NewtekOne Inc (NEWT) 2009 Q1 法說會逐字稿

Good day, everyone, and welcome to today's Newtek Business Services Q1 2009 earnings conference call. Today's call is being recorded. At this time, for opening remarks and introductions, I would like to turn the call over to Mr. Barry Sloane, CEO and Chairman of the Board. Please go ahead, sir.

Thank you. We welcome all of you and appreciate your attending our first quarter 2009 financial results conference call. I will be speaking today. My name is Barry Sloane, CEO and Chairman of the Board. Also joining me here for the presentation is Seth Cohen, our Chief Financial Officer. You can follow along on the call today by taking a look at our PowerPoint presentation, which is in the Investor Relations section of our web site, and you can click on "Events and Presentations" and follow along with our PowerPoint presentation that's on there.

Now, I would like to ask Seth Cohen to read the Safe Harbor statement.

Thanks, Barry.

The statements in the 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 material from the plan's intentions and expectations, reflected and/or suggested by the forward-looking statements. Such risks and uncertainties include, among others, intensified competition, operating problems and their impact on revenues and profit margins, anticipated future business strategies in 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 http://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 place varying requirements on the structure of our investments. In some cases, particularly in Louisiana or in certain situations in 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. Barry?

Okay. Thank you, Seth.

Okay. We will begin our presentation on page 3 of the PowerPoint focusing on the overall agenda. We'll discuss our primary corporate initiatives and strategy, a financial results snapshot, momentum issues that are resulting in positive results in electronic payment processing and web hosting, small business finance initiatives, cost reduction measures, focus on marketing, financial review by set, and a 2009 outlook. The Company's strategic mission plan and execution strategies that's been clearly outlined in our 10-K's continue to provide a full suite of business services and financial products to the 27 million small and medium sized businesses that are across the United States. The Company, as you can see in our financial results, had a keen focus on expense reduction across the entire enterprise. We've also refocused some of our marketing effort with some outbound strategies, both with respect to inbound telemarketing out of Brownsville, a little bit of radio experimentation and an intense focus on cross-selling and cross-marketing initiatives across our data base. Currently, we are clearly outperforming others in the EPP and web hosting space and that's due to our business model. We strategically avoided the pitfalls of many of our other competitors that won on an acquisition or buying strategy using debt. We have basically stuck to an organic strategy and have grown very nicely and it's been able to control our operating leverage. We've significantly improved our cash flows with expense reductions and by being able to grow our revenues in the electronic payment processing space and web hosting space in a very difficult economic environment.

We decided and discussed more recently to reposition the SBA Lender's financing. We believe that we are positioned and are still working towards refinancing our existing GE line of credit for our SBA 7A business. Our current line of credit with Wells Fargo for our receivables business is intact and that business is growing nicely. In addition, we've signed up new channel partners, such as our Microsoft relationship and we recently announced today a new relationship with the Latino Coalition, which is Hector Barreto's organization, the former administrator of the SBA. The Latino Coalition has over 1 million members of which 600,000 are estimated to be businesses and we've signed the exclusive relationship with insurance services for that particular alliance relationship. We have also had a major focus on developing an outbound and outreach marketing strategy and we have continued to run our inbound strategy, which is working very, very well for us. Looking at the first quarter 2009 financial results, our electronic payment processing business delivering about $15.8 million of revenues, up 4% over the first quarter of 2008. Web hosting, $4.7 million in revenues, up 9%. Small business finance down slightly over the year prior with $1.8 million of revenues. In Q1 2009, we experienced a pretax loss of $2.1 million. The loss declined by 49% from a year prior, which was a $4 million loss. I would like to note that our depreciation and amortization of noncash expense on a quarterly basis came in at $1.6 million for Q1 2009.

The cash position on the balance sheet maintained a nice, steady position with $25.9 million in cash and cash equivalents at March 31, 2009, up from $25.2 million a year earlier. This equates to about $0.71 in cash per share. Also, we had a nice, positive change when you look at our cash flow from operations, there was $5 million of net cash provided by operations in Q1 2009 versus $4 million net cash Q1 2008. A significant difference there was based upon loan sales with respect to governments. I think if you were really focusing on what I would potentially call true operating cash away from financing activities of the lending business, you had approximately a $4.5 million to $5 million swing with a negative $361,000 net decline in cash and cash equivalents in Q1 of 2009 versus $5.1 million net decrease in cash and cash equivalents in Q1 of 2008. Positive momentum continues in the electronic payment processing space. I would add this is against the backdrop of GDP numbers in the fourth quarter of last year and the first quarter of this year, which were the worst numbers in 51 years worth of economic history in the United States. The Company was able to continue to grow its revenue base. Q1 2009 electronic payment processing revenue of 3.7% over Q1 2008.

