Navient Corporation

Good day, and thank you for standing by. Welcome to the Navient Strategy Update and fourth quarter 2023 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'll need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Jen Arias, Vice President, Investor Relations. Please go ahead.

Hello. Good morning and welcome to Navient's earnings call for the fourth quarter of 2023. With me today are David Yellen, Navient CEO, Edward Bramson, Vice Chair of the Navient Board of Directors, and Joe Fisher, Navient CFO. Hello. Naviant has a lot to share with you this morning and has posted two separate presentations that will be referred to during this call. Both are available on naviant.com slash investors. We will refer to a strategy update presentation, which you will find posted on our website. Our in-depth review and strategy update discussion may take us past the half hour. Following this update, Joe will discuss the fourth quarter results and outlook for 2024. He will refer to the fourth quarter 2023 presentation, which you will also find posted on Naviant.com slash investors. After the prepared remarks, we will open the call up 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. Listeners should refer to those factors in the discussion of them on the company's Form 10-K and other filings to the SEC. During this conference call, we will refer to non-GAAP financial measures, including core earnings, adjusted tangible equity ratio, and various other non-GAAP financial measures that are derived from core earnings. Our GAAP results, description of our non-GAAP financial measures, and a reconciliation of core earnings to GAAP results can be found beginning on page 18 of Naviant's fourth quarter 2023 earnings release, which is posted on our website. Thank you, and now I will turn the call over to Dave.

Thanks, Jen. Good morning, everyone. Thank you for joining the call and for your interest in Naviant. As you know, the board and management began an in-depth review of our business a few months ago. It's been a rigorous and comprehensive process. I've asked Ed Bramson, Vice Chair of the Navient Board, to join me this morning. Ed and I will describe the steps we're taking, their rationale and objectives, and what they mean for Navient. After that, Joe will share our Q4 results and 2024 outlook. We will then open it up for Q&A. There are three actions that we're taking coming out of our in-depth review. Outsourcing loan servicing, exploring strategic options for BPS, and reshaping our shared service infrastructure and corporate footprint. At a high level and in the near term, these actions are intended to simplify our business, reduce our expense base, and increase our financial and operating flexibility. Over the long term, we believe these actions will increase the value shareholders derive from our loan portfolios and the returns we can achieve on our business building investments. Let me turn to slide two of our strategy update. In May 2023, the executive team and the board launched an in-depth review of our business to ensure we were on the right path for success and value creation. This review has confirmed that changes are necessary for Naviant to deliver its full value and potential. Our review included an extensive and intensive analysis of costs. We focused on the size, purpose, and allocation of all costs by business unit and shared service activities like IT, as well as unallocated costs within our corporate other segment. At the same time, we sought to benchmark and compare our costs of important activities, including loan servicing, to the costs of third-party providers. We analyzed our projected in-house servicing costs over the remaining life of our loan portfolio and compared it to third-party costs through a competitive RFP process. Our current costs were found to be comparable to third-party providers, but it was also clear that our in-house cost of service would not continue to be competitive with third-party costs as our legacy portfolio amortizes and our economies of scale begin to disappear. As a result, we've decided to transition to an outsourced servicing model. Once completed, this will create a variable cost structure for the servicing of our student loan portfolios and provide attractive unit economics across a wide range of servicing volume scenarios. Through our competitive process, we selected Mojila as our servicing partner. Mojila is a leading provider of student loan servicing for government and commercial enterprises. We are committed to a seamless transition for our customers in a few months' time. Many of our servicing employees are expected to transfer along with this transaction. Now to our second strategic action. Our in-depth review highlighted that a significant part of our cost base and infrastructure is shared between loan servicing and BPS, and especially within BPS's government services business. Both businesses involve many similar activities, such as call center operations, payment processing, and omnichannel mobile customer interactions, such as telephony or text, among others. Given the earnings multiple the market assigns to our shares, our BPS businesses do not receive the value assigned to comparable stand-alone businesses. This limits our ability to realize these businesses' full potential and value, such as through larger investments in organic or inorganic growth, for example. Therefore, we are exploring strategic options for BPS including but not limited to divestment, with the goal of realizing the full value and potential of these businesses. We've engaged financial and legal advisors to help us with these efforts and will provide updates along the way. Pursuing divestment simultaneously with decision outsource servicing maximizes the potential for shared cost reduction. We expect to be able to identify and more quickly eliminate stranded costs. we intend to reshape our shared services functions and corporate footprint to align with the needs of a more focused, flexible, and streamlined company. We've identified opportunities, and some of the steps that need to be taken are included in our 2024 outlook. The full scope and timing of these opportunities will depend on the progress of the outsourcing and potential divestiture transactions. These will define any transition services requirements, as well as separation and stranded costs. If you look at our 2023 operating expenses, approximately $400 million, which is net of expected outsourced servicing expenses, could be eliminated under a scenario in which we had already completed the three steps we're announcing today. That scenario would also not include BPS revenue under a full business divestiture scenario. We expect to finalize all three actions during 2024. Their implementation is expected to be largely complete over the next 18 to 24 months. With that, let me turn it over to Ed.

