NewtekOne Inc (NEWT) 2007 Q2 法說會逐字稿

Good day ladies and gentlemen, and welcome to the second quarter 2007 Newtek Business Services earnings conference call.

My name is Colby and I will be your coordinator for today.

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

We will conduct a question and answer session toward the end of this conference.

(OPERATOR INSTRUCTIONS) And as a reminder, this conference is being recorded for replay purposes.

I would now like to turn the call over to Mr.

Barry Sloane, CEO and Chairman of the Board.

Please proceed, sir.

Hi, thank you very much.

Welcome, everyone, to our second quarter shareholder conference call.

Joining me today is Michael Holden, our Chief Financial Officer and I'd like to ask Michael to read the Safe Harbor statement.

Yes, Barry.

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 related impact on revenues and profit margins, anticipated future business strategy and the 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 Capcos operate under a different set of rules in each of the eight jurisdictions, and that these places vary--place varying 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 cannot always be presented orally or in written presentations.

Thank you, Mike.

Newtek has quickly become a premiere provider of business services and financial products to the small and medium size business markets.

As of 6/30/07, we had over 79,000 business clients.

We're adding 2,500 new clients per quarter and that's net of attrition.

Newtek is a one-stop shop.

We want the small and medium-size business market, which is 26 million large, to view Newtek as the Company to go to for all their business service needs.

For many of you that are familiar with Newtek, you realize that we have positioned ourselves so that product and process are linked together.

There's a continual assessment going on between how we offer our products and services through a very unique process.

Most of our business leads and referrals come through strategic alliance partners and that is based upon our ability to sell an application into alliance partners such as Merrill Lynch, Navy Federal Credit Union, Union Bank of Switzerland, Morgan Stanley, Bank Atlantic, New Atlantic Bank and others.

In today's presentation and format, our Power Point that we're going over today is available on the home page of our website in the Investor Relations section.

For those of you that are unfamiliar with our company, you can also take a look at our shareholder newsletter, which is also on the Investor Relations section of our website.

Today we'll be focusing on financial highlights from the second quarter, execution of our strategy and implementation of our strategy.

In the second quarter of '07, the electronic payment processing segment, we had revenues continuing to grow by 24% over 2006, and in web-hosting segment, revenues grew by 19% over 2006.

Our SBA lending segment also increased by 11% over 2006.

We continued to demonstrate growing profitability in electronic payment processing and SBA lending has improved from a loss to a gain.

For those of you that follow our guidance, we have actually improved our overall guidance from previously forecast in 2007.

Mike will go over that with you a little bit later on in the presentation.

We had growing EBITDA across all three business segments.

As of the end of the second quarter, we had $40 million of cash or $1.11 cash per share, including cash, cash equivalents and U.S.

treasuries, and $83 million in book value or $2.30 per share.

Some more additional financial highlights for the second quarter, we met or beat guidance in three key operating segments.

Our revenue growth was between 10% or 20% despite what we view as an ongoing economic slowdown.

We had a 21% and 18% increase in EPP and SBA lending, EBITDA respectively.

We also experienced gains on sale from a liquidation of an investment that we had in biseasons.com of $907,000 for the quarter and 1-800 gift certificates of $125,000.

Those gains would show up in the all-other segment, Mike will go over that a little bit later.

In the second quarter, we made some new hires, we brought in a new President and Chief Operating Officer of our insurance agency, Bill Bayer, we put out a press release on that earlier in the quarter, and added two Senior Vice Presidents, David Towner and Pamela Gay, to beef up our insurance agency.

We also made two significant hires in the Human Resource area, we added a Senior Vice President, Justin Strom who will head up our Human Resource department, and a Vice President, Judi Chompre.

We also added a new Director of National Sales in Brian Gagnon, we put out a press release on that today, as well as Donna Neary who joins us from First Data Corp who will help us in the area of Product Development and Marketing.

Some further highlights from the second quarter, we crossed over $1 billion of loan referrals recently for the first seven months of the year, and that's versus $621 million for the same period last year.

Our web-hosting division successfully moved its facility and its knock center.

Quite a difficult move for those of you that are familiar with moving a technologically oriented company.

We actually have some issues relating to that move with respect to changes in our guidance that Mike Holden will discuss later on in our presentation.

Discover credit card recently named our electronic payment processing division as a merchant acquirer, one of the few entities that were named in their first round as they changed their business model over to doing merchant acquisition directly to using entities like ours to acquire small and medium-sized businesses as clients.

We're in such good company as Chase Paymentech, Nova and First Data Corp.

Bank Atlantic chose recently--a very large bank in Florida, chose Newtek as an SBA lending partner.

We also are proud to announce that Merrill Lynch has re-signed our electronic payment processing agreement for another three years.

New Alliance Bank, an $8 billion bank in Connecticut, has agreed to, in a joint venture with Newtek, offer insurance services through all of their 90 branches.

And Newtek business lending recently announced the addition of accounts receivable, op finance and a small business conventional commercial loan program for loans up to $5 million.

One of the things we wanted to focus on in this particular call, given the market's focus lately, with respect to credit issues and lending, is what, A, what is going on in the market and how well we're doing in the lending business, which was emphasized in our press release.

Clearly were issues in the marketplace that are concerning lenders relating to overall liquidity, credit deterioration, loan volume issues, loss rates, excess leverage and market position.

Newtek has done a very good job throughout the first half of 2007.

Our weighted average FICO score from the top guarantor on all of our loans, and all of our loans have got personal guarantees, now stands at 726, and within the last six months, the new originations have been coming in with a weighted average FICO store of 743.

Our current lending facility, which is a syndicated loan between GE, CIT and Signature Bank, which has a maturity date two years past the end of September 2007, coming up is in very good position.

Matter of fact, the effective utilization rate of that facility is currently 46% or a very low levered borrowing amount and we only have got $14.7 million borrowed against a total availability of $50 million.

So, you can see that we've got plenty of liquidity available for our lending business, currently very much under levered and our effective borrowing base, for those of you that are familiar with ABL-type loans, at inception was $2 million of availability and it's now currently at $5 million.

We also feel very strongly that we've got the right position of loan loss reserves versus--against the total portfolio, and you can see as a percentage, that has grown throughout the last three years.

We feel very comfortable with our position with respect to loan loss reserves and monitor that on a very frequent basis.

Our lending business also has done a very good job in terms of getting loans into underwriting, in this kind of market, as credit tends to start tightening up, government programs actually do pretty well.

