Chit Chat Stocks - Why We Own Nelnet (Ticker: NNI)

Episode Date: March 7, 2023

This is our monthly Arch Capital episode. About once a month we will publish an episode that covers a company in the Arch Capital Investors Fund. These episodes will be modeled after our Not So Deep Dive episodes and will also be available on YouTube. Nelnet (Ticker: NNI) has a diversified business model that includes student loan servicing, tuition payment processing, and digital learning platforms, NNI has been able to adapt to changing market conditions and deliver strong financial results. Brett and Ryan dive through Nelnet and outline the investment thesis for why we own the company in our Arch Capital limited partnership. ****************************** What is Arch Capital? Arch Capital is a concentrated, long-only equity fund aiming to compound capital at an above-market rate. Arch managers are perpetual learners with a long-term focus that strive to build wealth with our partners through intelligent capital allocation. Learn more here: https://www.archcapitalfund.com/ ****************************** This episode is sponsored by Stratosphere.io, a web-based terminal for financial data, KPIs, and more. Try it out for FREE or use code “CCM” for 15% off any paid plan. Sign up here: https://www.stratosphere.io/ ****************************** Timestamps Company Background | (4:40) Business Services | (15:00) Nelnet Bank | (37:07) Management | (49:07) Disclosure: Chit Chat Money hosts and guests are not financial advisors, and nothing they say on this show is formal advice or a recommendation. Brett Schafer and Ryan Henderson are general partners and portfolio managers at Arch Capital. Arch Capital and its partners may hold securities discussed on this show. Learn more about your ad choices. Visit megaphone.fm/adchoices

Welcome to Chit Chat Money. On this show, host Ryan Henderson and Brett Schaefer interview industry experts and riff on the world of investing. As a quick reminder, Chit Chat Money is a CCM Media Group podcast. Ryan and Brett are also general partners at Arch Capital, and Arch Capital may have positions in the securities discussed in this podcast. Anything discussed on Chit Chat Money by Ryan or Brett or any other podcast guests is not formal advice or a recommendation. Now, please enjoy this episode. Welcome into Chit Chat Money. My name is Brett Schaefer, and I'm joined by my co-host, Ryan Henderson. Today is our monthly deep dive into a holding of the Arch Capital Limited

Partnership, a fund we run for outside investors. If you listen to this episode and have more interest in what the fund is about, check out our website link in the show notes or email us at our email that is also in the show notes as well. I would also be remiss not to say check out any disclosures because when we do these episodes, we want to be a bit cautious and say that we're not pitching the stock, we're analyzing it. And when we go through these episodes at the time of recording, the company, if we're doing this format is going to be something we owned. But if you're listening to this in the future, it might not be something we own in the future, we could either buy or sell it. Something could go wrong. So please do not take

this as a buy recommendation. Today, we are covering the conglomerate Nelnet. But first, today's episode is brought to you by Stratosphere.io, our investing home screen for fundamental research. Ditch the buggy and inaccurate legacy providers like Yahoo Finance and make Stratosphere your investing platform for tracking your portfolio and researching stocks. With its SEC file aggregation, historical charting tools, and unique KPIs, Stratosphere saves us hours of time and frustration every month as we manage our portfolio. Try Stratosphere out for free by going to stratosphere.io. That is stratosphere.io. We have a very, I want to say, a great chart that they have on their platform that we're

going to be using for Nelnet today. For any video watchers on either YouTube or Spotify, we'll be sharing the screen to kind of illuminate that. And then also, along with these episodes, we post a newsletter. That chart will be in there as well. And that newsletter is free. So Ryan, we're talking Nelnet. But anything before we get into the question and answer where we interview basically ourselves

on these episodes? Yeah, I would just express that. Well, I guess we should mention that this is the end of our financials month. So the way we try to do things is we do not so deep dives for the first couple. Basically, we have three different industries each quarter, one industry for each month. and this month was the financials industry. And then we wrap it up with something that we try to tie into one of our arch capital holdings.

And so Nelnet is in a lot of ways, a financials business. And so we do that, but I do want to express it. Like Brett said, we are shareholders in the companies we discuss, at least at the time of discussion. It really is not like a, you should buy this now pitch. It's more of a explaining And it's kind of an exercise for ourselves, too, because we can kind of figure out if maybe we're missing anything, explaining why we own something, how we look at a business that we know a little more thoroughly, because we do get some complaints that with the not-so-deep dives, they're not as thorough, which is why we changed to the not-so-deep dive name instead of deep dives.

But these are things we have a better understanding of. So we do want to give kind of a grasp or maybe highlight our actual knowledge on some things we actually own. Is that a good way to describe it? Yes. Although you're not pitching the show very well by saying that we don't cover things thoroughly. We do cover very thoroughly, I should say.

Yeah, it's just, I would say that's not so deep dives are kind of the top of the funnel in terms of like, that's our first sort of start in terms of research, as opposed to finished product, finished product, where it's typically something we've owned for a while. That is correct. Yeah, we do know, we can speak on Nelnet for a long time. And we will, I guess the first question, I'll just go right into it. It's really directed towards me. What is Nelnet? Nelnet is a diversified holding company that began operations about four decades ago in the student loan business today. And I think some of the listeners might groan at this because a lot of companies pitch this as what they are. It has turned itself into what we

would describe as a baby Berkshire Hathaway. Yes, I know I can feel the groans from all the listeners around the world, but we think for reasons we'll talk throughout this episode, they are the one true successor to Buffett and Berkshire Hathaway. It even has its headquarters based in Nebraska, in Lincoln, not Omaha, although that's not too relevant, really. Since Nelnet's business is essentially, and this is how I describe it, not from their perspective, but from my perspective, is invest money and earn a good return on it. There is not much to cover in the About Us page, but we're going to go through each segment or each relevant segment in detail later in this episode. However, I think for context, an important, just for the culture

of the company and kind of their philosophy for capital allocation and really building a durable business, here are six attributes that chairman Michael Dunlap, who is also the founder, has been there for a long time, but recently changed from the CEO to more of a chairman role, says he has six attributes that make up the Nelnet DNA from his 2022 annual letter, which you can find on their IR page. One, long-term perspective. Two, moats, so searching for businesses that they can build with a competitive advantage. Three, discounted cashflow, which they describe as basically focusing on the free cashflow that'll be generated over the life of an asset, discounted to today. Four, opportunistic and contrarian, looking for businesses out of favor with the

market versus current market, quote unquote, darlings. They're not looking for greater fools. They're not looking for anything else. They buy businesses to hold and grow over time. Five, diversification. And six, debt. They call it a double-edged sword. They like to take advantage of debt, which we'll talk about during this episode, but they also want to use debt prudently, which I think... I wouldn't call them a debt savant, but they're very, very good at it, wouldn't you say, Ryan? That's a big positive for this company to have a huge track record.