Our margins clearly constrained a little bit. Our EBITDA margin in EPP, 9% versus 10.8% in Q1 2008. We are still positive, obviously, about the margins and the spreads in our business in the early stages of an economic contraction. The competitive aspects of the business get real difficult and there's been quite a bit of repricing. We think from a cyclical spandpoint going forward, our margins will be able to expand. Some of our competitors, frankly, are going out of business and aren't being able to provide the service to a lot of our customers, so although we've had some margin compression in the near-term, we do not think this is a long-term trend or a significant problem for the Company. We have had some merchant attrition. You are going to see that in an economy like the ones we've had where weaker businesses go out. These tend to be the smaller less yield businesses. We love the electronic payment processing space and division and it's a cash flow positive business with very good operating leverage, and believe we have a significant opportunity to increase market share in this space, particularly given the current economic environment.

We're forecasting EBITDA growth of $5.5 million to $6.1 million. We have no debt on this business and we look forward to working very closely with Newtek Technology Services, our web hosting and technology services division, to further develop our eCommerce platform. Clearly, a lot of small businesses do not have eCommerce platforms today. One of the few companies that can actual offer the payment processing, the hosting, a private label gateway and shopping court all under one name where we book and bind the transaction with one provider and service the customer with one customer service representative. In our hosting division for quarter, we had a terrific quarter revenue, up 9.2% over the year prior, pretax net income up 49.2%, EBITDA growth up 20.3%. We obviously have experienced real good margin expansion. A lot of it's based upon the fixed cost in this business where in the last few years we suffered as we moved to a new Knox center. A lot of those expenses are being beneficial to us as they are fixed and when we put revenue on, it appears that approximately 80% of that revenue that we are putting in in the hosting space is dropping right through to the bottom line. We continue to invest in the web hosting segment to support future growth. We think web hosting may be a bit of a misnomer for our Newtek Technology Services division. Businesses aren't just hanging web sites these days, they are using hosting companies to provide an outsource technological solutions and outsource IT work. We're doing a lot of that.

We have a tremendous reputation for excellent product service and customer service in this area and our branding strategy in our Newtek Technology Services group is working exceptionally well. We continue to have a lot of excess capacity with respect to real estate in our data center. We are aggressively marketing an outreach program calling out to web developers and IT partners. We believe this is going to pay great dividends in the future as web developers and IP partners as wholesalers bring us portfolios of customers rather than a one off marketing campaign to individual businesses. We are forecasting our hosting division to bring in $6.9 million to $7.7 million of EBITDA for this year. And as I said, our strategy working with Microsoft to go after their IT partners, as well as targeting all IT partners and web developers appears to be beginning to bear some fruit. In our small business finance segment, in this area we focus on SBA lending as well as our receivables business. Our receivables business is growing slightly. We currently don't break that out. When I say it's growing slightly, I really meant to say it's growing nicely and we expect to put on some nice business in the second, third and fourth quarters of this year, which will turn it into hopefully a cash flow positive business for us. Given the historic problems over the last few quarters in SBA 7A, our goal was to immunize the business, I think we've done a nice job of doing that. However, what has occurred is this business is poised and positioned to now reverse itself for some nice growth.

