NewtekOne Inc (NEWT) 2011 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Newtek Business Services fiscal year 2011 earnings conference call. At this time, all lines are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will be given at those times. (Operator Instructions) As a reminder, today's conference is being recorded.

I would now like to turn the conference over to your host today, Barry Sloane, CEO and Chairman. Please begin.

Thank you very much. Welcome to our fiscal year 2011 shareholder conference call, and the call will be hosted today by myself, Barry Sloane, CEO, Chairman of the Board. I also have with me here Jenny Eddelson, our Chief Accounting Officer. I'd also like to introduce our investor relations firm, Rubenstein Investor Relations. If you take a look at our website, you could see on the investor relations section we have hung a PowerPoint presentation for this particular presentation today and you can get the phone number and e-mail address of Tim Clemensen and Bill Swalm from Rubenstein.

I'd also like to announce that thestreet.com has recently picked up research on Newtek Business Services. We are working out an ability to distribute that research. For the time being, there is a six-page report that is available on thestreet.com's website. Search for Newtek and you'll be able to get a copy of that report, which was issued toward the end of February. With that said, Jenny I'd love for you to read the Safe Harbor statement.

Sure. The statements in this slide presentation including statements regarding anticipated future financial performance, Newtek's beliefs, expectations, intentions or strategies for the future may be forward-looking statements under the Private Securities Litigation Reform Act of 1995. All forward-looking statements involve a number of risks and uncertainties that could cause actual results to differ materially from the plans, intentions and expectations reflected in or suggested by the forward-looking statements. Such risks and uncertainties include, among others, intensified competition, operating problems and their impact on revenues and profit margin, anticipated future business strategies and financial performance, anticipated future number of customers, business prospects, legislative developments and similar matters. Risk factors, cautionary statements and other conditions which could cause Newtek's actual results to differ from management's current expectations are contained in Newtek's filings with the Securities and Exchange Commission and available through www.sec.gov.

Our Capcos operate under a different set of rules in each of the seven jurisdictions and these place varying requirements on the structure of our investments. In some cases, particularly in Louisiana or in certain situations in New York, we do not control the equity or management of a qualified business, but that cannot always be presented orally or in written presentations.

Okay, thank you, Jenny. To begin the call today, let's go to page 3 of the presentation, where we'll begin with fiscal year 2011 highlights. Today we announced that fiscal year 2011 consolidated net income came in at $3.5 million, that was up from $1.4 million the year prior. We announced fiscal year 2011 consolidated -- I'm sorry, that is net after tax, excuse me, net income, yes $3.5 million, year prior $1.4 million. Pretax net income fiscal year 2011 $2.3 million, up from $877,000 the year prior.

We have also forecasted our 2012 revised guidance for consolidated revenue. We now have a range of $130 million to $133 million with a midpoint of $131 million. That is a 6% increase over the number we released today for 2010 revenues of $125 million. We have also upped our guidance for 2012 for consolidated pretax income, with a range of $5 million to $7 million and a midpoint of $6 million. That's a 33% increase over our previous guidance, which was $3 million pretax to $6 million pretax.

In 2011, we announced today consolidated revenue of $125.3 million. This was an 11% increase over fiscal year 2010's revenue of $112.7 million. We are happy to announce that the Small Business Finance segment posted a pretax net income of $4.1 million for fiscal year 2011, that is versus $2 million in the year prior, a 102% increase in pretax net income for the Lending business. Revenue also increased to $21 million, that's up from $9.4 million, or a 124% improvement.

Some of the other items that helped drive our cash flow and income in 2011 will also be beneficial as we look forward into 2012. We have recently announced office relocations both in New York, Arizona and Wisconsin. The New York office relocation took place in December of 2011. That actually resulted in a negative impact of a $1 million expense based upon the sublease. However, that negative impact of $1 million on our income will come back to us in improved cash flows and reduced annual rent expense of approximately $625,000 a year over several years beginning in 2012.

We also recently moved one of our two facilities in Phoenix, Arizona. That move occurred within the last two weeks and improved our cash flow and reduced rent expense by approximately $545,000 over a three-year period. We are also looking to relocate our office in Wisconsin. Our lease is expiring this month. We currently are exploring new locations and believe we'll get similar anticipated cost reductions. Obviously, in difficult economic times, it's advantageous to try to take advantage of certain expense reductions and I believe that the Company and the management team has been successful in that endeavor.

