Navient Corporation

Good day, and thank you for standing by. Welcome to the Navient third quarter 2024 earnings 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 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 want to hand the conference over to your speaker today, Jen Irias, Vice President, Investor Relations. Please go ahead.

Hello, good morning, and welcome to Navient's earnings call for the third 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 businesses 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 third 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 that. The third quarter was highly productive along our transformation journey. Our results reflect healthy loan origination growth, strong expense discipline, lower levels of felt repayments, and include several other significant items. As a result, we are more than doubling our targeted share repurchases in the fourth quarter compared to the third quarter. We variabilized a significant part of our expense base by outsourcing loan servicing to a third party. We recently completed the borrower conversion and are working to ensure a seamless transition for borrowers. We reached agreement with the CFPB to settle the nearly decade-long investigation and litigation. This puts these issues and the overhang of contingent liability behind us in a way that's consistent with our go-forward activities. We set out to explore strategic options, including divestment for business processing solutions. These businesses were not being fully valued within Navient, and they were not at sufficient scale to be cost efficient. Outsourcing servicing will lower our overall costs over time but would increase shared service allocations, especially IT, to BPS. Divestment of BPS now enables us to substantially reduce operating expenses across the enterprise. We determined the most beneficial divestment strategy was to separate healthcare from government services. These businesses have different growth, margins, valuation multiples, and customers. We closed on the sale of our healthcare business at a price of $369 million. This is an outstanding outcome that we think reflects the full value of that business. We remain in active discussions about the sale of government services in which growth, margins, and multiples are far lower than in healthcare. Government services operations rely much more heavily on shared service infrastructure than healthcare. These shared service expenses are not justified by the future revenues of the government services businesses, which will be impacted by developments during the quarter on key contracts. We've recorded a write down of the goodwill associated with government services as a result of these developments. We took additional steps to further reduce our corporate footprint. Our results for the quarter include restructuring expenses reflecting rightsizing actions. Turning to our core growth business, Earnest showed strong loan growth in the quarter across refi and in-school products. Year-to-date loan originations were $1.37 billion, 39% higher than last year. We are in good position to meet our planned origination volumes for the year. The Fed rate reductions in September and the current yield curve imply a lower rate environment into 2025. We have the readiness and the capacity to capitalize on expanded demand for our student loan refinance product when customers take advantage of opportunities to lower their rate, payments, or both. The tremendous progress we've made provides visibility into the remaining steps to complete outsourcing in healthcare, divest government services, and eliminate expenses. We continue to believe the robust cash generation and significant expense reductions that we anticipated from these actions are achievable. The elimination of shared services expenses will likely occur several quarters after the divestment of government services, with incremental reductions occurring along the way. We are adding $40 million to our planned share repurchases in the fourth quarter, which will result in a doubling of the amount we purchased in the third quarter. Additionally, We retired this month's unsecured debt maturity in the fourth quarter with cash on hand. After these uses, we are confident in our capacity to fund incremental loan origination volume that a lower rate environment might present. Our 2025 business plan will include a capital allocation among investments in loan growth, debt reduction, and distributions that we feel best positions us to deliver value to shareholders. I want to take a moment to acknowledge the work of colleagues across the company who made the third quarter so tremendously productive. I'm proud of the work they've done and the way they've come together and committed themselves to our transformation journey. Next, Joe will share our results for the quarter, which reflects strong performance against certain key metrics and includes some additional special items. With that, let me turn it over to Joe. I look forward to your questions later in the call.