NELNET INC [NNI] Filings

10-Q 1 nni-20240630.htm 10-Q nni-20240630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2024


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to .

Commission File Number: 001-31924

NELNET, INC.

(Exact name of registrant as specified in its charter)


Nebraska		84-0748903
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

121 South 13th Street, Suite 100
Lincoln,	Nebraska	68508
(Address of principal executive offices)		(Zip Code)

(402) 458-2370

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol	Name of each exchange on which registered
Class A Common Stock, Par Value $0.01 per Share	NNI	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☒ Accelerated filer ☐

Non-accelerated filer ☐ Smaller reporting company ☐

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of July 31, 2024, there were 25,586,934 and 10,663,088 shares of Class A Common Stock and Class B Common Stock, par value $0.01 per share, outstanding, respectively (excluding 11,305,731 shares of Class A Common Stock held by wholly owned subsidiaries).

NELNET, INC.

FORM 10-Q

INDEX

June 30, 2024


PART I. FINANCIAL INFORMATION
	Item 1.	Financial Statements	2
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	36
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	70
	Item 4.	Controls and Procedures	75

PART II. OTHER INFORMATION
	Item 1.	Legal Proceedings	76
	Item 1A.	Risk Factors	76
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	76
	Item 5.	Other Information	77
	Item 6.	Exhibits	77

Signatures			78

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS


NELNET, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)
(unaudited)
	As of		As of
	June 30, 2024		December 31, 2023
Assets:
Loans and accrued interest receivable (net of allowance for loan losses of $96,764 and $104,643, respectively)	$	10,939,519	13,108,204
Cash and cash equivalents:
Cash and cash equivalents - not held at a related party	33,000		34,912
Cash and cash equivalents - held at a related party	112,478		133,200
Total cash and cash equivalents	145,478		168,112
Investments and notes receivable (including investments at fair value of $948,792 and $988,841, respectively)	1,896,433		1,846,707
Restricted cash	538,446		488,723
Restricted cash - due to customers	259,479		368,656
Restricted investments	50,358		17,969
Accounts receivable (net of allowance for doubtful accounts of $4,272 and $4,304, respectively)	159,836		196,200
Goodwill	158,029		158,029
Intangible assets, net	40,521		44,819
Property and equipment, net	131,666		127,008
Other assets	181,428		187,957

Total assets	$	14,501,193	16,712,384
Liabilities:
Bonds and notes payable	$	9,567,708	11,828,393
Accrued interest payable	27,141		35,391
Bank deposits	890,472		743,599
Other liabilities	406,974		479,387
Due to customers	388,876		425,507

Total liabilities	11,281,171		13,512,277
Commitments and contingencies
Equity:
Nelnet, Inc. shareholders' equity:
Preferred stock, $0.01 par value. Authorized 50,000,000 shares; no shares issued or outstanding	—		—
Common stock:
Class A, $0.01 par value. Authorized 600,000,000 shares; issued and outstanding 25,585,840 shares and 26,400,630 shares, respectively	256		264
Class B, convertible, $0.01 par value. Authorized 60,000,000 shares; issued and outstanding 10,663,088 shares	107		107
Additional paid-in capital	657		3,096
Retained earnings	3,295,301		3,270,403
Accumulated other comprehensive loss, net	(2,260)		(20,119)
Total Nelnet, Inc. shareholders' equity	3,294,061		3,253,751
Noncontrolling interests	(74,039)		(53,644)
Total equity	3,220,022		3,200,107
Total liabilities and equity	$	14,501,193	16,712,384
Supplemental information - assets and liabilities of consolidated education and other lending variable interest entities:
Loans and accrued interest receivable	$	10,276,743	12,676,932
Restricted cash	515,844		451,932

Bonds and notes payable	(9,822,767)		(12,006,170)
Accrued interest payable and other liabilities	(102,370)		(135,748)

Net assets of consolidated education and other lending variable interest entities	$	867,450	986,946

See accompanying notes to consolidated financial statements.