We're going to focus today obviously on further financial performance issues, cash flow, balance sheet, and talk about business trends and 2012 guidance. We'll also talk about our strategic mission as the Small Business Authority and also further talk about the success we've had in the year 2011 as we launched our new website, thesba.com.

In looking at the various business segments, the Electronic Payment Processing segment recorded revenues of $82.5 million, that was up 2% from 2010. Our Managed Technology Solutions division came in flat in revenues at $19.2 million. And Small Business Finance segment was up a significant -- came in at $21 million of revenues, up 124% from 2010.

Looking at the core operating segment pretax net income, 2011 versus 2010, the Electronic Payment Processing segment came in at $6.5 million, that was up 13% from 2010. Managed Technology Solutions came in up 2% from the year prior at $4.8 million. Small Business Finance came in at $4.1 million, up 102%. Our cash position came in at $25.4 million, that's cash and cash equivalents and restricted cash. That's up from $21.1 million from the year prior.

Looking at the lender, revenues were up a slight 2%, but we were able to improve our bottom line by 13% where pretax net income came in at $6.5 million. The Payment Processing segment, we believe, has got great future opportunities for us. We believe that the biggest segment of this market is primarily in the eCommerce segment. Most retail payment processing businesses have been coming in flat in terms of retail sales, but the electronic side of the business, the Internet-based business has been growing at a substantial rate. We look to further integrate what we're doing on the electronics side and the web hosting side to come out with a more robust eCommerce platform and to be able to provide it to our clients on an iPad or a tablet. We think that we have a strategic advantage in being able to combine our electronic payment or merchant services business with our web hosting business and to be able to offer that to customers.

We demonstrated significant cash flows in the EPP business historically, with really good operating leverage. The EPP segment currently has no debt associated with it, and we think that eCommerce segment of our marketplace and the US economy is the single most [incorporated] initiative for us to take advantage of and for our clients also to participate in.

Our Managed Technology Solutions business improved pretax net income by 2% over the year prior. We have maintained our revenue base despite a challenging market. Some of the things that have occurred in the market, competitive pressures from social media and entities like Facebook, particularly against the lower end of our hosting business, and it also appears that the market is significantly shifting towards cloud computing solutions away from dedicated, which are pretty high ticketed items.

We think our cloud product is extremely competitively priced and as we move forward, we envision having the majority of our products and solutions, our payment processing product, our web hosting product with respect to statistics, payroll and insurance agency, all available to businesses where they could use an iPad or a tablet device to be able to run their business.

They'll be able to see on a realtime basis their Visa, Master, debit card statistics coming in, total dollars, total transactions, this day this year, this day last year, this week this year, this week last year, this month this year, this month last year, as well as their web traffic statistics, number of uniques today, number of total visitors, page views, balance rate, average time on the site and to be able to measure that in a report format, all available to our small business authority customers on a tablet. We're excited about the opportunities that are present to us in the Managed Technology Solution space, as we look to combine it further with what we are doing in the merchant payment area.

In the Small Business Finance space, we've obviously had a banner year in 2011 and look for further good improvements, excuse me, in 2011, look for further good improvements in 2012. As we discussed earlier, our revenue was up $11.7 million, or 124%. Our pretax income came in at $4.1 million, a 102% increase over the prior year. As we participate in both 7(a) SBA loans, accounts receivable lines of credit, which go up to $1 million for our business customers, we hope also to be able to offer our clients, and we'll do this on an agent basis, a small business loan product, as well as a virtual business credit card. We're excited about the opportunities for providing funding to small businesses when most other banks and financial institutions are having a difficult time in doing so.

The market for our government guaranteed portion of our SBA 7(a) loans continues to be strong. We're receiving premiums of around 110% to 114% on the government guaranteed portion of the loans, which is approximately 75%. As many of you are aware, we've had success in securitizing the uninsured portion of our SBA loans and were successful in doing a securitization in December 2010, as well as a second round of a securitization in December 2011, both were rated AA by Standard & Poor's.

Our financing relationships are sound. We continue a very constructive relationship with Capital One Bank that gives us a $27 million line of credit that allows us to make the SBA loans, and then subsequently sell and securitize the government and uninsured loan participations offered to the secondary market. And in our lines of credit business, we have a $10 million facility with Sterling National Bank which helps us fund our accounts receivable finance business.