Thank you, David. I think all the things that David's spoken about that we're actually doing are relatively clear, but what we thought might be helpful today is that for the last eight, nine, ten years, Navient's been in a steady state. You can predict more or less what it's going to do. And starting in 2025, it's going to be a steady state again. So the coming year is sort of transitional, and you could think about it as a turnaround year. And the firm that I'm with invests principally in turnarounds. So we thought it might be helpful to provide some perspective on not just what we're doing, but why we're doing it, And David asked me, I think the word he actually used was delegated me, to take you through it from that perspective. So starting on page three, you could obviously say, well, why would the board look at doing this now as opposed to in the future or having done it in the past? And if you look at the first bullet, it basically says that the share price since the spinoff in 2014 has gone down a little bit. It's not the worst you've ever seen, but I think the board concluded that it's not a tremendous return for 10 years' work. So the question is, what do you do about it? And as David said, the first step was to do a really solid review of costs. And that project, and I've been involved in quite a few of these turnaround situations, was one of the best interactions between board and management than I've ever seen. So this is a unified approach and I think it's very well done. The basic issue it had to address is if you think about Navient compared to other companies, a very high proportion of our costs are allocated rather than directly attributable. And what that tends to mean in practice is you always spend a lot of time deciding which bucket the costs should go into. which doesn't leave much time to figure out whether you should have them or not. And this study has sort of broken through that. And it's provided a lot of useful data. Obviously, it helps with what David was talking about in cost reduction, but it also points you to what to do next with capital allocation or growth or whatever. And what it all sort of ends up saying is that for turnaround, this is a somewhat unusual situation. The... the likely cash that's going to be available in the next few years actually is higher in amount than our entire market cap. So a lot of what the strategic plan will ultimately have to be about is how do you use that wisely. So we'd like to take you through our thinking on that. If you go to page four, the major driver of our financial performance since the spinoff had to be the loans we inherited. At the time, we spent off about 135 billion of loans. And the intention was not to replace them. They were intended to run off. The intention was to do other things with them. And so we have made some efforts in that regard. We've actually generated about 9 billion of new loans. But I think over time, and I've gone back and looked at some of the sell-side research people were probably a little too optimistic about how soon you could start to get to the inflection point when new revenues grew faster than the ones declined. And in reality, as you can see, we've had a runoff of about $90 billion of loans. We've added about $9 billion of new ones. So we might be on track to some inflection point in revenue, but it's not near term. So the inflections to focus on are the ones that David's talking about, which are inflections in earnings, or of shareholder value. And if you go to page five, I think this helps to put in perspective what we're focused on in the short run. The revenues coming down is not really the principal issue, oddly enough. The issue is the operating leverage that creates. And so during the period, as you can see, if you take net interest income, we've had a drop of about $1.1 billion on an annual basis. Our operating expenses have come down by $80 million. There are lots of reasons and background for that, which I won't get into. But whereas the ratio that we're getting here is 15 to 1, unfortunately, it's a negative ratio, and that's what David's dealing with right now. There's a second contributory issue that comes after this, which we'll come back to a little bit later on, which is as we thought that the revenue inflection is coming fairly soon, has receded, you tend to get a reduction in the PE multiple. And we'll get into what the consequences of that are in just a second. And if you go to page six, During the period, we did make a lot of investments. We bought BPS. We bought Amnesty and some other things. The biggest single investment we made was in share repurchases. And as you perhaps know, we have bought back since the spinoff about 75% of our original shares outstanding. And that program did what it was intended to do, which essentially was to maintain earnings per share. And the data in the table is a little bit messy. There's a difference between gap and core. But I think it's fair to say that if you looked at it, it's maintained earnings flat to slightly up to achieve what it's intended to do. On the other hand, the problem we've had is because of the change in perceptions of strategy, the multiple has been coming down. So even though the earnings per share are flat to up, because of our declining multiple, the share prices come down. That's an issue that we need to deal with as well. And we'll talk about that shortly. So with the joint project between board and management done, what are the immediate priorities? The first one is obviously to get your operating expenses down. And there are two elements to that. There's an obvious one, which is that the The loan portfolios, by and large, with one exception, are not designed to be replaced. So every dollar that you spend of overhead on them or other expenses connected with them just comes out of the value of the portfolio. So our biggest single asset today is the loan portfolios. The less money you spend collecting them, everything else equal, the better. I think the more subtle issue is that are a major future asset as the businesses we're trying to grow. And in an allocated environment, as the legacy businesses shrink, their allocated costs get reallocated to new businesses, which are the ones you're trying to grow, which can't afford them. So they have the effect of smothering that effort. So that needs to be dealt with. And I think the other thing, coming back to the rising cost of equity as risk, If you accept that we're going to have a tremendous amount of cash relative to our market cap to either return to investors or invest over the next two, three years, there needs to be a discipline in how you think about it. So think about it this way. If we take $100 of cash and we put it into an investment and it makes a 10% return, that's $10. At our current multiple, that means market value of $70 for the $100 you put in That's not viable, you can't do that. So you either have to return that money or come up with something better. So where it leaves you today, and hopefully this will change, is you need to make about a 15% return on equity to justify doing anything, and if you do, it's sort of a wash. So as with that as a background, what we'd like to do on page eight, as David said, and I think I said at the beginning, This is a strategy update. It's how to think about the strategy. It's not the strategy. But the strategy is going to be driven by what you have to work with. And on this page, we have the major components of the business. So the loan portfolios we'll cover in a second. The other items we have, we have quite a large amount of unrestricted cash. We have two operating segments. We have earnest and we have BPS. And both of those have some interesting aspects, too, and we'll cover a little bit in brief. If you go to page nine, this is the loan portfolios. Okay, so the first piece of the portfolio is our loan assets. And I think it's important to explain that on our balance sheet, these are consolidated. which makes it a bit difficult to track what they're really worth. In reality, all the loans, almost all the loans that we have are securitized. They reside in trusts against which those trusts have incurred some borrowing. So the real economic interest we have in the loan portfolios is what we get from those securitization trusts, and that's a combination of future net interest income, servicing fees, and the initial equity that we put in that comes back at the end when the trust is liquidated. So if you take those inflows, the table sort of puts together the things that you've seen before, but maybe not in one place. And what it essentially says is that the expected distributions to us from the trust are about $13 billion. Against that, we finance it in part with unsecured debt, which is a little less than $6 billion. So there's somewhere in the region of $7 billion to come in from those trusts over time as we speak. And about half of that looks like it comes in in the next five years. However, it does cost some money to get from there to what shareholders receive. And so if you want to maximize that value, you need to deal with loan servicing expense, corporate overhead, and the interest on our liabilities. We think there are opportunities in all of those areas And I think David's already lining up for you what they're in servicing and corporate overhead. The objective here is to give you a realistic view of what these things are worth. We need to be able to give you all the data which we don't have yet. So hopefully by the end of the year, we'll be able to line all of that up. David covered the outsourcing. I just want to say briefly on page 11, what the environment and what the decision that created it is. When it was spun off, it had 12 million borrowers. Half of them were serviced for the education department. The other half were our loans. So as you move along, probably 1.2 thirds of the loans were financed for the education department. Much larger infrastructure than we require for what we do today. So Surprisingly, and this is a real compliment to the management team, when you benchmark it, our servicing costs are very competitive today. The problem is, David said, as the base shrinks, they're going to get less competitive. So there is an option to go ahead and invest in a smaller, more flexible system to deal with that. We think a more desirable option is to outsource to somebody who has scale. The expectation, therefore... is not that we're going to save a lot of money on servicing in the short run because we are competitive. But as the portfolio shrinks, the benefits become very large by making it variable. So that's the loan portfolio. On page 12, there's another item, unrestricted cash. And I think a way to look at this is it's not part of the loan portfolios, but it goes with it. The reason we have all the cash you see on the charts here is that it's a liquidity buffer for the large loan maturities that we have coming up periodically. And so it's always been there. However, and it's not always easy to get this out of the financials, it's unrestricted cash. It's available for general corporate purposes, and it belongs to the shareholders. And that's at the end of 23. That's about $7.50 a share of cash. that belongs to the shareholders. In fact, if you look at some other liquid assets that we have in addition to cash, it's more like $10 a share. So if you think about that, and if you think about the potential inflows from the loan portfolios, that's why I was saying earlier that even if you don't sell BPS, you're going to be having cash available for distributions or investments that's actually, in the next few years, equal to more than our entire market cap. So obviously the key to this situation is to do that wisely. So if you go to page 13, I think as I said earlier, it's sort of obvious in which circumstances you would just return cash to shareholders. But here's an example of some things that are going on at Navient under the hood that perhaps aren't well highlighted. So the one I'm gonna pick is Earnest. And Ernest is something we bought five years ago or so. But the point is that it's a new brand to Navient and it's customer focused and it's designed to focus on relationships. And what we mean by that is a relationship is something that causes a customer to come back for another product after he got the first one. The reason you want that is it enables you to build attractive lifetime economics with customers. In that sense, it's distinct from the Navient brand. There's nothing wrong with the Navient brand, but it's a servicing brand. So the interaction you have with it is collecting a loan that might have been written by the education department, or maybe it's one of our old ones. We do the best we can to treat you properly. We try and be efficient and sympathetic to the extent necessary. But at the end of that relationship, you don't expect to see us again. So it's not the right sort of brand to build a business in the future. So, Earnest has been going for a while. It is now running at a bit less than $200 million a year of revenue. It's principally focused on education industry types of products at the moment. Our objective is to move that out into a broader set of product lines at some point in the future. But what we have today is a lending business, which has generated essentially all of our new loans in recent years. which is highly efficient and we'll tell you about it in a second. There's another part of Earnest which we're calling a financial counseling platform, really for lack of anything more imaginative to call it. And in my own work in engineering, this would be the difference between saying what something is and what it does. So financial counseling is what it is. What it does is that it enables us to address a much broader base of customers than we have today to build our relationships potentially for the future, and also to develop data for the sorts of things you might do next. But the management team at Avian is quite a bit younger than some of the other management at Avian. And one of the things that they've done, I think, quite well is to resist some pressure to monetize this business too soon. So it does generate a little bit of revenue, but the way to think about it is it's all paid for within Ernest's operating budget. So just quickly covering the brand point. As we said, we're trying to target a certain kind of customer. We're trying to target them efficiently. What's on the page here is that Navient periodically does a brand health survey. There are 11 brands in here. One of them is Navient. One of them is Ernest. The other nine are competitive companies. And there are lots of attributes. We just picked some of them. But as you know, generally speaking, financial services companies are not super well liked by their customers. But if you look at these attributes, what you find is that earnest in its dealings with people is perceived as being fair, as being ethical, being reliable. What it's not perceived as is being aggressive or arrogant. So if you come back to the efficiency of acquiring customers, if you treat them properly, they come back, and that's much cheaper than getting a new one. So that's the point I think we want to make. So just to give you a bit of an insight into how Ernest is doing, on the lending side, the principal thing it does is graduate loan refinancing at the moment. There's 5% to 10% of it that's in school lending, but I don't think it's relevant to this discussion. It's not the only thing we want to do, but it's a good place to start, and it pays the rent. The reason it's good is it aligns with the sorts of customers you want to get and the characteristics you want, and it's something we know how to do. It's been successful. Our market share in this field is either one or two for most of the last few years, and we've generated about $9 billion of loans here. It's also now quite profitable. It went from a loss in 2020 of about $8 million to making about $80 million pre-tax today. The counseling platform, I think the point to make here is that over that time, it's grown fourfold, a bit more so. And so you've got almost 2 million users. Earnest has... probably 150,000 customers. So it's multiples of people that you have relationships with above those that you actually currently lend to today. The reason that's important is that they may be future customers, but coming back to a point we made earlier, we're looking at product line extensions. And the most economic way and least risky way of doing that is to test into those things, to do research, to try them out, rather than commit hundreds of millions and find out it was a bad idea. And there's an industry celebrity who I have not met personally who has, I think, a rather interesting way of describing consumer lending. He says people go into it with wide eyes and they come out with black eyes. So one of the principal values of this platform is to enable us to be judicious as we start to add new products. Then on Ernst itself, its business model, why is it distinct? We talked about the brand. But if you think about financial services generally, it's very difficult to have a lower cost of funds than other people. Product differentiation is something people talk about, but at best it's fleeting. So neither of those are going to be advantages for us. So what Ernest is focused on is targeting customers who are efficient and then managing that process efficiently. So if you think about what people in the industry generally talk about, they say, well, our NIM will be better because we'll charge people more for the same product than other people can get, or we'll fund it cheaper than other people can do, or our cost of customer acquisition will be less. All of those things are important, but what really counts is the end-to-end efficiency. So taking a few data points there, Ernest is acquiring customers at an annualized cost of about 30 bps. And what that is, it's a little bit more than a percent to get one you keep in about four years. Another element of efficiency is that we're targeting more affluent customers. So the average balance at Earnest at the moment is about $50,000, which is almost three times what our legacy portfolio is. And in fact, that 50,000 is trending a little bit higher as we speak. And then the other point on here is the realized loss rate. And the 40 bps might sound attractive. It probably is helpful in generating them. But the more important point in an end-to-end analysis is all the people you don't chase, you don't have to worry about, you don't have to think about every day, don't cost you money to manage. And so in terms of efficiency, that's probably the major advantage of targeting those kinds of customers. just to wrap up on this because it sounds like a plug and I have to say that it really isn't because we haven't decided firmly what to do with it or about it. But having said that, we talked earlier about operating leverage. And one of the great things about the project that the guys did is you were able to identify these points of leverage. You do this, you get that in various elements. So Agnes is an example, I think, of positives. operating leverage, because you have well-controlled costs and you have a growing revenue base. So to put that in context, if you look at earnest from 2023 until the end of last year, its revenue increased by, I'm going to call it $125 million. Its marketing expenses went up, but if you get more customers, you have to spend more money to get them. What's interesting, though, is that the other operating expenses went up by about 15 million. So that's a ratio of a little bit better than 8 to 1. And as you grow, that ratio actually gets better. So what this looks like to us is a classic example of online growth business economics. So it's probably something that you will want to find a way to expand. So with that, not to say that there aren't very interesting businesses within BPS, but That one, as you know, is subject to analysis of strategic alternatives, so I'm going to turn it back to David. I'm going to get off now, and I'll delegate it back to him.