Yeah, I mean, they tend to go into areas where if they're putting debt on the balance sheet, and I guess you could consider the, it's usually asset backed or it's backed by someone else where you get some, I guess, I'm not thinking of like their traditional debt, but more their loans

where you have a very good sense of surety that that's going to be paid off. Yeah. And also there, yeah, the securitization stuff, they're hedging with interest rates, all that good stuff. Now, Ryan, as we get into the business, after this section, we're going to go into all the different segments of Nelnet because it can be confusing the first time you look at it. But first, give any historic or important context for this business that listeners should know.

Yeah. For those that know the business already or have some sort of a footing on what Nelnet does, this segment is going to describe the loan book and kind of how they got into the position that they're in today. And then we'll talk about where they're redeploying capital. But for those that don't know a little bit about Nelnet, they are very discreet. They try to keep things under wraps, don't want a whole lot of public attention. They don't have quarterly conference calls. They really just do an annual letter and then kind of your basic SEC filings. So I tried to procure kind of as much historical information as I could, but it is difficult and there might be some gaps. So if you're a real Nelnet expert

or you know the management team or anything like that, I might be missing some stuff. But I think it's actually, for historical context, I think it's worth going all the way back to 1965 before the idea of Nelnet even really existed. So, in 1965, that was the year that the government rolled out the Federal Family Education Loan Program. It's often abbreviated as FFELP, which stated that all new loans from banks or private lenders would be federally guaranteed. I believe, and it's gone through a number of different iterations the program has in terms of how much is guaranteed, whether it's just the principal is guaranteed, how much of the interest is guaranteed or the accrued interest is guaranteed. And so, like I said, number of

revisions. However, it ultimately culminated in more people going to college and more institutions willing to lend money to students. And one of those institutions ended up being what we now know is Nelnet. And so Nelnet itself was started by Michael Dunlap and Steve Butterfield in 1996. Butterfield has now passed. He passed away in 2018. It sounds like he left his stamp on the culture there at Nelnet. But when the company was founded, I believe Butterfield was about 43 years old. He had spent 15 years in investment banking and Dunlap was about 10 years younger than Butterfield, I think, like I said, hard to procure a whole lot of information. And Dunlap was actually a director at Farmers and Merchants Savings Bank in Iowa. I'm not sure

how the two got acquainted. I know that Dunlap was a native Nebraskan, attended the University of Nebraska. Butterfield, on the other hand, went to Arizona State. I'm not sure where he got his ties to Nebraska, but they ended up settling in Lincoln. And the original genesis for the business is that after they founded Nelnet, they, I believe, acquired a student loan servicing. Well, at first they acquired a student loan originator, and then that was in 1998. And then in 2000, they acquired a student loan servicing company, which I'll talk about what that is in a little bit. And the intention was that they were going to vertically integrate kind of those two functions where they're not just the originator or the funder of the loans, but they're also doing

the servicing aspect. And so that's really where they got their start or their differentiation was in that they were able to manage or control the whole process. In 2003, they took the business public. It was a pretty hot IPO. They raised $164 million. At the time, Nelma had $10 billion in loans on its books, and that was increasing pretty quickly every year. However, as a lot of people now know, in 2008 and 2009, many lenders began to pull back on their student lending as a result of the credit crisis. They were just reluctant to lend in pretty much all capacities. So instead, it was the government that had to step in and really start funding a lot of those. That was kind of the direct loan program. That kind of, or eventually spurred the action of the Obama administration to just completely disband the FFELP altogether and take all public education college lending, I know at least college lending, in-house.

So no longer could the private institutions lend under the FFELP program. At the time, Nelnet had $25 billion in student loans on its balance sheet. And so those loans have since been slowly paid back ever since. And there's – they acquire some of the – like other companies have a portfolio of FFELP loans that they will purchase. and typically they'll merge those into their own servicing. And I'm not sure exactly why the companies choose to sell them, but basically Nelnet thinks it hits their hurdle rate and so they'll buy them. But basically this is a slowly melting ice cube. If you've heard that expression with Nelnet, it only sits at about $14 billion in remaining loan value. They earn a fixed rate

of interest on those loans. And so you might be thinking, well, what happens if rates rise and Nelnet's borrowing costs jump? This is where Nelnet has basically telegraphed or staged out a number of interest rate swaps that they've got now in place so that they always have that interest spread or that net interest margin, basically. And they've done a really good job managing those and that allows them to continue generating cash even in a higher interest rate environment. I threw an estimate of what the remaining cash flow looks like for the business. It's basically, they kind of hit peak cash flow last year and there's about 1.5 billion remaining over the next 13 or 14 years with most of it coming in the next few years. So the focus now

and for the last 10 to 15 years has been, how do we redeploy the cash from this melting ice cube into other ventures so that Nelnet can last beyond just its loan portfolio? And they have deployed a lot of that capital. So we're going to talk about all those segments and they continue to deploy capital. So why don't we talk about, unless you have anything else to add, why don't we talk about the businesses that they're deploying that capital to? I think just to be clear, when ryan said estimates he means the company's own estimates not ours so they are the ones that have the insight into this loan book we're not making any of the estimates here this is their cash flow projection on the current payback rate of student loans um which can you know we might

talk about that in the risk section plus where interest rates are with their hedges all that good stuff it can change a bit but it's very very predictable um and yeah check out that chart in in the newsletter, but yes, I'll talk about the first one, which is Nelnet Business Services, which we might refer to, since it's a very bland name, as the software and payment processing division for the education market. So this is Nelnet's largest wholly owned business, I would say at the time, right now, recording in early 2023, the most important. NBS is a suite of software and payment tools for K through 12 and higher education institutions, mainly in the United States. It aims to offer a holistic solution for administration departments

at schools. The most important thing within NBS is called FACS, all caps, which serves 11,000 schools in the K-12 private and faith-based markets. So I think Catholic schools, stuff like that, where people are paying tuition when they're not going to college. I'll add in here that there are a lot of different, I think there was like 12 or 13 total businesses. They may have rearranged them in some way in total in the non-let business services. But for that fax segment, they used to service, I think I was looking at the 2009 letter and they were servicing just over 4,000 schools. So they've really grown in terms of school adoption for that service. Yep. And they've acquired companies and kind of merged all of it into fax. Right now,

the segment, well, let's talk about what they do. They offer like tuition management stuff, administration workflow, enrollment stuff, education development. It's really the software as a service tool for the administration department at schools where people are paying tuition. And I don't know if they're the sole leader in that, but they're one of the leading companies within that space. It's not a huge space, but if we look at the segment, at least for facts, last year, the segment did $244 million in revenue up from $188 million in 2021. Typically, we would not expect it to grow that quickly. It's been a slower grower than that. But in 2021, there were some pauses with the pandemic disruptions. They're a little bit lenient

