NewtekOne Inc (NEWT) 2007 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Newtek Business Services first quarter shareholder's conference call.

My name is Annie, and I'll be your coordinator for today.

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

We will be conducting a question and answer session towards the end of this conference.

(OPERATOR INSTRUCTIONS)

As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the presentation over to your host for today's call, Mr.

Barry Sloane, Chief Executive Officer, Chairman of the Board.

Please proceed, sir.

Thank you very much, operator.

Welcome, everyone to the 2007 first quarter shareholder conference call.

My name is Barry Sloane, I'm CEO, Chairman of the Board.

I also have with me here today Michael Holden, our Chief Financial Officer.

All of you listening in, we have a PowerPoint presentation that is on the Investor Relations section of our website.

I welcome you all to follow the presentation from there.

With that, I'd like to ask Mike Holden to read the Safe Harbor statement.

The statements in this slide presentation including statements regarding anticipated future financial performance, Newtek's beliefs, expectations, intentions, or strategies for the future may be forward-looking statements under the Private Securities Litigation Reform Act of 1995.

All forward-looking statements involve a number of risks and uncertainties that could cause actual results to differ materially from the plans, intentions and expectations reflected in or suggested by the forward-looking statements.

Such risks and uncertainties include among others intensified competition, operating problems and their impact on revenues and profit margins, anticipated future business strategies and financial performance, anticipated future number of customers, business prospects, legislative developments and similar matters.

Risk factors, cautionary statements and other conditions which could cause Newtek's actual results to differ from management's current expectations are contained in Newtek's filings with the Securities and Exchange Commission and available through www.SEC.gov.

Also we need to point out that our cap goes up under a different set of rules in each of the eight jurisdictions and these these may place [branding] requirements on the structure of our investments.

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

Thanks, Mike.

Newtek is quickly becoming the premier distributer of business services and financial products for the small and medium sized business market.

As of 3/31/07 the Company had excess of 78,000 business accounts and we anticipate having 85, 000 to 90,000 with no acquisitions included in that number by the end of the year.

We're currently adding 3,000 new clients per quarter net of attrition, and Newtek is viewed as a one stop shop.

We want the small, medium size business market to view Newtek as the Company to go to for all of the business service needs.

What's interesting and unique about Newtek is that we have identified and exploited the concept that the product and process are linked together.

Essentially, there's plenty of small and medium sized business clients in the market, there are plenty of providers with excellent products but what the marketplace really hasn't figured out how to do cost effectively and efficiently is to acquire small and medium sized business clients cost effectively and to process the business efficiently.

Newtek has done that.

With our process which is primarily technology driven, we give easy access to small and medium sized business clients either directly or by utilizing Alliance relationships of entities like Merrill Lynch, UBS, etc., and have them drive their small and medium sized business clients to us.

We also offer SMV's, a very high level of customer service, a business platform that's very scalable, a low cost to operate, and slowly Newtek is building an excellent brand recognition and loyalty amongst its customer base.

Today's presentation and format is a little bit different than past presentations and formats that we've given.

To avoid repeating, certain items, we have changed the format slightly but for those of you that are interested in more information on Newtek, I would direct you to our Investor Relations section of our website and you can take a look at our annual conference call presentation that's there.

Today's format is primarily going to focus on financial highlights for the quarter and operational issues primarily regarding the execution and implementation of our strategy.

I'd also like to suggest for those of you that have not had the opportunity to read the CEO and Chairman's letter to shareholders, that also is archived on our website and has been distributed along with our proxy perspectives.

In Newtek's first quarter of '07, we had a very good quarter.

Our Electronic Payment Processing segment revenue increased by 33% in Q1 '07 over '06, web hosting segment revenue up 22% , SBA Lending revenue segment up 10%.

We also increased our annual guidance in all three key business service operating segments.

We increased our Electronic Payment Processing 2007 pre-tax net income annual guidance by $500,000, similarly the Small Business Lending 2007 pre-tax annual guidance by $350,000, and web hosting 2007 pre-tax annual guidance by $150,000, that was all based upon the improvement that we saw in the first quarter.