Great. Thanks, Ed. So, turning to page 18, let me provide a brief review of our BPS businesses. These businesses operate in two distinct markets with separate operations. Several of the businesses within this group were acquisitions. Our healthcare business goes to market under the Xtend brand. Xtend offers revenue cycle management services to healthcare providers and is relatively independent from the rest of Navient from an operational perspective. The government services and transportation businesses operate under several brands and provide a variety of services to federal, state, and local governments. Its operations share costs, infrastructure, and corporate support with the rest of Navient. particularly loan servicing. While we're at an early stage in exploring strategic options for this business, we'll keep you updated as that process unfolds. Let me try to summarize on slide 19. We have identified and we're taking steps to significantly reduce the expense base and simplify the company. These actions are designed to increase the value of the cash flows from our loan portfolios and increase the returns and transparency around growth initiatives. The cash we have on hand, the enhanced cash flows from our loan portfolios, and the proceeds of any divestiture of BPS combined could generate significant cash flows in excess of our current market gap over the next few years. We will invest that cash in activities that are expected to generate market value in excess of the invested cash. Excess cash will be distributed to shareholders. Shortly following my transition from the board to the role of CEO, I shared with you my initial impressions from inside the company, namely that Navient has a strong foundation of assets, capabilities, and talent. I also said that we would undertake a rigorous review to identify ways in which that foundation can deliver more to shareholders. These actions are the first steps in delivering our full value and potential, and we look forward to providing updates on our progress. With that, I will now turn it over to Joe to review our Q4 results and provide our 2024 outlook.