NELNET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except share data)
(unaudited)
	Three months ended			Six months ended
	June 30,			June 30,
	2024		2023	2024	2023
Interest income:
Loan interest	$	202,129	243,045	418,853	468,288
Investment interest	40,737		40,982	92,814	81,707
Total interest income	242,866		284,027	511,667	549,995
Interest expense on bonds and notes payable and bank deposits	176,459		233,148	371,039	432,597
Net interest income	66,407		50,879	140,628	117,398
Less provision (negative provision) for loan losses	3,611		(11,380)	14,440	791
Net interest income after provision for loan losses	62,796		62,259	126,188	116,607
Other income (expense):
Loan servicing and systems revenue	109,052		122,020	236,252	261,247
Education technology services and payments revenue	116,909		109,858	260,449	243,462
Solar construction revenue	9,694		4,735	23,420	13,386
Other, net	28,871		(9,167)	45,734	(24,235)
Loss on sale of loans	(1,438)		(5,461)	(1,579)	(15,753)
Impairment expense and provision for beneficial interests	(7,776)		—	(7,813)	—
Derivative market value adjustments and derivative settlements, net	3,182		2,070	12,903	(12,005)
Total other income (expense), net	258,494		224,055	569,366	466,102
Cost of services:

Cost to provide education technology services and payments	40,222		40,407	88,832	88,110
Cost to provide solar construction services	8,072		9,122	22,300	17,422
Total cost of services	48,294		49,529	111,132	105,532
Operating expenses:
Salaries and benefits	139,634		144,706	283,509	297,416
Depreciation and amortization	15,142		18,652	31,911	35,279
Other expenses	59,792		45,997	116,637	86,781
Total operating expenses	214,568		209,355	432,057	419,476
Income before income taxes	58,428		27,430	152,365	57,701
Income tax expense	14,753		10,187	37,936	18,273
Net income	43,675		17,243	114,429	39,428
Net loss attributable to noncontrolling interests	1,416		10,183	4,069	13,957
Net income attributable to Nelnet, Inc.	$	45,091	27,426	118,498	53,385
Earnings per common share:
Net income attributable to Nelnet, Inc. shareholders - basic and diluted	$	1.23	0.73	3.22	1.43
Weighted average common shares outstanding - basic and diluted	36,525,482		37,468,397	36,841,227	37,406,843

See accompanying notes to consolidated financial statements.


NELNET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in thousands)
(unaudited)
	Three months ended June 30,					Six months ended June 30,
	2024			2023		2024		2023
Net income		$	43,675		17,243		114,429		39,428
Other comprehensive income:
Net changes related to foreign currency translation adjustments	$	(21)			—		(16)		(3)
Net changes related to available-for-sale debt securities:
Unrealized holding gains arising during period, net of losses	8,874			8,649		25,635		17,300
Reclassification of (gains) losses recognized in net income, net	(1,053)			(918)		(1,605)		4,064
Amortization of net unrealized loss on securities transferred from available-for-sale to held-to-maturity	51			70		122		70
Income tax effect	(1,890)	5,982		(1,872)	5,929	(5,797)	18,355	(5,144)	16,290
Net changes related to equity method investee's other comprehensive income:
Gain (loss) on cash flow hedge	335			(501)		(632)		(499)
Income tax effect	(80)	255		120	(381)	152	(480)	120	(379)
Other comprehensive income		6,216			5,548		17,859		15,908
Comprehensive income		49,891			22,791		132,288		55,336
Comprehensive loss attributable to noncontrolling interests		1,416			10,183		4,069		13,957
Comprehensive income attributable to Nelnet, Inc.		$	51,307		32,974		136,357		69,293

See accompanying notes to consolidated financial statements.


NELNET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Dollars in thousands, except share data)
(unaudited)
	Nelnet, Inc. Shareholders
	Preferred stock shares	Common stock shares		Preferred stock		Class A common stock	Class B common stock	Additional paid-in capital	Retained earnings	Accumulated other comprehensive loss	Noncontrolling interests	Total equity
		Class A	Class B
Balance as of March 31, 2023	—	26,623,662	10,668,460	$	—	266	107	4,639	3,243,985	(27,006)	(16,197)	3,205,794
Issuance of noncontrolling interests	—	—	—	—		—	—	—	—	—	11,703	11,703
Net income (loss)	—	—	—	—		—	—	—	27,426	—	(10,183)	17,243
Other comprehensive income	—	—	—	—		—	—	—	—	5,548	—	5,548
Distribution to noncontrolling interests	—	—	—	—		—	—	—	—	—	(7,942)	(7,942)
Cash dividends on Class A and Class B common stock - $0.26 per share	—	—	—	—		—	—	—	(9,694)	—	—	(9,694)
Issuance of common stock, net of forfeitures	—	27,562	—	—		—	—	2,056	—	—	—	2,056
Compensation expense for stock based awards	—	—	—	—		—	—	3,884	—	—	—	3,884
Repurchase of common stock	—	(4,734)	—	—		—	—	(465)	—	—	—	(465)