on stuff like that. The other segments include NBS International, which is just the fact stuff international. They have a little bit of exposure in Southeast Asia, and they're also trying to push a bit in Australia. Although right now, from a revenue perspective, it's not very big. They have Campus Commerce, which is college. That's a sizable one. They have the Payment Processing Division, which is kind of just on top of everything. And then they have a tiny segment about community engagement, which is almost like a charity. It's irrelevant. But altogether, the NBS, or the Education Plus Payment Processing Division, generated $408 million in revenue in 2022 and $74 million in operating income. I'm actually going to share

my screen to show the chart of the long-term growth in the operating income for that division. We see here this green one in the middle. I'll describe it here. In 2016, the division generated $34.7 million in operating income, so let's say $35 million, and it's grown every year except 2018. And last year, 2022, the division generated $74 million in operating income, and that operating income is compounded at a 13.5% rate since 2016, so pretty impressive long-term results. and it's a high margin business. It's very sticky. There's a quote here from the,

do I have it in here? Yes, I do. So here's a quote from the 2022 annual letter to shareholders. Vax continues to create consistent cashflow for the division while investing in new products and associates to further enhance the value we provide to our school customers.

We strive to elevate the education experience for our schools, teachers, students, and families. our customer retention rate has consistently been over 98%, illustrating our service commitment to our customers. I think there was a lot of kind of ESG, whatever they're praising all their stakeholders. But I think that two most important things from an investor perspective are one, the 98% customer retention, and two, the fact that that division generates a lot of cash flow, but they are investing in new products to grow and to hopefully grow their operating income over time. Overall, we think, I would say, and Ryan, I'm guessing you kind of agree with me because

it's kind of a rough number. We estimate the operating income NBS could generate before reinvesting for growth is probably $100 million a year, if not higher. And that's a number they could spit out year after year after year, given that gross retention rate from their customers. Anything to add there, Ryan, before we move to Nelnet diversified services? No, I think it's just, you know, they've owned these businesses or these different software solutions for a long time and they've continued to grow and they've continued to expand the schools that they service. I think it's a durable, profitable software business that's run really well. And if it were on its own, I think it would command a pretty high valuation. um but that's you know we are shareholders so i guess it's our potentially biased opinion

yep and we'll talk about any sort of value there but just kind of for reference anyone can put an earning multiple on 100 million dollars in operating income 400 million dollars in revenue it's steadily grown year after year it's probably 10 times earnings at least we'll talk about some of the parts later but ryan do you want to talk about the loan servicing division one of the hardest ones to value and the one that's been in the biggest, facing the biggest headwinds at the moment, as many listeners who have followed the student loan stuff in the United States since the COVID-19 pandemic started, well, it's not surprising. Yeah, I think people have probably heard a lot of buzz about the student loan servicing segment, and I think they'll be

surprised by the actual financial results when I get to that. But as I mentioned earlier, Nelnet was formed with servicing really at the core of its value proposition. To better explain what student loan servicing is, because if you didn't take out a student loan, you might not actually understand this part of the process. I'm stealing a quote from myself when I wrote about, I guess, Nelnet a while back. And so I just thought I'd steal that. It says, when a lender lends money to a borrower, there's a layer of work being done under the hood that tends to go unnoticed. This layer includes the actual distribution and collection of money, maintenance of financial records, and a central dashboard for borrowers to interface with during the payback period. There's other things that go on as well.

They describe it in the 10-K, but that really encompasses, I think, the loan servicing segment. To kind of give a grasp on the size of the business, by 2008, Nelnet was the third largest loan servicer in the country. Although at the time, most of those loans were being originated by Nelnet themselves. The largest was Sally Mae, who I'm assuming was basically servicing all of their own loans as well. And then just behind Nelnet was a company called Great Lakes. And Nelnet actually acquired Great Lakes in 2018. So now Nelnet is by far – and Sallie Mae has – I think they no longer service any of the public loans or the – sorry, the loans that are the direct loan program from the government. So they've kind of shrunk in terms of size.

The estimate is that Nelnet has about 40% share of the student loan servicing market. That's now in combination with the Great Lakes, which is the largest by far. And then in terms of compensation, Nelnet receives monthly fees based on the number of unique borrowers that they service. I think it also has to do with the total dollar volume being processed. But the biggest customer by far is the federal government. For reference, Nelnet serviced 17.6 million borrowers in 2022. 15.8 million of those were coming from the direct lending program from the government. So that is the giant customer. That's what this business is largely dependent on. However, when the CARES Act was enacted, I think it was March of 2020, all student loan payments were paused, and loans basically went into this forbearance period. and it's since been extended a number of times in both under both administrations and so it's kind of left Nelmet's loan servicing business in this in-between period where it has to stay staffed in case the loans start to get paid back and the federal government even asked

them you know be staffed by the time this this starts back up again we need you to be staffed And then they extended it once again. So they extended the forbearance period until October of 2023. According to CEO Jeffrey Nordic, that led to NDS being significantly overstaffed by nearly a thousand people. So they had to do a number of layoffs. They repositioned a lot of those employees into other parts of Nelnet, but ultimately they just had too many people.

But when you think about that, one of the most difficult environments for them to operate in, they still looked all right financially. So in 2022, they generated $535 million in revenue and roughly $65 million in operating income. I think in a normal operating environment like what they had in 2019, they generated 15% operating margins in the segment. Applied to this year's revenue, that's about $80 million a year in operating income. If they can consistently do that, that's going to be super accretive to the business. The only difficulty is a lot of it comes up to or is dependent on renewing their servicing agreement with the federal government, which at one point, I think in 2020, maybe it was 2021, the federal government said, no, we're going to go with somebody else.

