First Marblehead Announces Second Quarter Financial Results
Results From Continuing Operations Improved 62%
/EINPresswire.com/ -- MEDFORD, MA--(Marketwired - February 09, 2016) - The First Marblehead Corporation (NYSE: FMD) today announced its financial and operating results for the second quarter of fiscal 2016 as well as the six month period ended December 31, 2015.
For the second quarter of fiscal 2016, the Company recorded a net loss from continuing operations of $4.9 million, or $(0.41) per share, compared to a net loss from continuing operations of $12.9 million, or $(1.12) per share, for the second quarter of fiscal 2015, a 62% improvement. Total expenses for the second quarter of fiscal 2016 were $17.8 million, a $6.3 million, or 26%, improvement compared to total expenses of $24.1 million for the second quarter of fiscal 2015, which included a one-time charge of $5.0 million related to the NC Residuals legal settlement. Total expenses for the three months ended December 31, 2015 also declined due to decreases in compensation and benefits expenses of $763 thousand, occupancy costs of $681 thousand and travel and entertainment costs of $256 thousand. Revenues for the second quarter of fiscal 2016 increased $1.7 million, or 15%, to $12.9 million as compared to the second quarter of fiscal 2015. The improvement in revenues for the three months ended December 31, 2015 included increases of $714 thousand in tuition management fees from the Company's subsidiary Tuition Management Systems LLC, $478 thousand in Monogram®-based fee revenues, $384 thousand in fee income from the Company's subsidiary Cology LLC and $83 thousand in portfolio management services fees as well as an increase of $52 thousand in fair value changes to service revenue receivables. The increase in revenues and decrease in expenses resulted in a $7.7 million, or 62%, improvement in net operating cash usage*, a non-GAAP financial measure, for the second quarter of fiscal 2016 as compared to the second quarter of fiscal 2015.
For the six month period ended December 31, 2015, the Company recorded a net loss from continuing operations of $11.0 million, or $(0.94) per share, compared to a net loss from continuing operations of $23.4 million, or $(2.04) per share, for the six month period ended December 31, 2014. The improvement in the net loss from continuing operations was primarily due to an $8.4 million decrease in total expenses, principally the result of a one-time charge of $5.0 million during the second quarter of fiscal 2015 related to the NC Residuals legal settlement. Total expenses for the six month period ended December 31, 2015 also declined due to decreases in compensation and benefits expenses of $2.5 million, lower occupancy costs of $1.0 million and lower third-party services expenses of $916 thousand, principally related to lower legal fees pertaining to certain tax matters. Revenues for the six month period ended December 31, 2015 increased $4.1 million, or 16%, to $29.4 million. The improvement in revenues for the six month period ended December 31, 2015 included increases of $1.8 million in tuition management fees from TMS, $1.2 million in Monogram-based fee revenues, $744 thousand in fee income from Cology LLC and $473 thousand in portfolio management services fees, partially offset by a decrease of $119 thousand in fair value changes to service revenue receivables.
For the second quarter of fiscal 2016, total facilitated private education loan volumes were $172.1 million, which consisted of $13.3 million of Monogram-based loans and $158.8 million of loans facilitated by Cology LLC, which was relatively unchanged for our Monogram-based programs and was a 52% increase for Cology LLC over the same quarter of the prior year. Loan disbursements for the second quarter of fiscal 2016 totaled $163.8 million, which consisted of $19.1 million of Monogram-based loans and $144.7 million of loans disbursed by Cology LLC, which was relatively unchanged for our Monogram-based programs and was a 40% increase for Cology LLC over the same quarter of the prior year.
For the six month period ended December 31, 2015 total facilitated private education loan volumes were $682.0 million, which consisted of $110.5 million of Monogram-based loans and $571.5 million of loans facilitated by Cology LLC, which represented increases over the six month period ended December 31, 2014 of 13% and 23%, respectively. Loan disbursements for the six month period ended December 31, 2015 totaled $489.8 million, which consisted of $72.3 million of Monogram-based loans and $417.5 million of loans disbursed by Cology LLC, which represented increases over the six month period ended December 31, 2014 of 17% and 32%, respectively.
The increase in Monogram-based loan volume for the six month period ended December 31, 2015 was a result of a stronger credit mix of applicants, which led to an improved application conversion rate while the increase in Cology LLC loan volume for the three and six months ended December 31, 2015 was primarily the result of organic growth at existing clients, including new loan programs.