The Company is financially strong with $43 million of cash on its books, $85 million in shareholder's equity and $2.44 in book value as of March 31, 2007.

We had very nice sales growth in the first quarter of 27% year-over-year '07 to '06.

I would also like to point out that as a percentage of Capco revenue or income driven from tax credits, only 5.9% of of the $21.8 million in revenue came from income from tax credits.

Plenty shift from 2003 and 2004 were our annualized percentage of revenues from Capcos were approximately 88% to 74%.

If you look at the three key segments that comprise of our business service segment, Electronic Payment Processing, web hosting and Small Business Lending, revenues year-over-year per quarter were up 27%, pre-tax net income of 38% and EBITDA of 15%.

Most of the time today I wanted to really spend with our investors and analysts, really talking about our operational focus which we plan on working significantly on from a management perspective throughout 2007.

If you go to slide Number 12, there's a pretty full agenda talking about what our operational structure is, all the way down the line.

Why don't we start off with operational structure.

Basically, what is unique about Newtek is most organizations that have one of our product lines, typically will use individuals that will acquire the customer, close or board the customer and then deal with customer service issues.

This is quite prominent in an electronic payment space that use independent reps, the insurance agency space use insurance agents to perform this type of function or even the lending business that uses what's known as a Business Development Officer who will find the opportunity, assemble the loan, work through underwriting, and really help answer any customer service issues.

At Newtek, what we've basically done is created an assembly line for a service offering.

We internally call our Sales and Marketing personnel Level III representatives.

Their primary job function is to add referrals to the Newtracker which is our patent pending referral system.

Our job obviously is to continue to increase referrals on a regular basis, both directly through our website and indirectly through our strategic alliance partners.

We have 12 Level III sales personnel distributed throughout the country and they are marketing to branches and financial account executives for UBS, Merrill Lynch, Morgan Stanley as well as the 9,000 credit unions under the CUNA umbrella and many other financial institutions that we have strategic alliance relationships with.

The second important component of our operational structure is what we call business service specialists.

We use the acronym in-house of BSS's.

Essentially, they are primarily responsible for once that referral comes into the system to close and board that transaction within each division.

Business service specialists are responsible for fully documenting the Newtracker system so that alliance partners can track the process of that opportunity from cradle to grave.

Lastly, once a transaction is closed, it gets moved over to our customer service representatives or our CSR's, they handle any post-closing issues, any customer service issues relating to things that a customer may need post-close and the future of our customer service representatives is they will be more fully trained in cross-servicing and cross-selling.

We'll get into that a little bit later in the presentation.

We've recently done some additional hires, some business service specialist management, heading that group up in our small business lending arena is Carmen Machaca, Carmen, I believe has been with the Company over three or four years.

Carmen joins us from City Bank.

We've recently expanded our lending menu in addition to SBA 7A government lending and we are now doing 504 SBA lending and we're about to announce a rollout of a conventional small business lending program which will allow us to lend money to small businesses up to $5 million with commercial real estate behind that, and our strategy will be to originate and sell to third party investors.

In addition to that, many of you are familiar with the fact that we acquired CDS which is a accounts receivable finance business , and we do anticipate rolling out a private label Newtek based credit card program for small businesses in addition to a line of credit.

So, we look forward to Carmen working with and training her business service specialist personnel and being able to offer four small business lending products to small business customers: accounts receivable financing, credit card line of credit, conventional commercial financing up to $5 million , and our SBA 7A program.

Steve [Hall] has recently joined the Company and he is the manager of all our business service specialists in the electronic payment processing space.

Derek Curtis has been with the Company for I guess 2.75 years beginning with the acquisition of Crystaltech at that point in time, and we've also announced that we are looking to hire additional business service specialist management support in that area.

The reason why we have effectively two professionals in that particular market is our Crystaltech web hosting business historically has derived most of it's customers from what I'll call the professional space.

Web designers and IT professionals and we do a terrific job and Derek has built that business up to where we think we may have one of the better businesses with respect to margins in that business.