Nelnet, I think, kind of protested that decision and won and said, no, we've been servicing you guys since the direct lending program has started. And they won that contract again. So the only difficulty is it's kind of dependent on renewals. So there's less predictability in terms of operating income multiple years out. Yep. I agree with all that stuff. One chart here, and we'll have this in the newsletter as well, is the just historical chart from 2016 of their operating income. You can see in 2020 through 2022, their operating income has been hit, even though they're actually servicing a bit more volume. It's because of the pause in the payments. It's because of the stuff that Ryan just discussed. So on a normalized basis,

we think they're closer to doing about $100 million in operating income per year, a number that might grow, but is more of something we're betting on being stable over the long term. And they do service some other loans as well outside of the direct lending program. So if they can continue to grow that, there's at least some value beyond just the federal government in that segment. Do you want to talk through the renewables business? Yes, I can. This has historically been a small portion of Nelnet's conglomerate, but it is something that management has indicated they will be increasing investments to, meaning it will become a larger portion of the story over the next three to five years. And if you're looking at any of their annual reports, or if you're looking at their annual letter or their earning supplements, it's kind of hard to see where this stuff fits in, but it's called Nelnet Renewable Services, and I think I can explain it pretty easily.

a lot of the cash flow, excuse me. And I think it's also important because a lot of the cash flow from the student loan melting ice cube is going to be redistributed to this division. So it's important for us to analyze what kind of returns they can get and how confident they are in it. So Nelnet Renewable Services is a tax equity investor in solar energy partnerships. You might be confused what that means, but simply this means Nelnet along with its co-investors invest money to develop solar energy projects around the country. And then in return, the company gets cash flow from these projects, plus tax equity credits, which equal to about 26% to 30% of the project cost, according to management. Nelnet can use this to offset

its total bill as a conglomerate to the US Treasury. It's very similar to how Berkshire Hathaway Energy Acts. In total, Nelna has invested about $176 billion in these tax equity projects, plus manages $102 million in outside investor capital. So for the size of this business versus their student loan book, it's not very big today. According to the shareholder letter, the company has $194 million in committed capital from outside investors waiting to get deployed. However, what gets us excited about the solar division and the growth of it over the next three to five years is this acquisition of grne solar which was made in 2022 for 34 million dollars they own 80 of the entity today grne solar is a contracting company that builds solar projects

for other people and now on a consolidated basis for these nelnet renewable services projects they're vertically integrated into this just i would say it's just like but similar to how things have worked with the student loan servicing and the student loan originating projects i have a quote here that's going to be in the newsletter that goes into depth on how all these things work. But GR&E, as they talk about, it gives them technical know-how, talented workforce, and different revenue streams for this expanding renewable energy business. They provide, how would I say it? You get a better chunk of the solar project when they vertically integrate And these assets that GR&E builds for electric utilities or to sell to the electric utilities

or to contract for other people can generate a profit for up to 40 years. So you invest a lot of money up front, you have to realize tax losses, but you can get cashflow for years and years and years. That is very, very steady. Ryan, you have something to add? I also think it's one of the unlocks here with the acquisition. And it's similar to the servicing acquisition when they started kind of in the 1998 timeframe, is that you mentioned that capital is not an issue here. They have a lot of money that they want to put to work in the segment, both from their own student loan portfolio or their own loan runoff, but also the $194 million in committed capital waiting to get deployed.

this allows them to not have to be dependent on investing waiting for other companies to add more staff develop more projects or start more projects that can be invested in that kind of thing this allows them to basically do it themselves as long as they have the capital they can go out and they can expand at kind of kind of at will right am i thinking about that right that is correct yep and it's early days because they just made this acquisition so we'll see how quick they do it. But there are a few things we really like about the new Nelnet Renewable Energy Services. First, the company is now vertically integrated, which is giving it an advantage over competitors. They have competitors within the construction space. GRD is not the only

solar constructor out there. But second, in the investor space or the solar tax equity universe, where they can take all the money and all the relationships that they have within the investment fund area and funnel it to these projects that GR&E can do itself. I don't want to say no one, but very few of the competitors are going to have both. Second, I talked about the funnel already, but I guess that was the second benefit. Third benefit, I think, or what we like about it is the new US government bill around renewable energy, the Inflation Reduction Act, I think it's the official name. It'll give the company government supportive returns and a huge tailwind for construction growth for years to come. And then fourth, these projects generate a ton of

cashflow over long lifespans while masking the earnings upfront through reported accounting losses. So unless you're, and this is more of a, from a, you know, why do we like the stock perspective? Unless you're someone who pays really close attention to this company and you kind of just look at the headline numbers, you're going to look at their earnings power and think it's nothing special, but that's because the solar losses and some of the other stuff, which Ryan will talk about later in the show with the communication stuff as well, they're reporting these earnings losses, but they're actually creating value. I think that makes sense.

Now, when we're looking at the business today or the segment today for Nelnet Renewable Services, it's not going to generate tons of cash flow for the company over the next two to three years, but it really sets up the business to start generating durable cash flow for the next few decades with, I want to say, almost an unlimited room to reinvest further capital, especially at the size Nelnet operates at today with market capital only. What is it at the time of recording? About $3.3 billion. Ryan, anything to add? And if not, why don't we move into Nelnet communication services. Yeah, and on the renewable side,

it's probably one of those business, it's always difficult with Nelnet because they expand into something new and they only provide so much color. So part of it is trust and management, but I think the more that you see them invest into this business, probably the more commentary and color they'll provide.

But let's talk about Allo Communications, which is their Nelnet communication services business. Um, today it's only, it, it's only a 45% stake in Allo Communications. They owned, I think it was, if not all the majority of it for a while, um, since from like 2015 to 2021, however, or sorry, 2020, however, in during 2020, they sold 48% of the business to, I think it was called like NDS capital or something like that, um, for $197 million, which I guess it gave a valuation on what others think the business is worth. But the business is fairly straightforward.

Aloe feeds broadband internet to communities in Nebraska, Colorado, and Arizona. Lane fiber, as probably most people know, requires a pretty significant initial cash investment or cash outlay, but it should reap a consistent stream of cash after the fact, barring any major success in satellite internet. I think once you've laid the wire, it's a pretty predictable cashflow stream. And anyways, basically today they have the ability to service or already serve an estimated 410,000 households. They've invested a lot of money into this business. They were able to monetize some of that by selling the stake and also now have kind of a partner in terms of CapEx to invest into Allo as well. I guess other parts that are

worth noting, it seems like demand for Allo's internet services is really strong. Once again, you're kind of leaning on management to see what they say here since it's a non-controlling stake now. But this year, Jeffrey Nordic mentioned that really the biggest difficulty for them right now is hiring. They have a lot of demand. They couldn't fill the roles because of what he called the great resignation. However, he said as the economy kind of worsened throughout the year, they were able to fill those roles pretty quickly and they've since kind of passed that hurdle. It's a little difficult to value the business now. Basically, their remaining stake in 2020 was worth $190 million roughly based on the value

of the remainder that they sold. But it's probably worth more given that it's expanded a lot since. And it also, it's kind of complex, but it looks like their ownership is mostly through preferred shares that pays out Nelnet in interest rate of six and a quarter percent and could jump to 10% theoretically down the road. So they earn some interest on this, but they're also plowing capital into the business. But it's just another one of the opportunities where as long as you're staffed, it's kind of an endless area to basically deploy your capital Um, and there's, there's just a really kind of greenfield market here to, to continue to lay

