Nelnet(US:NNI)2025-05-08 20:19PART I. FINANCIAL INFORMATION Item 1. Financial Statements This section presents Nelnet, Inc.'s unaudited consolidated financial statements for Q1 2025, including balance sheets, income, cash flow, equity statements, and notes Consolidated Balance Sheets Total assets increased to $14.19 billion and liabilities to $10.83 billion by March 31, 2025, driven by loans and debt, with equity reaching $3.36 billion Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Total Assets | $14,191,958 | $13,777,753 | | Loans and accrued interest receivable, net | $10,422,704 | $9,992,744 | | Total investments and notes receivable | $2,302,550 | $2,200,696 | | Total cash and cash equivalents | $220,517 | $194,518 | | Total Liabilities | $10,828,949 | $10,478,636 | | Bonds and notes payable | $8,656,157 | $8,309,797 | | Bank deposits | $1,313,407 | $1,186,131 | | Total Equity | $3,363,009 | $3,299,117 | Consolidated Statements of Income Q1 2025 net income attributable to Nelnet, Inc. increased to $82.6 million (EPS $2.26), driven by higher net interest income despite decreased loan interest Q1 2025 vs. Q1 2024 Income Statement (in thousands, except EPS) | Metric | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Net Interest Income | $82,714 | $74,222 | | Provision for Loan Losses | $15,337 | $10,828 | | Total Other Income, net | $315,778 | $310,908 | | Total Expenses | $277,015 | $280,365 | | Income Before Income Taxes | $106,140 | $93,937 | | Net Income Attributable to Nelnet, Inc. | $82,560 | $73,408 | | Earnings Per Share (diluted) | $2.26 | $1.98 | Consolidated Statements of Cash Flows Q1 2025 operating cash flow decreased to $91.2 million, investing activities provided $136.4 million, and financing used $326.4 million, leading to a $98.9 million net cash decrease Cash Flow Summary (in thousands) | Activity | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $91,169 | $211,559 | | Net cash provided by investing activities | $136,357 | $1,086,435 | | Net cash used in financing activities | ($326,445) | ($1,382,499) | | Net decrease in cash, cash equivalents, and restricted cash | ($98,893) | ($84,668) | Notes to Consolidated Financial Statements Notes detail accounting policies, loan portfolio, debt, derivatives, investments (ALLO, Hudl), segment performance, and a significant subsequent ALLO investment redemption - In March 2025, the company acquired student loan trusts containing $646.9 million in federally insured loans, which were consolidated onto the balance sheet30 - The company's servicing contract with the Department of Education was replaced by a new Unified Servicing and Data Solution (USDS) contract, effective April 2023, which went live on April 1, 2024. The new contract results in less revenue on a per borrower blended basis101102 - Subsequent to the quarter end, in April 2025, the company entered into an agreement for ALLO to redeem all of Nelnet's preferred membership interests and a portion of its voting interest. The transaction is expected to close in May 2025, yielding approximately $410 million in cash proceeds and a pre-tax gain of about $175 million107109 Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q1 2025 financial performance, covering consolidated results, segment performance, liquidity, capital resources, and the impact of the new servicing contract and key investments GAAP to Non-GAAP Net Income Reconciliation (in thousands) | Description | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | GAAP net income attributable to Nelnet, Inc. | $82,560 | $73,408 | | Realized and unrealized derivative market value adjustments | $6,324 | ($7,964) | | Tax effect | ($1,519) | $1,911 | | Non-GAAP net income attributable to Nelnet, Inc. | $87,365 | $67,355 | - The company's business is diversified across consumer lending, loan servicing, payments, and technology, with significant revenue from federally insured student loans and strategic investments in fiber communications (ALLO), venture capital, and renewable energy115 Consolidated Results of Operations Consolidated net income attributable to Nelnet, Inc. rose to $82.6 million in Q1 2025, driven by higher net interest income and an $8.4 million preferred return from ALLO Key Operating Results Comparison (in thousands) | Metric | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Net Interest Income | $82,714 | $74,222 | | LSS Revenue | $120,741 | $127,201 | | ETSP Revenue | $147,330 | $143,539 | | Total Operating Expenses | $217,916 | $217,489 | | Net Income Attributable to Nelnet, Inc. | $82,560 | $73,408 | Segment Results of Operations Segment performance varied, with LSS showing higher margins, ETSP revenue growth but compressed margins, NFS (AGM, Nelnet Bank) showing mixed results, and Corporate benefiting from ALLO investment returns Income (Loss) Before Income Taxes by Segment (in thousands) | Segment | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | NDS (LSS) | $18,512 | $15,990 | | NBS (ETSP) | $47,462 | $47,635 | | AGM | $29,834 | $33,743 | | Nelnet Bank | $1,952 | $1,147 | | NFS Other | $10,060 | $13,762 | | Corporate & Other | ($1,776) | ($18,342) | Liquidity and Capital Resources Total liquidity reached $1.26 billion by March 31, 2025, with $1.02 billion projected from securitizations, ongoing stock repurchases, and a declared dividend, plus $410 million expected from the ALLO redemption Sources of Liquidity as of March 31, 2025 (in thousands) | Source | Amount | | :--- | :--- | | Net cash and cash equivalents | $175,630 | | Unencumbered AFS debt securities | $164,597 | | Unencumbered private, consumer, and other loans | $327,744 | | Unencumbered repurchased Nelnet issued ABS | $97,419 | | Unused capacity on unsecured line of credit | $495,000 | | Total Sources of Liquidity | $1,260,390 | - The company forecasts approximately $1.02 billion in future undiscounted cash flows from its existing asset-backed securitizations as of March 31, 2025186189 - The company paid a Q1 2025 dividend of $0.28 per share and declared a Q2 2025 dividend of $0.28 per share. Under its stock repurchase program, 3,341,735 shares remained authorized for repurchase as of March 31, 2025222225 Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate risk, particularly basis and repricing risk in AGM, managed by Nelnet Bank and derivatives, with a 100 bps rate increase yielding $5.0 million higher pre-tax net income - The AGM segment's FFELP loans are exposed to basis risk, as assets are primarily indexed to 30-day average SOFR while funding is indexed to various other benchmarks like 90-day SOFR. The company uses basis swaps to mitigate this risk245246 Consolidated Earnings Sensitivity to Interest Rate Changes (Q1 2025) | Change in Interest Rates | Change in Pre-Tax Net Income (in thousands) | Change in EPS | | :--- | :--- | :--- | | +300 basis points | $19,077 | $0.40 | | +100 basis points | $5,005 | $0.10 | | -100 basis points | ($4,248) | ($0.09) | | -300 basis points | ($10,558) | ($0.22) | Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2025, with no material changes to internal control over financial reporting during the quarter - The principal executive and financial officers concluded that the company's disclosure controls and procedures were effective as of the end of the period259 - No material changes in internal control over financial reporting were identified during the first quarter of 2025260 PART II. OTHER INFORMATION Legal Proceedings No material changes to legal proceedings have occurred since the 2024 Annual Report on Form 10-K - No material changes from the Legal Proceedings section of the 2024 Form 10-K were reported264 Risk Factors No material changes to the risk factors described in the 2024 Annual Report on Form 10-K were reported - No material changes from the risk factors described in the 2024 Form 10-K were reported265 Unregistered Sales of Equity Securities and Use of Proceeds In Q1 2025, the company repurchased 38,491 shares for $4.5 million, and a new program was authorized in March 2025 for up to five million shares Stock Repurchases in Q1 2025 | Period | Total Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | Jan 2025 | 258 | $108.70 | | Feb 2025 | 0 | N/A | | Mar 2025 | 38,233 | $115.86 | | Total | 38,491 | $115.81 | - On March 20, 2025, the Board authorized a new stock repurchase program for up to five million Class A shares, effective for the three-year period ending May 8, 2028, which will replace the current program268 Other Information No officers or directors adopted or terminated Rule 10b5-1 trading plans or other trading arrangements during Q1 2025 - No officers or directors adopted or terminated Rule 10b5-1 trading plans during Q1 2025270 Exhibits This section lists exhibits filed with the Form 10-Q, including the ALLO Membership Unit Redemption Agreement and CEO/CFO certifications - Key exhibits filed include the ALLO Membership Unit Redemption Agreement and Sarbanes-Oxley Act certifications by the CEO and CFO273