The dollar amount of loans that went into underwriting, as of 7/31, was $25 million, versus $22 million in the prior year period earlier.

Also we've got approved pending closing pipeline of 7/31/07 of $15 million versus $10 million at 7/31/06.

Summer tends to be a fairly slow time of the year for the lending business.

We've also been able to improve our close rate for the first seven months of '07.

That's a 75% close rate versus 60%, and that close rate is versus loans that have been approved in underwriting.

So, it's not like it's a closed rate versus referrals that come into the system.

Also looking at our loss rates, the current SBA general business loan actual loss rate, which is a cumulative loss rate for the last 15 years, this is an SBA statistic that is available through the SBA's website, stands at 6.2%.

We've been in the business since the beginning of 2003.

At the present time, 4 3/4 years, we have a loss rate of 2.8%.

That loss rate is similar to a bank charge-off rate and is an SBA standard statistic.

We do anticipate that--that rate to increase over time as the portfolio matures, but we also believe that this is a good indicator that we are currently originating loans that are throwing off losses to at or a better performance level than the industry standard.

If you take a look on slide number 16 and you take a look at some of our actual results, looking at '07 versus '06 prior year, you can see that we've had a better performance in the area of revenues a 21% increase year-over-year and our pre-tax loss was also better with a narrower loss of $2.8 million versus a year prior, $3.4 million.

If you look at our three key operating business segments, we also had increases of revenues, pre-tax net income of EBITDA of 21%, 25% and 12% respectively.

Looking at our 2007 annual guidance and I will let Mike focus on this more clearly, we did increase and improve our annual guidance for the year with an actual narrowed loss in the range.

We changed the range slightly in EPP from a positive perspective, a little bit less on the upper band on SBA lending and we have reduced our web-hosting guidance for the remainder of 2007, that's primarily based upon our increased business volume, our need for a larger facility and conservatively estimating that in the event that we have to double up our rent, don't sublet it, we currently have some issues that we're working out with our landlord.

So, I think that our band, which Mike will chat a little bit about, of guidance, really gives us a more conservative picture, but really doesn't dramatically reduce EBITDA for 2007 significantly, and the duplicative rent would only last for a period of about 12 months-- I should say 12 to 14 months.

Looking at 2007 on slide number 19, we have a pretty detailed presentation going through nine different areas.

Number one, focusing on operational structure.

For those that are familiar with Newtek, obviously, we have positioned the Company where we have a moniker that we do it differently, we do it better.

One of the ways that we do it differently is through lower cost.

Lower cost of customer acquisition through our NewTracker system as well as lower cost of processing the business.

Many of you are familiar that we have our 18 structured, sales and marketing personnel, there are 13 throughout the United States.

As we mentioned earlier, we named Brian Gagnon as our National Sales Director of that particular group.

Their primary job function is to add referrals to the system, working directly with our strategic alliance partners like Merrill, Morgan Stanley, UBS, credit unions and community banks.

Then the product, through our NewTracker system, would get turned over to our "B" team, our business service specialists that operate in remote locations, and are responsible for closing and boarding transactions.

Once a transaction is closed, a customer gets turned over to our "C" team, our customer service representatives that really handle all post-closing, customer service and in the future, service and cross-selling opportunity as we build our relational customer database.

We've certainly done some hires recently, beefing up our business service specialist management team that are involved with using a NewTracker system and managing our business service specialists, to handle our high level of customer service.

In lending we have Carmen Mouchacca, in the electronic payment processing area, we have Steve Haller, managing our BSS team.

Web-hosting, Derek Curtis, as well as looking to add additional people in that particular area.

And insurance, we talked about the additional recent hires of Bill Bayer, David Tanner, and Pamela Gay, combined experience among those three professionals are in excess of 45 years of insurance agency experience, so we're pretty excited about the hirings that we've done, particularly in the insurance area, to beef up our level of customer service.

In the Human Resource area, we're very focused on growing our business, obviously, and the need to hire, train and recruit.

We're very much focused on scalability across the entire enterprise.

We have recently discussed publicly the growth of our Brownsville, Texas operation center, which now has 50 people.

Where we basically have business service specialists and customer service representatives.

We have recently, in conjunction with the University of Texas, been awarded a $1.25 million federal grant to build out a $20,000 square foot (sic) facility.

The grant actually has University of Texas named with respect to the i-Tech Center, but that money is slotted for our space, which is 20,000 square foot that we signed a lease with the University of Texas at Brownsville.

We've also recently added a new outside independent director, Gordon Schrader.

Gordon has a significant background in Human Resources, he'll be our fifth independent director--actually, yes, our sixth independent director, in addition to the two inside directors, Jeff Rubin and myself.

Gordy's got significant experience--I can reference the recent press release on Gordy.

Gordy was Head of Human Resources at Pfizer and also had very senior human resource positions at Merritt and GE, very familiar with six sigma training.

We look forward to what Gordy can add to our organization from the board, particularly in the Human Resource area.

We're constantly making IT advances and adding new directives.

We're perpetually updating our NewTracker system, which we have filed a patent on.

We're currently working on our master central database product which we have labeled CDIA, to help us cross-sell and cross-service our customers.

We also aggressively utilize our technology for quality controlled financial management reporting and we're finding that more and more of our alliance partners are using the NewTracker system, going into the system, looking at the notes in the system and confirming that our level of customer service, as we handle their clients, is of the highest quality.

We always want to review and talk about why we acquire or are able to attract small and medium-sized business clients cost effectively.

We recently had a meeting with an external, large, midwestern financial institution in the banking business and we had a chat about how we acquire customers versus how they acquire customers.

They made a comment that basically the banking business, or banking institutions today, acquire customers across the board, whether it's electronic payment processing, lending, insurance in a very expensive way.

When you think about the branch network and the fact that most clients are required through Vice Presidents in the banking division, in the commercial area, these are not inexpensive professionals.

Our methodology of using our NewTracker system, connecting with a financial institution's internet or intranet, I reference AIGSmallBusiness.com, I reference NewAllianceBank.com and other financial institutions that we do business with.

We hook into their internet as well as go into the intranet of entities such as Merrill Lynch, Morgan Stanley, to get referrals from their distribution channel.

We use the NewTracker system both to manage our own [BSSs] and our alliance partners use it to give the brokers and credit union executives comfort that, in fact, we are going to manage their customer relationships cost effectively.

By doing this, we don't not need the advertising, the bricks and mortar and expensive salary or commission oriented personnel that our competitors use in these spaces.

Technology makes referrals easy, and we're constantly building our brand.