Balance as of June 30, 2023	—	26,646,490	10,668,460	$	—	266	107	10,114	3,261,717	(21,458)	(22,619)	3,228,127

Balance as of March 31, 2024	—	26,055,314	10,663,088	$	—	261	107	1,101	3,304,197	(8,476)	(61,470)	3,235,720
Issuance of noncontrolling interests	—	—	—	—		—	—	—	—	—	6,618	6,618
Net income (loss)	—	—	—	—		—	—	—	45,091	—	(1,416)	43,675
Other comprehensive income	—	—	—	—		—	—	—	—	6,216	—	6,216
Distribution to noncontrolling interests	—	—	—	—		—	—	—	—	—	(19,864)	(19,864)
Cash dividends on Class A and Class B common stock - $0.28 per share	—	—	—	—		—	—	—	(10,158)	—	—	(10,158)
Issuance of common stock, net of forfeitures	—	18,506	—	—		—	—	2,171	—	—	—	2,171
Compensation expense for stock based awards	—	—	—	—		—	—	2,733	—	—	—	2,733
Repurchase of common stock	—	(487,980)	—	—		(5)	—	(5,348)	(41,489)	—	—	(46,842)
Acquisition of remaining 20% of GRNE Solar, net of tax	—	—	—	—		—	—	—	(2,340)	—	2,093	(247)




Balance as of June 30, 2024	—	25,585,840	10,663,088	$	—	256	107	657	3,295,301	(2,260)	(74,039)	3,220,022

See accompanying notes to consolidated financial statements.




NELNET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Dollars in thousands, except share data)
(unaudited)
	Nelnet, Inc. Shareholders
	Preferred stock shares	Common stock shares		Preferred stock		Class A common stock	Class B common stock	Additional paid-in capital	Retained earnings	Accumulated other comprehensive loss	Noncontrolling interests	Total equity
		Class A	Class B
Balance as of December 31, 2022	—	26,461,651	10,668,460	$	—	265	107	1,109	3,227,680	(37,366)	(8,596)	3,183,199
Issuance of noncontrolling interests	—	—	—	—		—	—	—	—	—	12,904	12,904
Net income (loss)	—	—	—	—		—	—	—	53,385	—	(13,957)	39,428
Other comprehensive income	—	—	—	—		—	—	—	—	15,908	—	15,908
Distribution to noncontrolling interests	—	—	—	—		—	—	—	—	—	(12,970)	(12,970)
Cash dividends on Class A and Class B common stock - $0.52 per share	—	—	—	—		—	—	—	(19,348)	—	—	(19,348)
Issuance of common stock, net of forfeitures	—	226,086	—	—		1	—	5,119	—	—	—	5,120
Compensation expense for stock based awards	—	—	—	—		—	—	7,653	—	—	—	7,653
Repurchase of common stock	—	(41,247)	—	—		—	—	(3,767)	—	—	—	(3,767)





Balance as of June 30, 2023	—	26,646,490	10,668,460	$	—	266	107	10,114	3,261,717	(21,458)	(22,619)	3,228,127

Balance as of December 31, 2023	—	26,400,630	10,663,088	$	—	264	107	3,096	3,270,403	(20,119)	(53,644)	3,200,107
Issuance of noncontrolling interests	—	—	—	—		—	—	—	—	—	8,151	8,151
Net income (loss)	—	—	—	—		—	—	—	118,498	—	(4,069)	114,429
Other comprehensive income	—	—	—	—		—	—	—	—	17,859	—	17,859
Distribution to noncontrolling interests	—	—	—	—		—	—	—	—	—	(26,570)	(26,570)
Cash dividends on Class A and Class B common stock - $0.56 per share	—	—	—	—		—	—	—	(20,528)	—	—	(20,528)
Issuance of common stock, net of forfeitures	—	69,914	—	—		1	—	3,297	—	—	—	3,298
Compensation expense for stock based awards	—	—	—	—		—	—	5,834	—	—	—	5,834
Repurchase of common stock	—	(884,704)	—	—		(9)	—	(11,570)	(70,732)	—	—	(82,311)

