First Marblehead Corporation (The) (FMD)

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The First Marblehead (FMD)

Q1 2014 Earnings Call

November 05, 2013 8:00 am ET


Suzanne Murray - Managing Director, General Counsel and Secretary

Daniel Maxwell Meyers - Co-Founder, Chairman, Chief Executive Officer and Member of Award Committee

Kenneth S. Klipper - Chief Financial Officer, Principal Accounting Officer and Managing Director


Michael Tarkan - Compass Point Research & Trading, LLC, Research Division

Christopher R. Donat - Sandler O'Neill + Partners, L.P., Research Division

Ann H. Heffron - Zacks Investment Research Inc.



Good morning and welcome to The First Marblehead Corporation First Quarter Fiscal 2014 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded.

I would now like to turn the conference over to Suzanne Murray. Please go ahead.

Suzanne Murray

Thank you and good morning. Welcome to First Marblehead's earnings call for the first quarter of fiscal 2014. On today's call, we have Dan Meyers, our Chairman and CEO; and Ken Klipper, our CFO.

Before we begin, please note that various remarks that we may make about the company's future finance and operating performance, expectations, plans and prospects, including with regards to Tuition Management Systems, Cology LLC, Union Federal Savings Bank and Monogram-based loan program, the prospects for the private education finance industry and proceedings related to our federal and state income tax returns, including any challenge to the tax refund previously received as a result of the audit being conducted by the Internal Revenue Service, constitute forward-looking statements for the purposes of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.

These forward-looking statements are not a representation by us that the future results, plans, estimates, or expectations expressed or implied by us will be achieved. 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 results or the timing of events to be materially different than those expressed or implied by our forward-looking statements.

Important factors that could cause or contribute to those differences include: demand for our Monogram platform; the successful marketing and sales of our clients Monogram-based loan offerings and the products and services offered by TMS and Cology; the volume, timing and performance of disbursed loans; our success in designing, implementing, and commercializing private education loan programs through Union Federal, and our compliance with regulatory approvals and conditions; the general interest rate and customer credit environment; the resolution of any proceedings relating to state and federal income tax matters, including the audit being conducted by the IRS; and the other factors set forth under the caption Risk Factors in our annual report on Form 10-K filed with the Securities and Exchange Commission on September 13, 2013.

Any forward-looking statements represent our views only as of November 5, 2013. Although we may elect to update our forward-looking statements at some point in the future, we specifically disclaim any obligation to do so, even if our views change. Therefore, you should not rely upon these forward-looking statements as representing our views as of any date subsequent to November 5.

During this call, we'll refer to net operating cash usage, which is a non-GAAP financial measure. A reconciliation to loss from operations, the most directly comparable GAAP measure is included in the earnings press release posted on our website under the heading, For Investors.

I'll now turn the call over to Dan.

Daniel Maxwell Meyers

Thank you Suzanne and welcome to this morning's call. Before talking about the results for our first fiscal quarter, I wanted to talk a little about the latest trends in Student Aid Researcher Board from the college board. This report is released annually and it is the most exhaustive analysis of the higher education finance and system.

First, the data in this report confirms that going to college remains a great investment. Yes, the sticker price of tuition is at a record high. The average published charges for full-time undergraduates at private, nonprofit 4-year schools is $40,917 per year a 3.7% increase from last year. In the average published charges for full-time out of state undergraduates at public 4-year colleges is $31,701 per year, a 3.2% increase from last year.

But last year's students received a total of $238.5 billion in federal, state, institutional and private financial aids, which helped reduce the real cost families pay for college. The net result? Compared to a high school graduate, the median 4-year college graduate who enrolls at 18 and graduates in 4 years can expect to earn enough by age 36, to compensate for being out of the labor force for 4 years and for borrowing the full tuition fee amount without any grant aid and this is clearly the most draconian way possible to view affordability.

So while getting a college degree can be expensive, it's not nearly as expensive as not getting a degree. The latest college board report estimates the private student loan market is $8.8 billion in the 2012-2013 academic year.

This is a sharp decline from the pre-crisis days of 2007, '08, when the private student loan market place was $25.5 billion. By our estimate, much of the decline in the private student loan market from 2007, '08, is a result of lender's substantially tightening their credit criteria. As a result, newly originated private student loan portfolios are very different from those originated in pre-credit crisis, with sharply stronger credit, cash flow and performance results.

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