NewtekOne Inc (NEWT) 2008 Q4 法說會逐字稿

Good day, and welcome to the Newtek Business Services 2008 annual financial results conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to CEO and Chairman of the Board, Mr. Barry Sloane. Please go ahead, sir.

Thank you very much. Welcome, everybody and thank you for attending our 2008 financial results conference call. Today, the call will be hosted by myself, CEO and Chairman of the Board as well as Seth Cohen, our Chief Financial Officer. Seth, if you'd be so kind as to read the Safe Harbor Statement, I'd appreciate it.

The statements in this slide presentation including statements regarding anticipated future financial performance, Newtek's beliefs, expectation, 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 revenue 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 at the Securities and Exchange Commission and available through www.SEC.gov.

Also we need to point out that our [cap cos] operate under a different set of rules in each of the eight jurisdictions. These place varying requirements under the structure of our investments. In some cases, particularly in Louisiana and New York, we don't control the equity or management in a qualified business, but that can always be presented orally or in written presentations. Barry?

Thanks, Seth. I'd like to point out to everybody that the powerpoint presentation we are following is located on our website. For those of you who go to www.NewtekBusinessServices.com, you could follow along with the power point presentation on our website.

Looking at the agenda today on page three, we are going to cover, number one. our primary corporate initiatives and strategies, financial results snapshot, take a look at the positive momentum that is continued in the electronic payment processing and webhosting segment. We are going to discuss new initiatives in webhosting and EPP. We are going to talk about our small business finance initiatives. We are going to spend sometime discussing cost reduction measures, particularly expense reduction that occurred in 2008, as well as what's been forecasted in 2007. We are going to take a look at our marketing focus and some of the judgments that we made in that particular area. Then Seth Cohen will handle our full financial review for 2008 and a 2009 forward-looking outlook.

Focusing on our strategic planned mission and execution strategies, the Company continues its strategic plan and mission statement that's been outlined in our 10-K. Obviously many of you are familiar with Newtek's mission as a primary provider of business services and financial products to the small and medium sized business market, now servicing over 94,000 business accounts, and in doing so offering a full suite of business services and financial products. The Company continues to stay on that course and believe it best serves its shareholders in doing so.

We did a very good job in 2008 and have laid the seeds for further expense reduction in 2009. With respect to marketing, we realize that the markets and the economy significantly had some major changes and adjustments in 2008. We've done some modifications in our own marketing plan, refocused some of our efforts particularly based upon the new environment. We will also spend a little bit of time today talking about our Brownsville operations facility, and the growth of Brownsville as being an efficient provider of our ability to close book board service customers as well as outbound strategy. We will also discuss trends in the business, both from a macro economic perspective and a micro perspective with respect to Newtek.

We currently are outperforming others in our industry due to our business model. Obviously we have a low cost of customer acquisition strategy and a low cost to process that business, particularly in economic downturns that turns out to be extremely valuable. We compare ourselves to other participants, the electronic payment processing space as well as hosting space, even in the lending space, we feel that our businesses are standing up very well today.

We clearly have strategically avoided the pitfalls of other companies, primarily by not leveraging the balance sheet, by not doing an acquisition strategy, by acquiring or buying merchant portfolios with debt or buying and acquiring webhosts with debt. Companies that followed those particular strategies are clearly experiencing the wrath of same store sales declining, having significant amounts of attrition and having a difficult time servicing their lenders' debt. In 2008, we have improved our cash flow with expense reductions and growth in business and we believe that trend will continue forward into 2009.

We are currently have been in the process of repositioning the SBA lenders financing. For those of you that follow the Company closely, I think you are aware that we have a facility with G.E that's participated [without] the CIT signature. We believe obviously in the current credit crunch that we need to have more permanent financing for our seven A business lending product. We are obviously still in the receivables finance business which are Wells Fargo business line which we refinanced and restructured this year, is very well-positioned to last us for another three years and is underutilized and our merchant cash advance business where we basically service an agent is well financed. In terms of our SBA seven A activity, we will talk a little bit about it, getting new financing is clearly an agenda item for the Company.

