David Yowan: So thanks for the question, Arren. I think a couple of things I’d call you to. First, I go back to Ed’s remarks and the way we’re thinking about Earnest in terms of not just a lend-centric or lend-first model, but a way to establish relationships and engagement with the student cohort that I think sets us up and gives us some optionality going forward to decide whether there’s other product lines or other services that we can provide to that cohort. I would also point out that our — the loan origination targets that Joe described for Earnest do represent a 40% growth on a combined basis, refi and SLO compared to our actuals for 2023. So I think that’s a significant growth rate and a demonstration of our confidence and commitment and our ability to compete effectively in those markets while focusing on our overall efficiency in creating those assets.
That’s really the goal that we have is to continue to minimize and optimize our cost of acquisition, our collection costs by selecting the right customer segments that allow us to continue to grow on that financial trajectory that we shared, I think, for the first time here this morning.
Arren Cyganovich: Okay. And then I was wondering if you could also provide any additional color on the $28 million of contingency loss. You have cited some recent developments in the CFPB matters.
David Yowan: Yes. So there’s two matters, right? One is the CFPB matter is just additional accrual based on the developments in the case, the litigation in the quarter, just like last quarter, we won’t comment on the development of those. So that’s what the $28 million is.
Arren Cyganovich: Okay. All right. Thank you.
Operator: Thank you. One moment for our next question, please. Our next question comes from the line of Moshe Orenbuch with TD Cowen. Your line is now open.
Moshe Orenbuch: Great. Dave, you talked a lot about cash that’s available. But you also talked about kind of maintaining above an 8% TCE ratio. Could you talk about, number one, how much share repurchases in your ’24 guidance? And how you think about the impacts of this plan on TCE, whether they are charges that you might have to take to get out of expenses and contracts and other things and severance and other things like that and any other kind of things that might impact during ’24.
Joe Fisher: Thank you, Moshe. I think on the capital ratio and just overall guidance, what’s embedded in our $2.10 to $2.30 is share repurchases of just under $140 million. So that will help you with adjusted tangible equity ratio which we believe will be above 8%. And as you know, the biggest driver of that ratio is just a success in refi and in school as we hold 5% capital on the refi book and 10% for our in-school loans. So that’s going to be the biggest determinant of how far above or really above that 8% range that we end up. And a big driver of that is just going to be what you think about, obviously, the interest rate trajectory for the back half of the year.
David Yowan: And then Joe in terms of, sorry, go ahead.
Joe Fisher: Yes, I was just going to follow up on the second part of your question there about just future charges with all of the strategic actions that are potentially taking place. Our goal certainly is to limit any types of restructuring charges going forward. Our guidance does not include that. But our goal is to minimize the expenses associated with that. And certainly, the valuation is going to be a determinant event, and we’re going to look to maximize the value of these transactions, and that’s going to be — play a big role in determining obviously any capital implications going forward.
Moshe Orenbuch: Great. Thanks. And just as a follow-up, maybe a follow-up to Mark DeVries question on BPS. Could you talk a little bit about that you’re expecting a 15% kind of EBITDA margin. You had a 12% EBITDA margin this year. Just talk about the range of the various contracts in there around that 15%. And whether you’ve got indications of interest on any of those? And which of those are perhaps more likely or less likely and how to think about that in terms of the various elements within more BPS business? Thanks.
Joe Fisher: Sure. So just to make sure I’m capturing your question. Just the range of EBITDA within the various sectors, whether it’s health care, government services and contracts is what you’re asking?
Moshe Orenbuch: Yes, I mean, I’m assuming they all don’t average.
Joe Fisher: Yes. So ultimately, it does vary contract by contract. I think if you look at some publicly traded companies, typically, health care does earn a higher — certainly higher multiple and has higher EBITDA margins than those related to federal contracts. So it does vary contract by contract. And what you’ve seen over the last several years is that we’ve actually exited a number of our lower-margin contracts, which has contributed to the growth that we’ve seen and the benefits that we received in the EBITDA margin. So while full year was 12%, we ended this year at 15% for the quarter and guidance is for the high teens for next year. And as you can see in our presentation, if you look back in the appendix, there’s about a 10% revenue growth implied in that as well as achieving the margins that we’re laying out.
So ultimately, I think just if you look at this business, it’s a very attractive business that we historically have just not received the multiple that you see others getting in this space. And so that’s one of the things that we’re looking at here and certainly a driver of our — one of the drivers of our decisions.
Moshe Orenbuch: Okay. Thanks.
Operator: Thank you. One moment for our next question, please. Our next question comes from the line of Bill Ryan with Seaport Research Partners. Your line is now open.