On the processing side, the NewTracker system drives the boarding process and customer service application to remote production plants in Milwaukee, Phoenix and Brownsville, Texas.

Business gets boarded electronically through telephonic interviews.

We don't want or require our clients to type in application data or to hand write applications and send them out to us.

Our desire, obviously, and standard operating procedure, is to do telephonic interviews across the four, five, six different products that we have.

The data that we receive on a given product can be shared due to these being commercial applications for multiple products and services and we minimize our commission expense due to referral fees versus paying outside brokers, which in the EPP area can be as high as 80% to 85% of the residual, also giving ownership to the independent sales agent, as well as high fees through BDOs.

Our process, which requires much less leg work from our alliance partners, just give us the referral, we do all the heavy lifting, really makes a lot of sense.

And most of our referral partners do this just to make sure that we service their clients well and reduce their potential customer attrition.

In the portfolio of alliance partners, we feature Navy Federal Credit Union, CUNA, AIG, Morgan Stanley, UBS, PSCU and others.

We have in the pipeline a major business and financial services institution technology partner.

We hope to announce that in the next 30 or 60 days.

A major clearing broker dealer, and a few other organizations.

So, we look forward to making those types of announcements in the near-term.

Our financial focus, our growing cash flow from businesses obviously is apparent.

Mike will talk about our growing EBITDA and pre-tax net income from the various different businesses.

We're clearly deploying operational leverage, you can see that in our discussion of our ABC process.

We are clearly adding value-added business components, items such as payroll.

We are reducing the financial effect of the Capco business, that's burning off over time.

I ask you to note the reduction in total assets of the Company over six months by about $13 million, and you can see that the non-cash expense of capital burns off every quarter.

Opportunistically, we're always seeking to do acquisitions and acquire businesses within our footprint.

We hope to announce an acquisition in the electronic payment processing space shortly and we're always seeking out and simplifying the financial reporting and structure of our business.

Why is Newtek well-positioned?

We are clearly growing the small business market with a big appetite for business in financial services.

We have a high-quality product offering, which is demonstrated by organizations, such as Merrill Lynch, that have been with us for three or four years, who recently rerolled our contract for three years.

I'd like to point out, obviously, we love our relationship with Merrill, but Merrill is an organization that makes billions of dollars of net income a year, we obviously, no matter what we do, can't make that much of a significant financial impact to them, but Merrill continues to use us because they realize that we add tremendous amount of value to their portfolio of products and the way we handle their customers.

And actually particularly with respect to EPP, we can show an organization like Merrill and the brokers and their customers an immediate cost-savings and value-add to their customer base versus the hope, future and promise of an investment opportunity, up front through our electronic payment processing offering.

At this point, we really don't know of any other comparable companies that can offer all these different products, using our technology in the way that we offer them.

Business clients do prefer fewer providers.

We're clearly a low-cost provider in this market, low-cost acquirer of businesses, as well as a low-cost processor of businesses.

Small and medium-size business market place clearly coveted, there are very few economists today that aren't concerned about the consumer sector being over levered and over spent.

Although I think we're all somewhat concerned about the economy, the small and medium-size business market, we seem to feel, is better insulated to weather an economic storm, particularly given the over leverage that we think exists in the consumer side of the market.

The Company started with a white board, which is why we're able to roll out unique software, such as NewTracker, and most importantly, insert an operational and systems methodology to handle business clientele cost effectively.

Our division presidents all work very well together, there is no fiefdoms, there is no arguments between the division presidents.

The division presidents view themselves working for Newtek, not a particular division.

We make sure that the presidents don't have unrealistic goals or expectations and really put tremendous amount of pressure on them from a quarterly basis to drive product and profit, clearly that is there.

We want to make sure that they do perform but we also want to make sure that they've got an overlying and overreaching goal, which is dominant and that is to grow Newtek Business Services as a whole.

We have a long-term plan and execution and implementation strategy to go along with it and management clearly is aiming high.

This is not a short-term play to try to grow the business for a short-term and flip it out.

I think that's clearly demonstrated in the way that we run our business and our rationale for taking cash flow that we have and investing it back into our business methodology.

I appreciate the time you've spent with me today.

I'd now like to turn the remaining part of program over to Mike Holden, our CFO, who will further focus on our financial performance for the quarter.

Thanks, Barry.

First I would like to talk about the consolidated statement of operations which is included in our press release which compares the second quarter of 2007 with the second quarter of 2006.

Revenue for the second quarter increased $4 million or 21% to $23.4 million.

This was primarily due to a $2.5 million increase in electronic payment processing revenue, $1 million of recoveries of investments in qualified businesses that Barry talked about, which is included in our other income, a $600,000 increase in web-hosting revenue and $500,000 from the CDS business services, also included in other income.

You will note that income from tax credits, which is associated with our Capco program, was $1.3 million or just 6% of revenue.

This is a $700,000 decrease from last year, we achieved our last investment hurdle in our Capcos in the fourth quarter of 2006 and therefore, we will be recording only small amounts of income from tax credit revenue going forward.

Expenses increased $3.3 million or 14% to $26 million.

We recorded a loss before our benefit for income tax and discontinued operations of $2.8 million in 2007 as compared with a loss before the same income tax benefit and discontinued operations of $3.5 million in 2006.

We are treating our investment at Phoenix Development Corp.

as a discontinued operation.

We recorded a loss of $286,000 in 2007 as compared with income of $59,000 in 2006.

Phoenix Development Corp.

is in the process of being liquidated with little or no future profit or loss anticipated in 2007.

Our net loss was $2.4 million or $0.07 per share in 2007 as compared to a $2.3 million loss, also $0.07 per share in 2006.

Also, right now, I'd like you to turn to the balance sheet, which was in the press release, and which compares our June 30, 2007 balance sheet to our December 31, 2006 balance sheet.

I'd like to point out a few items.

As Barry mentioned, our cash totaled $40 million, this is cash and investments at June 30, as compared to $43 million at December 31, 2006.

In the first quarter of 2007, really the first half of 2007, we consolidated our investment in CDS, which is a billing and receivable finance company.

This has added $2.9 million in accounts receivable, $2.5 million in goodwill, $1.9 million in accounts payable and $2 million in bank notes payable to our June 30 balance sheet.

Also note that our balance sheet continues to shrink as tax credits are delivered, which reduces the asset on our books called credits in lieu of cash and the liability, which is called notes payable and credits in lieu of cash.

This is a non-cash reduction to both the asset and the liability.

I would now like to review the performance by segment.

