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FMD: FMD Surprises on the Upside…Again

By Ann Heffron, CPA, CFA

NYSE:FMD

The First Marblehead Corporation (FMD) reported its fiscal 2016 second quarter results for the period ended December 31, 2015, posting a net loss from continuing operations of $4.9 million, or a loss per share of $0.41.

This compares to our second quarter loss estimate of $6.5 million, or a loss of $0.55 per diluted share. In last year’s second quarter, FMD reported a net loss from continuing operations (before a $5.0 million one-time charge) of $7.9 million, or a loss per share of $0.69.

The $3.0 million improvement in net income from a year ago reflected a $1.7 million, or 15%, gain in revenues, and a $1.3 million, or 7%, decrease in operating expenses.

TMS fees rose $0.7 million, or 9%, to $8.6 million, while administrative and other fee revenue increased $1.0 million, or 33%, to $3.9 million, due to increased fees tied to the outstanding Monogram-based loan portfolio and greater disbursement volumes, which jumped $41 million, or 34%, to $164 million during the second quarter.

Operating expenses decreased $1.3 million to $17.8 million (before a $5.0 million one-time charge in last year’s quarter). Compensation costs declined $0.8 million, or 9%, year over year to $7.6 million and general & administrative expense fell $0.5 million, or 5%, to $10.2 million (before a $5.0 million one-time charge in last year’s quarter).

FMD’s net operating cash usage decreased by $7.7 million, declining to $4.6 million from $12.4 million in the year-ago quarter, largely due to a lower net loss from continuing operations from higher revenues and lower expenses.

We are again significantly reducing our EPS loss estimates for fiscal 2016 and 2017, given the substantial outperformance of FMD’s second quarter.

Thus, we have lowered our EPS loss estimates by $0.40 in 2016 to a $2.10 loss per share from a $2.50 loss per share and in 2017 by $0.75 to a $1.50 per share loss estimate from our previous $2.25 per share loss estimate.

These estimates compare to an actual loss of $3.31 per share in fiscal 2015.

Founded in 1991, The First Marblehead Corporation, headquartered in Boston, Massachusetts, focused on creating private, nongovernment-sponsored, education loan programs. The company had its initial public offering on the NYSE in October 2003. First Marblehead currently has more than 260 employees. Through a fully integrated suite of services, the company offers outsourcing capabilities to national and regional financial institutions (banks-to-mutual institutions) and educational institutions (colleges and universities), with respect to the design and implementation of private education loan programs for undergraduates and graduates.

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