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.