NewtekOne Inc (NEWT) 2005 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Newtek Business Services, Inc., second quarter 2005 earnings conference.

My name is Cara, and I will be your audio coordinator for today.

At this time, all participants are in a listen-only mode.

However, we will be facilitating a question and answer session towards the end of today's conference.

If at any time during the call you require audio assistance, please key star, followed by zero, and a coordinator will be happy to assist you.

I would now like to turn the presentation over to your host for today's conference, Mr. Barry Sloane, Chairman and Chief Executive Officer.

Please go ahead, sir.

Thank you very much, and good afternoon and welcome to our second quarter 2005 shareholder conference call earnings presentation.

On our call today is Dave Gentry from Aurelius Consulting and Michael Holden, who has recently joined Newtek as our Chief Financial Officer.

For all of those who would like to follow through the presentation, there is a copy of a PowerPoint presentation on the home page of our Newtek Web site.

With that, Dave, would you be so kind as to read the safe harbor statement?

Thank you, Barry.

The statements in this conference call may contain forward-looking statements relating to such matters as anticipated future financial performance, business prospects, legislative developments and similar matters.

The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements.

In order to comply with the terms of the safe harbor, the company notes that a variety of factors could cause the company's actual results to differ materially from the anticipated results expressed in the company's forward-looking statements, such as intensified competition and/or operating problems on its operating business projects and their impact on revenues and profit margins, or additional factors, as described in Newtek Business Services' previously filed registration statements.

Also, we need to point out that our Cap Cos operate under a different set of rules in each of the seven jurisdictions and that these place varying requirements on the structure of our investments.

In some cases, particularly in Louisiana, we don't control the equity or management of a qualified business, but that cannot always be presented orally or in written presentations.

Thank you, Barry.

Thanks, David.

Newtek Business Services is a direct distributor of business services and financial products to the small and medium-sized business market.

Other companies that have flourished in the marketplace as direct distributors include entities such as Dell Computer and Amazon.com.

We have a better way to acquire customers and a better way to process business.

It's a cost-effective way.

It's profitable.

It offers the highest level of customer satisfaction to the small and medium-sized business market.

At Newtek, we do it differently and we do it better.

How do we do it better?

We're not just an SBA lender, we're not just a Web-hosting company.

We're not just a merchant processor.

We're technology-based ASP to the small and medium-sized business market.

Our technology and methodology of acquiring clients and processing business is cost effective.

We target the small and medium-sized business.

If you look at an entity like Amazon.com, which can be viewed as an e-tailer, you can't compare Amazon to a Target, just like you can't compare Dell to a Gateway.

We think we're a lot better than the average SBA lender, Web-hosting company, merchant processor and all of our other business lines.

At Newtek, we do it differently, and we do it better.

Our quarterly highlights.

We recently closed and funded Wilshire Texas Partners.

Although this was a success to the company and we raised $12 million of cash after credit enhancement, it was somewhat of a disappointment, because we originally anticipated a $30 million raise.

This caused the company to lower its guidance by about $0.09.

That $0.09 reduction in our annual guidance is all on a non-cash basis.

We have recently brought on Michael Holden, who joins us as our chief financial officer and a key member of our management team.

Mike Holden replaces Brian Wasserman, who recently resigned as the Chief Financial Officer.

We will miss Brian.

He made many great contributions to the company, but we look forward to a longstanding, profitable relationship with Mike Holden as our CFO.

Mike has 21 years of experience as a financial officer in a public company.

He was with Pep Boys for 21 years, and in his last eight years there functioned as the company's Chief Financial Officer.

While at the Pep Boys - while Mike was at the Pep Boys, the company went from $180 million in revenues all the way up to 2.4 billion.

We have established our three key business segments this quarter, all of them profitable and all of them growing.

Our client acquisition strategy is working, which we'll demonstrate throughout the presentation.

Our cost-effective methodology to acquire businesses and process their business services and financial products is causing our companies to throw out cash flow and profits.