We're also proud to announce that our servicing portfolio continues to grow, finishing out the year in 2011, our servicing portfolio stood at $423 million, that's up from $252 million, a $170 million increase. On a percentage basis, that's a 67% increase. We are anticipating and are willing to forecast that our portfolio will grow up to $650 million by the end of this year. I think that's a conservative forecast and we look forward to continuing to report our progress in this particular area.

I would also say it is likely that by the end of the first quarter of this year, our servicing portfolio will exceed $500 million and we probably will also get to the total originations of Newtek Small Business Finance in excess of $500 million, meaning that in our lifetime in existence, we have provided funding to small businesses in the aggregate amount of $0.5 billion, quite a feat for a non bank small business lender.

Moving to slide number 12 in our presentation, we always want to try to have an explanation to discuss the legacy effects of our Capco, C-A-P-C-O, or certified capital company business. This is a business that we have effectively maintained a residual position that is declining and we stopped putting new business on in 2005. It is a business where essentially we participated in state subsidized tax credit programs.

If we go to slide 13, what you can take a look at is an asset and a liability which actually match each other and you can see that at the end of 2011, that particular asset and liability was $16.9 million. The asset credits in lieu of cash liability, notes payable and credits in lieu of cash we pay our capital note holders tax credits that pass through. This has no effect effectively on our income statement, but it does bloat our balance sheet. This is a non cash asset, a non cash matching liability and you can see on slide 13 this will decline over the course of time.

When we look at our balance sheet, we from a presentation standpoint, we had a successful year as we significantly reduced total asset size and total liability size. Some of this was based upon adjustments in accounting treatment. We historically had an item of, called SBA loans transferred subject to recourse. That no longer exists at this point in time, that went away in 2011. The tax credits also declined over a period of time.

Some of the things that now do appear is when we do securitizations, the current accounting treatment in vogue for that is to keep the securitizations on balance sheet. So although the loans are put into a trust available for the bond holders and it's a bankruptcy remote trust with true sale opinion, from an accounting perspective, that asset liability match does stay on our books.

One of the products that we have highlighted this year to our customer base is our Newtek Payroll Services. We have our own software product, a very robust product where we guarantee a 20% cost reduction over what you're maybe currently doing if you're a business owner with Paychecks or ADP. Paychecks, ADP and Ceridian represent about 85% of the market. We have a technology solution that we believe is superior to the one that they have. We offer dedicated personnel to handle the customer. And the fact is we are more cost effective. It's a real great application. We are working on the convergence of our own payroll A, to make sure it gets hosted in the cloud for our business owners so they can make payroll and change payroll on their business from their iPad. In addition to that, we are working with different health insurers to be able to also be able to manage health and benefits from the same software solution, as well as workmen's comp.

As we look at our growth strategy going forward from a marketing perspective, we are going to continue to market our new, our retail brand, the small business authority brand through our website, thesba.com, we also welcome many of you to go to our website and sign up for our newsletter. That is a free newsletter that is produced every single month. We use the newsletter to help our cross-selling and cross-marketing effort into our customer base, while we're continuing to grow our alliance channels with credit unions, community banks, other affinity groups that drive their small business customers to us through our proprietary new tracker software.

We clearly have established ourselves with an outbound campaign focused on radio, which we'll talk about, and we look to continue to grow our presence as a business service provider with all of our business applications hosted in the cloud and available to small to medium size independent business owners on a tablet.

We view ourselves as a thought leader and destination resort for the independent business owners and operators all across the United States. We are positioning ourselves to provide products, services, data to small and medium size businesses to enable them to grow their sales, reduce their expenses, reduce their risk and offer state-of-the-art products.

On page number 18, you can see that our total referrals that we received over the course of 2011 grew by 15% to 26,719. You can also see some further traffic statistics on our new, what we call thesba.com website where our total visitors to the site grew significantly. We had 227,000 visitors up from 52,000. Unique visitors, 140,000 from 36,000. Obviously, the average monthly visitors grew significantly, about 4.5 times, and unique visitors grew about 4 times. On average, we look at about 1000 unique visitors every day. We have a 61% bounce rate. Our Alexa traffic rating is about 77,000 and we believe that we'll be able to improve in that rating throughout the course of 2012 in a significant way.

For those of you that follow the Company closely, many of you are aware we purchase -- we publish a blog on Forbes, The Small Business Authority Blog, which is available daily and can be viewed. The Small Business Authority Index is also published every single month and is available on Bloomberg and CNBC and The Market Sentiment Survey is also available on Bloomberg and CNBC. They basically publish both of those market gauges every single month.