"We are pleased with our second quarter fiscal 2016 results, as we continued with the trend of higher revenue growth in conjunction with lowered operating expenses," said Daniel Meyers, Chairman and Chief Executive Officer.
Company Liquidity
As of December 31, 2015, the Company had cash and cash equivalents and short-term investments of $49.1 million compared to $63.0 million at June 30, 2015. The decrease of $13.9 million was primarily the result of $6.6 million used to fund continuing operations coupled with fundings of $5.2 million for participation interest accounts, which represents what the Company believes to be approximately 68% of its fiscal 2016 obligation, and the remaining change of $2.1 million was a result of cash outflows primarily for accrued expenses and prepaid assets.
* See below under the heading "Use of Non-GAAP Financial Measures."
Quarterly Conference Call
First Marblehead will host a conference call on Tuesday, February 9, 2016 at 5:00 p.m. Eastern Time to discuss its operating results. Investors and other interested parties are invited to listen to the conference call via a simultaneous internet broadcast on the Company's website at www.firstmarblehead.com, under "For Investors," or by dialing (888) 317-6003 from the United States or (412) 317-6061 from abroad and entering the pass code 8495222.
A replay will be available approximately one hour after completion of the call on First Marblehead's website or by dialing (877) 344-7529 from the United States or (412) 317-0088 from abroad and entering the pass code 10079934. The replay will be available for two weeks.
About The First Marblehead Corporation First Marblehead helps meet the need for education financing by offering national and regional financial institutions and educational institutions the Monogram
Statements in this press release, including the financial tables, regarding First Marblehead's future revenue, expenses and other financial and operating results and liquidity, as well as any other statements that are not purely historical, constitute forward-looking statements for purposes of the safe harbor provisions of The Private Securities Litigation Reform Act of 1995. These forward-looking statements are based upon our historical performance, and on our plans, estimates and expectations as of February 9, 2016. The inclusion of this forward-looking information should not be regarded as a representation by us or any other person that the future results, plans, estimates, intentions or expectations expressed or implied by us will be achieved. You are cautioned that matters subject to forward-looking statements involve known and unknown risks and uncertainties, including economic, legislative, regulatory, competitive and other factors, which may cause our actual financial or operating results, or the timing of events, to be materially different from those expressed or implied by forward-looking statements. Important factors that could cause or contribute to such differences include: market acceptance of, and demand for, our Monogram platform and fee-based service offerings, including our success in negotiating loan program agreements with additional clients; the successful sales and marketing of Monogram-based loan offerings, including the volume of loan applications and the extent to which loan applications ultimately result in disbursed loans; the volume, timing and performance of disbursed loans; the size and structure of any credit enhancement provided by First Marblehead in connection with our Monogram platform; the successful sales and marketing of the products and services offered by Tuition Management Systems LLC and Cology LLC; other changes to our business model or business effects, including the effects of industry, economic or political conditions outside of our control; capital markets conditions and our ability to structure securitizations or alternative financings; the size, structure and timing of any such securitizations or alternative financings; our ability to further reduce our operating expenses without adversely affecting our business; resolution of litigation and regulatory proceedings pertaining to our Massachusetts state income tax returns; the estimates and assumptions we make in preparing our financial statements, including quantitative and qualitative factors used in determining the estimate of the fair value of service revenue receivables and deposits for participation interest accounts; and the other factors set forth under the caption "Part II - Item 1A. Risk Factors" in First Marblehead's quarterly report on Form 10-Q filed with the Securities and Exchange Commission on November 9, 2015. Important factors that could cause or contribute to future adjustments to the estimates and assumptions we make in preparing our financial statements include: actual transactions or market observations relating to asset-backed securities, loan portfolios or corporate debt securities; variances between our performance assumptions and the actual performance of the loan portfolios held by the GATE trusts or First Marblehead's clients (the "Portfolios"); economic, legislative, regulatory, competitive and other factors affecting discount, default, recovery and prepayment rates on the Portfolios, including general economic conditions, the consumer credit environment and unemployment rates; management's determination of which qualitative and quantitative factors should be weighed in our estimates, and the weight to be given to such factors; the receptivity of capital markets to securities backed by private education loans; interest rate trends; and the resolution of litigation and regulatory proceedings pertaining to our Massachusetts state income tax returns. We specifically disclaim any obligation to update any forward-looking statements as a result of developments occurring after the date of this press release, even if our estimates change, and you should not rely on those statements as representing our views as of any date subsequent to the date of this press release.