We're a financial and business service provider, using state-of-the-art technologies to the small and medium-sized business market.

As you can see, our suite of high-quality products and services, lending, merchant processing, Web hosting, insurance agency, tax services and financial information systems, are all growing very nicely.

Our segment results for the second quarter, which you can see on page six of our PowerPoint presentation, I will point out a typo, actually two typos, on this slide.

Newtek's small business finance in the second quarter produced 3.7 million of revenues on 580,000 of pretax net income.

Newtek merchant solutions produced $8.5 million of revenue and 1.15 million of pretax net income.

CrystalTech, a Newtek Business Services company, produced 2.7 million of revenues and 918,000 - not million - of pretax revenue.

And in our Cap Co segment, we produced 11.3 million of revenue and 3.8 million of pretax net income.

Our annual projections for 2005 by segment, which have been revised slightly, lending, 12.7 million of revenue, 2.4 million of pretax profits.

Merchant processing, 33 million of revenue, 2.4 million of pretax profits, Web hosting, 10.5 million of revenue, 3.9 million of pretax profits, and capital, 40 million of revenue, 7.3 million of pretax profits.

Ninety-six million is our revenue forecast for '05, with an earnings per share of approximately $0.30, or 15.9 million pretax.

In our small business lending division, we're happy to say we have recently signed a commitment with GE Commercial Finance to provide a $75 million revolving warehouse line facility for our SBA loan.

This is a three-year term facility.

We anticipate the transaction closing between now and the end of the August.

It's a very valuable asset to the company.

We've historically had a one-year facility that has rolled, and, frankly, it has been difficult for the company to grow its business and focus on the origination side without having a long-term financing facility in place.

We believe this will be a key component to the company finally being able to grow its lending business.

Fundings in the second quarter came in at 21 million, up from 12 million in the first quarter.

Our loan-servicing portfolio has grown $209 million.

We recently moved into a 9,000 square foot new facility on the 19th floor of 462 7th Avenue.

The 14th floor, where the lender previously had resided, now has room, so we can consolidate the Garden City operation of Newtek and be housed and located all in one area.

Our accounting and finance department and human resource department will now consolidate into our New York facility.

In the lending business division, we had an increase in our loan loss reserves for the first six months of about $1 million.

Most of this was based upon what I would call a purchase price adjustment on the CCC portfolio.

This occurred in the first and second quarter of this year.

We view it as one time, and this did put a bit of a damper on our pretax net income for the year.

As of June 30th, 2005, Newtek's small business finance, we have here is the 30th largest SBA lender.

I'm told we're down to 29th, so we're moving out, just as I actually give this presentation.

We're the 29th largest SBA lender by loan volume in the United States.

Very important statistic with respect to our lending business.

There is a new Senate and House bill for SBA in 2006.

It would increase the maximum loan size from 2 million to 3 million.

We think this is a very important development for our company.

We think this can significantly increase the amount of loans that we'll do in a given year.

The underwriting standards have also been increased in the 78 (ph) program.

If in fact this legislation passes, which will allow borrowers to look more like borrowers in the 504 program, a lot more liberal, a lot more larger borrowers.

We think this is very bullish, if in fact these bills do pass through Congress and get signed into law.

In the lending division, our '05 projection of 12.7 million in revenues and 2.4 million of pretax profits, it's in place.

We're also offering a forecast for the lending division for '06 of 13 to 14 million of revenues and 3 to 3.5 million in pretax profits.

If you look at some of the metrics, on page nine of the presentation for the lending business, you can see, from '04 to '05, a 21% increase in forecasted lending revenues.

In pretax net income, 2004, 2.6 million, 200, 2.4 million.

Obviously, this is a bit of a disappointment, but if you look at the increase that we put in place with respect to loan loss reserves, which we view as a one-time adjustment, primarily in the old commercial capital court portfolio, not our newly originated loans, as well as the distraction that we've had over the course of the last year in financing the business, as well as significant costs and expenses that were incurred in legal and due diligence, which caused us to write off a tremendous amount of expenses.