If you turn to the PowerPoint, slide 31, this compares our second quarter 2007 guidance with our actual results of 2007.

You will note that overall we recorded revenue of $23.4 million as compared with a guidance range of $22.7 million to $23.2 million.

Most of our outperformance came from the all other segment, which was $1.1 million over the top end of the range.

Our pre-tax loss was $2.8 million, consolidated, significantly better than our guidance of a pre-tax loss of between $4.1 million and $4.5 million.

We met or exceeded the range in each segment, except for corporate activities.

We achieved EBITDA in our three major segments of $4.2 million, as compared with a guidance range of $4.2 million to $4.5 million.

Now I'd like you to turn to slide 32 of the PowerPoint, which compares the second quarter 2007 results with our second quarter 2006 results.

I want to go over the segments briefly.

The electronic payment processing segment revenue increased $2.5 million or 24% to $13.1 million.

All of the increase came from organic sales growth.

The income before taxes was $865,000 as compared to $723,000 in 2006.

Our pre-tax margin decreased slightly from 6.8% of revenue to 6.6% of revenue.

We have added a significant number of high volume, low risk accounts, which generate lower gross margin.

This was partially offset by lower administrative costs as a percentage of revenue as we were able to handle increased volumes without increasing our costs.

Web-hosting segment revenue increased $633,000 or 19% to $3.95 million.

We provided services to 20% more customers, including 42% more dedicated hosting customers, which we've talked about before has a higher revenue per customer.

Expenses increased $682,000.

The major increases in that were $234,000 in payroll, $235,000 in software licenses and $187,000 in depreciation due to the purchases of servers for customers.

There was a net reduction of $90,000 in interest expense as compared with 2006.

Income before taxes was $999,000, down slightly from the $1.048 million recorded last year.

SBA lending segment revenue increased by $248,000 to $2.6 million.

The increase was due to a recovery totaling $161,000 of a loan charged off when we acquired Commercial Capital Corp.

many years ago and also a $34,000 increase in premium income.

Expenses, which are very much under control in our lender, decreased $71,000, due to a lower interest expense of $140,000 as a result of $4.6 million decrease in the average outstanding balance under our lending credit facility, lower professional fees of $73,000 and $30,000 less in the provision for loan losses.

This was offset in part by a $183,000 write down we had on an OREO property.

The end result was that the lending segment generated profit of $217,000 in 2007 versus a loss of $102,000 in 2006.

Revenue in the Capco segment decreased $656,000 while the loss decreased from $3.3 million to $3.2 million.

In 2006, we recorded, as I mentioned before, $746,000 from achieving the 25% investment threshold in the [New York for] Capco.

The non-cash loss represented by income from tax credits less accretion of interest expense and amortization of prepaid insurance totaled $2 million in 2006 and $2.4 million in 2007.

Revenue in the all other segment increased $1.4 million primarily due to $1 million of liquidating events for investments of qualified businesses and $474,000 from CDS.

We generate income of $199,000 versus a loss of $707,000, primarily due to $1 million of liquidating events offset in part by losses from CDS.

As you know, this segment is very volatile.

If we have liquidating events that could cause it to--like it did this quarter, to jump up in income.

Corporate activities, which generates revenue primarily from the management fees from the Capco segment, which is eliminated in consolidation, lost $108 million, as compared to $1.2 million--excuse me--$1.8 million as compared to $1.2 million last year.

This was primarily due to $135,000 less in management fee revenue coupled with a $390,000 increase in expenses.

Consulting, payroll and benefits increased by $588,000 primarily for additional finance, sales and marketing personnel in New York City.

This was offset in part by a $285,000 decrease in professional fees.

The sales and marketing people who we call the A team, Barry talked about that before, are responsible for selling all Newtek products so we've added them to the Newtek corporate staff.

Now I'd like you just to take a minute to look at slide 33 of the PowerPoint.

This gives you the segment cash flows for the first six months.

I'd just like to go over a couple items on this.

I think this is significant because really what we try to do in this slide is on the left is our--what we would call our operating companies, the lender, EPP business, web-hosting, all other category and corporate activities and if you add those up, those columns, it comes up to what we call the total business services.

Then we have a separate column for Capco and the eliminations will take you to your consolidated number, and the number all the way over on the right in this table, if you can print it out, it's probably easier than reading it on the screen, really will tie into our 10-Q.

So, for example, if you go two lines from the top, income before benefit from income taxes and discontinued operations, that's a loss of $6.884 million, that's kind of a key number, down a little bit further, about halfway down the page, is really your net income or loss after tax benefits and discontinued operations of 5--in this case, a loss of $5.286 million, and then when we file our 10-Q, which will be next Tuesday, you will see that the cash flow statement will have net cash used in operations of 3.469 million.

So, this really reconciles all the cash items to a segment information.

So, for example, going from left to right, if you went, again halfway down the page, and looked at net income after tax, at the lender, you'd be $210,000, like I talked about before, by segment.

And you go all the way across here by each different category, EPP $1.1 million, etc., all the way over to the 5.286 million loss, and the significant thing is we make a conversion all the way down with our non-cash items to a bottom line number.

So, we really have a cash flow by segment.

So you can see the lender had a slight decrease in cash flow, really cash flow used in operations of $546,000, EPP generated $2.6 million, web-hosting generated $3.2 million, the all other category, even though it was profitable, lost $2.7 million.

The main reason for that is the $1 million that we talked about is not a cash item for GAAP purposes in the cash flow from operations so we back that out, so that's a $2.7 million decrease.

Corporate activities is a $3.6 million use, and if you add that all the way across to the total business segments, we were slightly negative in the business segments of $1 million.

Capco was a $2.3 million drain and that brings you to your $3.5 million decrease.

I think this is an important thing to consider.

Then the other thing I'd like you to look at is now we can turn to slide 34, which as Barry mentioned before, really, this gives you our annual guidance.

We do have the specific guidance by quarter in the press release, if you wanted to look at that, and what we did here was we basically took the annual guidance from before and made really just two changes, one is reflect the actual second quarter results which were, as I mentioned before, $1.5 million better than what our guidance was for the second quarter.

So, that's a positive in updating the annual guidance, and then we reduced the guidance for--not the revenue, but for the income for the web-hosting segment really for the third quarter and the fourth quarter while we're transitioning over to our new facility.

We had a couple of things that went on there, we had to rent some temporary space, as Barry mentioned.

We are running duplicate rent and utilities in two facilities, our old facility and our new facility and we are looking to try to sublet the old facility at this point in time or do something with the old facility.

