Navient Corporation

Good day, and thank you for standing by. Welcome to the Navient second quarter 2024 earnings conference call. At this time, all participants are on 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 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 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 second quarter of 2024. With me today are David Yohan, Navient's CEO, and Joe Fisher, Navient's CFO. After the 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. Our GAAP results, description of our non-GAAP financial measures, and the reconciliation of core earnings to GAAP results can be found in Navient's second 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. I will start by providing an update on the three strategic actions we announced six months ago. I'm pleased that we've completed several key steps in our journey to becoming more focused, flexible, and efficient. We're aggressively and deliberately making meaningful progress on future milestones. We remain confident that we can achieve the significant expense reductions we presented in January. These are in the hundreds of millions of dollars annually. We're already beginning to deliver on these planned reductions and believe we can attain these expense goals within the original 18 to 24 month timeframe. During the quarter, We're pleased we completed major steps in our first strategic action, our servicing outsourcing agreement with Mojila. Outsourcing is a key facilitator of our ability to achieve lasting expense reduction. Nearly 900 Navi employees have now transferred to Mojila, and our variable cost servicing model is in effect. Our more than two million borrowers will continue to use the same account numbers, phone numbers, and payment plan. We've transferred several proprietary and customized technology tools and solutions to Mojiva. As we've previously shared with you, we will provide a limited number of services and activities under transition services agreements. We expect to complete substantially all of this initiative by the first half of next year. Moving for our second strategic action, we remain engaged in active, and encouraging discussions about the divestment of our business processing solutions division. At this point, the interest we have received from potential acquirers gives us confidence that we will achieve our objectives. We're actively evaluating our options to finalize the strategy designed to maximize shareholder value. We expect to be able to provide more information about the divestment process, potential proceeds, and the implications for our expense reduction timeline during the second half of this year. We did not wait for the BPS divestment process to be completed to get started on our third strategic action to reduce our shared service infrastructure and corporate expense footprint. With outsourcing well underway and the BPS divestment process becoming clear, we took decisive action during the second quarter to deliver on this initiative's objectives. A new organizational structure was affected on July 1st. This management structure is flatter with fewer management layers and a smaller executive team. It establishes a clear path and accountability for accomplishing the servicing and BPS transitions and expense reductions, some of which have begun to be realized. It also establishes the organization needed to manage our going forward businesses. including substantial reductions in our corporate footprint. Our going forward organization is preparing for an employee count that is 80 to 90% lower than when we announced the strategic actions. The MOHELA transfers that have already occurred represented roughly 20% of that workforce. Our results for the quarter reflect restructuring expenses. largely for transfers and job eliminations that are part of these organizational changes. We're also taking steps to reduce our facilities and IT footprints. Most of our operating expense categories will be smaller, although not at the same magnitude as the employee account. Now turning to our earnest business. Earnest continues to efficiently generate high-quality private student loans, both refinance and in-school loans. We also continue to explore opportunities to deepen relationships with students and college grads that deliver attractive lifetime economics. We're on track to hit our growth target for lending for the year. As is always the case, we would expect further increases in refi volume if rates drop before year end. We described six months ago the potential for a substantial amount of cash flow from the combination of our loan portfolios, and the divestment of our business processing division. At the same time, the elevated level of felt prepayment activity has accelerated the timing of a portion of those loan cash flows. This cash will be available over time to invest, reduce outstanding debt, or distribute to shareholders. We will invest that cash deliberately only if we have clear visibility in our opportunities to earn returns in excess of our cost of capital. We will also be guided by the relationship between tangible book value and market value per share. At the end of Q2, our shares had a tangible book value of $18.81 per share. Our recent share price reflects roughly a 20% discount to that tangible book value. During a period when our investment in a substantial volume of FELP loans is being monetized at book value, we believe that discount represents an opportunity to deliver more value to shareholders. In closing, I'd like to thank my colleagues, especially those who learned this quarter that their roles will no longer be with the company as part of these strategic actions. All colleagues have contributed with commitment and resilience to our progress on these complex undertakings. Next, Joe will share our results for the quarter, which reflects strong performance against the items within our control. With that, let me turn it over to Joe. I look forward to your questions later in the call.