We think we have a good base to grow off of the 2.4 million and look forward to being able to lend into a nice three-year, $75 million facility with GE.

As you can see, fundings grew for the first six months of last year, the first six months of this year, by 35%, page 11 of the presentation, to 32.5 million from 24.1 million.

Total servicing portfolio was up to 204.6 million from 184 million.

The weighted average servicing spread in our portfolio, our lending business, is 120 basis points.

That is valuable.

That is recurring revenue.

This portfolio will grow as we add more new loan originations and will decline as loans pay off.

In our merchant processing division, we are currently at a $1.2 billion annual run rate.

We believe by the end of the year we'll be at $1.4 to $1.5 billion in Visa and MasterCard merchant processing.

This is a business where you get great operating leverage, the ability to add more and more customers onto a fixed cost base clearly is available in this particular business, and we have a manufacturing plant situated in Wisconsin to enable us to grow this business significantly.

We've got much greater margins than the industry average, because of our technology, both in the way that we operate and acquire customers, as well as process our business.

Our average payout to third-party providers is approximately 30% of the gross margin in the residual, versus the industry that pays out 60 to 75%.

We think this is why our businesses should demand a much greater multiple in the marketplace.

We do it differently, and we do it better.

In Wisconsin, we have a facility that has capacity for 100 people.

We're currently 50% full.

We believe in the near future we'll be announcing new alliance partners to help grow and develop our business further.

This is our cost-effective way of acquiring business, versus the industry standard of using independent reps with very high payouts with respect to commissions.

Our old alliance partners of the Credit Union National Association, with its 9,600 credit unions and over 80 million members is growing very nicely, as is our Merrill Lynch relationship and our Citibank relationship.

We believe that there are only 30 processors in the United States that process over $1 billion of Visa and MasterCard.

We're proud to be in that club.

Our '05 projections, 33 million in revenues, are still standing, and 2.4 million in pretax profit for '05.

We're also offering an '06 projection of 45 to 50 million in revenues and 3.25 to 3.75 million in pretax profits.

As you can see, some of the metrics in the merchant solutions business on slide 11.

The volumes first six months of this year versus six months of last year, grown significantly, over 105%.

Our revenue growth, first six months of this year versus first six months of '04, grown significantly, over 101%.

Our pretax net income projected '05, 2.4 million, 2004, 1.25 million, 92% increase.

In our Web hosting division, our lead player, obviously, CrystalTech Web hosting, a Newtek Business Services company.

As a Microsoft Windows only Web-hosting company - it's a bit of a tongue twister - we believe we are the second or third largest Web hosting company in the world.

We added 3,000 new clients for the second quarter, and that is net of attrition.

Our EBITDA forecast for 2005 of $6 million still stands.

We have 40,000 clients that are Web hosting with us.

The company does plan on launching a Linux-based Web hosting solution in '06.

That will be a non-CrystalTech entity.

I think when you look at our business, which we're guiding towards $10.5 million of revenues this year and 6 million in EBITDA and 3.9 million in pretax profit, I challenge the market to say we don't do it differently and we don't do it better.

There aren't Web hosting companies that do business on these types of margins that acquire customers in the way that we do, that process the business in the way that we do.

I would also suggest you look at the same metrics in lending and in merchant services.

We are guiding in 2006 towards 12 to 13 million of revenues, and 4.25 to 4.75 million in pretax profits.

I would like to point out one item.

The company is amortizing approximately 241,000 per quarter in intangibles, and then clearly, when you compare '04 numbers to '05, that writeoff that you wouldn't see in '04 from CrystalTech, of which the first six months were unaudited, versus our first six months, those come into play and make a difference.

Slide number 18, looking at revenue growth, first six months '05 versus an unaudited first six months of '04, 30% revenue growth.