We did a good job of signing up new channel partners such as Microsoft. Obviously we've historically had a significant influence by a lot of our strategic alliance partners were financial. That has made things a little bit more difficult for us clearly in 2008. We are focusing on technology partners in particular which we'll discuss later on in the presentation to give us the good boost that we need. Frankly our performance in 2008 with respect to revenue growth really was terrific, considering that a lot of our referrals and relationships did come from a financial sector that really was falling on hard times. Lastly, further developing our outbound outreach program versus our traditional almost inclusive inbound marketing program has begun to take off, beginning in November and December of last year and is showing some very good early returns.

Looking at some service 2008 financial results. The electronic payment processing segment, revenues increased 15% over 2007, $63.4 million. Web hosting up 11% over 2007 at $18.1 million. Small business finance clearly was problematic based upon the credit crunch and we're down 38% in revenues. The biggest issue there related to a lack of gain on sale which was for the most part nonexistent in the second half of this year and increased loan loss reserves.

We recorded a pretax loss of $12.5 million which missed previously stated guidance of $12.1 million to $11.3 million. We have depreciation annually of about $7.6 million. We took a look at our goodwill on our books and we reduced the overall goodwill by $1 million of impairment there. That obviously reduced our pretax or say increased our pretax loss. In our lending segment clearly adversely affected a 2008 earnings or 2008 pretax loss coming in at $6.1 million. As Seth Cohen will talk a little bit later in our presentation, we have ceased taking new loan applications toward the end of the third quarter of last year. We believe that for the most part we have clearly reduced our losses, and you'll see that in our lending guidance and are taking a lower profile until we can actually reposition the lender with better and more permanent types of financing.

Our cash position, we finished the year with $25.2 million in cash and cash equivalents. That was down from $38 million. It equates to about $0.71 per share. A significant amount of that reduction was based upon an investment into existing seven A loans as we paid down our G.E. facility, factored receivables, capital investments and webhosting equipment that basically drove our dedicated server product line. We look at 2008 and we believe we actually burned approximately $2.4 million of operating cash. We believe that we will increase nicely over 2009.

When we look at our electronic payment processing space, we obviously had good revenue growth of 15.3%. Our EBITDA margins improved 11.2% versus 8.4% last year. Some of that is based upon what Seth will analyze; some reserves that we took last year. We did have merchant attrition. Frankly when you look at the economy and the market, it's almost impossible not to have above average merchant attrition.

However, what we've been able to do is replace the smaller merchants that are going out of business with larger merchants that are driving better revenue and better margins. I think that's a function of our business model. As we continuing to into a tough economic time, we are going to lose weaker businesses, smaller businesses, businesses that are on the cusp. I think we've done a pretty good job as you can see by the growth in revenue and hosting NEPP by being able to replace the merchant count with higher, bigger and more profitable merchants.

EPP business obviously is a cash flow positive business with great significant operating leverage. We believe based upon our model, we have a good potential to increase our market share. Our forecast for 2009 EPP EBITDA is $5.5 million to $6.1 million. You'll see that's down over what we basically were able to bring in in 2008. We view that as a conservative forecast. looking at the economic headwinds. Frankly so far on an unaudited basis, some of the trends that we've seen in January or February are outperforming that type of forecast.

However, we are extremely cautious and when we look at the economy losing 500,000, 600,000, 700,000 jobs a month, we want to basically make sure that we are conservative in our forecasting. Our EPP segment currently has no debt on it. We are very positive and optimistic about our e-commerce projects which is a key initiative to us. That basically combines our ability to take payments for a client as well as host, design a website if need be and provide them with a gateway, all under one new tech brand and name.

Looking at our webhosting initiatives, our revenues were up 11.4% over '07. Once again, a very challenging market. We are continuing to invest in our webhosting business. We like the business a lot. More and more businesses are seeking to have hosting applications in addition to hosting a website. They are looking for more outsourced services. The hosting industry and market is a terrific trend for us to continue to participate in.