That's also way you can see the range is a little bit higher as--meaning normally it's a pretty tight range on what we're predicting, but for the year, we are predicting between a $3.2 million and $3.6 million because we're not exactly sure on what we're going to get in the way of sublet income.

As I mentioned before, we will be filing our 10-Q on Tuesday, and there will be a lot more details on the cash flow, the balance sheet, and the P&L and look forward to anybody calling me with any questions on that.

With that, I'd like to turn it back to the operator for questions.

(OPERATOR INSTRUCTIONS)

Your first question comes from the line of Stephen Silk with C.

Silk and Sons.

Please proceed.

Good afternoon.

Any thought of the share repurchase?

Have you done any, considering the price of the stock, and how the business seems to be turning to be aggressive to repurchase shares?

Steve, the only thing I can say relative to that is that we do have authorization, we have done a little bit of that.

We're very conservative and historically the management and the board has viewed that, particularly given where we are and where our currency is, cash is precious.

We've done very good things with the cash, such as acquire these attractive business opportunities and I really can't comment on that, obviously, but I think that the Company historically has tended to use its cash wisely to invest in business, particularly with where capital is going today.

Okay?

Capital is getting extremely expensive.

The Company has historically used its money very, very wisely to build and develop its business opportunities and I think that's what you can anticipate in the future.

The factoring business, is it what you thought it was?

Do you--since you've had it, do you see it an area of growth where it could compete with the other big three--the web-hosting and such that seems to be standing out?

Let me say this, Steve, the accounts receivable finance business we acquired at the end of December.

We utilized dollars that were available to us in one of our Capcos that were targeted for empire zone investments, and I have to be honest with the market, that one of the drivers was the fact that we're able to utilize those dollars.

There is a lot of cleanup that went into the Company that we acquired, CDS, it's taken us really many months to get the Company well-positioned.

We have added a--our levered line from Wells Fargo Business Credit, which I think is one of the great things that we've done over the last six months.

So, it's a $10 million facility.

Our alliance partners are finding receivable financing extremely attractive.

It goes very well with our term lending opportunity of 7A and 504 and conventional commercial.

In this particular market, receivable financing is attractive, people are very cash conscious.

There is also another type of finance in the market called merchant cash advance, which is a big business that's done with the advancing of credit card receivables, and if you watch CNBC on the weekends and Fox News, there is cable advertisements for that type of product.

So, we have high hopes for receivable financing, although I--just to be tongue in cheek, I think it could be significant, but I think it's going to take a while.

I think it's one of our good product complements.

We haven't broken receivable financing out that--that number is, I believe, come out in the all other category, and we think it is a very good complement to other things that we're doing.

The recent hire that we announced today, Donna Neary from First Data Corp., has experience in merchant cash advance.

So when you look at merchant cash advance as a pretty significant area, our receivable financing, we think it's good, we think it's very important to positioning this Company as a small business lender.

Other pieces of the puzzle that you talked about adding--I thought at one point you had mentioned perhaps getting into payroll processing.

Can you discuss possibilities of that, and what are some of your other ideas of how you can expand, which is an already-wide encompassing offering?

Payroll currently is on the menu, we've rolled it out.

We haven't put out any announcements on that, but we do have a payroll product.

I believe if you go to our website, it is one of our product offerings.

It is clearly attractive.

We have a lot of banking institutions, for example that have been interested in payroll because it ties right into the checking account.

Also, it kind of goes ham and eggs with our insurance agency, because through payroll we're also able to offer health insurance, benefits, workman's comp, things of that nature.

When you talk about tying our products together, also if you take a look at the Donna Neary press release, we talked a lot about the connectivity to web-hosting, electronic payment processing, things like identity theft, business interruption, all great ideas and concepts.

We have a lot of things to work on.

We're very excited about our product menu.

I don't think we want to expand that menu too much beyond where we are today numerically.

We are really interested now in honing in, improving our service, working on interesting product offerings.

We have had a few large financial institutions that have come to us and indicated they're interested in a private label web-hosting offering because they realize that clearly to be able to go out with such an offering will tie into their ability to take in deposits, do electronic payment processing, sweep money into their accounts and it's a pretty good strong business offering today, particularly given that many businesses have a website and do take payments through the website.

And one last question, the same question I ask every call.

Moving toward cross-marketing, which is really where I see some exciting opportunities.

Yes.

We always appreciate your--your questions and your call and always coming back to cross-selling and cross-servicing.

We have a project internally, which we have named the project CDIA, which is building our relational database, and we feel very strongly that before we go after our existing 8,000 business customers, we want to make sure that we've got the right software and the right trained staff to be able to do that effectively.

Because we could do it now, all you really need is a phone and a product offering, but we want our customers to feel that Newtek takes care of them, Newtek doesn't give their names out, and have them spammed.

I mean we're constantly asked to sell other things to our customer base from other providers.

We have totally resisted the temptation of doing that.

We want our customers to know we care about them, we don't give out that customer list and we don't want people hassling them, so to speak.

When we call up that customer, we believe that cross-selling and cross-servicing should be done by our CSRs as a function of the customer being in the portfolio, calling possibly quarterly or semi-annually, discussing with them the current activity, whether it's how much Visa, Master, Discover, American Express they did the previous quarter, how many times their website got hit with frequency, giving them real-life market information such as your insurance premiums are due, and this is what we're seeing in the market and by the way, we have a special on data storage.

We're offering two free months worth of data storage, three months worth of web-hosting, it is--it's off the white board, it's in implementation.

We have got people working on the software as we speak, it's a big project.

My preference is to do our cross-selling in a centralized location where we're servicing our customers.

I'd prefer to do that significantly out of Brownsville, Texas, where we've got great hard-working personnel, cost effective real estate and, frankly, we've got all of our business services being handled by BSS and CSRs in Brownsville.

That's the only location that we have where we've actually got all four or five, our significant functioning businesses in one location.

So, that's probably a more detailed explanation of this that I've discussed and that's based upon the fact that we're working on it, and I'd like to start to report results on that at some point in time in 2008.

Thanks for taking my questions.

Thank you, Steve.

Your next question comes from the line of Evan Greenberg with Meadowbrook.

Please proceed.

Hi, Barry.

Just got off the plane, missed most of the call, but just heard the last part of it.

How you doing?

Barry?

Yes, Evan, thank you, we can hear you.

Okay.

Wanted to get an idea on CrystalTech because I know you rolled out the Brownsville program for data storage.