I'll remind all of you our anticipated revenues for this year I believe are about $15.5 million in Crystaltech with about $7.5 million or more of EBITDA from that space so we're able to acquire clients using a technology, very low touch.

We want to grow our web hosting business.

We're very excited about the industry demographics and the trends of small, medium sized businesses, posting more applications, using web hosting companies and in order to do that we're going to need to market a little bit more directly to customers under that Newtek web hosting brand, not the CT brand, so it continues the CT brand for professionals but use the Newtek web hosting brand which will be a little bit more higher touch and will have a separate group of business service specialists handling that type of account.

Lastly, we recently hired Pamela Gay who joins us with over seven years worth of experience in the insurance agency market handling every form of insurance business both personal, commercial, property and casualty, health and benefits and she's going to be managing the business service specialists from our Brownsville unit.

We recently identified at the board level and now to the investment public our need to grow and further develop our human resource area.

We're proud to announce we hired Judy Sharpray.

Judy has over 18 plus years of experience in the human resource area and she's come in as Head of Human Resources for Newtek Business Services.

She previously worked for a NASDAQ listed company that was in the outsourcing business, she was Director of Human Resources there where she held that position over seven different divisions as well as 900 employees.

We want Judy primarily to focus on hiring, training, and recruiting.

In order to further feed and fuel our growth, we need to be able to draw in personnel in our primary processing locations and Judy's primary focus will be to help us grow our employment growth in a very high quality manner.

We also look for her to further develop our corporate culture , stressing things amongst our employees such as integrity, a passion for what Newtek is about and always making sure that all of our employees realize customers always right.

We look for Judy to help buildout our Brownsville, Texas operation center along with Joe Carballo.

Joe's been with the Company for over four years.

Joe is an EVP and has done a fantastic job building out our Texas back office operation center.

I believe we have over 33 employees currently there in Texas and in that facility we look forward to growing our business service specialist capability as well as our customer service representative capability, cost effective solution, rent and cost of labor is quite attractive in Brownsville and you get a second language, Spanish for free.

The key to our growth will be our ability to train employees, scale the Company, and most importantly, keep our talent.

Our employees are our most important asset.

We want our employees to realize all of their goals.

We want them to have personal growth, we want them to have professional growth and importantly we want them to have a passion for dealing with clients and a passion for working within Newtek.

The Company is going to be significantly focusing on its IT advances and directives.

Those particular initiatives are headed up by CJ Burnet with tremendous assistance from [Jude Libben] CJ is our EVP of Strategic Planning and Marketing.

CJ effectively functions also as our Chief Technology Officer and Chief Information Officer.

We're continuously updating and refining and broadening our Newtracker system which really has been the secret sauce to our McDonald's hamburger.

We're also further developing the capability to have a master central database which we believe is the key to cross selling and cross servicing.

Many times I'm asked when are you going to start to really penetrate your large customer base and my answer is, "when we're ready".

We do not want to spam or really approach our customers that are very valuable to us until our customer service representatives have the right data, have the right information on what's going on with that customer once the customer is boarded.

We believe that cross servicing and cross selling should primarily happen post-close.

We do want our business service specialists to introduce other products but we don't want to be viewed as the Company that is trying to push multiple products at one point in time when typically our customers are coming to us with their hand raised saying that they want one particular product.

Within our IT advances and directives, our goal as a company is to utilize technology for quality control, financial and management reporting.

We have efficiently and effectively utilized technology and technology will also help us with our SOX and 404 issues.

Many people ask us why do we acquire clients inexpensively and essentially, it's the process, it's our operations, and it's our technology, using the Newtracker system, our organization has a very wide net that is able to attract alliance partners of the names of Merrill Lynch's, the Morgan Stanley's, the Navy Federal Credit Union's, PSCU's of the world that really enables us to offer through their distribution channel multiple products.

Our wide net also catches business clientele that have come to us for a particular product and are aware of other things that we can do.

The Newtracker system essentially allows us to use the name brand and reputation and bricks and mortar and years of brand building from the Merrill's, the Morgan's, the AIG's, etc., and really we are able to acquire customers that come to us with their hand raised seeking a product without having to spend extensively on things like advertising, bricks and mortar, and real expensive salary plus commissions sales personnel.