We did not own CrystalTech the first six months of 2004 and the financials were not audited.

Customer growth, as of June 30, '05, June 30, '04, 39% growth.

Pretax net income, projected '05, and I go back to '03, based upon '04 being unaudited, 73% over the course of two years.

The EBITDA for Web hosting, 2004, 4.9 million, unaudited, 6 million projected 2005.

Newtek's growth in client acquisition.

We currently have 54,000 Newtek Business Service clients across the spectrum.

We typically acquire those customers, we believe, at 25 to 50% of the cost of other industry participants - whether that's Web hosting, whether it's merchant processing, whether it's the insurance business, whether it's lending, we do it differently and we do it better.

One of our secrets, obviously, is our referral system, which hooks right into our alliance partners.

You can see the volume of referrals growing significantly in the lending business, 64% growth '05 versus '04 for the first six months.

Merchant solutions, 346% increase, first six months of '05, first six months of '04.

These referrals are primarily coming in from our alliance partners.

Moving over to our capital business.

We alluded earlier to the underperformance in the Texas Cap Co. Fortunately, the company did put in $200 million worth of funding commitments, which was a good thing.

That was the maximum amount of commitments allowable under the law for a $200 million program.

Previously, the largest oversubscription or over demand that we had seen in any one state was 5.5 times, I believe - I think that was in Alabama, in 2004.

We built into our projections a little over six times over subscription.

Texas came in over nine-plus times oversubscribed, which reduced our allocation on the $200 million in commitments down to 23.8 million.

The capital industry has gotten more competitive - 2006 we have discussed in previous calls, looks extremely light, but is not closed out for any new programs, and it has put pressure on this segment of our business.

Still, all in all, net of credit enhancement, in the Texas Cap Co, Wilshire Texas Partners, raised $12 million of free cash net of credit enhancement.

The $0.09 differential and the reduction of earnings per share for 2005 was primarily driven by the Texas results.

That is provided that the money is deployed and we hit our 50% target in the state of Texas in the fourth quarter.

This $0.09 differential is all non-cash earnings from tax credit and revenue recognition.

You could see this is the recent dollars that have been raised from Cap Co. Looking at 2005, 12 million.

We anticipate New York state, by program, we're forecasting 4 to 5 million.

Adding the 12 to the 4 to 5 million, 16 to $17 million of cash from these Cap Cos this year, perhaps only $0.45 in cash per share. 2006 fund programs, right now, we do not have any forecasted programs that will fund new money in 2006.

Slide number 27, you see how the Cap Co revenue does fluctuate in an uneven manner.

Cap Co revenue as a percentage, it's clearly declining. 2005, you're looking at approximately 42% of our $96 million of revenues coming from Cap Co, with the remainder, obviously, coming from the other businesses, which is a goal and target and mission of Newtek.

Future events.

We believe in the near future we'll be announcing additional alliance relationships in various business divisions, existing alliance partners that we currently have broadening their product offering.

The best example of a company doing what they're supposed to be doing, having an alliance relationship where they just take lending, for example, and then they take insurance and merchant services.

I think you'll be seeing that from some very large institutions in the near future.

We anticipate an announcement with a large investment bank.

We anticipate a large announcement with a $20 billion financial institution.

We anticipate continuing to grow the penetration of the existing alliances.

We anticipate completing a fifth Cap Co transaction in November 2005, and we also anticipate growth in the insurance agency opportunity with our alliances.

With that, I would like to turn the call over to our new Chief Financial Officer, Michael Holden.

Thank you, Barry.

First, I will review the second quarter 2005 results, as compared to the second quarter of 2004, then review our guidance by segment for the third and fourth quarters, then give our guidance for 2006 on our three business segments.

Total revenue for the second quarter increased 81% from 14.5 million in 2004 to 26.2 million in 2005.

Including 2005 revenue, it was 10.3 million of tax credit revenue, predominantly from investing capital raised through our Washington, D.C., Certified Capital Company program, and that was $9.3 million.

