and expressed confidence in managing delinquency rates moving forward [48][50] Question: Growth initiatives and market share in in-school lending - Management clarified their focus on customer quality over market share and emphasized their strategic approach to the in-school lending business [80] Question: Future strategic actions for the Earnest business - Management stated they are focused on executing current plans and will share more information on strategic direction in the second half of the year [85]

Navient Update Summary Company Overview - **Company**: Navient - **Date of Call**: January 31, 2024 - **Key Speakers**: David (CEO), Ed Bramson (Vice Chair of the Board) Core Actions and Strategy 1. **Outsourcing Loan Servicing**: - Navient is transitioning to an outsourced servicing model to create a variable cost structure for servicing student loan portfolios, selecting Moheila as the servicing partner [4][5] - This decision is based on a competitive analysis showing that in-house servicing costs will not remain competitive as the legacy portfolio amortizes [4][5] 2. **Exploring Strategic Options for BPS**: - The company is considering divestments for its Business Process Solutions (BPS) segment to realize its full potential and value [6][7] - Financial and legal advisers have been engaged to assist in this process [7] 3. **Reshaping Shared Services and Corporate Footprint**: - Navient aims to align its shared services functions with a more focused and streamlined company structure [7][8] - The company anticipates eliminating approximately $400 million in operating expenses if the three strategic actions are fully implemented [8] Financial Performance and Outlook - **2023 Operating Expenses**: Approximately $400 million could be eliminated under the new strategy, excluding BPS revenue in a full divestiture scenario [8] - **Implementation Timeline**: The company expects to finalize all three actions during 2024, with implementation largely complete over the next 18 to 24 months [9] Historical Context and Challenges - **Share Price Performance**: Since the spin-off in 2014, Navient's share price has not provided a strong return, prompting the current strategic review [11] - **Loan Portfolio Dynamics**: Navient inherited $135 billion in loans at the time of the spin-off, with a significant runoff of $90 billion and only $9 billion in new loans generated [15][16] - **Operating Leverage Issues**: A drop in net interest income by approximately $1.1 billion annually has created a negative operating leverage situation, with operating expenses only decreasing by $80 million [16][20] Cash Position and Future Investments - **Unrestricted Cash**: As of the end of 2023, Navient has about $7.50 per share in unrestricted cash, which could be used for distributions or investments [33] - **Potential Cash Flows**: The combination of cash on hand, enhanced cash flows from loan portfolios, and proceeds from any BPS divestiture could generate significant cash flows exceeding the current market cap [53] Business Segments and Growth Opportunities - **Earnest**: - A new brand focused on customer relationships, generating approximately $200 million in annual revenue, primarily from education-related products [36][41] - The counseling platform has grown significantly, with nearly 2 million users, providing a base for future product line extensions [42][43] - **BPS Segment**: - Comprises healthcare services under the Xtend brand and various government services, which share costs and infrastructure with loan servicing [51][52] Conclusion - Navient is undergoing a significant transformation aimed at simplifying its business model, reducing costs, and enhancing shareholder value through strategic outsourcing and potential divestitures. The company is focused on leveraging its cash position and optimizing its loan portfolios to drive future growth and returns for shareholders [54]