The First Marblehead Corporation and Subsidiaries
Consolidated Statements of Operations
For the Three and Six Months Ended December 31, 2015 and 2014
(unaudited)
(dollars and shares in thousands, except per share amounts)
Three months ended Six months ended
December 31, December 31,
-------------------- --------------------
2015 2014 2015 2014
--------- --------- --------- ---------
Revenues:
Tuition payment processing
fees $ 8,583 $ 7,869 $ 17,978 $ 16,156
Administrative and other fees 3,850 2,905 10,203 7,785
Fair value changes to service
revenue receivables 420 368 1,199 1,318
--------- --------- --------- ---------
Total revenues 12,853 11,142 29,380 25,259
Expenses:
Compensation and benefits 7,623 8,386 15,812 18,297
General and administrative 10,150 15,711 24,367 30,258
--------- --------- --------- ---------
Total expenses 17,773 24,097 40,179 48,555
Other income 358 318 416 374
--------- --------- --------- ---------
Loss from continuing operations,
before income taxes (4,562) (12,637) (10,383) (22,922)
Income tax expense from
continuing operations 290 275 584 518
--------- --------- --------- ---------
Net loss from continuing
operations (4,852) (12,912) (10,967) (23,440)
Discontinued operations, net of
taxes - 207 - (2,706)
--------- --------- --------- ---------
Net loss $ (4,852) $ (12,705) $ (10,967) $ (26,146)
========= ========= ========= =========
Net (loss) income per basic
and diluted common share:
From continuing operations $ (0.41) $ (1.12) $ (0.94) $ (2.04)
From discontinued operations - 0.02 - (0.24)
--------- --------- --------- ---------
Total basic and diluted net
loss per common share $ (0.41) $ (1.10) $ (0.94) $ (2.28)
========= ========= ========= =========
Basic and diluted weighted-
average common shares
outstanding 11,679 11,527 11,635 11,456
The First Marblehead Corporation and Subsidiaries
Consolidated Balance Sheets
As of December 31, 2015 and June 30, 2015
(unaudited)
(dollars and shares in thousands, except per share amounts)
December 31, June 30,
2015 2015
------------- -------------
ASSETS
Cash and cash equivalents $ 37,055 $ 47,004
Short-term investments, at cost 12,014 16,002
Restricted cash 183,688 96,964
Deposits for participation interest accounts,
at fair value 22,384 17,876
Service revenue receivables, at fair value 11,137 12,151
Goodwill 20,066 20,066
Intangible assets, net 18,301 19,457
Property and equipment, net 4,934 5,259
Other assets 5,844 6,027
------------- -------------
Total assets $ 315,423 $ 240,806
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Restricted funds due to clients $ 183,416 $ 96,854
Accounts payable, accrued expenses and other
liabilities 9,810 12,392
Income taxes payable 27,578 27,233
Net deferred income tax liability 2,361 2,127
------------- -------------
Total liabilities 223,165 138,606
Commitments and contingencies:
Stockholders' equity:
Common stock, par value $0.01 per share;
25,000 shares authorized; 12,818 and 12,606
shares issued; 11,679 and 11,534 shares
outstanding 128 126
Additional paid-in capital 467,913 466,640
Accumulated deficit (187,136) (176,169)
Treasury stock, 1,139 and 1,072 shares held,
at cost (188,647) (188,397)
------------- -------------
Total stockholders' equity 92,258 102,200
------------- -------------
Total liabilities and stockholders' equity $ 315,423 $ 240,806
============= =============
The First Marblehead Corporation and Subsidiaries
Facilitated and Disbursed Loan Volume Data
For the Three and Six Months Ended December 31, 2015 and 2014
(unaudited)
(dollars in thousands)
The following tables present our private education loan facilitation metrics with respect to our Monogram-based loan programs for the three and six months ended December 31, 2015 and 2014, excluding our former bank subsidiary Union Federal Savings Bank for the three and six months ended December 31, 2014, as well as the private education loans processed by Cology LLC for these periods. We use the term "facilitated loan" to mean an education loan that has been approved following receipt of all applicant data, including the signed credit agreement, required certifications from the school and applicant and any required income or employment verification. We use the term "disbursed loan" to mean a loan for which loan funds have been disbursed on behalf of the lender. Historically, we have processed the greatest loan application volume during the summer and early fall months, as students and their families seek to borrow money in order to pay tuition costs for the fall semester or the entire academic year.