We sold 49 guaranteed loans for $17.3 million and 6.3 million of un-guaranteed pieces in the quarter, and the premiums recognized in connection with these sales were $2.1 million, which was included in servicing fee and premium income.

Also, please note that our other income increased 1.1 million in the quarter - 900,000 of that amount represents a settlement we received in the electronic merchant processing segment.

That amount was included in revenue and pretax earnings for that segment.

Turning to expenses.

They increased 70% in the quarter, from 11.7 million to 19.9 million.

One item of note here is the $1 million that Barry previously mentioned and an increase in the provision for loan losses in 1995, and that compares to a $150,000 reversal of the provision in 2004.

Net income rose 113% from 1.8 million to 3.9 million.

This resulted in net income per share of $0.12 basic and $0.11 diluted, which is a 57% increase over the 2004 diluted earnings per share of $0.07.

I would like you to now focus on our segment reporting for the quarter.

You will notice that all three of our operating segments have strong revenue growth.

SBA lending increased 18%, electronic payment processing 110% and Web hosting, a newly acquired company which does not have the results for 2004 in there, continues to grow sequentially each quarter.

You will note that all of our segments were profitable for the quarter.

SBA lending was negatively impacted by the $1,150,000 swing that I mentioned before in the provision for loan losses.

Electronic payment processing had a sizable increase in income, even if you excluded the $900,000 settlement previously mentioned.

Web hosting continues to be a stellar performer.

For the quarter, income was $918,000, with EBITDA of 1.6 million.

I would now like to give some guidance by segment for the remainder of 2005.

In total, we are projecting 2005 revenue of 96 million, which includes 21.5 million for the third quarter and 35 million for the fourth.

We are projecting 2005 pretax income of 15.9 million, including $500,000 in the third quarter and 13.3 million in the fourth.

Our tax expense is anticipated to be 200,000 and 4.4 million for the fourth quarter, thereby netting us 300,000, or $0.01 per share, and 8.9 million, or $0.26, in the fourth.

That would bring us to 10.3 million net income for the year, which is $0.30 per share, as Barry previously mentioned.

As to segment guidance, we anticipate SBA lending revenue of 2.8 million in the third quarter and 4 million in the fourth, and pretax income of 400,000 in the third and 1.5 million in the fourth.

For electronic payment processing, we project revenue of 8.7 million in the third and 9.7 in the fourth, with pretax income of 500,000 in the third quarter and 800,000 in the fourth quarter.

We are projecting Web hosting revenue of 2.7 million in the third quarter and 2.9 million in the first.

That's pretax income of 1 million in each quarter, the third and fourth quarters.

As to Cap Co and others, we anticipate revenue of 7.3 million in the third quarter and 18.4 million in the fourth.

We were projecting a 1.4 million pretax loss in the third quarter in this segment, and income of $10 million in the fourth.

Now we'd like to give a broad early guidance on 2006 for SBA lending and electronic payment processing and Web hosting, we will not be giving guidance on the Cap Co and other segment at this time.

We project SBA revenue of between 13 million and 14 million, and income before taxes between 3 million and 3.5 million.

For electronic payment processing, we anticipate revenue of between 45 and 50 million and income before taxes between 3.25 million and 3.75 million.

And for Web hosting, we project revenue of between 12 million and 13 million, and income before taxes of between 4.25 million and 4.75 million.

With that, I'm going to turn it back over to the operator for questions.

Thank you, sir. (OPERATOR INSTRUCTIONS).

And our first question comes from the line of Ashton Alp (ph) with Meadowbrook Capital.

Please proceed.

Hi, Barry.

Nice quarter.

Thank you, Ashton.

Just a question about - there's a report written by Roth Capital, and two points got my attention.

I just wanted to have your comments on those issues.

First one is, it says that you guys raised in the last year $200 million in capital, and talking about the returns on the capital are unimpressive.

Please, can you comment on that, and the second one ...