fiber, um, obviously competitive, but, uh, a big market to potentially sell to. Yeah. And just for reference, they have 131,000 lines, uh, which means customers that are currently paying them that according to the 2022 annual letter is growing each year. So that's what Ryan means by growth. Although they don't give any revenue numbers, they don't give any earnings numbers to us anymore. All right. Should we talk to Nelnet Bank? Yeah, sounds good. So Nelnet Bank. And for any listeners, this might seem a bit confusing. I would recommend reading the shareholder letter from Nelnet. They have a good chart on where all their capital has been outlaid over the years. And also take a look at our newsletter. We'll have

some charts to outline the size of each one of these businesses because going over it in audio format can be great, but they do have about six or seven important segments that can be kind of hard to juggle in your head. And one of them that has been growing quickly is Nelnet Bank that I'm very excited about. So Nelnet Bank was given a charter to operate by the FDIC in early 2020 and was formally launched in November 2020. So a little over two years at this point. Nelnet Bank is an industrial internet bank. That's their words. So whatever they want to call it, I guess, meaning it is not a bank. I guess the most important thing there is that it's not a bank looking to compete with deposits from consumers with the likes of Bank of America, Chase,

or your local credit union, it targets private education loans and the unsecured consumer loan market. So they're lending money to private education loans, which means K-12 people or something like that. And then the unsecured consumer loan market, which is just standard loans to consumers. The education loans are very straightforward and will be easy to attach, I think, to Nelnet's already established network in the education industry. They have relationships with, I think, if I'm remembering correctly, 11,000 schools, right, Ryan? So that's pretty great distribution to grow up a lending business. And the consumer loans, they are still in their infancy, but it looks like the company aims to go slow here. Here's a quote from the 10K that I'll

include in the newsletter as well. Nelnet Bank plans to begin offering unsecured consumer loans, primarily refinance loans, in 2023 for consumers to consolidate credit card and other general purpose debt, as well as financing home improvements. So TBD on that part, they haven't really started that yet, but hopefully they go slow because as we know, fast growing financials are not the best. We want them to steadily grow here. At the end of 2022, the bank's loan portfolio was valued at $420 million. They had $790 million in deposits and $900 million in assets. Only two years after launch, the bank generated $13 million in net income after provisions for loan losses, which is up from $5.4 million a year ago. They are getting hurt a bit from the demand side with

rising interest rates, but their net interest income has exploded because of it, which is great. And as they scale, hopefully that can really, really scale up as well, along with their total asset base. We're not going to pretend, both of us, that we're not going to pretend to be bank analysts. We're not banking analysts. We're not experts on banks, but we trust a company like Nelnet that has decades of experience lending to consumers, specifically in the education market, with fantastic long-term results to do well with a banking charter. We will be tracking really deposits, loan portfolio growth, and then net interest income over the next few years to see how large this unit can become for Nelnet, I think, and maybe Ryan, I would like your input

here, but I think you'll probably agree with me because we both talk about this business a lot. There's an easy path to $100 million in net income generated each year from Nelnet Bank, say possibly within the next five years. Yeah. And the difficulty is they can grow this as fast as they want if they loosen their lending standards. And so that's kind of where for us, it's really a trust in management that they've been loaning out money responsibly for 20 plus years now that we have faith that they aren't just growing this thing at will. But yes, they have the capital to lend and it's low cost capital too. So I think this is a great area for them to potentially redeploy it. Yeah. I have no idea

the growth rate, but $100 million seems possible. Yeah. Yeah. And I think the one key takeaway that has us bullish for them winning this market for private education is their existing relationships within that market. So I think that'll be an easy funnel for them to launch into there. But let's get to the last segment because I know these can go long and it is the investment portfolio, what they call their other category, which can be frustrating as shareholders because there's not much insight into it, but this is the huddle stake, the real estate investment fund, the venture capital fund, and other stuff. But Ryan, why don't you get into what you think is important for any listeners from that division?

Yeah. We kind of lumped it all into one here because we want this thing to go fairly quickly, but probably the biggest or maybe the area that we're most optimistic about in this segment is probably the the huddle stake and so for those that aren't familiar with huddle it's a performance analysis platform is maybe the way to call it used by sports organizations to review film build highlight tapes scout competitors uh it really got its start in the high the u.s high school market um which is uh for those that live outside the u.s or don't keep up with kind of you or don't know about US high school football, people are very fanatic about it. There's a lot of Spain around it. And Huddle really drove tremendous adoption in that segment. And there

was even, in some ways, network effects within leagues where you'd share film with the other teams and the other teams would share film with you. And they do so via Huddle. They have more than 95% market share within that segment. Basically, if you have the capital to have huddle subscription as a high school football team, you have one. But not only do we think this can be pretty much a national monopoly on high school sports, they're also expanding globally through acquisitions. Like other segments, it's difficult to get all the color on the business. They haven't given a revenue stat because this business is also still private, but they've acquired 12 other companies in total. YScout is one. This is an Italian-based scouting platform

that works with professional soccer or football teams, as they say abroad. I have family that works in sort of the professional soccer realm, and they use this platform on really a daily basis. And I think YScout is very popular if you speak to anyone kind of within that professional football, professional soccer industry. The other one is Crossover. This used to be a college, and I think even professional in some use cases, basketball video analysis platform. It doesn't exist anymore. They've now integrated the customers into Huddle. I tried to look it up, but yeah, they just rolled those customers and the basketball-specific functionality into the Huddle platform.

Third one here is blue-frame technology. So this allows sports teams to monetize and enhance their game live streams. So Huddle has gone around basically at a bunch of different high schools, set up cameras to live stream games. And then if you want to watch a high school football game, you can log on to different internet live streams. Blueframe basically allows them to either have broadcast level graphics and kind of add that to their stream, or they can make the games pay-per-view. It should pair really well with Huddle's basically physical footprint that they've installed across a bunch of high schools. The other ones here are Realtrack systems. This is more of a video performance and GPS sensor data tracking platform.

Don't have a whole lot of color on what the business does. Then the last one is Instat. This is, from what I can tell, sort of another just video analytics platform that has a big presence in ice hockey, basketball, and soccer as well. Hard to know what the stake is worth. Nelnet has now invested more than $100 million into Huddle since its founding. Last time in 2020, they had to – Huddle raised another round of funding. I think Bain Capital and Accel Ventures also kind of co-invested with Nelnet in that round. And they had to write up their value of their stake by $50 million. It was almost a double, I think, in terms of what they were actually quoting on their balance sheet. And so hard to know what it's going to be worth.

I think they have ownership. The estimate is that they own about 20% of Huddle. I think it's going to be a monopoly and it's really still a growing business. So I think it could potentially be worth a lot. But on top of the Huddle investments, management also invests. Before you go, can I talk Huddle a little bit? So there's a reason we really like this business. One is monopoly.

