Navient Corporation

Good day, and welcome to the Navient first quarter 2024 earnings call. At this time, all participants are on a listening mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, please press star 1-1. As a reminder, this call may be recorded. I would like to turn the call over to Jen Irias, Vice President of Investor Relations. Please go ahead.

Hello, good morning, and welcome to Navient's earnings call for the first quarter of 2024. With me today are David Yohan, Naviant CEO, and Joe Fisher, Naviant CFO. After their prepared remarks, we will open up the call for questions. A presentation accompanies today's discussion, which you can find on Naviant.com slash investors. 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 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, adjusted tangible equity ratio, and various other non-GAAP financial measures that are derived from core earnings claims. Our GAAP results, description of our non-GAAP financial measures, and the reconciliation of core earnings to GAAP results can be found beginning on page 15 of Navient's first quarter 2024 earnings release, which is posted on our website. Thank you, and I now will turn the call over to Dave.

Thanks, Jen. Good morning, everyone. Thank you for joining the call and for your interest in Navient. Funding began by providing an update on our progress against the three strategic actions we announced in January. We began to implement these actions and have made significant progress in a short period of time to deliver on the overall expense reductions within the timelines we described during our Q4 earnings call. As a reminder, the three strategic actions we're pursuing are One, adopting a variable cost outsourced servicing model. Two, exploring strategic options for the business processing division, including divestiture. And three, streamlining shared services infrastructure and corporate footprint. These actions are intended to significantly reduce the expense base and simplify the company. They should increase the amount of net cash flows from our loan portfolios. and increase the visibility and returns around growth initiatives. First, we've begun to implement a variable cost servicing model through an outsourcing relationship with Mojila. We have identified and notified nearly 900 colleagues who will be transferred to Mojila. These include frontline servicing colleagues, as well as colleagues in shared service and corporate functions. We expect these employee transitions to begin during the current quarter and to finish up in July. We're also well underway on plans to transfer several proprietary and customized technology tools and solutions to Mojila. These add-on systems will maintain automations and other efficiencies. Fortunately, since Mojila uses the same third-party loan servicing platform as Naviance, There's no need for a loan system conversion, which helps ensure borrowers will have a seamless servicing experience during the transition. We've prepared a multistage communication strategy designed to educate borrowers in advance of the transition and to help them know what to expect when the shift occurs this fall. We're on track to reach a final agreement with MOHERA during Q2. We expect there will be several transition services agreements between Mojila and Navient that will continue through and beyond year end. Second, I'll turn to business processing solutions. We have initiated a divestment process and are in active discussions with potential buyers. We've received broad interest in these businesses and are encouraged by the initial conversations and activity thus far. Our third strategic action is to reshape our shared services functions and corporate footprint to align with the needs of a more focused, flexible, and streamlined company. We said in January that the full scope and timing of these opportunities will depend on the progress of the outsourcing and potential divestiture transactions. As outsourcing has come into sharper focus, we've taken steps that will reduce the shared service expenses in the company as a consequence of outsourcing. For example, of the approximately 900 employees we expect to transfer to Mojila, roughly 100 are shared service employees. Our plans for a leaner company post-outsourcing and post-investment were further developed during Q1 through an intensive and focused analysis. This included a bottoms-up process-by-process, person-by-person assessment of our current costs of certain shared service and corporate activities. We have plans for a simple operational footprint for areas like IT and identified opportunities to consolidate like functions. We recently took steps to create a streamlined organizational structure that aligns to our future outsourced environment. In January, we stated that approximately 400 million of our full year 2023 operating expenses would have been eliminated under a scenario in which we had completed these three actions. As a reminder, a BPS divestment scenario would also not include corresponding BPS revenue. The progress we've made during the first quarter has increased the clarity of our plans and our confidence in our ability to execute the necessary steps to achieve these reductions within the timelines we laid out in January. The full scope and timing of these opportunities continues to depend on execution of the outsourcing and potential divestiture transactions. To summarize, we expect to finalize our plans and continue implementation on all three strategic actions this year. We believe substantial parts will be delivered this year with the final steps to be completed by the end of 2025. Now turning to our earnest business. Earnest continues to efficiently generate high quality loans. Originations are often a strong start in Q1. Joe will provide an update on our results thus far shortly. At the same time, we continue to pursue customer-centric relationships with students and college grads and explore opportunities through product extensions to deepen those relationships and deliver attractive lifetime economics. As a reminder, we're undertaking the strategic actions discussed earlier to realize increased net cash flows from our loan portfolios, increase our capacity and flexibility to invest and distribute cash to shareholders, and improve the returns we can achieve from investments. We remain confident that the combination of the cash we have on hand, the accelerated cash flows from our loan portfolios, proceeds from the divestment of BPS combined should generate significant cash flows over the next few years. The FELP loan prepayment activity that Joe will discuss within our quarterly results accelerates the return of loan principal within those cash flows. This cash will be available to distribute to shareholders. We will invest that cash only if we have clear visibility and opportunities to earn returns in excess of our cost of capital. This is the first update on our progress in implementing our strategic actions. We'll provide additional updates and call out their impacts on our 2024 reported results as we progress throughout the year. As our visibility into these actions becomes more certain, we expect to provide a revised outlook and plans during the second half of the year. In closing, I'd like to thank my colleagues company-wide through their tireless commitment We made substantial progress in a short period of time against three complex and large undertakings, our strategic actions. At the same time, our results for the quarter reflect strong performance against items within our control, such as expense discipline. I'm pleased with how the company is delivering significant change while simultaneously serving our customers and clients. With that, let me turn it over to Joe. and I look forward to your questions later in the call.