Some of the things that have occurred in Obama's new plans, the SBA has changed its guarantee. The (inaudible) programs that exist in the market have begun to reduce the blockage that existed on Wall Street for premium prices paid on the government bonds. We, in the first quarter, sold out all of our government guarantee pieces that were left in position. Our debt facility is somewhere around $15 million of debt against $31 million of loan product. Pricing has lifted where we were experiencing premiums of only 1 point to 2 points on the SBA government guaranteed pieces, we actually experienced premiums of 6.5% in the current quarter, and we are fairly optimistic that those premium prices could continue to increase in the future. We are optimistic and believe that we potentially will begin to start originating new loans in the second quarter with possible fundings coming in toward the end of the second quarter or beginning of the third quarter. Looking further at the SBA segment, the most important thing that occurred of Obama's stimulus plan was the increase on the government guaranty on the SBA 7A program, which historically had been at 75%, it's now at 90%. The conventional loan market today is not a very competitive alternative and we're actually able to do SBA loans at significantly higher quality at better loan prices. If you go to page 12 of the PowerPoint, you can see the cash return on investment off of a 90% guaranty, which you basically sell upon making a loan, really drives the return on cash investment through the roof due to leverage. The 90% guaranty goes up to $1.5 million dollars, but essentially if you are looking at a $1 million loan, it's the difference between selling $900,000 of government guaranty at a premium into the market versus selling $750,000, so given that we only have say $100,000 of loan of which we get a premium of say 6.5% on the $900,000 piece, these are very small basics in the loan, which is really what drives the return on this business.

Going forward, and we have said this before, we look to be a participant in buying sub and nonperforming portfolios bidding on SBA servicing and sub-servicing contracts despite the fact that in recent times, the segment has been decimated. We believe strongly that it may offer the best opportunity for Newtek shareholders. I think when we look at our 7(a) or SBA business, we are not very levered. We mentioned we have $16 million net worth in our 7(a) lender, Newtek Small Business Finance. There are some head winds in front of us. We've obviously got issues with collateral pressure. When we make loans, we collateralize them with commercial real estate or residential mortgage loans. However, we feel that overall our portfolio is in a good position, not highly levered, and if you take a look at slide 15, you can see our loan loss reserves are growing very nicely. We believe that as a percentage of the total portfolio, we are approximately ate 12%. So, given where we are, we reevaluate our collateral positions regularly. We're still collecting north of 55% to 60% on liquidations and we've got regular meetings that we take a look at and monitor the types of collections that we are having both in residential, commercial and other collateral against our loans. One of the things the Company has done exceptionally well, which has shown up in last quarter's and this quarter's numbers, cost reduction methods. We've clearly significantly reduced expenses in the corporate segment. Basically, this reduction and efforts to reduce or hold expenses is showing up in bottom line cash flow. We estimate that there will be a minimum of $4 million of cash savings in 2009 for overall cost reductions across the holding company and the subsidiaries and we continue to plan to review all segments to recognize additional cost reductions in 2009. If you took a look at our payroll reductions and we used a run rate of 41508 to 41509, you still had a decline of about $5 million of payroll across all the businesses. We had a head count reduction from 347 employees to 275.

On a consolidated basis, you are looking, as we said earlier, about a $5 million overall reduction. At the corporate segment, we had a $3 million reduction in payroll so, of the full $5 million, $3 million came from corporate overhead. We continue to consolidate various operations. We are really very much focused on demonstrating our ability to market out of our Brownsville operation. One of our senior officers relocated the Brownsville beginning April 1, Brian Flax, and his initiative is to work with all the divisions to develop a very active cross-selling campaign into the existing customer base, as well as customer base that our alliance partners are giving to us to market into. We have done a pretty good job of reducing our real estate exposure. We have several of our facilities that were in the process of subletting. I think, most importantly, we have done a very good job of cutting expenses without cutting into process or production. You could see that as we've had significant expense cuts, yet we are experiencing top line revenue growth. As we look at our Brownsville operation, it was officially open March 15th, our $1.25 million federal grant in place, the facility is completely built out, we're 24/7 bilingual processing center for all lines of business.

I'd like to call your attention to our spanish-based web site, which the web address tinyurl.com. Take a look at it. It gives us ability to do deals with an entity like the Latino Coalition that is really welcome to the opportunity to bring their Latino and Hispanic members to us where they can interface with a Hispanic-based web site, Hispanic-based referral, speak to a Hispanic-speaking business service specialists and customer service specialists across all of our products. The outbound initiatives to date have generated consistent referrals with high levels of client satisfaction. We are in the process of continuously training outbound personnel to increase the quality of those referrals. In the second quarter of this year, we will, on our conference call, we will release to the public some metrics to demonstrate what our hit rates are and our levels of success. Our growth strategy going forward is to do acquisitions in our footprint to be opportunistic. We think that there could be some pretty good opportunities as banks are going to be taking over existing companies of hosting and electronic payment processing organizations that are overlevered; continue to emphasize cross-selling and cross-marketing into our existing customer base; continue to grow alliance channels and outsourcing of services which we find organizations like banks, credit unions and (inaudible) to be extremely attractive; and to improve our cash flow. We'll look at our marketing focus, we've recently focused on why do people do business with Newtek what makes Newtek unique. At the end of the day, it's clearly the relationship that we have with our client. We are partners with the client. We are not just interested in selling something to them, we actually become their business partner. Our field and our presentation to our customers is that we can help them grow their sales, we can help them reduce their expenses and we can help them reduce their risk. In the era of increasing sales, we can do that by providing them funding to grow their business. We can do that by helping them with search engine optimization and giving them an eCommerce platform that they may not have or improving the efficiency of their eCommerce platform.