We are very closely evaluating our expenditures in this segment versus productivity, particularly in the marketing area. We have plenty of capacity. We are using about 60% of our real estate in our [knock there]. We began a wholesale outreach in the third quarter of 2008. That's beginning to really show some good dividends, calling out to intermediary wholesalers, various IT partners and web developers. And we are forecasting about $6.9 million to $7.7 million of EBITDA in 2009.

We recently issued a press release announcing our tech exec program and things that we were doing with Microsoft. We are very excited about our relationship, which is a longstanding relationship with Microsoft and offering various products and services including our tech exec product and program into their IT partners and web developers. This particular channel, that is IT partners and providers, two small and medium-size businesses, is a great marketing channel. We are targeting this particular group as a great source of growth for 2009 and beyond.

Looking at the small business finance area, we obviously had a precipitous drop in revenue of 38%. As we discussed, a reduction in loan originations in '08. The credit markets freezing up. The market for government guaranteed SBA loans effectively froze in the third quarter and was primarily frozen in the fourth quarter.

Management wound up making a decision to hold a lot of the government guaranteed pieces through the end of 2008 and began to sell them off in 2009. The pricing on the government guaranteed portion of these loans is starting to recover. We are now starting to see bids of 104 to 105 on the products that we've created historically which are prime based loans. Given some of the changes that the government is making and the thawing of the credit markets, we think that the prices should significantly improve for the government portion of these loans.

We go back and repeat a little bit of history. Obviously the problems associated with our SBA seven A business, the prime and LIBOR spread causing some problems. Basically providing funding to small businesses at prime plus 2.75% when major corporations were borrowing at 12%. SBA loan volumes last year were down approximately 60% or more. Washington began to create some solutions in the fourth quarter which they obviously followed through with, which we'll talk about on the next slide.

Our G.E. line of credit, obviously is an issue for the Company. We currently have a $15 million corporate guarantee on that line. I would make it available to everyone to take a look at our 10-K, to take a look at our full disclosure on where we stand with the G.E. line. That line comes due in August of this year.

Positive trends for SBA lending, the government has basically increased the ability to guarantee a loan up to 90%. Not for a full $2 million loan, but I believe it stops at about $1.5 million, maybe $1.666 million. That's up from 75%. What it really does is gives an SBA lender significant improvement in leverage, significant increase and gain on sale, and really allows your capital to go much further.

Also fees have been reduced for us which actually improves our spread when we do these transactions by about 50 basis points. Conventional loan market not very competitive. Wherein 2007 and the first half of 2008, the banking community was very competitive for credits and many of our borrowers would prospectively go to the conventional market to get financing. That's almost a nonexistent aspect today. Today, you can make a seven A loan and frankly get better quality loans at better prices and better execution.

We are continuing to position ourselves for the opportunity to buy sub and nonperforming portfolios with outside money. We're bidding on SBA servicing and sub servicing contracts as we speak. We have a terrific lending infrastructure that is still in place and intact/ This infrastructure frankly is very valuable today. Most of our competitors in this space, the nonbank lenders, have ceased lending and frankly are in liquidation and have gone out of business. This very decimated sector may offer some of the best opportunities that Newtek has for profit potential in the future.

Looking at negative consequences for the SBA market as we discussed earlier, we are clearly looking to reposition the Company's financing. We are looking at a variety of different alternatives which we are not at liberty to discuss today, but I can assure you the Company is in conversations and does have some alternatives that it is seeking. The existing portfolio, we believe is fairly well-behaved given the economic scenario that we are in with appropriate reserves, but we are concerned about what the economy may have in store for our portfolio in the future.

Also collateral values are continuously under pressure as the value of -- residential real estate and commercial real estate are clearly under pressure as liquidations are occurring in the marketplace. I will add that our lender and I say our lender, our seven A lender has significant net worth. We currently have approximately $17 million of borrowings with G.E. that should be reduced when we sell a couple million of governments out of that line. Looking at $30 million to $31 million of approximate loans against $15 million to $17 million of borrowings, this is an entity that is not highly levered but we believe that we will be able to reposition the lender going forward.