Thank you, Dave and Ed, and everyone on today's call for your interest in Navient. During my prepared remarks, I will review the fourth quarter and full year results for 2023. I will also provide more detailed guidance underlying our 2024 outlook for earnings per share of $2.10 to $2.30. Our 2024 outlook does not assume any of the strategic actions that we are announcing. It does not include potential benefits from the transition of servicing, any potential divestitures, or any restructuring expenses related to these initiatives. This outlook also assumes a declining rate environment with four rate cuts. We will update our financial outlook throughout the year as these actions become clear. In 2023, we reported a fourth quarter gap EPS loss of 25 cents, bringing our full year gap EPS to $1.85. On a core basis, we delivered fourth quarter EPS of 21 cents and full year EPS of $2.45. The 21 cents includes a 49-cent reduction to EPS related to significant items in the quarter. Before I move on to the segments, I will provide further detail on two of these items. First, we have increased our accrual by $28 million in connection with the CFPB litigation, bringing our total accrual to $73 million. We remain confident about the strength of our case while open to finding a solution that is acceptable to all stakeholders in order to put this matter behind us. Second, in our private credit provision this quarter, we've reserved $35 million due to internal policy changes we've made to meet new regulatory expectations related to school misconduct discharges on certain legacy private loans. This increase reflects our assessment of the impact to the legacy portfolio's life of loan discharges from potential borrower claims. I'll now provide additional detail by segment, beginning with federal education loans on slide four. The quarter's NIM of 86 basis points reflects the higher rate environment as floor income, including the amounts that were hedged, continued to roll off in the second half of this year. We expect felt NIM to decline to the low 70s for 2024 due to our interest rate outlook of four cuts this year. Falling interest rate environment creates NIM pressure as our FELP assets reprice more frequently than our liabilities. However, we do not forecast rates to fall far enough to reach a level where significant floor income is generated. Our full-year FELP net interest income declined 8% to $480 million as the portfolio balance declined 13% to $38 billion. The full-year FELP NIM of 112 basis points was above our targeted range of 100 to 110 basis points provided at the beginning of the year. Credit metrics improved in our FELT portfolio compared to the prior year and third quarter. The delinquency rate, forbearance rate, and net charge-offs all declined from the prior year. Provision increased from the prior year as longer expected lives, primarily driven by a greater percentage of borrowers and income-based repayment plans, increases the projected amount of loan premium charged off in the future. The net charge-off rate of 19 basis points for the year was consistent with our expectations of 10 to 20 basis points for the full year. Now let's turn to our consumer lending segment on slide 5. Net interest margin was 291 basis points in the quarter and 304 basis points for the full year. This exceeded our original guidance of 280 to 290 basis points as we benefited from improved funding spreads. We anticipate that the consumer lending NIM will be in the low 300s for 2024. This includes projected new refi originations of $1 billion compared to $647 million in 2023. It also assumes projected growth of 10% in in-school originations. We expect the increase in refi originations to occur primarily in the back half of the year based on our outlook for a declining rate environment. Our consumer lending team is focused on generating high-quality loans with efficient acquisition costs at improved margins. Credit metrics in our consumer lending portfolio were formed as expected with delinquency rates, forbearance rates, and charge-off rates relatively flat year over year. Our charge-off rate for full year 2023 of 1.5% was at the low end of our original guidance of 1.5% to 2%. Provision of $50 million is primarily driven by the changing regulatory expectations that I discussed earlier in my remarks. This is reflected in our change in allowance on slide six. At the end of 2023, our allowance for loan losses for our entire education loan portfolio is $1 billion. While much of our portfolio is amortizing, we reserved $5 million for felt loans during the quarter and $56 million during the year related to a projected extension in the life of the portfolio. New origination volume contributed $4 million to the allowance in the quarter and $25 million for the full year. Continue to slide 7 to review our business processing segments. Total revenue increased $11 million to $81 million in the quarter as revenue from our traditional BPS services increased $15 million, or 23%, more than fully offsetting revenue associated with pandemic-related contracts from a year ago. The full-year revenue of $321 million was comprised of $74 million in growth from traditional BPS services and well in excess of the long-term, high single-digit growth that we see in the industry. Our full year EBITDA margin of 12% was driven by the onboarding of new government services contracts in the first half of the year. Our EBITDA margin of 15% in the quarter reflects the benefit from ongoing efficiency initiatives as we target high team EBITDA margins for 2024. Turn to our capital allocation and financing activity that is highlighted on slide eight. We continue to maintain disciplined asset liability and capital management strategies with 84 percent of our education loan portfolio funded to term and an adjusted tangible equity ratio of 8.2 percent. During the quarter, we issued $516 million of asset-backed securitizations and $500 million of unsecured debt. We also retired $850 million of maturities that were due in March of 2024. Our overall unsecured debt maturities declined by 16 percent to under $6 billion, the lowest levels in our history. In the year, we reduced our share count by 13 percent through the repurchase of 18 million shares. In total, we returned $388 million to shareholders through share repurchases and dividends. We expect the adjusted tangible equity ratio to remain above 8 percent for 2024. Turn to expenses on slide nine. Total expenses for the year were $825 million. This includes $80 million of regulatory expense primarily related to accruals in connection with the CFPB matter. Operating expenses declined 32% in the federal education segment and 10% in the corporate other segment when adjusting for regulatory expenses. We achieved an efficiency ratio of 53% for the year better than our original full-year outlook of 55 to 58%. The strategic initiatives we are undertaking reflect our commitment to identify additional and more meaningful opportunities to reduce expenses. In closing, the full-year results of $2.45 reflect the steps we have taken to achieve profitable growth, address regulatory matters, and maintain strong capital while exploring alternative strategies to maximize cash flows and enhance value for shareholders. Our full-year 2024 outlook of $2.10 to $2.30 does not include the impact of strategic initiatives that Dave and Ed outlined occurring this year, though we are confident in our ability to execute on these initiatives. Before I close, I want to thank Team Navient for their accomplishments this year and continued commitment to creating further value for all of our stakeholders. Thank you for your time, and I will now hand the call back to Dave.