Our technology connects the marketing process with business processing, with customer service.

This enables us to deliver a product at a lower cost and service our clients better than our competitors as all these different disciplines are connected together.

Because of our technology, it makes referrals easy.

You take a typical bank branch, it's very easy for someone in a bank branch to do business with Newtek because we can basically put in a branch managers hands or a branch representatives hands 10, 20, 30 different products all on one referral form.

No typing in data, no handwriting applications for them and their customer, just one simple referral form enables us to effectively offer many products and get referrals in.

In addition to that, down the road, we do believe our technology will be able to cross populate multiple applications which will make it easier for our business service specialists to populate one application but have effectively several applications done for multiple products.

Why are we able to process business inexpensively?

Because we're doing the business remotely.

Customers are coming to us on a push strategy with their hand raised.

We can do that business with our production plants in Milwaukee, Wisconsin, Phoenix, Arizona, and Brownsville Texas.

Business through Newtek is essentially boarded electronically for a telephonic interview on the strength of an alliance partner with the strength of our brand.

There's no filling out or faxing of applications or data and as I mentioned before, data can be used for multi-product services and applications.

In the area of alliance partners and marketing we have a very strong portfolio.

I've mentioned some of the names historically and on this call.

In addition to that we have many major other players in the queue.

We have a major business service and financial institutions technology provider, major clearing broker dealer, major brokerage firm and multiple trade associations that we will be joining in our quest to be the premier provider of business services and financial products to the small and medium sized business market.

Financially, the Company is continually focused on growing cash flow from our business service segment.

Our EBITDA is anticipated to grow to $16 million from $15.2 million in 2006.

We're very excited about the operational leverage that effectively exists in most of our businesses, both lending, EPP, and web hosting.

We would like the financial markets to focus on valuation of our different business components.

We recently looked at potential acquisition of a web hosting company, the Company held a similar size in revenues and was offered to us at 6 to 8 times EBITDA.

We've bid five times, the business was done away, so I guess you could use your own imagination to figure out where these businesses are trading at and what our particular business may be worth in the financial markets.

The Company clearly has a financial focus to reduce the financial effect of the Capco business.

We think the Company through Mike Holden's efforts has done a very good job in further disclosure in our 10K's and Q's by providing different types of tables, by breaking out and segmenting different types of non-cash and cash expenses.

We're very very excited obviously about the opportunity of further reducing the financial effects of capital over time which we believe will happen as a function of time as well as some of our operational efforts which may in fact drive various types of accounting treatments.

Why is Newtek well positioned?

Newtek is a company that is extremely well positioned primarily because our customer base is exceptionally attractive with small and medium sized businesses representing about 51% of GDP with immigration continuing to be a growing trend in the United States, there's a very large growing small business market with a big appetite for services like ours.

We have a high quality product offering that is recognized and when people ask me who is your competitors, obviously there are multiple competitors in each of these individual segments.

We don't believe any of them really have our methodology and way of doing business, as we say at Newtek, we do it differently and we do it better, so we don't really view that there's too many people that actually have a comparable type of offering.

Being a low cost acquirer, a low cost processor of business, puts us in an attractive marketplace.

Acquiring small and medium sized business clients is clearly a coveted dynamic from Fortune 500 companies.

We had the advantage starting with a white board three to four years ago, that enabled us to set up our own operations, not have legacy systems and really not have legacy personnel and embed a business philosophy much of which I discussed and elaborated on here today.

The Company has a long term plan and execution implementation strategy to go along with it.

Management is aiming high without really trying to just get this thing moving and blow it out.

There's a big opportunity for Newtek, its shareholders, its employees, and suppliers and customers to benefit from what we do over the long term so we're very very excited about all of the dynamics and opportunities that we have for you as shareholders, for our employees in terms of the additional benefits and growth that they are going to have for working with us.

We're excited about you being with us here today and I'd now like to turn the second part of the presentation

Thanks, Barry.

First I'd like to talk about the consolidated Statement of Operations which is included in our press release which compares first quarter of 2007 with the first quarter of 2006.