In the expense side, clearly we could take a look at their electronic payment processing costs, their payroll costs, their premium cost for paying insurance, their hosting costs, and their storage costs. In the risk reduction side, many clients need to have a risk analysis with respect to their insurance products or to take a look and see if, in fact, they are in PCI compliance in their eCommerce solutions. So, we take a look at our product mix. You can see for some of these products lend themselves to all three things, growing revenue, reducing expenses or reducing risks, some of them just two. We are in the process of training our outbound sales team, our customer service representatives that speak to approximately 15% to 20% of our 100,000 business clients every single month, as well as our BSSs that are dealing with all of our new clients that are coming in seeking opportunities driven to us from our alliance partners. We've also recently embarked on a radio campaign advertising on WFAN for those in the northeast and New York area, and WFAN pretty much spans from Boston down to DC. We can be heard on the Boomer and Carton show with live reads that exist in seven states, a very nice audience on the morning drive from 6:00 to 10:00. This used to be Don Imus' spot and Boomer and Carton attract a very large audience of small and medium sized business customers. And taking a look at our 2009 segment guidance, we are very happy with the way our first quarter came in, pretty much right on budget with respect to old categories, obviously, we had a few variances. I will let Seth go into that a little bit later. We are averaging for total revenues for this year, somewhere in the neighborhood of $95 million and $101 million of revenues for 2009. On a consolidated basis, our range for pretax net income would be a net loss from $5.2 million to $7.4 million, and when you take out depreciation and amortization, we believe we will be slightly cash flow positive for the year and that we'll see showing up in our cash flow statements. You can clearly take a look at the trends of pretax GAAP losses and they are moving in the right direction, $17.1 million in 2007 to a midpoint forecast of $6.3 million for this year.

I would now like to turn the financial review presentation over to Seth Cohen.

Thanks, Barry.

I will now review our first quarter results. For the quarter ended March 31, 2009, we recorded a loss before benefit for income taxes of $2.1 million as compared to loss before benefit for income taxes of $4 million one year ago. Our net loss is $976,000 or $0.03 per share in 2009 compared to a net loss of $2.7 million or $0.08 per share in 2008. Revenue increased by $601,000, or 2.6%, to $24.1 million compared to prior year. This is primarily attributable to the growth in our electronic payment processing and web hosting segments offset by a decline in revenues in the all other segments. We began this quarter with $16.9 million of unrestricted cash and cash equivalents and ended with $16.5 million, a decrease of $361,000. The $5 million of net cash provided by operating activities benefited from the sale of $7.3 million of the guaranteed portions of SBA 7(a) loans and was used primarily to repay our lenders line of credit from GE. I would now like to review the performance by segment. If you could turn your attention to slide 35 in the PowerPoint presentation, you will see the comparison of our first quarter 2009 results versus the first quarter of 2008. Electronic payment processing segment revenue increased by $563,000, or 4%, in the first quarter of 2009, to $15.8 million, predominantly due to organic revenue growth.

Income before taxes decreased 11% to $963,000 for the first quarter of 2009 from $1.1 million in 2008. As expected, the decrease in income before taxes in 2009 was principally due to lower margin of revenues less electronic payment processing costs, partially offset by an overall reduction of other costs between years. Web hosting segment revenue increased by $393,000 and 9% in the first quarter of 2009 to $4.7 million from $4.3 million in 2008. The increase was due to a combination of improved revenue received for web sites in organic growth of hosted dedicated and virtual dedicated web sites. Shared web sites decreased period over period. Income before benefit for taxes increased 49%, or $302,000, to $916,000 for the first quarter of 2009, from $614,000 in 2008. The improvements in profitability primarily resulted from a 9% increase in revenues outpacing a 2% increase in total expenses for the segment. Web site planned sales continue to utilize more of the new data center while we have maintained current staffing costs since the third and fourth quarter of 2008. As more of the new data centers capacity continues to be utilized, profits and margins should continue to improve. Small business finance segment revenue for the first quarter of 2009 decreased by $23,000, or 1%, to $1.8 million compared to 2008. In the first quarter of 2009, NSBF sold more loans held for sale relative to the first quarter of 2008, essentially clearing its inventory of this asset while not originating new loans, resulting in improvement of $296,000 of premium income. NSBF sold the loans held for sale for increased servicing income rather than receive cash sale premiums due to the prevailing market conditions. The improved premium income was offset by a $258,000 decrease in interest income, reflecting the decline in the prime rate upon which our loans interest rates are based.