One of the things the Company has been successful with is cost reduction measures. We've significantly reduced expenses, particularly in the corporate overhead segment. We've discontinued three service lines. We've cut our headcount significantly.

We estimate that in 2009, we've had cost reductions that should equate to a minimum of $4 million of cash savings. Some of that you will see in the improved guidance that we have for our pretax net income in 2009 versus our actual results in 2008. We plan to continue to review all sessions to recognize additional cost reduction into 2009.

When you look at some of the specifics, we thought that an analysis of our payroll using February 15, 2008 headcount and payroll data from February 15, 2009 payroll and headcount data, you can see that there's been significant reductions. This is a run rate analysis based on semi-monthly pay. If you look at our payroll at 2/15/08, we were at $20.1 million on a consolidated basis versus 2/15/09 at $14.4 million. You look at the bar charts going forward on slide number 17, you can see that we reduced our headcount by about 24.7%. And we reduced our dollars by about 28.4%. The Company clearly is trying to stay ahead of fairly stiff economic headwinds. We've been able to do this frankly without cutting into what I would call our process or our ability to produce a high quality product for our customer.

Looking at 2009 going forward at the holding company level, we've had an overall reduction of about $3 million in payroll. We also had some savings by merging our IT department at holdings into our webhosting division, basically utilizing all of the talent and infrastructure that we have at our new tech webhosting segment. We are able to shift marketing expenses and we talked about modifying our marketing. Our outbound strategy has started to kick in. Frankly at lot of the initiatives that we expensed over 2006, 2007, 2008 should now been followed up with an aggressive outbound call center campaign as our professionals are being trained in Brownsville to be able go out to our existing alliance partners and dive into our database as well as their database.

We reduced our real estate exposure across various markets and we believe we will continue to do that. By taking smaller bites out of real estate in various different markets, we reduced expenses and it's down to things such as having less choices of soda or coffee, looking at our utility expenses, renegotiating things like our T1 lines and our telephone expenses, as well as facilities management. We've really have done a very good job in the core areas of expense reduction. We've also in our poorer performing market segments, such as small business lending and insurance, have been able to reduce the overall size of those organizations until we could develop a better formula for them.

Looking at Brownsville as a key component to our growth for the future, we clearly view Brownsville as an efficient provider in all the key different disciplines, looking and binding customers for service, servicing customers, as well as our outbound strategy. All of our divisions are represented in our new Brownsville facility. We literally finished our build out this week with a $1.25 million dollars federal grant and the 15,000 square foot facility. [Brian Flax], who is our SVP of operations, is physically moving to Brownsville as of April 1. He will work with all of our personnel down there to continue to grow all of the efficiencies across the entire platform, not only just in Brownsville but as well in Phoenix and in Wisconsin.

What we refer to as our CDIA functional program is our cross -marketing and cross-selling platform which got launched in December of 2008. Our outbound personnel are now trained. They now have the software that we believe is required to make those outbound calls. Early results are attractive. We currently have a pipeline in the EPP space that is as large as it's ever been in the history of the Company. We are having and seeing record referrals from alliance relationships that we've never seen before. The early results are showing excellent work, but the model obviously always needs to be constantly reshaped and updated.

What is our growth strategy going forward? Given the down turning in the market, we believe that we will continue to be able to grow our business organically, but this is probably not a bad time to look at acquisitions within our footprint. We think we will be able to take over hosting and electronic payment processing opportunities in working with existing banks that might take over operations and need us take over their debt. We are were going to continue to emphasize cross-selling and cross-marketing into our customer base, as well as the customer base of our alliance partners. We believe that we will be able to continue to improve our cash flow and Seth Cohen will talk about that as we go over our financial forecast of 2009.

Looking at our marketing initiatives, our focus from our inception has been on inbound opportunities from a contracted base of alliance partners. Obviously 2008 was a very difficult year for the traditional Fortune 100-type sources that have a business focus in the financial services industry. Entities like AIG Knowledge and Morgan Stanley that were household names clearly had a difficult year. Although we continue to get significant amounts of referral businesses from these relationships, it's very important for us to diversify into other areas.