It's almost a pure monopoly now in sports film. Two, it's going to have incredibly high margins. Three, it has a durable market opportunity. Sports are going to be around. They're very durable. It doesn't matter what sports might be played, might change, but the sports market is going to stick around in some form, I think, around the world for decades to come. And four, they have huge competitive advantage because you have high switching costs, you

have network effects going across teams or across the whole industry. and that just leads to a winner-takes-all scenario. Given some back of the envelope map, they have about 200,000 teams on the huddle platform or across huddle and all its different properties. The typical high school yearly contract is 1,600 bucks and that's the middle, the road one. So assuming the professional teams

are paying a lot more money and the college teams are paying a lot more money and it's probably some of the top high school teams are paying a lot more money to huddle each year. I think if you do a rough $2,000, say, ARPU per team each year, that's $400 million in annual revenue, a company like this would probably get valued at about five times to eight times sales, depending on what their margin profile is, which to be fair, we do not know.

And Nelnet owns 20% of it. So do the math there. I think a conservative, or maybe not conservative, but a good bet is that their stake is worth about $500 million, if not more. Yeah, I agree. And I'll talk a little bit about it in a later segment too. Just on top of the huddle investments, they invest in real estate. They also invest, basically have a VC arm. The VC bets are fairly standard. I think they've invested across more than 80 different companies. And with a focus on the Midwest where they think advantage. Yeah. And then they basically have that at a carrying value of $250 million,

but more than half that is huddled. So the remainder are just a bunch of smaller companies that potentially have upside. And then within the real estate portfolio, they have 31 real estate investments currently, and they're typically invested in commercial properties, which they said are all either multi-dwelling units or storage facilities. They made sure to emphasize that these are not commercial offices in big cities. They kind of had some choice words for what might happen in that market, but it seems like kind of a potential area

for them to continue to deploy capital that is maybe less susceptible to cyclicality if it's like storage facilities and multi-dwelling units. So I like that. But it's still a small segment of their overall business though. All right. Moving into the management team. I think that's a mouthful for everyone is all the segments.

And we even kind of get confused sometimes as someone who studied the business for years. So I wouldn't maybe listen to that part again. And if not, really do check out the newsletter. There'll be some information in there. And if you are still curious or confused about a segment, email us or DM us on Twitter. we'll be happy to discuss but let's talk management team the question we have we're both going to answer this is what do we think of the management team and why are we optimistic about their ability to successfully deploy capital moving forward since it looks like ryan you kind

of have i wrote it down first and you have a little response in conjunction with mine i will go first so i just want to say i think this is pretty obvious i like the management team their quantitative track record speaks for itself which we covered in the above sections but i think the qualitative is just as important. Nelnet thinks long-term, has long-term tenured management, doesn't mess around with, quote unquote, BS earnings, and could care less about Wall Street and outside investors. Plus, when they do communicate with investors, they do so clearly each year with the annual letter and annual report, outlining all the business segments that they think are relevant. The letters, I think if you're expecting them to be the same

is Warren Buffett's, you will be underwhelmed. They are not as eloquent as Buffett's. Some of them are a bit rough or not. I wouldn't say rough, but it's not like a Buffett letter where you come away and say, whoa, this is the best business writer I've ever seen. This guy's a genius. However, they have a similar mindset, morality, and ethics to Buffett when considering all the stakeholders in their business. And they focus on long-term value creation through either making outside investments or creating businesses that generate long-term free cashflow. So we think Those similars are great, and that's the type of management teams we would like to pair up with. Ryan, anything to add on here?

Well, I'm not sure we've actually mentioned the statistic, but the management has compounded their book value per share at north of, I think, around 17% over the last, what is it, 18, 19 years now. And then it's at roughly 20% over the last 20 years. Yeah. Brett's pulling up the chart here. Since December of 2000, book value per share for this business has compounded 21% a year. Then they went, and just as a note, they went public in 04. So when they referenced it in the annual letter, the book value per share has grown a bit less. And that's because in kind of the 01, 02 period, they did extremely well and kind of tripled their book value or more in one of those periods. And this is really when looking at this, we didn't even have the 2000, 2003 period. So this is kind of when we're looking at Stratosphere here again, our sponsor. That's why we love the platform so much, because you get access to these historical records like this.

It's just fantastic. But yeah, this is the chart. We'll probably put this in the newsletter as well for the listeners. But if we look at their 2000 book value per share, $1.03 at the end of the last 12 months, we are at $85.01. But I think that's actually just because they just reported earnings. That's not updated yet over the last, what was it in the annual letter? I think it was closer to $86, but either way, pretty close. Fantastic record of growing that book value per share. Yeah. So, like Brett said, the numbers speak for themselves. I also trust the management team. I think I've owned it. We've now owned the business long enough to know that when they say that their gap financials understate their true earnings power or earnings potential, I believe it. It also gives me some confidence to know that Michael Dunlap, who is probably one of the

primary capital allocators at the business, he's the chairman, he's not the CEO, but I think he kind of allocates capital in conjunction with the CEO, Jeffrey Nordic. He owns 42% of the shares outstanding since he's the founder, and he's not just dumping shares. He has a very high vested interest in this business, succeeding over the long run. Jeffrey Nordic, even though he's a new CEO, not a founder, owns $50 million worth of stock, which unless he came from a very rich background, I'm assuming that's a big chunk of his net worth.

So I think they both are well-incentivized to create value for shareholders in the long run. On top of that, I'm going to share this quote from their shareholder letter that I think encapsulates management's philosophy pretty well. Mike Dunlap says, our goal is for each Nelnet shareholder to record a gain or loss in market value proportional to the gain or loss in per share fundamental or intrinsic value recorded by the company. To achieve this goal, we strive to maintain a one-to-one relationship between the company's

fundamental value and market value. As that implies, we would rather see Nelnet's stock price at a fair level than an artificial level. There are very few CEOs, managers, business owners that are willing to talk like that. and willing to keep their stock price valued fairly as opposed to excessively because they know it benefits them long-term. That's a real positive in my mind. On the deploying capital part, what gives me confidence that they can do so successfully from here because that's really what you're investing in? One, Brett mentioned the track record. That's one good sign. But also

the fact that there are now, between solar, fiber, Nelnet, bank, there are places where they can really put as much capital to work as they want. And especially now with that GR&E acquisition, there's no kind of constraints capital-wise, which makes me feel like they're not going to be sitting here just on a lump of cash at the end of the loan book. They're going to be able to build out these businesses well. Yeah. And what's interesting is they're still seeing opportunities within... Oh, well, let me... It's hard to read from this. So if we look at their capital deployment chart, which we'll have in our newsletter, which they put in their annual letter each year they have for the last few years, they have their private and consumer loan

acquisitions, net of financing. And last year, they found opportunities to deploy $269 million just within that division. And over the last 10 years, have invested over a billion dollars into that. So I like that as well, where even though some of the FFLP loans are rolling off, they're still finding some of those existing loans out there and other loans that pass their hurdle rate, which again, it's risky. From our perspective, it's always risky to invest in someone who's lending money to other people, especially unsecured stuff. But with their track record and their conservative nature and ethics, I guess we would describe it where we really have to trust them from that point. This is a management team I'd probably put above a lot

others when investing in a lender. The other thing I'll add here is maybe last year might have been their peak in terms of cashflow runoff from the loan portfolio, but they're still going to receive a decent amount of cash over the next year or two. And they have some cash just sitting on the balance sheet right at a time when asset prices are coming down across the board. I like that combination because they have really good capital allocation track record and them being able to put more capital work in this environment means probably better returns for shareholders over the long run. Yeah. And I would bet that, and I think not to, well, we'll get to some negatives because as people, we own this, we are optimistic. Please take that with a grain of salt.