Have you thought about making any acquisitions with CrystalTech, stripping out costs of other small internet hosters and (inaudible-technical difficulties) that franchise?

To try to repeat the question because Evan was breaking up a little bit, what I basically heard was are we looking to do acquisitions, using what we currently have with CrystalTech and try to grow our web-hosting presence.

I think the answer is we're always looking at acquisitions, where we believe they can slightly add to opportunities within our fingerprint.

CrystalTech currently has $1 million of debt on it, the merchant business has no debt on it.

We believe that there is an opportunity for us to position ourselves with a borrowing facility on those two entities and opportunistically take advantage of acquisitions and the markets coming in our favor.

We obviously resisted the temptation of buying overvalued companies over the last several years.

We've got dry powder, we've got borrowing capability and we will look at taking advantages of that when the opportunity presents itself.

Your next question comes from the line of Harold Elish with UBS Financial Services.

Please proceed.

Hi.

You spoke at some length about how you're building your--your brand equity, essentially through alliances with various other financial services firms, and I guess my question comes to, at what juncture you begin to build it out on your own and feel you need to make investments to build the Newtek name out, and get that out in the public and not rely on what has been a very good and inexpensive way of building your clientele up until now.

I think that's a pretty good question.

I think that historically we have not advertised on radio, advertised on print, gone on the backs of buses, etc.

One of the things I believe we accomplished over the last 12 months was the development of our website which is very attractive.

We've actually started to get a lot more business in what I would call a Newtek direct channel, and the better we service our customers, the more viral marketing works for us.

So I think that--that's going to occur naturally and I do think that we are going to look at beginning to experiment with spending some money on radio, print, newspaper.

We think that to a certain degree--we obviously believe that's prospectively a low return on capital.

On the other hand, we do think that--I mean the amazing thing is we're doing this business without doing any of that.

We are not a traditional marketing company.

We don't use the traditional feet on the street in the merchant business, which are called ISAs, they get 85% of the residual payment.

We don't use the traditional BDO, or Business Development Officer in the lending business, that typically gets 2% to 3% of a fully assembled loan.

We don't typically pay insurance agents 50% to 60% of gross commission to bring in an insurance deal and book it and board it.

So we like our low cost of acquisition strategy, but I think it's a good question to say, are we going to start to experiment?

And I think the answer is yes.

Because, frankly all it takes is the cash.

We have the cash capital on our books and we think that might be a good use, because as you know, you start to build that customer base from 80,000 to 120,000, 150,000, etc., it starts to feed on itself a little bit and you start to put the cross-selling, cross-marketing opportunity in, you get bigger.

That Newtek name and brand really starts to feed on itself, so we may start to do some of that experimentation, and that will probably be discussed in upcoming board meetings.

I appreciate the feedback.

Thank you.

Thank you.

Your next question comes from the line of Joe Blankenship with Source Capital.

Please proceed.

Good afternoon, gentlemen.

Hi, Joe.

In terms of trying to look beyond your guidance, is there any metric that you have relative to amortization of the Capco business, and how it affects P&L?

Is that a proportionate amount that's taken every month?

If you look at--this is Mike talking.

If you look at our 10-K, we went into great details.

I was trying to find a page, but basically--page 48?

Yes.

Okay.

You have it memorized.

I have page 48 memorized.

Page 48 on the 10-K and basically what that does is it shows out for many, many years what our income from tax credits will be, our interest expense, non-cash interest expense and the amortization of our insurance--prepaid insurance, and it shows the net of those three items.

So, that goes into great detail year by year.

I will go back to that.

For example, in 2007, when we're talking about a non-cash loss and the impact would be $9.4 million, 2008 it would be $8.4 million, 2009, $6.3 million, as you can see it starts to go down.

By the time you get out to 2011, it's a $2.7 million hit.

So cumulatively, by the time it rolls out totally, you'd have a $34 million of non-cash losses when it totally settles out.

Okay.

That will be very helpful.

You've answered most of my questions related to potential acquisitions, done a good job of getting proportionate representation in EPP and web-hosting and things like that.

What is your goal related to let's say the three businesses of EPP, web-hosting, and perhaps the small business as a proportion of your total revenue?

Joe, that's an interesting question.

Right now the EPP side is bringing in the biggest amount of revenue, but probably has the thinnest margin associated with it.

Web-hosting has got the largest margin.

In lending, which hasn't driven a bottom line yet--these companies are so well positioned to grow and we're at such early stages and the markets of these companies--the size of the markets of these companies are so big.

It's real difficult to forecast who's going to be the winner three, four and five years out in revenue and profitability, but what we're real ecstatic about is when we look at these businesses, we believe that we've got a significant competitive advantage in terms of how we acquire the customer and process the business, and given that, I mean our goals are to be significant, major players in each of those three segments.

I mean the numbers that you see today--that's not significant.

So when I look at the amount of business that we're doing in each of these three areas, we believe that they represent a drop in the bucket of potentially what we can do.

When you look at the names of the alliance partners that we're doing the business with, the AIGs, the Merrill Lynchs, the Morgan Stanleys, largest credit union in the world, Navy Federal Credit Union--as really distribution partners, we've got a lot of wood to chop, we have a long way to go.

By the way, one of the things that we do is we have these relationships and to satisfy the customers is try to get more of their brain share which will obviously drive our business, and this is not--this business model really is three and a half years old from its inception, in terms of getting it out there and rolling it out because the Company's history, obviously, is embedded in Capco, and we fairly aggressively were in the Capco market, frankly, right through the end of raising money in 2005.

Today, we're totally in a burn-off mode in Capco and have all of our going forward efforts with respect to growth focused on the business service side.

So, I feel pretty good about it and I also don't want to not emphasize the importance of the insurance agency, which currently is not broken out, as a big opportunity--very fragmented business and industry, and I think we have a tremendous competitive advantage in that, and then we've got the other products data storage, payroll, things of that nature I think can also be helpful, but I would stay within those four to five business areas to look for the big revenue numbers.

One further question.

In terms of your 8000 customers out there, have you segmented them by industry or sector that says--gives you a particular qualification expertise in any manner toward that sector?

It's very diverse at this point.

With that said, you could pick up a brochure, for example, for Newtek Automotive Services, where we focus on auto dealers, where we have the endorsement of the GMMDA, that's General Motors Automobile Minority Dealers Association.

We've recently been endorsed by Daimler Chrysler Minority Automobile Dealers Association, (inaudible), etc., and endorsed for multiple products.

So, we can go after auto dealers with electronic payment processing, lending, and insurance.