Thanks, Joe. As I said at the outset, we had a lot to share this morning. While we pursue the actions we're announcing today, we remain focused on meeting the needs of our borrowers, on growing our BPS businesses by delivering the services our customers and clients seek from us, and with earnest on growing loan originations and building engagement and deepening relationships. We will update you on our progress and call out the impacts within our 2024 results as needed. As they come into sharper focus by the second half of the year, we expect to be able to provide a revised outlook and our going forward opportunities and plans. I also want to acknowledge and thank my colleagues across the organization who continue to serve our customers and clients. The actions we are announcing today represent significant change. I know that as we navigate these changes, our team members will remain committed to servicing our customers and clients with distinction and care.

With that, we're ready to move to Q&A.

Thank you. As a reminder, to ask a question, you'll need to press star 11 on your telephone. To withdraw your question, please press star 11 again. please wait for your name to be announced. We ask that you please limit yourself to one question and one follow-up. Please stand by while we compile the Q&A roster. One moment for our first question, please. And our first question comes from the line of Mark DeVries from Deutsche Bank. Your line is now open.

Yes, thank you. I was hoping you could give us a little better sense of kind of the net financial impact of these three major steps you talked about. I mean, the 400 million expenses are obviously pretty significant, but I believe it's less than kind of a consensus expectations for BPS revenue as we look at the 2025. So how should we think about kind of the net impact to earnings and also how much, you know, incremental capital you may free up either through sale of BPS to kind of offset any kind of potential earnings dilution?

Mark, thanks for the question. First let me clarify the scenario that we're using when we refer to the $400 million of expenses. So the scenario assumes that we have completed our outsourcing transaction, the one that we announced this morning. We have divested BPS in its entirety, and we have taken the steps to reduce our shared service footprint and our corporate footprint to reflect those two transactions. So that's the scenario that underlies it. When you think about the financials of that, you might start with BPS and look at our 2023 actuals to calibrate this. During 2023, we had roughly $325 million worth of revenue in BPS, and we had $280 million worth of expenses. So neither of those would be present under this scenario. Our servicing expenses would no longer be present. The first party servicing expenses that we incur today would no longer be present as well. Our shared service expenses many of those shared between loan servicing and BPS would no longer be present, as well as a smaller corporate footprint would mean that our operating expenses would be lower under that scenario. Now, we have to add back the fact that we would now pay our outsourced vendor for servicing our loan portfolio. So you bucket all those things together, and the cumulative impact on operating expenses is a reduction of $400 million with a revenue decline of $325 million. That's how it would impact in 2023 actuals. Now it's important to note that when we talk about finalizing these actions in 2024, what we're talking about is becoming more certain about what that scenario actually is. We're farther along in the outsourcing process, and so we have more confidence and more visibility. Not perfect yet, but we have more confidence and more visibility into what that will look like during 2024, and we'll share those impacts with you. We're less far along in the process relative to BPS, and so we'll keep you updated along the way as we determine whether in fact we do divest all of it as in that scenario or whether there's some variation of that. The shared service reductions and the corporate footprint reductions, the timing of those and the nature of those depends on those first two transactions as well. For example, if we don't sell all of BPS, for example, then we may have more stranded costs to take out than if we sell all of it in a piece, as an example of that. The other pieces that are not in the outlook is both the nature of the transactions that we end up doing, so what will be the scenario, and then if we sell BPS, what are the sale proceeds? So when we talk about giving greater visibility into the second half of the year, we're talking about at that point we will know what the scenario is and we'll have greater visibility into the timing and the amount of any transition items that get us there. Hope that's responsive, Mark.

Yeah, that's helpful. Thank you. And just a follow-up on BPS. Is the divestiture there kind of an imperative, just given the decision to outsource servicing, given some of the significant shared expenses, at least on the government services side? And if so, is it also possible to hold on to health care just given it doesn't have that, you know, as you mentioned, it's more self-contained, it doesn't share the same kind of corporate expenses?

Yeah, I think you're thinking about it exactly the way that we're thinking about it, Mark. I think Ed commented on this in his remarks. I would think about the timing of BPS and our decision to explore strategic options is absolutely tied to our decision to outsource because we have this significant shared service infrastructure and it makes sense to make a decision about those and analyze those as close to simultaneously as we can. We will look at – so I wouldn't call it imperative. I would call it the timing makes sense for us. And then, as you indicate, and as we called out, there are different uses and different reliance on that shared service infrastructure, even within our BPS businesses. We'll clearly consider that and think about that as we decide on the scenario that we follow for that particular

business.

Okay, great. Thank you.

Thank you. One moment for our next question, please. Our next question comes from the line of Aaron Siganovich with Citi. Your line is now open.

Thanks. Just thinking about it from a high-level perspective, if you exit BPS in your remaining businesses are very much simplified. You have a runoff portfolio that you've had all along, and you have earnest, which you laid out some of the benefits there, but earnest is a little bit challenged in the near term, it seems like, just from its primary business has been student loan refi, and that's facing some challenges because of the interest rate environment, and the in-school business is quite small. I guess what's what's really left to provide growth if you're exiting BPS and you have this runoff portfolio?