We are biased. But over the last few years, they've made some decisions or they've launched some products at the absolute perfect timing. First, the bank. They launched that when interest rates finally start coming off of zero. They start putting in these hedging on their interest rate swaps, or they've increased their exposure to that. We're not going to pretend to be experts on that. But they talk about this in the 2022 letter, when interest rates start increasing at the fastest rate in history, which is the biggest risk for their FFL ELP portfolio. They put on these hedges to reduce that exposure and mitigate any of the losses they would have had on that variable spread.

Third, they buy the GR&E solar company right when the government passes the Inflation Reduction Act. I just think they're very… Take those three decisions into account. They are very, very intelligent. intelligent. The last thing I'll say, because I know we've gone long, and we have two more questions to hit, but the businesses they own have been really resilient. That moat that they talked about, they've held up well, aside from the loan servicing, which has still done fairly well,

being affected by the federal government's actions. All these other businesses, are not, they're not struggling in sort of this recessionary environment. They're not seeing all these like customers trickle away. They're still at really high retention, especially within that education payment section. Huddle, I imagine is quite resilient. I don't think high schools will stop spending money on their football programs. Same with professional sports teams yeah those are huddles money makers the the real top tier teams yeah and i'm probably missing some but fiber fiber internet maybe there's some cyclicality but the demand doesn't seem to be a problem for them that's the utility and then a lot of the other stuff is government

backed where they love stuff that is backed by the government i think well maybe this will translate into the segments we're most optimistic about the similarities at first glance you might think the the solar energy stuff and the old student loan stuff had any sort of similarities. But when you look at the philosophies where one, they're tax advantaged, two, they are supported by the government, and three, you invest a bunch of money up front and generate a steady return over multiple decades, they are extremely similar. So I guess let's move into that next segment. What are we most optimistic about? I think over the next five years, I'm most optimistic about the growth of Nelnet Renewable Energy Services. We talked about the stuff in there. I'm also very

optimistic about the bank, but I'd be concerned if they really grew this quickly. It's not going to become relevant for at least five years. But speaking on Nelnet Renewable Services, the Inflation Reduction Act should provide a nice tailwind to new project development, and the company now has a competitive advantage that we talked about with the GR&E acquisition. I wouldn't be surprised if they could deploy billions with a B of capital into solar development over the next five to seven years, earning steady cash flow for decades into the future on these upfront investments. And it's not going to be much more than a billion just given the size of this business. But the way they're talking about it, the acquisition they made,

there is a huge opportunity here. And I'm just very excited that it's not going to look good on the GAAP accounting numbers, but it's almost given the pure utility nature of these projects, they're almost guaranteed returns. Yeah, I agree. I think that was probably the segment I'm most optimistic about them continuing to deploy capital. The bank too, but like we said, we talked to John Maxfield earlier this month. Banks can grow as they have to govern their own growth. And so growing too fast is sometimes more of a red flag than a good sign. So I would maybe just have caution there, I guess, but they've lent responsibly for a long time.

So that gives me some sense of security. The other segment that I would just say I'm the most optimistic about is that huddle business. I know they don't own this outright, but I can truly see this being the global leader in sports analysis. They already have more than 200,000 teams

across 40 different sports. It already is almost, pretty close to it. It's already above 200,000 teams, yeah. No, I'm saying pretty close to the leader, or the monopoly global leader. Yeah, yeah, that's true. Pretty close. Yeah, 200,000 teams, 40 different sports, 150 different countries. To get a sense of the size here, we mentioned 200,000 teams.

We mentioned that their bread and butter is in the high school football market. There are, according to maxpreps.com, reportedly only 16,000 high school football teams in the US. So that means they are having success across other sports. A majority of their customers are across other sports. And so I know for sure they do well in high school football, but that gives me a sense that they're doing well beyond that. But they also seem to be pretty reluctant to mark up the value of their huddle stake, which tells me that it's worth a lot more than they hold it on the balance sheet. I think Brett's math is probably generally correct of this business being worth a lot more, potentially half a billion dollars in revenue or something like that for the overall business, which everyone can throw their own assumptions in there. But I would just, my base case here is that Nelnet is very conservative with their evaluation.

Yep. And they're not going to write it up unless they have to, which on the flip side can be a bit frustrating, but for a company that buys back their own stock, we're not too concerned. I think you just got to be patient. So, oh wait, this question's for me, Ryan, I'll let you ask it. Yeah. Let's talk to the valuation because this is a business that's hard to value. How do we think about it?

Yeah. So we could do some of the parts, but I know people get annoyed by that. And I know that's just something everyone has done before with companies like Nelnet, Berkshire Hathaway, IAC, everyone else. So one way to maybe think about it differently is to look at how much cash it will generate over five years, how much you can reinvest over that same period, and then at what rate of return it will earn on this reinvestment. So for Nelnet, it's hard to sum up all the cash available for reinvestment because some

of it's muddied. we have to kind of assume what is growth cap or excuse me, growth investment versus the money they're actually earning and how much more of kind of that net income they're going to be, they could be earning if they stopped investing for growth. I think we can make some decent estimates. So the first one's easy and that's over the next five years, Nelnet will receive based on their current estimate, $970 million cumulatively from their FFELP portfolio. So let's round that up to $1 billion. It could be a little less, could be a little more, depending on interest rates and some

other factors, payback periods. But I should note that when you're discounting it back to today, if their payments from student loan borrowers get accelerated, they're going to get a little bit less, but they get the money quicker. So I think it evens out. Now, from the education and payments processing division, we think it's reasonable that they can generate about $100 million in annual operating income each year before reinvesting. That equates to $500 million total. Add in renewable energy, the bank... Actually,

I forgot the servicing here. I did forget the servicing. Okay. This is not including the loan servicing, which we can pretend is going... It doesn't matter. We can pretend that goes away. Add in renewable energy, the bank, and then its other loan portfolio. And you could tack on, I'd say $500 million in cashflow available to the parent company. That one's a bit harder to value because one, it's multiple segments, and two, it's a lot more opaque than the education software and the FFLP portfolio. So cumulatively, that is about $2 billion in total cash going from the subsidiaries up to the parent company that they can reinvest. Now- Over five years.