I will tell you however, these relationships as well as inflows coming from credit union market and regional community banks continue to be the bolster are of our marketing efforts. They are continuing to drive the majority of our referrals and the majority of our revenue, particularly from the a high quality standpoint. These are the highest quality customers that bring us the greatest margins and spreads. We love the strategy and we love our alliance partners, and plan on continuing to work with them and through them. Obviously in times like these, for organizations that are looking to downsize and shrink, our outsourcing model works even better for them than it has in the past.

Some of the marketing adjustments that we believe have been required looking at client acquisition, we are working very hard on Newtek messaging,Newtek branding, our product mix. We now have got all of our products that are advertised on a lot of our statements, a lot of our e-mails going out all of our phone messaging. There is an overall Newtek Business Services messaging component that is obviously being dealt with with our existing customers that are calling in for technical service. Approximately 15% to 20% of our customer base actually calls into us monthly looking for help in EPP or webhosting. We are also looking at other type of channel marketing, as well as other type of potential advertising to reach the customer base. As we mentioned earlier, primarily out of our new tech processing center, the outbound calling effort and initiative has begun from December of last year and it's beginning to bear some excellent fruit.

One of the things I'd like to point out as we are going out to our customers, the most important message that we have for the small and medium-size client is we can help reduce your cost, provide you with better service. That message resonates particularly with small businesses. Most small businesses are having a hard time growing their topline, but are very much open to growing their bottomline. Working with them to introduce how we can save them money on their existing insurance policies, our payroll product is typically cost-effective versus some of the better known players like Paychecks and ADP. Offering pay-as-you-go workman's comp which is a monthly payment method to reduce that one-time up-front expense that many business have to deal with when they are dealing with their comp provider.

Looking and analyzing their EPP processing costs and processing methodology to get their overall costs down. As well as really offering a one-top branded shop for e-commerce where we can provide them with a hosting gateway, shopping carts and a full Newtek branded solution. We did launch our tech exec project. For those of you that are interested in seeing what that is, you can take a look at our website, www.newtektechexec.com, NewtekTECHEXEC.com. It's a great product primarily for professionals that are in the technological space, either IT partners or web developers, to basically resell our products to their customer base.

In our lending segment, we've clearly had to focus more on things like accounts receivable, financing and cash advance, shifting away from SBA term lending. We are hopeful that we will be able to put that back on in our menu in the second half of this year. Obviously that depends upon us being able to reposition our long-term financing opportunities.

We are also focusing on complementary multiple sales products to one client, such as combining EPP with cash advance, payroll and workmen's comp, hosting EPP together. We have talked about obviously different types of advertising and this will be one of the first times that the Company actually has a budget for some outbound advertising to try to get the Newtek brand in the market either on cable or radio.

Looking in overall trends in business, number one from a macro standpoint, sorry to be a reminder of just bad economic news, but obviously things like the Dow Jones market dropping, AIG having its difficulties, G.E. cutting its dividend, a quality company like Dell that basically has no debt trading at two times earnings that having to [deduct the cash], comparable businesses like First Data Corp and it's new owner KKR devaluing it's value by 40%; a real difficult economic environment to be in from a macro perspective.

From a micro perspective looking at Newtek, we've experienced competitive pricing and repricing measures, putting some pressure on margins. Marginal clients are failing. Small and medium-size clients that just were on the bubble in '07 and '08 are going out of business. All of our business clients are dealing with problems with respect to healthcare costs increasing, energy costs increasing. New business formation of SMBs at a low level.

It's pretty hard for a new business to start up simply when they are having a hard time getting financing. Obviously we talked about our strategic alliance partners in the financial segment being weakened. AIG credit concerns -- AIG is the provider of credit enhancement of some of our cap co notes. Looking at the rollover of the G.E. line coming due is an issue for us. Overall delisting for the Company does become a factor in September of 2009.