As you'll note, revenue for the first quarter increased $4.7 million or 27% to $21.8 million.

This was primarily due to a $3.1 million increase in electronic payment processing revenue and a $700,000 increase in web hosting revenue.

As Barry mentioned you'll note that income from tax credit which is is associated with our Capco program was $1.3 million or just 6% of revenue.

We achieved our last investment hurdle in the fourth quarter of 2006 and therefore will be recording small amounts of income from tax credit revenue going forward.

Expenses increased $4.0 million or 18% to $26 million.

We recorded a loss before provision for income taxes of $4.1 million in 2007 as compared with a loss before provision for income taxes of $4.6 million in 2006.

We are treating our investment in Phoenix Develop Corp.

as a discontinued operation.

We recorded a loss of $205,000 in 2007 as compared with income of $297,000 in 2006.

Our net loss was $2.9 million or $0.08 per share in 2007 as compared to $2.7 million, also $0.08 per share in 2006.

Please turn to the balance sheet which is included in our press release which compares March '07 with December 31, 2006, where I'd like to point out a few items.

Our total cash including investments remained at $43 million.

In the first quarter of 2007 we consolidated our investment in CDS which Barry mentioned is a billing and receivable financing company.

This did have an impact on our balance sheet.

We increased our accounts receivable by $3.6 million from CDS, good will $1.7 million, accounts payable $2.7 million, and $900,000 in bank notes payable which is the financing vehicle used for the receivable financing.

I'd now like to review the performance by segment.

If you look at the PowerPoint presentation, Slide 24 compares our first quarter of '07 with our actual results.

You will note that overall we recorded revenue of $21.8 million as compared with a guidance range of $20.3 to $20.8 million.

Most of the out performance came from the electronic payment processing segment which was $600,000 over the top end of the range.

Our pre-tax loss was $4.1 million significantly better than our guidance of a pre-tax loss of between $5 and $5.4 million.

We met or exceeded the top end of the range in each segment except for corporate activities.

We achieved EBITDA in our three major segments of $3.9 million as compared with guidance range of $3.1 to $3.4 million.

We exceeded the top end of the range in each segment.

Now, if you turn to Slide 25 this compares our first quarter of '07 with the first quarter of '06 and I'm going to go over each segment.

Electronic payment processing segment revenue increased $3.1 million or 33% to $12.6 million, $2.9 million of the increase came from organic growth while $157,000 came from the portfolios that we have purchased over the years.

Income from taxes was--before taxes was $800,000 as compared to $400,000 in 2006.

You'll also note our pre-tax margin improved from 4.4% of revenue to 6.7% of revenue.

We are able to control our administrative costs while reducing our costs from our major suppliers as we became a much larger player in the industry.

Web hosting segment revenue increased $700,000 or 22% to $3.9 million.

We provided services at 25% more customers including 50% more dedicated hosting customers which generated higher revenue per customer.

The average monthly fee for shared websites stayed pretty constant, a little bit lower than last year, and dedicated websites were about the same.

Increases--expenses increased approximately $660,000.

Major expenses of the increase were $280,000 in payroll costs, $210,000 in software licenses, and $200,000 in depreciation to purchase more service for our customers.

It was a net reduction of $235,000 in interest expenses compared with 2006.

Income before taxes you'll note was $1 million which was about the same as last year.

The SBA lending segment revenue increased by $200,000 to $2.3 million.

We sold $6.6 million of guaranteed loans in 2007 compared with $6.3 million in 2006 which netted about $100,000 more in premium income.

Most of the remainder of additional revenue was due to higher interest income due to slightly higher loans receivable balances and higher interest rates this year as compared to last year.

Almost all of our loans are on a floating rate based on the prime rate so they have increased.

Expenses increased $140,000 of which $100,000 pertained to salaries and benefits.

The end result was that the (inaudible-technical difficulties) broke even in 2007 an improvement of approximately $50,000 from last year.

Revenue in the Capco segment remained at $1.6 million while the loss decreased from $4.1 million to $3.5 million.

