Navient Corporation

Ladies and gentlemen, thank you for standing by. Welcome to the Navient Fourth Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 1 on your telephone. You will then hear an automatic message advising your hand is raised. To withdraw your question, please press star 1 1 again. Please be advised that today's conference may be recorded. I would now like to hand the conference over to your speaker host for today, Jennifer Arias, Head of Investor Relations. Please go ahead.

Hello, good morning, and welcome to Navient's earnings call for the fourth quarter of 2022. With me today are Jack Ramondi, Navient's CEO, and Joe Fisher, Navient's CFO. After their prepared remarks, we will open up the call for questions. Before we begin, keep in mind our discussion will contain predictions, expectations, forward-looking statements, and other information about our business that is based on management's current expectations as of the date of this presentation. Actual results in the future may be materially different from those discussed here. This could be due to a variety of factors, so listeners should refer to the discussion of those factors on the company's Form 10-K and other filings with the SEC. During this conference call, we will refer to non-GAAP financial measures, including core earnings, adjustable tangible equity ratio, and various other non-GAAP financial measures that are derived from core earnings. We will also refer to adjusted core earnings, which are measurements derived from core earnings and adjusted to exclude one-time expenses related to regulatory and restructuring costs. Our GAAP results and description of our non-GAAP financial measures can be found in the fourth quarter 2022 supplement earnings disclosure. which is posted on the Investors page at Naviant.com. You will find more information about these measures beginning on page 18 of Naviant's fourth quarter earnings release. There's also a full reconciliation of core earnings to GAAP results included in the disclosure. Thank you, and now I will turn the call over to Jack.

Thank you, Jen. Good morning, everyone, and thank you for joining us today, and thank you for your interest in Naviant. We completed 2022 with another quarter of strong financial performance. We delivered adjusted core earnings at 85 cents for the quarter and $3.43 for the year and a core return on equity of 17%. These results demonstrate our ability to deliver solid financial performance, even in disruptive economic environments. The business environment ended 2022 very differently than it started. For example, inflation pressured operating expenses, rising rates, and the CARES Act extensions virtually eliminated current demand for student loan refinancing, and rule changes impacting the management of defaulted federal loans ended our portfolio management business earlier than anticipated. A strength of our franchise is our ability to adjust to both expected and unexpected events to deliver for our customers and investors. For example, in-school originations grew 52% this year with our growth outlook increasing. We are leveraging our client relationships to win new business processing contracts. We successfully reduced operating expense in a high inflationary environment. And our hedging strategies and efficient funding programs mitigated the impact of rising rates to our net interest margins. Your management team is focused on delivering exceptional results by executing our strategy, delivering on our growth potential, maximizing our loan portfolio cash flows, continuously improving our operating efficiency, improving and consistent capital management. In consumer lending, we are focused on growing originations of high-quality loans with attractive risk-adjusted returns. In 2022, rising rates in zero-interest federal loans reduced our opportunities in refi to $1.7 billion in new originations. We rapidly adapted to these conditions to slash marketing spend and focus on our in-school products. Here we grew new loan volume by 52% over last year to $321 million, an estimated 10 times market growth. We also continued to build relationships with students planning to go to college, adding over 700,000 new students to our Going Merry platform. Here we help students and families complete the FAFSA, compare financial aid award packages from schools, and apply for scholarships. We see these products as important ways of helping students and families throughout their going to and paying for college journey. In our business processing solution segment, we grew non-pandemic-related revenue by 25 million, or 11%. It's also worth noting that our pandemic-related contracts extended longer than the original award, and we have been able to leverage this past work to win several new contracts in 2022, both strong statements on the value we provided to our clients. Our large and profitable portfolio of student loans is a key contributor to earnings. Our goal has and continues to be to maximize the performance of this portfolio. This includes helping borrowers navigate repayment options and avoid default, and innovative funding and hedging strategies to maximize net interest income. Our funding and hedging strategies help deliver a stable net interest margin despite the rapid rise in rates this year. Since our founding in 2014, we have clearly excelled at maximizing the value of our portfolio, and we will continue to do so. We are also continuously improving our operating efficiency. In 2022, operating expense declined by 21% or $205 million. We delivered improved efficiency in our operating segments, and we continue to take action that reduced our risk profile. In the final area, we seek to be excellent stewards of your capital. Our goals are to be efficient and prudent while delivering attractive returns. Here, our priorities remain unchanged. Invest capital in attractive and relevant growth opportunities, support our dividend, and return excess capital to you via share repurchases. This consistent and transparent approach supports our business growth, our debt investors, our corporate ratings, and enabled the return of $491 million via dividends and share repurchases last year. Our financial and business success last year positions us for another year of strong performance. For 2023, we are focused on the same four objectives, profitably growing our loan origination and BPS revenue, maximizing the performance of our loan portfolios, improving operating efficiency, and prudent and consistent capital management. In consumer lending, we expect to double in-school loan originations, building on the progress we made in 2022. We expect that demand for refi loans will continue to be suppressed, but we are prepared to move quickly when market conditions change. We will also continue to grow and build long-term relationships with students and families as we support their going to college journey. In BPS, we are well positioned to deliver 10% growth in revenue from our traditional clients. With this growth, we also expect to earn a high team EBITDA margin and new contract wins in late 2022 and expansions of existing contracts have created a clear path to these goals. As a result of our ongoing focus on operating efficiency, we will reduce operating expense by an additional 10% in 2023. And in capital management, our plan is to complete approximately 310 million in share repurchases. Our results this quarter cap a strong year for Navient. They reflect our commitment and ability to generate high quality, high value products and services. and deliver solid financial results, even in volatile and changing markets. They also reflect our ongoing commitment to simplify our business model and reduce our risk profile. More importantly, our efforts have built a solid foundation from which to create and deliver value. Our guidance for 2023 reflects our confidence and our ongoing ability to grow new business, maximize portfolio performance, deliver better margins through operating efficiency, and deliver attractive returns on capital. I want to thank my colleagues for their efforts and commitment to success, and together we look forward to delivering another great year of results in 2023. Joe will now provide a more detailed review of our results. Thank you for your time, and I look forward to your questions later in the call. Joe?