Three months ended December 31,
-------------------------------------------------------
2015 2014
--------------------------- ---------------------------
Partnered Cology Partnered Cology
Lending LLC Total Lending LLC Total
--------- -------- -------- --------- -------- --------
(dollars in thousands)
Facilitated Loans $ 13,317 $158,835 $172,152 $ 13,378 $104,290 $117,668
Disbursed Loans 19,072 144,717 163,789 19,023 103,379 122,402
Six months ended December 31,
-------------------------------------------------------
2015 2014
--------------------------- ---------------------------
Partnered Cology Partnered Cology
Lending LLC Total Lending LLC Total
--------- -------- -------- --------- -------- --------
(dollars in thousands)
Facilitated Loans $ 110,475 $571,533 $682,008 $ 97,928 $464,965 $562,893
Disbursed Loans 72,279 417,512 489,791 61,607 316,978 378,585
Use of Non-GAAP Financial Measures
In addition to providing financial measurements based on U.S. generally accepted accounting principles ("GAAP"), the Company has included in this press release an additional financial metric that it refers to as "net operating cash usage" that was not prepared in accordance with GAAP. The Company defines "net operating cash usage" to approximate cash requirements to fund its operations. "Net operating cash usage" is not directly comparable to the Company's consolidated statements of cash flows prepared in accordance with GAAP. Legislative and regulatory guidance discourage the use of, and emphasis on, non-GAAP financial metrics and require companies to explain why a non-GAAP financial metric is relevant to management and investors.
The Company's management and its board of directors use this non-GAAP financial metric, in addition to GAAP financial measures, as a basis for measuring and forecasting the Company's core operating performance and comparing such performance to that of prior periods. This non-GAAP financial measure is also used by the Company in its financial and operational decision-making.
The Company believes that the inclusion of this non-GAAP financial metric helps investors to gain a better understanding of its results, including its expenses and liquidity position. In addition, the Company's presentation of this non-GAAP financial measure is consistent with how it expects that analysts may calculate their estimates of its financial results in their research reports and with how clients, investors, analysts and financial news media may evaluate its financial results.
There are limitations associated with reliance on any non-GAAP financial measure because any such measure is specific to the Company's operations and financial performance, which makes comparisons with other companies' financial results more challenging. Nevertheless, by providing both GAAP and non-GAAP financial measures, the Company believes that investors are able to compare its GAAP results to those of other companies, while also gaining a better understanding of its operating performance, consistent with management's evaluation.
"Net operating cash usage" should be considered in addition to, and not as a substitute for, or superior to, financial information prepared in accordance with GAAP. "Net operating cash usage" excludes the effects of income taxes, acquisitions or divestitures, participation interest account fundings and changes in other assets and other liabilities that are solely related to short-term timing of cash payments or receipts.
In accordance with the requirements of Regulation G promulgated by the Securities and Exchange Commission, the table below presents the most directly comparable GAAP financial measure, loss from continuing operations, before income taxes, for the three and six months ended December 31, 2015 and 2014 and reconciles the GAAP measure to the comparable non-GAAP financial metric:
The First Marblehead Corporation and Subsidiaries
Net Operating Cash Usage, a Non-GAAP Financial Measure
For the Three and Six Months Ended December 31, 2015 and 2014
(unaudited)
(dollars in thousands)
Three months ended Six months ended
December 31, December 31,
-------------------- --------------------
2015 2014 2015 2014
--------- --------- --------- ---------
(dollars in thousands)
Loss from continuing operations,
before income taxes $ (4,562) $ (12,637) $ (10,383) $ (22,922)
Adjustments to loss from
continuing operations, before
income taxes:
Fair value changes to service
revenue receivables (420) (368) (1,199) (1,318)
Distributions from service
revenue receivables 587 440 2,213 1,806
Depreciation and amortization 1,400 1,317 2,790 2,584
Stock-based compensation 637 837 1,275 2,656
Change in TMS deferred revenue (1,452) (1,756) (6) (446)
Additions to property and
equipment (864) (600) (1,309) (941)
Other, net of cash flows from
Union Federal for the three
and six months ended December
31, 2014 (14) 338 32 106
--------- --------- --------- ---------
Non-GAAP net operating cash
usage $ (4,688) $ (12,429) $ (6,587) $ (18,475)
========= ========= ========= =========
Contact:
Alan Breitman
Chief Financial Officer
The First Marblehead Corporation
One Cabot Road, Suite 200
Medford, MA 02155
617.638.2065
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