The non-cash loss represented by income from tax credit, less accretion of interest expense and amortization of prepaid insurance totaled $2.8 million in 2006 and $2.5 million in 2007.

Revenue in the all other segment increased $600,000 primarily due to the addition of CDS with a loss decreased by $400,000.

In 2006 we had substantial loss in the Washington D.C.

Capco investment.

Corporate activities which generate revenue primarily for management fees from the Capcos segment lost $2 million as compared with $1 million last year.

This was primarily due to one-time charges associated with the consolidation of our offices in New York City and additional office and sales personnel which had been hired in the past year.

Now I'd like you to turn to Slide 26 of the PowerPoint presentation which I'd like to go over in a little bit of detail.

This is the cash flow by segment which ties into our 10-Q which will be filed next Tuesday, and what I'd like you to do and it's very tough to read probably on the screen.

If you print it out it would be probably a little easier but if you have that there, if you go all the way over to the right in the total column, these numbers will match up with our 10-Q, for example, the revenue as you've seen is $21.8 million.

The total expenses of the second line includes minority interest and that brings you down to a $4 million loss and then this right hand column goes all the way down to net income, in this case net loss of $2.899 million, and then it goes from the $2.899 million, and shows the difference in the cash flow items to come to a $4.1 million negative cash for the first quarter.

This number will tie into our 10-Q so when our 10-Q is filed you'll be able to track this number of $4.1 million in our 10-Q from operating activities.

Now, a couple of things I want to point out on that before I go over to the segments is that the most volatile item I would say is the other net which is almost at the bottom there which is really working capital differences, that's why the first quarter is not really indicative of the whole year.

You could have situations where your pre-paid expenses and accounts payable and accruals go up or down so that's going to influence these segments on a quarterly basis for the year that's going to be different.

So that's one word of caution.

If you just look at the bottom line numbers, all the way across, you can see the SBA lending was negative $1.9 million, I'll go over an item on that in a second.

EPP was positive 700,000, web hosting positive $1.4 million, all other negative $1.2 million, corporate activities, and this isn't an error, it also coincidentally down $1.2 million and that brings you over to your total really what we call the business services segments which is our core operating businesses of $2.3 million.

Capcos segment was a negative $1.8 million, and that brings you to your $4.1 million.

One thing I would like to mention is on the SBA lending segment, one of the key items there which is a negative drag , if you notice is the $2.5 million reduction on the SBA loans and that is basically loans that originated but have not yet been sold show up as a negative $2.5 million here.

We actually had as of the balance sheet $4.3 million of loans yet to be sold.

When those are sold, that would reverse that $2.5 million and in fact the income would be up top and the cash flow positive would be down below so that would put the whole segment into a positive situation for the quarter.

Okay, so that's a little bit of detail on Slide 26.

On Slide 27, basically, we have our annual segment guidance and I just wanted to mention one thing Barry mentioned a little bit about.

The increases in this, basically what we've done is we've increased the revenue and the pre-tax earnings in the EPP segment for quarter two, three, and four, and the pre-tax income, we've increased $100,000 in each quarter in two, three, and four, and then other than that, what's reflected here is the new segment guidance is the adjustment to first quarter actual and then just of course adding the second, third, and fourth quarter including your revision on EPP to get to your new annual numbers.

With that, I'd like to turn it over to the operator for

(OPERATOR INSTRUCTIONS)

And at this time, there are actually no questions in queue.

I'm sorry, you do have a question from [Harold Elish] from UBS Financial Services.

Hi, Barry, how are you?

Good.

How are you doing?

Good.

As you start to see more and more larger institutions, i.e.

Banc of America start to compete in the microbusiness segment, do you see them--how do you see the increase in competition from them and how it's going to affect your plan?

Well, it's funny.

We see Banc of America talking a lot about small business market, I think their head says that they are the banker for small business, one in five businesses banks with Banc of America.

I think their definition of banking really is taking deposits.

The banks want the marketplace, they want the customer but primarily for the deposits.

They really not that good on the asset generation side in the sense that they have a difficult time utilizing these various different divisions to work with each other so if you go into a Banc of America branch and you ask for electronic payment processing, it's really hard to actually find the right person that could wind up doing that business for you.