Both for their full dealership, workman's comp, garage liability and we do want to go after segmented businesses that are at the upper tier of that S&B market because when you look at the 26 million theoretical customers from the SBA that they use as an SBA definition.

It's that 2 million to 2.5 million that are the 50 employees to 500, that are doing big revenues and have big customer counts that are quite lucrative.

So, if you are going to go target a particular industry, you want to go after the bigger segment.

Auto dealers, could be motels, doctor's offices, things of that nature, where some of our business services can be--really generate fairly significant revenue per customer.

All right, thank you.

Your next question comes from the line of Ed Antoian with Chartwell.

Please proceed.

Hi, guys, a couple of questions.

Maybe first start with the easy one.

Could you guys do me a favor and help me tie out the page 33--your schedule 33 to the EBITDA you reported?

I had difficulty doing that.

Maybe you can guide me, Mike.

Well, first of all, the EBITDA is only for the three primary businesses.

Okay?

Oh, page 33.

Okay.

33 is a little bit different from the EBITDA because the EBITDA--

Well just get me from net income and tell me what to deduct and add back, is that disclosed on the page?

The only difference between--on these three items here, the SBA lending, EPP and web-hosting and EBITDA, the major item would be in the lender with EBITDA, we're adding back the interest, okay, and of course in this cash flow from operating activities, we're not adding back the interest from the lender.

That's the major difference.

Is that number on this page or no?

No, it wouldn't be because that's included in your regular expenses up top for interest and it's not added back on this.

Okay, the 47.14 includes interest.

You don't know that number?

I do know it, but let's see.

Wouldn't you know I don't have that schedule.

I might can call you separately and go over it, but that's the major difference, and, of course, all of these other items down below, like, for example--the small items, like, for instance, in the lender, the provision for loan losses on down, are not in your EBITDA calculation.

The only thing that would be in there would be the 779 for depreciation.

All of these other items are really your non-cash items that we're either adding back or subtracting to get to your cash flow from operations.

Okay, all right, Mike, maybe you and I will go over that and we can get there, tomorrow we can do that.

Yes, okay.

I guess the hard question is on the EPP business.

Well, first, the easy part of that, though, has there an acquisition in EPP in the last 12 months?

Not in the last 12 months, no.

So, it is relatively organic but nevertheless it appears as if--if you look kind of on a quarterly basis the growth rate of that business, which is probably your most attractive or valuable business, is declining.

Barry, can you talk just kind of frankly about that business and is it just--it would be hard to believe that at your size, which is still relatively small in the industry, that--that would be your reason for why the growth rate is slowing.

In fact Heartland, in fact, accelerated their growth rate last quarter.

So, could you talk about why the growth rate in this business is waning?

Sure, Ed, I think that when you look at--at what we do and our distribution channels, there are times where we're going to have certain ebbs and flows.

I think in the first six months of this year, we had a few issues with some of our distribution partners, which I won't name but what--it did two things.

Number one, it did reduce our customer count.

Secondly, I think that the volume or card usage is experiencing some headwinds.

Now, I can't really experience--I can't really speak for Heartland, maybe their strategy is working and they're getting good market share, but I believe that the industry trend right now in EPP for most companies is it's becoming more difficult.

The way to describe it is same-store sales, you're just not getting as big a bang for the buck.

Now, with that said, we have two initiatives that I think will reverse this trend.

One is--one of our major clients is allowing us to actually pay commissions, which hopefully we'll announce in the near future, through its distribution channel, which I think could take us significantly higher and then we have a second client that recently added a second product and is going to allow us to effectively get the NewTracker system into the branches, and this is a 90 bank branch.

I feel very optimistic about our strategy.

I'm not concerned about our recent reductions in growth.

I would be, if, in fact, we weren't making some of these changes and some of these initiatives, but I think that the business from an industry perspective has clearly gotten harder.

We're aware of that, and we believe our strategy works and we're going to be able to combat that by putting on new alliance partners and working through the business in a different way.

You kept your guidance for revenue for Q3 and Q4 of EPP the same as it was last quarter, even though you just missed your second quarter revenue guidance in EPP.

The reason why you're kind of still confident is--some of what you just chatted about?

I think there's two issues.

One is we do anticipate an acquisition, a small one.

Okay.

Secondly, just looking at our pipeline, it's a pretty good pipeline.

Lastly, from a seasonal perspective, the third quarter, seasonally, is pretty good, particularly for our portfolio.

So, your guidance that you gave us today includes an acquisition that you haven't completed yet?

Yes.

Well, yes, I will use the term haven't announced.

I will answer that in my own way.

Okay, and then maybe we could just talk about EPP margins, they've also declined?

Yes.

Can you give us more specifics on why that happened?

Is it permanent, and what should we expect?

I think there's--we look at our margins and there's a gross margin which is driven by our--our, I guess what I'll call our cost of goods sold interchange.

Recently there's been price increases that we have not passed on to our customers.

Sometimes we wait for a period of time, and then do a catch-up.

We're very sensitive to that.

Then the second type of margin would be dealing with certain types of clientele that we have added.

We have recently begun to tap into supermarkets and done so very successfully.

We view that as a high volume business with very skinny margins.

We think that we're going to put on a lot more of that business, we view it as great business and very profitable, but also a business without great margins associated with it.

You've hit upon a topic of a lot of conversation that we have internally, about this business.

At the end of the day, I'd rather put that business on than not put it on, but it's not something that we're relying upon for our profitability--it's just one of the many things that we're going to be focusing on.

One of the things I will mention is the recent hire that we've made today, or announced today, I should say down in Erie, we're going to be a company that's well positioned with things like merchant cash advance that should help us in our deal count and be able to do more business with better margins associated with it.

In addition to that, Check 21, adding that as a complement, being more proficient in it, we think that's also going to help our margins as--when you go into a client, being able to handle Visa, Master, Discover, American Express, as well as better position them for dealing with Check 21 issues.

We're also looking at positioning ourselves for check 21 with some of our major alliance partners.

We have done some of that but I think we plan on doing that in a bigger way.

We think that's also going to help our margins.

So, we're aware of what you pointed out.

We're not overly concerned about it.

I won't sit here and tell you the trend will reverse itself in the third quarter, but I feel pretty good that we're not overly concerned that we're not going to be able to continue to grow this business at high rates.

And maybe just a comment on Capco decertifications?

Where are you in the process of making filings for any of your Capcos that are now qualified to be decertified?

We have two states that we are 100% invested in, and from our standpoint, we--when you hit 100%, you would apply to the state for decertification.