Over five years. Yes. Thank you, Ryan. Do we have any concerns Nelnet can deploy $2 billion in five years. Will they struggle to do that? No. They spent $667 million just on its, quote, other investment category, which is shown in the table that we'll put in the newsletter, and that's also in their 2022 annual letter, just in 2022. So they put $667 million just in the other investment category, which is VC, real estate, solar last year. And then what sort of return should we expect on this? Historically, I think their hurdle rate has got to be around 15%, just given their book value growth over time. Maybe it's higher and they are putting in stuff there to be conservative. So I think we should assume maybe 15% to be conservative on our end

as the rate of return they'll earn on this investment. So they'll have $2 billion in cash. They'll be able to invest that even more. And that's on top of the value of their existing businesses, right? And we think they can earn 15% on that, which today the company's market gap is $3.3 billion. So I think there's not much else, Matt, that we need to do. We think it's undervalued. Yeah, I mean, we think it can generate its entire market cap in cash, probably within... what five to seven years yeah and it's trading at about 1.1 times book value actually probably

closer to one now just because the stock dropped after the latest earnings a lot of the stuff is not written up to the proper book value a lot of the book value is depressed because of the aloe accounting stuff the solar accounting and they have some stuff that's asset light like education payment stuff so yeah i we think and look we could throw we could say it's worth five billion we could say it's worth seven billion dollars today really we never do that type of stuff we think it's worse worth significantly more than the current market cap and they have a long runway to reinvest and earn 15 returns at least at least or more uh the last one ryan why don't you start with this one why could we be wrong about nelnet what are we looking for as reasons

to sell because that's one of the most important things is we want to try to be objective as best as possible and what would cause us to sell now, Matt? Yeah, this is the difficult part because for one, a lot of our ownership rationale is tied to trust and management. So situations like that kind of make it tougher to sell. It's not like you're monitoring one KPI and then all of a sudden, if that breaks, you're like, my thesis is broken. So I don't know necessarily when we would know how to sell.

It's always difficult to tell on the lending side of things if there's any cracks there. My only way to know is if the loan portfolio has basically gotten past the next two years, let's say, there isn't a whole lot of runoff left. And maybe I'll go next five years. And the remaining businesses are seeing clear deteriorations, like maybe retention figure gets worse in the business segment or the payment segment. Maybe the diversified services, the loan servicing contract isn't renewed with the government. Maybe Allo Communications is reporting tons of losses. Or the big one here would be is if Jeffrey Nordic or Michael Dunlap really started selling shares. If they started selling shares, it would make me feel like they aren't as married to the business as they once were.

Or they left or they passed away or something like that. Yeah. And I think there was a Michael Dunlap health scare like a year ago, which he wrote about in the shareholder letter. um so but his son is on the board um i think he's on the board he might be just an executive uh so i imagine a lot of his stake would get passed to his son which means there probably wouldn't be as much like selling activity yeah and remember that dunlap is the chairman now for any listeners nordic is the ceo so they've established a culture and it's really not just Nordic. They have a lot of different people there that we believe that they've established a good

culture. Yeah, let's wrap things up. The only concern I have with Nelden is that they're making loans and there's always a level of risk there. And we don't know if they're making terrible loans today. And we would not know until a few years in the future. And then the majority of their current book value will be destroyed. So we are trusting the management team. We're trusting their track record. But it makes it difficult to analyze any reason to sell before the business results suffer. I think that is the biggest risk here. Besides that, the stock feels undervalued and that's why we own shares. So anything else before we close out? Yeah, go ahead, Ryan. They continue to reduce shares outstanding and they have a dividend yield. We didn't talk about

the dividend yield. They consistently give back money to shareholders at a healthy amount. Yep. And since 2016, share count has gone down by 2% per year as a reference for shareholders. So nice little cherry on top. Okay. Do you have the current dividend yields? I do not. I think they pay 26 cents a quarter. So stock price $90. I mean, it's like 1%. A little bit more. A little bit more than 1%. But they grow their dividend pretty consistently. it's not a I would be look they have

plenty of reinvestment opportunities it's not a huge part of the deal here but also you have something

right I was just to say I think a lot of that dividend was from Butterfield Butterfield

apparently loved the dividend really yeah and so there has been less of a point of emphasis

I think since he hasn't he hasn't been around his wife owns a huge chunk of the business now

Um, but it seems like that's just not as emphasized as much as it, as it once was. And that could be a good person to buy back shares from them. Um, if she's looking to raise more money. Okay. Let's wrap things up though. Remember, this is a Arch Capital episode. So this is a company we own as of recording that could change at any time. However, if you're interested in the Arch Capital Limited Partnership, check out the

link in the show notes or contact us for more info. We're always interested in talking with any potential investors or anyone that just wants to speak with us in general. We're wrapping up the financials show, or excuse me, the financials month. Looking back, we covered American Express, we covered Block, and we also covered Market Access, which is a software company for the bond trading space. Those are all very fun episodes. We also did an interview with Buyback Capital on FICO, which is the FICO score. But for the next month- And a deep dive on banks. And a deep dive on banks. Yes. Good point. Good point. So yeah, check out all our historical

financial shows from this month if you're interested, but next month, which we're not really going exactly on the calendar here, but for the next four weeks, we're going to be covering the four publicly traded dating companies, which are Bumble, Grindr, Spark Networks, which is a conglomerate of other ones, and then Match Group. We'll be covering those. It'll be very fun to hit the dating industry or excuse me, the online dating industry. And I'm really looking forward to it. One more thing. We, every quarter we set our next basically three months for industries to cover. If you're interested and want us to cover specific industry, email us chitchatmoneypodcast at gmail.com or reach out to us on Twitter because we're open to ideas.

Someone recommended doing digital advertising. So that's, that's one idea on the table so far. All right. Yep. All right. That's going to do it for this episode. Thank you, everyone, for listening. Remember, we are not financial advisors. Anything we say on the show is not formal advice or recommendation. We are general partners at Arch Capital and clients may hold securities discussed in this podcast. Thank you all again. We'll see you next time. civil war on september 18th mobland the hit original series is back on paramount plus we are the harrigans don't know the net and google us from the underworld of guy ritchie do you want to step up the ladder i want karma dead starring tom hardy pierce brosnan and helen mirren do i have to do everything myself you want to watch i'll give you more mobland new season hits september 18th on paramount plus