Not too dissimilar, if you ever went in and asked for any kind of an insurance product, away from life Insurance, I think you have a problem as well.

So we like the competitive comparison of banks or larger financial institutions trying to obviously go after small business.

Look, they've been in this space forever and they have had to cut for space forever.

So we like the fact that it's been identified by the Fortune 100 company that small business is important, they are viable and they want the customer base.

American Express is another example of that with their Open For Business product.

Effectively, I think although they haven't announced it but they really sort of said to the market when they got rid of the accounting firm that they bought and they spun off the brokerage arm to Ameriprise, they were kind of saying, look, what we're really good at is credit cards and travel and that's what we're going to focus on and by the way, they've done a great job and having that single product has worked for them.

So we're a little bit different and we do like the fact that people are focusing on this marketing and customer base because it gives our customers a real comparison as to why they should do business with us.

Appreciate it.

Thank you.

(OPERATOR INSTRUCTIONS)

And you have a question from [Thomas Cally] with Polaris Advisory.

Hey, Barry, how are you doing?

Good, Tom.

How are you?

Good.

I noticed you were talking about the $24 million in cash.

I think it's a fairly high price per share that you have in cash in the Company.

Talk to us about what you would do with that $24 million to get more return on Newtek and Newtek companies.

Actually, that number is a little low.

I think in cash and cash equivalents for the quarter, my recollection is it's about $43 million?

I think we're looking at about $43 million.

But basically, we sit with significant cash balances.

We have stated we were cash flow positive on a consolidated basis last year.

We anticipate being cash flow positive this year.

That cash is used to support our business activity, plow it back into improving our technologies.

We spend almost no money on keywords, I think our budget for keywords at the holding company is about $2,500 a month.

We may look to start to expand that.

There's a lot of good uses for that cash and in addition to making acquisitions within our footprint.

So, we don't chase markets.

We don't chase deals.

Frankly, we do look forward to the day a year or two down the road when we really perfected what I call our core selling and core servicing machine and frankly we'll be able to go out and buy market opportunities and web hosting merchant processing and insurance agency spaces, acquire portfolios of customers with the confidence that we know we can layer another product or two into that client.

That definitely is a strategy that we plan on embarking on down the road, but cash position leaves us in good shape.

We're not really levered although the balance sheet because of the Capco effects makes us look like we're levered, we aren't levered at all, so yes, we're going to use that cash opportunistically to do things like make acquisitions of things like Crystaltech or our SBA lender which has turned out to be good and our insurance agency business.

And can I have a follow-on question in regards to acquisitions through your EBITDA pricing?

Are you seeing enough deal flow at reasonable EBITDA to acquire the companies?

It's funny.

It all depends on what's reasonable.

Right.

The market--the markets are, they are very hot right now near expenses so to be honest with you, if you're at an acquisition strategy today, I think it's tough goings, because there's tons of private equity dollars out there.

They are all chasing deals.

They are all coming up with [machinations] as to how they can justify paying 6, 7, 8, 9, 10 times multiples for businesses or else the institutions and hedge funds are lending at far more aggressive multiples than they have, they want a double digits rate, but you can get pretty high LTV's on cash flow companies today, so we don't believe in chasing that.

We look for situations where if we can do an acquisition, the operator wants to come in and be part of our company and really do something new and different in the marketplace and take the business to a higher level.

Thank you.

And there are no further questions at this time.

Okay.

All right, operator.

Thank you.

I'd like to thank all the participants once again on behalf of our conference call provider and Newtek we apologize for the technical problem we had yesterday.

Some of you, including ourselves were able to access the 800 number that was given to us.

Others had a perpetual busy signal so it was unfortunate that we had to delay it to this morning but we wanted to give everybody the opportunity to hear it and participate at the same time.

For those of you that were able to adjust your schedule quickly we thank you and look forward to hearing from you and speaking to you in the future.

Thank you very much.

Have a good day.

Thank you for your participation in today's conference.

This concludes the presentation.

You may now disconnect, and have a great day.