Let me get to the first one first, if I can.

I think that Roth does a very good job of analyzing our company and our position.

The one I would like to point out, relative to the raising of $200 million of capital, and actually we're north of that.

I think it's about $220 million of certified capital, which is a term of ours in the capital industry, is that post-credit enhancement, it leaves you with approximately 80 to $90 million worth of cash capital, and if you look at Newtek in its history, and the company was formed in January of 1998, originally it positioned itself, spent a tremendous amount of time becoming a market leader and a national player in the capital business.

We do not look at the capital business as a financing transaction.

It's an operating business.

There's a tremendous amount of work that goes into deploying the capital and investing it.

And, effectively, that capital today is represented by shareholder net worth on the books, and has consequently been taken and deployed into this business model, which we think, when you look at the segments, of SBA lending, Web hosting, electronic payment processing and some of the other components we've put together, we're very optimistic that the valuations are attractive.

Obviously, our share price has taken a hit lately for a variety of reasons, but we do believe that the company has deployed capital well.

It has deployed capital in early-stage business opportunities and has built them from ground up.

So we do respectfully disagree that we have not utilized our capital well and developed a return on that capital, and as our presentation is demonstrating, and we get deeper and deeper into our business model, we believe that, and we're hopeful, that the market will recognize the value that we've created.

And, I'm sorry, the second part of the question?

The second part was about CrystalTech.

It says the CrystalTech underperformed from last Q1 '04 to Q1 '05.

There's a pretax income decline year over year.

Can you comment on that?

Do you agree that CrystalTech is underperforming?

Yes, we understand why that might be confusing.

In 2004, the first six months of CrystalTech were unaudited.

We acquired CrystalTech, I believe it was July of 2005, and essentially, for the first six months of the year, because CrystalTech was a standalone business, there was no acquisition and there was no amortization of intangibles.

So when you compare the first six months of '05 to the first six months of '04, or for that matter, Q1 '05 versus Q1 '04, there's a differential of approximately - I think it's $220,000, $240,000 of an intangible.

We'll write off somewhere around $800,000 to $900,000 off of pretax, which is why there's a big difference between the pretax and the EBITDA number, and we think that is somewhat of a misunderstanding.

CrystalTech, as you can tell by our metrics, is growing significantly by customer count.

Margins are fantastic for a Web hosting business, and that's because CrystalTech, like Newtek in its business lines, has developed a unique way to acquire clients cost effectively and to process business cost effectively, which is why we think Newtek shouldn't be trading at market multiples similar to other SBA lenders, similar to other Web hosting companies, similar to other merchant processing companies.

Our margins are better, we're growing significantly.

And, therefore, we do believe that over time, as we continue to get deeper and deeper into these business models and prove to the marketplace that we do do it differently and we do do it better, the market will realize and give us better valuation.

Thanks a lot.

Thank you.

(OPERATOR INSTRUCTIONS).

And our next question comes from the line of Selman Akyol with Stifel, Nicolaus.

Thank you.

Good afternoon.

Can you talk a little bit about just the competitive environment you see out there in the Cap Co and especially as it relates to '06.

I know you're not offering guidance for it, but can you just kind of say what states are out there potentially.

I guess, can you sort of talk a little bit about who the competitors are out there for you, and really what's driving the increase in competitive environment.

Sure, Selman, I appreciate that.

I think that what we're seeing is, particularly in the state of Texas, which was a very large transaction of 200 million, the largest one to date, it through a lot of participants into the market.

We can go back to 1999 in Florida, for example, which was probably the second Cap Co we participated in, there were 14 entities that got licensed, but very few raised capital.

I think that the financing tool and mechanism has become more prevalent.

I don't want to make a Cap Co statement as to whether the product has gotten better or worse for the states at this point in time with the changes in the marketplace, but clearly there are more entrants who are able to get a license and to get irrevocable funding commitments from the investment community, which we saw in Texas.