On the positive side where repricing can also be viewed as a negative, it can also be viewed as a positive. It's given us the ability to go into customers, pick up new market share and basically show them new opportunities. Frankly we've been pretty good at this. On a net basis, I think this has been a positive for us. Newtek morale is very high. I think that people that work within our walls are aware of what we are doing. Yes, expense reduction is tough, but obviously they see that our results are bearing fruit. They see that we are growing our revenue base. And they see that new entities like Microsoft are excited and willing to do business with us.

The Brownsville initiative with respect to cross-selling is developing a nice pipeline of new referrals and demonstrating that we do have the ability to go outbound and be successful in marketing. The Company is extremely excited about our e-commerce platform and opportunities there, and also recognize that our historic business model of alliance channels represent the best quality part of our client portfolio and that it's a winning strategy.

Looking at our 2009 segment guidance and I'll let Seth focus on this primarily, we are happy to announce that going forward our pretax loss that we've given a range of $7.4 million loss to $5.2 million pretax loss is considerably narrower of what we reported this year. When you take a look at the depreciation and amortization that the Company historically deals with, we do anticipate that would be generating positive cash flow from operations next year. You can see the chart on page 36 is a nice positive trend, despite the fact that we are reporting a GAAP loss from '07 to '08 to 2009. And with that, I would like to turn the presentation over to Seth Cohen for a financial review.

Thanks, Barry. For the year ended December 31, 2008, we recorded a loss before benefit from income taxes of $12.5 million as compared with a loss before benefit for income taxes and discontinued operations of $17.1 million one year ago. Improvements in electronic payment processing and webhosting segments, expense reductions in corporate, and the benefits from adopting fair market value accounting for the cap co segment were offset by the increased losses in the small business finance and all other segments.

Full year 2008 loss was slightly worse than previously stated guidance, primarily due to impairments of certain assets we took at year end. Segments track guidance with the exception of small business finance performed worse than expected, primarily due to reduction of goodwill for our receivables factoring business. Our net loss was $10.4 million or $0.29 per share in 2008, compared to a net loss of $11.2 million or $0.31 per share in 2007. Revenue increased by $6 million or 6.5% to $98.9 million compared to prior year. This was primarily attributable to the growth in our electronic payment processing and webhosting segments, offset by a decline in revenues in the small business finance segment.

I would now like to review the performance by segment. If you would turn your attention to slide 40 in the powerpoint presentation, you will see the comparison of our 2008 results versus 2007. Electronic payment processing segment revenue increased by $8.4 million or 15% in 2008 to $63 million, predominantly due to organic revenue growth. Income before taxes increased 65% to $4.3 million in 2008, over $2.6 million in 2007.

However, 2007 results reflected a $1.8 million chargeback expense for a single merchant. In 2008, $250,000 of this reserve was reversed and was determined to no longer be required. For comparisons purposes, this chargeback loss is eliminated from the 2007 and 2008 electronic payment processing costs. The margin of revenues, less electronic payment processing costs, declined approximately 2% from 21% in 2007 to 19% in 2008.

The decreased gross margin primarily occurred during the slowing of the economy in the second half of 2008 and will negatively impact profitability for the segment in 2009. The decline in margin is attributable to both lower fee levels charged to do a number of new and existing merchants because of competitive pricing pressures and to increased residual percentages paid to some third party sales referral sources. In addition, an impairment on an acquired merchant portfolio of approximately $479,000 was recorded in 2008 and is included in depreciation and amortization.

The webhosting segment revenue increased by $1.9 million or 11% in 2008 to $18 million, due to organic growth of hosted sites. In 2008, we increased our average number of monthly websites by 8%, as well as increased the average revenue per site by 4% as compared to the prior year. Dedicated sites continued to grow at about 14% year-over-year, but the rate of growth in shared sites slowed to about 8%. Most of the growth in the sites occurred during the first nine months of the year before the economic slow down in the fourth quarter.

Income before taxes increased by $575,000 to $3.3 million in the webhosting segment in 2008 compared to 2007. This increase was a result of the growth in revenues exceeding that for expenses, thereby increasing our operating margins. The increase in pretax net income between years reflects the elimination of duplicative rent, electricity and communication costs occurred in 2007 while transitioning to the new data center. Webhosting expenses should remain flat in 2009.