Acquisition of remaining 20% of GRNE Solar, net of tax	—	—	—	—		—	—	—	(2,340)	—	2,093	(247)




Balance as of June 30, 2024	—	25,585,840	10,663,088	$	—	256	107	657	3,295,301	(2,260)	(74,039)	3,220,022

See accompanying notes to consolidated financial statements.


NELNET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(unaudited)
	Six months ended
	June 30,
	2024		2023
Net income attributable to Nelnet, Inc.	$	118,498	53,385
Net loss attributable to noncontrolling interests	(4,069)		(13,957)
Net income	114,429		39,428
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization, including debt discounts and loan premiums and deferred origination costs	69,623		93,573
Loan discount and deferred lender fees accretion	(22,538)		(15,412)
Provision for loan losses	14,440		791
Derivative market value adjustments	(9,497)		35,407

Proceeds from termination of derivative instruments	—		164,079

Proceeds from (payments to) clearinghouse - initial and variation margin, net	5,716		(209,886)

Loss on sale of loans	1,579		15,753
Loss on investments, net	6,985		49,834




Deferred income tax benefit	(4,814)		(16,613)
Non-cash compensation expense	6,004		7,810
Impairment expense and provision for beneficial interests	7,813		—
Decrease (increase) in loan and investment accrued interest receivable	150,907		(4,884)
Decrease in accounts receivable	36,329		59,142
Decrease (increase) in other assets, net	39,667		(11,480)
Decrease in the carrying amount of ROU asset, net	1,911		2,390
Decrease in accrued interest payable	(8,250)		(123)
Decrease in other liabilities	(62,638)		(8,916)
Decrease in the carrying amount of lease liability	(1,982)		(2,568)
Other	(365)		75
Net cash provided by operating activities	345,319		198,400
Cash flows from investing activities:
Purchases and originations of loans	(430,575)		(411,868)
Purchases of loans from a related party	—		(467,519)
Net proceeds from loan repayments, claims, and capitalized interest	2,125,052		1,348,827
Proceeds from sale of loans	311,010		290,957
Purchases of available-for-sale securities	(272,031)		(296,468)
Purchases of restricted available-for-sale securities	(23,288)		—
Proceeds from sales of available-for-sale securities	265,887		577,548
Proceeds from sales of restricted available-for-sale securities	660		—
Proceeds from beneficial interest in loan securitizations	19,513		13,237
Purchases of other investments and issuance of notes receivable	(197,440)		(140,129)
Proceeds from other investments and repayments of notes receivable	53,635		14,982
Purchases of held-to-maturity debt securities	—		(2,889)
Redemption of held-to-maturity debt securities	5,041		1,487
Purchases of property and equipment	(33,842)		(37,253)



Net cash provided by investing activities	$	1,823,622	890,912


NELNET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
	Six months ended
	June 30,
	2024		2023
Cash flows from financing activities:
Payments on bonds and notes payable	$	(2,283,381)	(2,417,622)
Proceeds from issuance of bonds and notes payable	37		806,148
Payments of debt issuance costs	(693)		(2,214)


Increase in bank deposits, net	146,873		39,724
Decrease in due to customers	(36,642)		(48,728)
Dividends paid	(20,528)		(19,348)
Repurchases of common stock	(82,311)		(3,767)
Proceeds from issuance of common stock	967		890
Acquisition of noncontrolling interest	(325)		—
Issuance of noncontrolling interests	27,396		14,018
Distribution to noncontrolling interests	(2,335)		(1,920)
Net cash used in financing activities	(2,250,942)		(1,632,819)
Effect of exchange rate changes on cash and restricted cash	(87)		(84)
Net decrease in cash, cash equivalents, and restricted cash	(82,088)		(543,591)
Cash, cash equivalents, and restricted cash, beginning of period	1,025,491		1,357,616
Cash, cash equivalents, and restricted cash, end of period	$	943,403	814,025


