Nelnet Earnings (Issue #73)
Nelnet (NASDAQ: NNI) similar to Hingham (NASDAQ: HIFS) is a conservatively and cleverly managed business. They are both led by high quality capital allocators and this means they don’t try to bend the numbers. Instead they will take the hit head on and immediately to mitigate long term financial affects. This also means they can more quickly move passed the “damage” and not suffer from it longer than necessary. That isn’t shown directly in income statements and balance sheets, but it speaks volumes about the managers.
Now let’s get into the tangible numbers, net income (excluding derivative market value adjustments) was $26.7m in Q2 2023 less than half the $54.4m from the same period in 2022. However, this disparity can be mostly explained here:
“In April 2023, the company redeemed certain loan asset-backed debt securities (bonds and notes payable) prior to their maturity. The remaining unamortized debt discount associated with these bonds at the time of redemption was written-off, resulting in a non-cash expense of $25.9 million ($19.7 million or $0.53 per share after tax) recognized by the company in the second quarter of 2023.”
Nelnet Investor Relations
These are still not great results, but there are a lot of exciting events in Q3 that should help Nelnet perform well. I think that the company chose to take some pain early on in order to maximize a great Q3 and Q4 of this year. Also more importantly Nelnet mainly operates on a long term level so I prefer to mainly judge them on years and decades instead of quarters and halves. However, next quarter:
There is a lot in store for Nelnet in the near future. Q3 or the start of the school year is one key time when they receive all of their tuition payment processing fees for the first semester or college or high school. In addition, the >15 million federal student loans will resume receiving payments for the first time since March 2020. These were mainly purchased in tandem with a few other firms from Wells Fargo in 2020 when the company was selling off its student loan book. Nelnet’s student loan book alone accounts for ~$14.4b on the balance sheet’s assets. Also exciting news for Q3 is that the board has confirmed a dividend of $0.26 per share that will be paid on September 15th for shareholders who invest before September 1st.
Nelnet is a complex company that needs more than an update to fully understand. For those new to the company I’d highly recommend checking out the full deep dive here.
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To view the full spreadsheets and access the linked deep dives go here.
Until Thursday,
Soren