So thanks for the question, Darren. I think a couple of things I'd call you to. First, I'd go back to Ed's remarks and the way we're thinking about earnest in terms of not just a lend-centric or lend-first model, but a way to establish relationships and engagement with the student cohorts that i think sets us up and gives us some optionality going forward to decide whether there's other product lines or other services that we can provide to that cohort i would also point out that our the loan origination targets that joe described for earnest do represent a 40 growth on a combined basis refi and slo compared to our actuals for 2023. So I think that's a significant growth rate and a demonstration of our confidence and commitment and our ability to compete effectively in those markets while focusing on our overall efficiency in creating those assets. That's really the goal that we have is to continue to minimize and optimize our cost of acquisition, our collection costs by selecting the right customer segments that allow us to continue to grow on that financial trajectory that we shared, I think, for the first time here this morning.

Okay. And then I was wondering if you could also provide any additional color on the $28 million of contingency loss. Yes, I did some recent developments in the CFPB matters.

Yeah, so there's two matters, right? One is the CFP matter is just the additional accrual based on the developments in the case, the litigation in the quarter, just like last quarter. We won't comment on the developments of those. So that's what the $28 million is. Okay. All right. Thank you.

Thank you. One moment for our next question, please. Our next question comes from the line of Moshe Ornbuck with TD Calend. Your line is now open.

Great. Both, you know, Dave, you talked a lot about cash that's available, but you also talked about, you know, kind of maintaining above an 8% TCE ratio. Could you talk about, number one, how much share repurchase is in your 24 guidance and how you think about the impacts of this plan on TCE, whether there are charges that you might have to take to get out of expenses and contracts and other things and severance and other things like that and any other kind of things that might impact during 24.

Thank you, Moshe. I think on the capital ratio and just overall guidance, what's embedded in our $2.10 to $2.30 plan is share repurchases of just under $140 million. So that will help you with adjusted tangible equity ratio, which we believe will be above 8%. And as you know, the biggest driver of that ratio is just our success in refi and in-school as we hold 5% capital on the refi book and 10% for our in-school loans. So that's going to be the biggest determinant of how far above or really above that 8% range that we end up. And a big driver of that is just going to be what you think about, obviously, the interest rate trajectory for the back half of the year. And then in terms of... Could you... Yeah. I'm sorry. Go ahead. Yeah, I was just going to follow up on the second part of your question here about just future charges with all of the strategic actions that are potentially taking place. Our goal certainly is to limit any types of restructuring charges going forward. Our guidance does not include that, but our goal is to minimize the expenses associated with that, and certainly the valuation is going to be a determinant of that, and we're going to look to maximize the value of these transactions, and that's going to play a big role in determining, obviously, any capital implications going forward.

Great. Thanks. And just as a follow-up, maybe follow-up to Mark DeVries' question on BPS, could you talk a little bit about that, you know, you're expecting a 15% EBITDA margin. You had a 12% EBITDA margin this year. Could you talk about the range of the various contracts in there, you know, around that 15% and whether you've got, you know, indications of interest in on any of those and which of those are perhaps more likely or less likely and how to think about, you know, that in terms of the, you know, the various elements within that BPS business. Thanks.

Sure. So just to make sure I'm capturing your question, just the range of EBITDA within the various sectors, whether it's healthcare, government services, and contracts is what you're asking?

Yeah, I mean, I'm assuming they all don't average.

Yeah. So ultimately, it does vary contract by contract. I think if you look at some publicly traded companies, typically healthcare does earn a higher, certainly a higher multiple and has higher EBITDA margins than those related to federal contracts. So it does vary contract by contract. And what you've seen over the last several years is that we've actually exited a number of our lower margin contracts, which has contributed to the growth that you've seen and the benefits that we've received in the EBITDA margin. So while full year was 12%, we ended this year at 15% for the quarter, and guidance is for the high teens for next year. And as you can see in our presentation, if you look back in the appendix, there's about a 10% revenue growth implied in that as well as achieving the margins that we're laying out. So ultimately, I think just if you look at this business, it's a very attractive business that we historically have just not received the multiple that you see others getting in this space. And so that's one of the things that we're looking at here and certainly one of the drivers of our decisions. Thanks. Thanks.

Thank you. One moment for our next question, please. Our next question comes from the line of Bill Ryan with Seaport Research Partners. Your line is now open.

Good morning. Thanks for taking my questions. First, just going back to, you know, the high level, you know, question investors have been asking is, you know, if I buy the shares of Navient, you know, what exactly do I own? You know, you've kind of outlined your commitment. to Earnest and adding some new products, you know, details somewhat forthcoming. But, you know, thinking about the sale of BPS and adding the products and services to Earnest, are acquisitions or bolt-on acquisitions in the thought process of maybe using some of the proceeds from BPS?

Yeah, you know, this is Dave. Thanks for the question. Look, I think it's too soon in the process to talk about that. Again, the strategy that Ernest has had and will continue to execute against this year is to continue to build engagement with students through the financial counseling platform. That includes things like, for example, student loan manager, which is a capability that helps students that have federal loans determine what the best payment and refinancing options are for them. At the same time, we'll be, as I just indicated, growing our loan originations by almost 40% this year while we're looking at the different product lines, et cetera, that we might be able to build off that engaged user base when we, you know, find a set of products and services that we think we can offer. There's a variety of ways that we might do that. It could be through acquisition. It could be through an organic build. It could be through affiliates. I think you've seen, you know, all those models work in financial services. And I would say all those things would be on the table if we go down that route.

Okay. And one follow-up just on the felt margin guide. You know, I know that the floor income contracts are running off, etc., And the interest rate environment is going to be a little bit more adverse to the margin. But for Joe, it's kind of thinking is, you know, as you exit 2024, you got it, you know, obviously to the margin being low 70s for the full year. Is the margin going to be lower as we exit 2024 or fairly steady over the course of the year?

So it's going to be lower as you get into the back half of 24, just from the margin pressure component of it. So As the, using the four cut scenario that we're projecting here, that pressure itself we would estimate contributes about 10 basis points of pressure throughout the year. but more so in the back half as those rates are projected as early in the front half of the year. So we should see that impact back up at the floor component. You're going to start to see that early in the first quarter, and you've already started to see that this quarter. There's about five basis point contribution this quarter versus last quarter from the floors rolling off. That goes to about 15 basis points as you get into the first quarter.

Okay. Thank you for that color.

Thank you. One moment for our next question, please. Our next question comes from the line of Sanjay Sekrani with KBW. Your line is now open.

