Navient Corporation

Ladies and gentlemen, thank you for standing by and welcome to Navient's fourth quarter 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 this session, you would need to press star one one on your telephone. You would then hear an automated message advising your hand is raised. And to withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. I would like now to turn the conference over to Jen Arias, Head of Investor Relations. Please go ahead.

Hello, good morning, and welcome to the Navient Earnings Call for the fourth quarter of 2024. With me today are David Yohan, Navient CEO, Edward Bramson, Vice Chair of the Navient Board of Directors, and Joe Fisher, Navient CFO. Naviant has updates 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. First, we will refer to the January 2025 strategy update presentation posted on the website. Then we will move to discuss the fourth quarter results and outlook for 2025. During this portion, we will refer to the fourth quarter 2024 earnings presentation, which you'll also find to our website. After the prepared remarks, we will open up the call 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 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 a reconciliation of core earnings to GAAP results can be found beginning in Navient's fourth 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 and for your interest in Navient. Let me start by laying out what we will share on this morning's call. I'll provide a recap of 2024 and share some of our plans for 2025. Ed will then provide a strategy update, where we are in our transformation journey and how the actions we have taken deliver value and better position us for the future. Lastly, Joe will share our fourth quarter results and our outlook for 2025. We'll then open it up for Q&A. A year ago, we set out to create a more focused and streamlined company. We set an ambitious goal of finalizing several key transactions during 2024 on an aggressive timeline. I'm pleased to say we achieved our objectives within that aggressive timeline. These transactions create a platform consisting of a consumer segment focused on growth through earnest, and a legacy portfolio focused on maximizing cash flows through cost efficiency. During the fourth quarter, we signed an agreement to divest the government services businesses within our business processing solution segment. We anticipate that this transaction will close during the first quarter. This follows our servicing outsourcing agreement and the sale of our healthcare business earlier in the year. In many ways, the government services is the most important of the three actions. Divesting GS enables us to eliminate the substantial shared service infrastructure and related expenses that supported servicing and BPS. We now have clear line of sight on the transition services we will provide under all three of these transactions. The transition services we provide for outsourcing and for healthcare are expected to wind down during the first half of this year. The government services transition services are expected to extend into early 2026, with many services completing before then. We have aggressive plans to eliminate these expenses as the TSAs expire. And we will not stop there. We're identifying additional opportunities in all parts of our business to become more efficient. We have already begun to realize the expense reducing benefits of a variable cost servicing model. This has occurred sooner than we expected as our loan portfolios, especially our FELP portfolio, paid down more quickly. The healthcare sale unlocked value in a non-strategic business that was not reflected in our stock price. Proceeds from that sale gave us the flexibility to increase our share purchases during Q4 and retire some unsecured debt. There were a number of factors that impacted 2024 results. Most significant was high levels of prepayment activity, which accelerated cash flows, as well as the amortization expense of loan premium. The loss of a contract delayed the sale of government services and impaired its value. We recorded regulatory and restructuring costs associated with our transformation and settlement of the CFPB's lawsuit. In short, we put a number of significant headwinds behind us. Our consumer lending business generated strong loan origination growth during 2024. Refi volume growth exceeded $1 billion, 60% higher than the prior year, despite a slightly higher average rate environment. In-school volume grew 13% with improving margins and unit acquisition costs. achieving the growth we set within our targeted segment of this market. Consumer lending is well positioned to continue to grow origination volume and demonstrate operating leverage in 2025. We plan to increase loan origination volume by 30% this year. A large portion of that growth is expected in the second half of the year based on the current interest rate environment and the seasonal pattern of in-school originations. There are, as you all know, a number of comprehensive proposals the new administration may consider in determining federal education loan policies and practices. These proposals contain elements that would produce expanded opportunities for private lending. Among these are a reduction or elimination of loan forgiveness programs and the elimination of the Grad Plus loan program. The Grad Plus loans include a program for graduate students. Origination levels in this program are roughly the current size of private student lending. A majority of our in-school lending is to graduate students. It's a market we understand well and are offering products and a customer experience tailored to the needs of this segment. It's too soon to tell what elements may be implemented or when they'll be implemented, but we possess the capacity, flexibility, products, and customer experience and are excited about this potential sizable opportunity. With that said, our 2025 plans do not yet assume any expanded opportunities for our products as a result of policy changes. With that, let me turn it over to Ed.