Small business finance segment revenue for 2008 decreased by $4.5 million, 38% to $7.4 million as compared to 2007. The revenue decline primarily represents foregone premium from our decision not to sell the guaranteed portions of loans in the secondary market while premiums remain well below historical averages during this time of turbulent credit markets. Reduction in the prime rate upon which our loans charge interest and decreases in servicing income, both from our portfolio as well as that of another portfolio we service also contributed to the reduction in revenue. Finally, the reduction in revenue reflects our decision to cease originating loans in the fourth quarter in response to market conditions.

Our reduction in revenues primarily contributed to the $6.1 million loss for the year, an increase in loss of $5.7 million over 2007. In addition reduction in salaries and benefits and interest expense were offset by increases in the provision for loan losses and other general administrative costs. Finally, although management has implemented significant cost savings measures, as well as brought in new management to increase business at our receivable factoring business, such initiatives have not yet materialized to a significant level to support the goodwill recorded at the time of acquisition. As such, we recorded a writedown of $774,000 of the goodwill in 2008.

For 2008, revenue in the cap co segment increased by $2 million or 32% over 2007. Pretax loss decreased $6.7 million or 49%, compared to $13.1 million in 2007. The reduction loss primarily reflects our adoption of fair market value accounting for this segment. As previously reported, we adopted FAS 159 in connection with certain of the financial elements of the cap co segment, commencing January 1, 2008 which reduced the cap co related non-cash loss, that is income from tax credits less cap co note interest expense and amortization of prepaid insurance without giving effect to taxes by approximately $7.6 million. At the time of adoption, the Company recorded a one-time after-tax reduction to the Company's retained earnings of approximately $14.3 million and a reduction of its deferred tax liability of approximately $9.6 million.

For 2008, revenue in the all other segment decreased by $1.7 million or 45% compared with 2007, primarily due to a reduction in other income resulting from the recognition of greater gains on sales of investments in 2007 versus 2008. As a result of loss in the segment increased by $1.7 million to $2 million for the year. Cross reductions initiated in 2008 should result in a reduced loss for this segment in 2009.

In 2008, corporate activities which generates revenue primarily from management fees from the cap co segment, recorded revenue of $5.8 million, a 44% increase from one year ago. This increase is primarily due to the recovery of management fees from two cap cos, totaling approximately $2 million in 2008. Management fees are expected to decline in the future as cap cos mature and utilize their cash. Our efforts to reduce costs resulted in a $1.5 million decrease in total expenses as compared to 2007 for this segment. Combined with the improvement in revenues, the corporate segment improved its loss to $5.3 million, compared to a loss of $8.6 million in 2007.

Slide 41 shows 2008 full-year actual results against 2008 guidance. Slide 42 and 43 record our 2008 fourth quarter actual results versus 2007 fourth quarter actual results and 2008 fourth quarter guidance respectively. Please turn to slide 44 for our 2009 annual guidance.

Given the tough and fluid current economic conditions 2009 guidance was extremely did difficult to develop. We are projecting flat to moderate sales growth for our electronic payment processing and webhosting segments. Small business finance segment guidance assumes that the lender will not begin to lend again until after 2009 and reflect it's currently reduced staffing levels. The all other and corporate segment benefit from reduced expenses. All other and corporate demonstrates the anticipated reduction in management fees from our cap cos.

On a consolidated basis, we expect revenue to be between knife $95.3 million to $101.2 million for 2009. And our loss before benefit for income taxes to be between $7.4 million and $5.2 million, an expected improvement of between $5.1 million and $7.3 million over 2008. I would now like to turn this back to Barry.

Thank you, Seth. Operator, we are now open for questions.

(Operator Instructions). First question, [Charles Schurp] who is a Private Investor,.

Good afternoon, Barry. I'm a long-term stockholder with you guys. I have a few quick questions that you might be able help me with. Just first I want to do clarify on your cash, is it fair to assume that your cash will probably hold steady around $25 million for '09, best guess?