Thank you. Good morning. I want to go back to slide nine because to me it seems like that's the most critical part of the story going forward. And it seems like the name of the game should be trying to optimize the flow through of all these cash flows. And I know that's sort of what you're working on with all of these initiatives. David, maybe you could just help us think about dimensionalizing how much can flow. It doesn't seem like there's a lot that flows through if you have the current cost structure, but obviously the adjustments you're making, as you've indicated, substantially free up the flow through. But maybe you could just talk about the aim over the next five years and beyond of sort of how much of that flow through we can get, because obviously that's a big part of the thesis, you know, where the market cap is lower than these cash flows. Thanks. Yeah, thanks, Sanjay.

Good morning. So there's a couple pieces to that. One piece is just the financial implications of the three strategic actions that we took that I ran through the financials a bit earlier, so I'd call you back to that. That clearly, in that scenario, reduces expenses by more than the revenue that would no longer be present in the company. I think the second thing is that moving to a variable servicing model has some pretty powerful leverage for us relative to where we are today. We don't project for you our servicing costs out over the remaining life of the loan, but I think you can think about that in terms of we have a fixed cost base and we have a variable cost base and so as loans uh pay off and the portfolio amortizes as it is done uh on a net basis for all but one year in naviance history uh when we originated six billion dollars of refi loans in 2019 so in that amortizing scenario you've seen the variable costs come out as the loan count goes down but at some point that fixed cost base doesn't go down as rapidly as the loan counts going down. And so the variable cost model we think produces significant, not just operational flexibility, but significant substantial financial benefits as in if the loan portfolio continues to amortize that's very different than the model that we have today. And I think the third piece is just the financing piece and the cost of that, both unsecured and secured liabilities. And the team has done a terrific job over the years of optimizing and reducing that. We think there's some other opportunities that give us some optionality and flexibility that we're going to be looking at over the coming months. So those are the three buckets. It's largely reducing the corporate footprint and the business profile that is slimmer and leaner that includes a corporate expense reduction. It's the moving to a variable cost model and then reducing our cost of financing as well. Those are the three levers that we have.

Okay. That's very helpful. And then maybe just a follow-up question on BPS. I know some questions were asked already, but When you're thinking about preliminary indications of interest, any dimensionalization of what kind of valuation that business can get? Because it seems, as Joe sort of alluded to, that it is a higher valuation business than what's sort of suggested in the valuation of your stock. Or are there some nuances there that we should be aware of?

Nice. Thank you, Sanjay. I think it's just too early to comment on that, but I would just point to public companies in that space, and you can look at the multiples both on the healthcare RCM side as well as government services, BPS, and then just more diversified BPO businesses, all receiving a higher multiple than what we receive today.

Could I just ask one more question on in-school originations? Is that no longer going to happen? Because I don't think I heard anything about that, but maybe you could just clarify on that. Thank you.

I think, as Dave reiterated in my comments, we're looking to grow 10% on the in-school side, and overall, just from an origination perspective, north of 40% when you combine refi and in-school. So we're certainly very committed to growing this business here. All right. Thank you.

Thank you. As a reminder, to ask a question, you'll need to press star 11 on your telephone. One moment for our next question. Our next question comes from the line of John Heck with Jefferies. Your line is now open.

Morning, guys. Thanks for the update, and thanks for taking my question. One point of clarification, David, you mentioned I think it's $400 million of kind of identified potential cost saves. That would come with $325 million of, I guess, BPS revenues. I just want to clarify, is that net of the outsourced servicing, or does that include the total concept of the outsourced servicing?

So, thanks for the question. When we say net, it means it considers the fact that we would need to pay an outsourced provider for servicing our loans. So, it is included, and the expense reduction is net of what we would pay to that provider. That's how we would think about it. And I would just remind you that those numbers that we're using are based on 2023 actuals. So if you had that scenario and that was in place for 2023, that's where we got the volumes and the amounts that we've shared with you.

Okay. And second question, I think Joe said the originations in earnest, the refi originations would be more back-weighted just because of interest rate reductions. I mean, Maybe a little bit more kind of information on the cadence there and how sensitive our originations to rate cuts in that segment.

I think certainly as rate cuts can, if that does happen, I think there's a tremendous opportunity, certainly, especially if it's beyond four rate cuts. So the way I think about it is that if I'm looking at the first quarter, fairly similar to what we've seen in this fourth quarter, and then starting to pick up in the back half of the year. Just think about the scenario that I'm referring to. As you get 50 basis points, 75 basis point cuts overall, that should be more of an impact than what you're seeing today. So that growth should occur and be more back-loaded, and then more back-loaded to, obviously, the fourth quarter versus the first quarter, just depending on where rates are.

Okay. And then... Final question is, Ernest, if I can, I know this is out there, but Ernest, you talked about incremental products and services. Is this going to be a LEND-centric business, or is there going to be other fee-oriented products? And if so, can you just give us some maybe examples of what those might look like?

Yeah, I think both things are on the table. Obviously, from

a good mix. I mean, Ernest is a consumer-centric enterprise. So the first thing to do will be to try to find and identify unmet needs or needs that customers have that we can serve. I think we've done a nice job of demonstrating that, particularly in the refi space. And then if you think about product line extensions, that would encompass potentially both additional lending products, but also potential fee-generating products rather than lending products as well. Again, that could include third-party referrals based on our cost of acquisition of a customer. It could involve other kind of products. That work is underway. We have, as we asked, we've asked for some time to come back to you later in the year with you know, where we can add on that, give some initial data.

Okay. Thanks. I appreciate that. Thank you.

Thank you. One moment for our next question, please. Our next question comes from the line of Rick Shane with JP Morgan. Your line is now open.

Thanks, everybody, for taking my questions. Look, I think we reflect on the last six or seven years In terms of capital returns, both to equity holders and bondholders, I think you guys have done a good job. In terms of maintaining operating efficiency in the context of a shrinking business, I think you guys have done a reasonably good job. The challenge has been growing revenues. What I heard today is a strategy that seeks to maximize shareholder value by optimizing the cash flows, and staying very disciplined about returning those cash flows to investors to stakeholders again very consistent with what we've seen over the last five or six years at the end of the day you guys are just still kind of squeezing the same fruit tighter and tighter where where is the growth going to come from uh we hear about earnest um you know we hear about the in-school initiatives, but again, that seems to be a pretty big opportunity given you've seen two of the largest players exit in the last three years. The market share objectives to 10% growth are pretty modest. Why not be more aggressive there, or where are the other opportunities to actually start driving top line again?