We haven't made any public announcements on that, I'll look towards Mike and--

Well, we're going through the process right now.

We have to get final audit and final information that we have to give the two states, Florida and New York, in order to get that done.

So, we're in the process right now.

All right, and one more margin question if you don't mind.

And just, again, maybe give us some specifics on the web-hosting business, why your pre-tax margins declined so much?

I didn't look at it sequentially, I apologize, but year-over-year down 600 basis points.

I think you have a situation where we've kind of hit another plateau.

We went a good period where we weren't adding a lot of cost, and then over the course of the last 12 months or so, we've been in the process, like I mentioned, of moving to a new facility.

We actually outgrew our old facility, and we are renting temporary space, which cost us money.

That was not a good situation.

We did add a good amount of payroll, which we think is more of a one-time situation, but to increase our hours of service to the customers.

So, that was a factor, and that's probably the two biggest factors, is the payroll, cost and the space cost.

How long will it take you to rationalize that increased capacity and increased cost?

I think starting in '07, we're going to be--as you can see from the guidance, that's kind of a transition period and I think you're going to go back to '08 is when you're really going to start seeing progress again.

I don't remember the exact--I think we have what, Barry, in the new facility, I think we're maybe at 35% of capacity or something like that?

Yes.

In the new server facility.

So, we were at more than 100% in the old facility and we're in the 30s and growing right now.

So, the issue, Mike, it's not pricing, it's not customer churn, it's all additions to capacity?

I wouldn't say--no, I would say that there's a little bit--if you looked at the pricing, it's a little bit under pressure, but that's not a huge factor.

We are definitely not discounting at this point in time, and that's not our concern.

We've got --we're paying rent in the new knock center and we've got plenty of room to grow there, I should also add that Mike is a--is electricity or power issue, as well?

Yes, yes.

Electricity and power costs are an issue, but I feel pretty good about where we're positioned in that market, particularly given that we believe we're one of the few web-hosting companies that can go into the market and offer an all-encompassing solution, which we don't currently have on the menu, of we can do your electronic payment processing, we can do your web-hosting, we can do your data storage and we can provide you with some sort of identity theft and business interruption policy.

So, we are clearly a company that has a lot of opportunities because of how we're positioned.

Sometimes I talk about all these ideas on this calls, and you've got to go out and you've to implement them, If we only had one or two, it would be very easy to do, but sometimes we work on it--five, six or seven at a time.

So, it takes us a little bit longer to actually put the ball in the hole, but when we do, we think we're going to hit the sweet spot, and that's why to a certain degree we do believe that our growth in many instances won't be linear and it will level off and it will plateau, but we feel very confident on our ability to execute on these things.

Historically we have been able to execute on the initiatives that we put our mind to.

If you don't mind, I--I do kind of want to beat the EPP horse to death because I do think it's the most important aspect of your business.

What metrics can you talk about either in your portfolio--in your--in your credit card portfolio that either speaks to softening transaction activity or if you will, same account growth, is there anything you can reference that could help us there?

Oh, I tell you--not off the top of my head.

I think what we need to do is--is do a little bit of research and come back to you with various kinds of statistics looking at--my guess is we are currently doing larger deals, more sophisticated deals--

I'm going to interrupt, I apologize because that was going to be my next question.

My concern is when I asked about margins, you told me that, in fact, you've got some larger clients, I understand the spreads are tighter with supermarkets.

I was surprised you didn't pass through the interchange rates as your competitors, most of them relished the opportunity to pass through interchange rates, but--that when you add larger clients, I realize the spreads are tighter and the margins are lower, but usually the trade-off there is you get much bigger volume activity, and this is the slowest growth quarter you've had in some time.

And in fact, not only did our gross margins decline but your net margins declined, also.

Meaning that excess volume didn't even lever the big fixed costs layer that exists in this business.

So, that--I mean I understand the two answers separately but when you put them together it makes me more concerned and I say oh my gosh, the top line is slowing down even more than I think in the base core business of small business, real attractive spread business that you guys are known for being able to acquire.

I hear your comment, I just, I'm not in agreement with it.

Business comes into our organization from a variety of different sources.

The average client that would come in from an independent selling agent that probably comes through Heartland payment systems, does $7,000, $8,000 a month of Visa MasterCard.

Our average client, I believe, is about $21,000, $22,000, and I believe that that number in the future probably will be increasing.

We have certain distribution channels and certain distribution partners that based upon their internal issues, might cause us to have a decline in deal flow or deal (inaudible), and what I'm telling you and people on this call, is we're not concerned about the one quarter drop-off that we're seeing and viewing that as a major trend change.

I'm not saying that that's going to reverse itself in the third quarter, but from a long-term perspective, what I'm seeing, very clearly, is we have a very significant pipeline of alliance partners as well as existing portfolio alliance partners that are allowing us to tap deeper into their distribution channel that I believe very confidently will reverse the one quarter trend that you're looking at.

Okay.

To be frank with you, many times we're asked about the concept of being public and private, and this is the kind of stuff, frankly, that makes it very difficult for us to be public because--by the way, I think you're looking at the right thing, okay?

But what we're not going to do, because I've got a distribution partner that's significant to me and they've got internal machinations and we're about to come out with a new program so this thing's slow for a month, but I'm going to necessarily change anything we're doing.

On the right track, we're got the best way, in my opinion--I probably need to change that.

We--before my lawyers hit me on top of the head.

We have a very attractive way of acquiring customers and processing the business cost effectively.

Heartland, for example, I think they're paying out 80% to 85% of the residual to an independent rep that owns a piece of the residual, they own the customer.

Now, I've got totally different relationships, totally different distribution channel.

We like our way of doing business.

We don't believe this is a long-term trend and I'm more than happy to--we can beat the horse up later on.

Okay.

I appreciate your--Ed, your questions are spot-on and they're looking at the right things.

Okay, I look forward to faster growth and higher margins.

I will make sure my Presidents and Chief Operating Officers, who are all tuned into this call, are taking copious notes.

Okay.

Thanks.

Thank you.

Your next question comes from the line of Ashish Mathur from Merrill Lynch.

Please proceed.

Your line is open, sir.

Ashish?

We may go on to the next question.

At this time, there are no further questions in queue, sir.

All right, well, I want to thank everyone for joining us on the call.

We appreciated the--the interactivity, the questions, we look forward to reporting our third quarter and best of luck.

Thank you for your participance in today's conference.

This concludes the presentation.

You may now disconnect.

Good day.