Loss before benefit for taxes decreased 61%, or $909,000, a loss of $593,000 for the first quarter of 2009, and a loss of $1.5 million in 2008. Expense reductions, including a $561,000 decrease in salaries and benefits and $121,000 decrease in other general administrative costs primarily contributed to the improvement. At this time, we have ceased originating new loans. If economic business conditions permit, we may begin lending again. For 2009, the pretax loss in the CAPCO segment decreased to $1.1 million, or 26%, compared to $1.5 million in 2008. The reduction in loss primarily reflects reduced management fees period over period. For 2009, the pretax loss in the all other segment decreased $153,000, or 27%, to $404,000 as compared to $557,000 in 2008. The reduction loss primarily reflects reduced salaries and benefit expense. In 2009, corporate activities, which generates revenue primarily from management fees from the CAPCO segment, reported revenue of $860,000, a 20% decrease from one year ago. The decrease is primarily due to the reduction in CAPCO management fees from 2008. Management fees are expected to continue to decline in the future as CAPCO's mature and utilize their cash. Our efforts to reduce costs resulted in a $542,000 decrease in total expenses as compared to 2008. Corporate salaries and benefits decreased $927,000 period over period. The corporate segment improved its loss to $1.9 million compared to a loss of $2.2 million in 2008.

Finally, slide 36 shows our 2009 guidance, which we are reaffirming at this time. I would now like to turn it back to Barry.

Thank you. Operator, we will take questions now.

Thank you. (Operator Instructions) We will take our first question from Stephen Silk with C. Silk and Sons.

Hi, Barry. Could you just talk about the GE facility, where it stands, what you might think is -- your impression of what their thinking is as far as leaving it where it is or intact or letting you open up to borrow against it. Just a general outlook of what has to happen and if you have alternate plans if you need new facilities.

Facility is currently in place; it matures in August. Facility is currently available to be utilized. Given the current environment, you could basically do loans because of the guaranteed piece and have almost no utilization of the facility whatsoever. We think that the lending environment and the credit freeze is beginning to change. I wouldn't say it's a watershed event, but there are now lenders that are willing to seek out loans of this type, and we are pursuing avenues to refinance out the current facility with other participants.

Okay. That's all I really wanted to know,.

Okay. Thank you, Steve.

We'll go next to Marc Silk with C. Silk and Sons.

Hi, Barry. You talked about cost reductions, would you think about maybe moving to the pink sheets if that saves a significant amount of money, just to maybe beat the NASDAQ to the punch if you stay below $1?

Let me say this, I can't speculate what the Company is going to do at this point in time relative the NASDAQ listing. Now, to be honest with you, they keep changing that date around. I believe we are looking at, I'm going to say a September or October event and, frankly, given what's gone on in the market, you have a lot of companies that are trading under this threshold dollar price. So, I wont comment on anything other than where we currently are listed looking at the current exchange and, frankly, relative to -- fortunately, the average volume that the stock is trading at this point in time, we hope that changes in the future and that we will be able to bring more investors in and create more liquidity. But I can't really give you any comments relative to pink sheets or anything of that nature.

Okay. And GE, you said August, is that August 1st, the 15th, or --

Yes. I believe it's the end of August. I think it's more like August 31st.

Okay. How many customers do you have now, you didn't mention that on this call? I know you said you lost some.

Don't have that number handy, but I believe in terms of business accounts, we are in excess of 100,000.

It keeps going up. And my last question is, on your cross-selling, what angle do you go at? I have a small business, obviously, and if somebody who I knew called me and said, let's see if I can save you money on insurance, is the insurance the door opener or is there a different strategy that you could maybe clarify?