Thanks, Rick, for the question. You know, I think I'd go back to while we have done I think the team has done a good job of managing the expenses over time in a shrinking portfolio environment. What we're trying to communicate today is that there's a lot more work that these three actions are designed to address. And it's not just about expense reduction, but as Ed indicated, that overhead – if you will, in a broad sense, the shared service functions, the corporate overhead, and our cost of equity all conspire to make growth initiatives more challenged than they need to be, right? Because the portfolio is shrinking. If we don't get rid of those central costs, then they get allocated to growth initiatives, that burdens them in a way that doesn't allow them to reach their full potential or give us the capacity to make that. So the first thing we're going to, what we're trying to accomplish is actually to unburden the growth initiatives that also at the same time and in the same way increases our capacity to invest by increasing the amount of legacy loan cash flows that we have a decision to make, a capital allocation decision to make about return and otherwise. With respect to the Earnest growth proposition, I think we tried to lay out what Earnest has accomplished over the last three or four years. I think that's impressive from a financial perspective. The brand health is a good indication that Earnest has found a way to surprise and delight the customers that it engages with in a customer experience. I know that in and Ed indicated this, my experience in financial services, is that that's a really hard thing to do, and they've accomplished that. That's a really good foundation for us to think about how we can take those relationships and that positive brand attribute that Earnest has, which does not exist in the Navient brand, and see what opportunities we have to grow off of that. And that's more to come on that. We're not ready to share that with you today. But that's the foundation that we see for growth in Ernest.

Got it. Look, the track record at Ernest has been very good. And obviously, the movement in rates has been a headwind. But that's beyond your control. I think in hindsight, that's proven to be a very thoughtful investment and ultimately uh, will create value. I, what I'm hearing is there's a chicken and egg problem, which is that the cost of capital makes it in the high hurdle rate makes investing in growth unattractive, but because there's no growth, I think the cost of capital is, is elevated. Um, you guys in your slides link the multiple compression. uh to the decline of efficiency and i think that that's a very fair conclusion but i would suggest also that the decline in multiple is really a reflection of top line shrinking almost every year for the past decade and i do wonder if there is some opportunity to break that paradigm that it might be painful in the short term to invest and by the way i think when if we think about the history of of earnest and in that acquisition there was disappointment at the time in that investment but it has manifested into something that's valuable is it time to break the paradigm again yeah i think um

I think you summarized maybe in a little different way what we've been trying to communicate in the strategy update. It is a, I won't call it a vicious circle, but it is a cycle that we're in that has driven our cost of equity. And so we're addressing the things that we can address, which is to give ourselves some financial capacity and flexibility to give investors more transparency on the growth initiatives. I think this is the first time we've broken out earnest financials. It's been within the consumer lending segment, which has both private legacy runoff and earnest growth within it. So we're trying to provide the transparency of the market so you can more clearly see the growth and get a sense of the growth potential and the opportunities at earnest.

Very fair. And by the way, I should say I very much appreciate the transparency that you guys provided today in terms of the strategy. It's very helpful and one of the more honest things we've seen in terms of companies sharing their outlooks ever. So thank you very much. Thank you.

Thank you. One moment for our next question, please. Our next question comes from the line of Jeff Adelson with Morgan Stanley. Your line is now open.

Hey, guys. Good morning. Thank you for taking my questions. I guess I just wanted to circle back on Ernest and, you know, in slide 13, you talked about how it's currently profitable at the $200 million revenue run rate and appreciate the new disclosure there. I'm just curious, is that more of a run rate today in this environment where originations have slowed and you don't, you know, I know this is a revenue number, just trying to understand how to think about the profitability of the business over a cycle where you think kind of the core returns or return on equity could be for that business over the longer term because as you lean into originations later this year, presumably next year, that does come with that higher CECL reserve charge at first and it sounds like you're going to be building out and adding on some products, which probably at first will cost some money. So just trying to think through what you think the profitability metrics and returns are for that business.

You're right, Seth, to bring it into the CECL accounting here. The more successful we are in terms of the refi environment, the higher provision that is taken, so that impacts the current year. So ultimately, I think it's a good projection of where we're headed. So as we think about the current environment we're in and the growth potential, that's going to lead to obviously future growth down the line in 25 and 26. But if there is a dramatic downturn in rates and we have that opportunity to originate more loans, that would put pressure on the current year's income just because we have a higher provision because of the life of loan reserve that we have to take. So it's a good way to think about it is that if you think about just the interest rate environment last year and the shift, we would have had even higher net interest income coming into this year, but because of the higher interest rates, it's been about that $200 million run rate, but the opportunity for growth going forward is going to be primarily driven on the refi side by the opportunities here in the projected rate environment.

Jeff, I would just add, you know, I'd encourage you to look, as I know you did, at 16 and 17 as well, because 16 talks about the overall efficiency of loan originations from a cost of acquisition, from a servicing cost, and from a reserving perspective. And then 17, by breaking out the marketing expense, obviously that's going to be variable with their cost of acquisition, but we're You can see it on page 17, actually, the operating leverage, positive operating leverage that Ed referred to implicit in the kind of distribution model that Earnest has. So there's a temporary – there'll be an increase in marketing expense and provision expense, excuse me, with higher originations. We'll get some operating leverage on the – we expect to continue operating leverage on that other line, and obviously those originations are building a revenue stream to increasingly fund additional originations or some of the growth strategies that we're talking about.

Okay, great. And as my follow-up, I just want to circle back on John's question on the cost to outsource. I know you're discussing how it's netted out of the number and that you're moving to a more variable cost model there, but Could you maybe help us understand how to quantify what that cost outsource is?

Yeah. So, look, I think we've said a couple things that I would just refer you to.

You know, first of all, when we did the outsourcing or the RFP exercise, we did find that our current cost is comparable. And so we're not – pointing you or guiding you to look to a significant reduction in servicing expense in the near term. We won't be pointing to that, and you shouldn't look and find that. But if you go to the loan cash flow page that we have and think about the tenure of the portfolio that we have, over the lifetime of that loan, having our servicing costs 100% variable versus a mixture of fixed and variable we think has some really powerful operating leverage to us over the remaining life of the franchise. And I'll just leave it at that. It's a question of it's not a lower unit cost. It's a different mix between fixed and variable that drives operating leverage that's not present in our current cost structure and our current service model.

Got it, thank you for taking my questions.

Thank you. And that is all the time that we have for questions today. I'll turn the call back over to Ms. Jen Aries for closing remarks.

Thanks, Norma. I know that there are remaining questions that we have not been able to field this morning. So please contact me if we were not able to take your question, or if we were, if you have any other follow-up questions, happy to chat. We'd like to thank everyone for joining on today's call. This concludes our call. Thank you.