Ironically, if the deal size was 50 million, or 75 million, you would have had less participants, because the investment community is less interested in taking smaller bond sizes, and it's really uneconomic for a new entrant to enter into the business for a small Cap Co that can't get any economies of scale on the ability to put out money and to run the back office, which is a significant expense.

People at the Cap Co business go, uh oh, this is a financing transaction.

It is, from an operational perspective, it is nowhere near a financing transaction.

It is a business unto itself.

With respect to their being very little product in 2004, we had high hopes for 2004.

If in fact there were one additional program to be funded in 2004, of 100 million in size, and we picked up anywhere between 10 to $20 million, I think that there really wouldn't be an issue from a guidance perspective.

On 2006.

Thank you, Mike.

I don't think there would be any issues with respect to a guidance perspective in having this smooth picture that, as Newtek goes off into the sunset and Cap Co keeps staying on a steady pace.

And, frankly, if you look at how the underlying businesses are going, you've got in revenues - I believe we're close to a $60 million forecast on the operating businesses this year.

That's up from 34 million last year, and I think up from like 16 or 18 the year before.

And I think in Mike's guidance we're projecting about 75 to 80 million in revenues next year from the underlying businesses.

So we've got a gap in the transition from being a company that was very dominated by Cap Co to a company that's taken some of those Cap Co funds and developed operating businesses, and it's growing very quickly.

So we think that that may wind up being an opportunity for some and the stock goes down, and there's not a smooth transition from a Cap Co-dominated model to a non Cap Co-dominated model.

Some might look at the non Cap Co revenues and cash flow as being a higher quality of earnings and give us a fair multiple on those.

We never thought we got a fair multiple on the Cap Co side of the business.

But right now, in 2006, I can name a few states, but historically, we have really tried not to name states where we thought that there was a less than 25 or 30% chance of a program happening.

So we are still talking to states.

There are still possibilities, and there could be programs to talk about.

We probably are going to at least go another quarter before we actually give guidance for 2006 and put the Cap Co guidance in there to give a complete picture.

I hope that was helpful.

No, it was.

Just when you talk about the underlying businesses, I mean, I assume you're talking about small business, merchant processing and Web hosting.

I mean, they're growing at really rather remarkable rates.

How long do you see those rates of growth continuing?

As far as we can see, from the standpoint that we are at such an early stage with the credit union industry - we have contracts with 125 credit unions.

And when you think of the life cycle to put a credit union on, getting the board approval, educating the officers in the credit union, getting grass roots to that client base - now, what's interesting, Selman, is we're not just a press release player with strategic alliances.

We do it all with our alliance partners.

We go over the wall.

We're on the inside.

We are statement stuffing, teller marketing, training their businesspeople that are representing their clients.

We do that with Citibank, we do that with Merrill Lynch, we do that with our credit union clients, so we're in there, and we are in the first inning of a nine inning game.

So we think there's a lot of opportunity there.

Then you look at the businesses like insurance and financial information systems and tax.

We hope in the near future to announce the first what I'll call significant transaction, with a insurance alliance partner, in the way of our insurance agency business.

Great opportunity, and if you don't need to go knock on doors to find the client for homeowner's, auto or business insurance, and this large financial institution is driving leads into you to process that business, you become Geico like and Progressive like without having to advertise on TV or on the Super Bowl or do a gecko dance.

So we're real, real optimistic about the business, the business lines, and we obviously feel bad about what I would call not a smooth transition from Cap Co into what we're doing from an earnings perspective, but, frankly, the other business is growing so well that we don't feel we have anything to be ashamed of.

And some of these things are outside of our capability.

Got it.

Thanks very much.

Thank you.

And we have no further questions.

I'd like to turn the call back over to Mr. Sloane.

Sir?

We appreciate everybody participating in the call, and we look forward to reporting net results in the next quarter.

Have a good day, everyone.

Thank you for your participation in the conference.

This concludes the presentation.

You may now disconnect.