I think the -- importantly, the strategy for cross-selling and cross-marketing is the number one initiative and primary focus of the firm. We are cross-selling and cross-marketing from three different aspects and this has sort of been our holy grail and we are working very hard to, I'll use the word, institutionalize it. Number one, we are cross-selling with our customer service representatives. Approximately 15% to 20% of our customer base calls us every single month. Mind you, when someone is calling up to get a service issue dealt with with respect to hosting or electronic payment processing, you don't necessarily want to get in their way and start selling them stuff. However, customer awareness, that we can be helpful to them, a, in their current problem, b, in looking at another one of the products and services they may have is valuable, so we are very aggressively working with customer service people, training them how they could make introductions of our other products and services to the customer base, and we want that introduction made along the areas of a, we can help grow your revenues, b, we can help reduce your costs, c, we can help reduce your risk. We are also cross-selling and cross-marketing with our business service specialist. So, as new businesses that are being driven to us from alliance partners and are seeking out help with a particular need, we want our business service specialist to also get involved with the client, ask them questions about their business and make these introductions.

Lastly, we have an outbound group that is a task force that is totally tasked with the tactics of making outbound calls into existing customers, as well as customer lists of alliances that are very well trained in all different product areas and are able to demonstrate after sort of a conversation with the client and the client's business, really focusing on what the client needs at a given point in time. Where are you most focused, is it growing revenues, is it reducing your expenses, is it reducing your risk? Engaging the client in that kind of a conversation, having them point a segment, and then basically explaining how we could potentially help the client in that particular given segment or category we think is important. So, I think since we've spoken last, we've begun to quantify what I call an institutionalized process to cross-selling, cross-marketing and training our personnel, getting them the software, getting them the education and training that our clients really require to be able to have the client entrust us with their deck pages and policies, merchant processing statements, payroll plans, things of that nature, it's working very nicely.

Thank you.

And we'll take a follow up from Stephen Silk with C. Silk and Sons.

Barry, can you talk on the Microsoft initiative? Is it anything that's generated revenue yet, and when do you think it could start or become something that's meaningful as far as overall revenue?

From cross-selling?

Yes, exactly.

We've got some data on it. Although it's small, initially I would say it's relevant, but we are not releasing that for forecasting at this point. It's way too premature. And the rationale behind that, Steve, is you start something off say December or January, you start taking in customer leads, there is a pipeline aspect to that building because now instead of in a typical model customers come to us and they already know what they want to buy. They've already decided they want to buy something from us. It comes from the alliance partners. Close rates are exceptionally high. In this instance what we are really doing is getting in the way of the customers life for existence demonstrating a need. So, what we've found is that the lag and lead time for closing those transactions a little bit longer, to get the customer to focus more on what we would like them to do, than necessarily what their immediate need is.

But what we've seen so far, the calls are tremendously appreciative, customers like being contacted by us, they like knowing we can do other things for them, particularly when it comes to specific areas of concern to them, whether it's growing their revenues, giving them an eCommerce solution, giving them ways with respect to search engine optimization to help them get their web sites hit more often and make their web sites more attractive, maybe it's financing, or maybe it's, hey, can we take a look at your insurance policies to make sure that you've got the right coverage and the right pricing, they're being very well received. So, I think you will see us next quarter start to release some of these metrics, and I think that will be valuable.

That's kind of what I was driving at, it's more of a laying the pipeline at this point for future growth.

Yes, exactly. It's laying a pipeline, we are getting closes out of these leads without question. I think that you will have much better data. I think, look, referrals are one thing, closers are what counts. And let me just say this, speaking to a client and saying, gee, would you like me to have somebody call you on payroll? Yes. That's a weak referral. Sometimes the client will say yes just to pass the time of day or get you off the phone. We are really interested, and this is what we are working on, how do we teach and train our people to engage in a qualitative conversation with a customer to gain the highest quality referral where now the client is actually interested in a vested partner in seeing to it that we can help them. Any other thoughts or questions, Steve?

No. I'm good, thank you, Barry. Good luck.

Thank you.

At this time , there is no further questions in the queue. I would like to turn the conference back over to the speakers for any additional or closing remarks.

Well, we'd like to thank everybody for attending the call today and we look forward to reporting on our second quarter results. Thank you very much.

Thank you. That does conclude today's conference. We thank you for your participation.