Yes. We would say so, but mind you that that can fluctuate, depending upon thing like loan activity. The loan activity or the pay down of the line, that's a bit of a wildcard.

Was that G.E. line?

That's correct. The thing that really causes the greatest amount of cash fluctuation last year was the deleveraging of that particular line.

Okay. That is coming up again later this year?

Yes.

Okay. What's the worse case share scenario on that? Can you share anything with us?

I would just point you to the risk factors in the 10-K.

Where do we stand on stock buyback program?

I could basically tell you what the facts are. We had an authorization for 1 million shares. We haven't utilized that fully. I'm not 100% certain, but I think we probably have done 600,000 to 700,000.

Okay. I'm sorry, go ahead.

I think that's in shares. That's in shares.

1 million shares?

Yes.

$1 million.

You know what, I am going to have to get back to you on that.

Yes. Sure. Okay.

I think it's in shares, but I will have to get back to you on that.

Sure, that's fine. I don't think I've seen any insider buying for a year or so. Is that accurate? That's probably not a fair question, but I'm just curious if there's anything you could share with me there.

It is on the website and I think that we have had some insider buying.

Okay. I'm trying to get a handle on this multitude of government activity which is just almost mind-boggling, can you just give us an indication of whether or not all these efforts coming out of Washington from I think we can safely assume a modification of mark-to-market over the next couple of weeks, the stimulus package and all the different types of activities and initiatives. Is this a net positive for you or net negative or can you even give us any insight on that?

To be honest with you, that's a tough one. Let me tell you where it is definitely a net positive. It's definitely a net positive with respect to the seven A business and the seven A program. Clearly, the ability to guarantee a loan up to 90% from 75%, the reduction of the fees to support for small business lending, the government through it's health program basically buying the government guaranteed pieces from the pool assembler make that business attractive again. Where 2008, it was difficult frankly .

Away from that, I've got opinions but it's nothing that I would venture -- it's nothing that I would say in a corporate setting. We believe that this is going to be a tough year for the economy in 2009. We have forecasted with that in place. We believe that we will perform better than our industry competitors, but we believe that the things that the government are doing won't create some kind of of a V-shape where all of a sudden things just pick up.

Okay. Is there anything that we could watch for that might alert us to -- it looks like the small business loan segment is going to be the key to '09. That might alert us to some positive swing that could unfold or is that really just watch the overall economy and hope for the best?

I think from our perspective, the guidance that we gave which really if you take the midpoint of our guidance, you are looking at a little over $6 million pretax loss from $12 million and change pretax loss this year. We basically have the lender in a nonlending position, okay? I don't necessarily think, even if we got back into the lending business, that those numbers would change dramatically.

On the other hand, we believe we are continuing to build enterprise value. We are continuing to perfect our cross-selling strategies. We are getting more and more efficient every day in our business model. We think that the metrics to watch would be how well we are doing in the EPP space revenue growth as well as hosting and in cost reduction.

Okay. Fair enough. Is it fair to assume, I'm not complaining at all, but has your investor relations department pretty much put that aside for the time being?

Looking obviously at what happened in 2008, as well as what's happening in the micro cap stock market, it's difficult to really get a message out there and get people to -- maybe that changes. I don't know what story or information you could have put out in the market in October, November, December, January, that really would have caused people to care one way or the other.

I don't disagree. You have to look at the cost savings. And you guys have made an outstanding effort to get the word out and however, the impact is nonexistent in terms of volume and stuff.

Right. Our focus really is keeping our head down, building our customer base and building enterprise value.

No, I say patience and do it right. You've done a good job in covering yourself which I appreciate. I will let anybody else in that might be out there. Thanks very much for your help. I always appreciate it.

Thank you.

(Operator Instructions). Mr. Sloane, we have no further questions.

Okay. Great. I thank you very much.

Any concluding?

Yes, the Q will be out -- it's pretty quick. Right?

We will come up with a date sometime in May.

We will be back to all of you in May. It will be pretty quick. He's laughing. Thank you, all, very much. Have a good afternoon.

Once again, this does conclude today's conference. We thank you for your participation, and have a great day.