Supplemental disclosures of cash flow information:
Cash disbursements made for interest	$	355,943	386,686
Cash disbursements made for income taxes, net of refunds and credits received (a)	$	11,932	43,510
Cash disbursements made for operating leases	$	2,451	3,476
Non-cash operating, investing, and financing activity:

ROU assets obtained in exchange for lease obligations	$	49	18,485
Receipt of beneficial interest in consumer loan securitizations as consideration from sale of loans	$	13,693	53,896
Receipt of asset-backed investment securities as consideration from sale of loans	$	—	58,182
Transfer of available-for-sale securities to restricted	$	8,262	—
Distribution to noncontrolling interests	$	24,235	11,050
Issuance of noncontrolling interests	$	19,245	1,114

(a) The Company utilized $20.3 million and $13.9 million of federal and state tax credits related primarily to renewable energy during the six months ended June 30, 2024 and 2023, respectively.

The following table presents a reconciliation of cash, cash equivalents, and restricted cash reported in the consolidated balance sheets to the total of the amounts reported in the consolidated statements of cash flows.


	As of		As of	As of	As of
	June 30, 2024		December 31, 2023	June 30, 2023	December 31, 2022
Total cash and cash equivalents	$	145,478	168,112	121,769	118,146
Restricted cash	538,446		488,723	484,223	945,159
Restricted cash - due to customers	259,479		368,656	208,033	294,311
Cash, cash equivalents, and restricted cash	$	943,403	1,025,491	814,025	1,357,616

See accompanying notes to consolidated financial statements.

NELNET, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts, unless otherwise noted)

(unaudited)

1. Basis of Financial Reporting

The accompanying unaudited consolidated financial statements of Nelnet, Inc. and subsidiaries (the “Company”) as of June 30, 2024 and for the three and six months ended June 30, 2024 and 2023 have been prepared on the same basis as the audited consolidated financial statements for the year ended December 31, 2023 and, in the opinion of the Company’s management, the unaudited consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of results of operations for the interim periods presented. The preparation of financial statements in conformity with U.S. generally accepted accounting principles (GAAP) requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Operating results for the three and six months ended June 30, 2024 are not necessarily indicative of the results for the year ending December 31, 2024. The unaudited consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 (the "2023 Annual Report").

2. Reclassifications and Immaterial Error Corrections

During the second quarter of 2024, the Company identified certain immaterial errors in the previously issued consolidated financial statements that have been corrected to conform to the June 30, 2024 presentation.

Loan Sales

The Company determined the reversal of provision for loan losses resulting from the sale of loans should be presented as a reduction to the provision for loan losses rather than the historical presentation as a gain/(loss) on sale of loans included in "other income (expense)" on the consolidated statements of income. Prior period amounts have been corrected to conform to the current period presentation resulting in a reclassification of $21.0 million and $43.1 million for the three and six months ended June 30, 2023, respectively. This correction had no impact on previously reported consolidated assets, liabilities, total equity, net income, and cash flows from operating activities.

Solar Tax Equity Investments

The Company relies on audited financial statements provided by third parties to record its share of earnings or losses on its solar tax equity investments. The Company determined that the Hypothetical Liquidation at Book Value (HLBV) method of accounting was not consistently adopted by all third parties in such audited financial statements for those solar tax equity investments made under a lease pass-through structure. The adoption of the HLBV method of accounting accelerates accounting losses in the initial years of the investment but has no impact on the overall economics of the transaction. During the second quarter of 2024, the Company fully adopted HLBV accounting for these investments and prior period amounts have been corrected, resulting in an increase in solar investment losses included in "other, net" in "other income (expense)" on the consolidated statements of income of $2.2 million and $3.2 million for the three and six months ended June 30, 2023, respectively, partially offset by an increase in "net loss attributed to noncontrolling interests" of $1.0 million and $1.3 million for the three and six months ended June 30, 2023, respectively. The after-tax net income impact to Nelnet, Inc. was a reduction of $0.8 million and $1.4 million for the three and six months ended June 30, 2023, respectively. Consolidated "total equity" on the consolidated balance sheet was reduced $21.8 million as of December 31, 2023 and $16.7 million as of December 31, 2022, with the 2022 impact reflecting the cumulative impact of this correction through such date.