Many of you are familiar with our 77 WABC radio campaign, for those of you that are in the northeast. That has worked out very, very well.

When we look at our marketing focus on page 27, we historically have had the majority of our business coming from the strategic alliance partner channel using our Newtracker proprietary referral and tracking system and our referral volume continues to grow. As we mentioned, we've been driving a lot of traffic through our Thesba channel and we had an 8.6% total amount of referrals that basically came to our website or our call center referencing our small business authority brand and looking for a product.

Our cross-selling referral effort was up 5% in 2011 over 2010. Cross-selling specifically comes from a client that has one product and is sold another product, not coming from an alliance partner or radio ad. These cross-sells primarily come from business service specialists and CSRs servicing our customer base.

As we grow The Small Business Authority channel, clearly we want to do more business through the Internet, through increased recognition by being authority for small business. And really becoming recognized as the best of breed in each area of Lending, Insurance Brokerage, Business Information, Electronic Payment Processing, eCommerce, Payroll and Benefits and Outsourced Managed Technology Services.

In conclusion, on slide 32, my favorite slide, if you take a look at the income trends of the Company they're clearly on a terrific path. We're forecasting a $6 million pretax net income for 2012, that's the midpoint forecast. And if you go to slide 33, we clearly have broken out all of our segments. We've got significant increases in 2012, anticipated numbers from 2011, actual numbers, both in the Electronic Payment Processing area as well as the Small Business Finance area.

In the Electronic Payment Processing segment, we're probably forecasting a midpoint somewhere in the neighborhood of up $1.5 million. In the Small Business Finance segment our midpoint is probably also up close to $1.25 million, $1.5 million. We have reduced the expectations in the Managed Technology Solutions down close to about $400,000 from the year prior. All in all, we are anticipating $6 million of pretax and that's up from $2.2 million of pretax this year -- $2.3 million, I'm sorry, in 2011. Now I'd like to pass the financial review presentation over to Jenny Eddelson.

Thank you, Barry. For the year ended December 31, 2011, the Company had pretax income of $2.3 million compared to pretax income of $877,000 a year ago, an improvement of $1.4 million. We had net income of $6.5 million or $0.10 per share for the year compared to net income of $1.4 million, or $0.04 per share in 2010. Improvements in both the before and after tax earnings are attributable to improvements in pretax income of all segments except corporate activities which was negatively impacted by a lease restructuring charge of $1 million in 2011. Our net income was positively affected by a $3.1 million release of a deferred tax asset valuation allowance in 2011 compared with $670,000 in the prior year. We were able to release the evaluation allowances based on new tax assessment of the recoverability of its deferred tax assets specifically related to Newtek's Small Business Finance.

Revenue increased $12.6 million, or 11%, to $125.3 million compared to prior year, primarily from growth in our Small Business Finance segment. Slide 37 reflects the recap of selected balance sheet items reflecting our short-term liquidity and balance of bank notes payable. Cash, restricted cash, broker receivable and small business loans held for sale, affectively our short-term liquidity, totaled $32.5 million at year end, down $1.7 million from the beginning of the year. This decrease in our short-term liquidity primarily reflects the Company's utilization of its own available cash to fund the unguaranteed portions of FDA loans.

Now I'd like to review the full year 2011 performance by segment, which is summarized on slide 38. Electronic Payment Processing segment revenue increased by $1.6 million, or 2% in 2011, to $82.5 million, predominantly due to organic growth from a combination of increased processing volumes, selective fee increases in addition to services provided to our merchants. Pretax income for this segment increased $700,000, or 13%, to $6.5 million for 2011 compared to prior year. The improvement was primarily due to the increase in the dollar margin of operating revenues less electronic payment processing costs of approximately $600,000.

Managed Technology Solutions segment revenues stayed flat at $19.2 million. We had a slight decrease in the total number of plans sold, which was offset in part by improved revenue per plan as a result of the growth of cloud incentives and an increase in the sales of custom website development services. This segment has reductions in payroll-related expenses and depreciation and amortization in the current period. Pretax income in 2011 increased to $4.8 million, or $100,000, a 2% increase over 2010.

The Small Business Finance segment originated $97 million of SBA loans in 2011, a 47% increase over 2010, and purchased $66 million of receivables compared to $55 million during 2010. Revenue for the Small Business Finance segment more than doubled in 2011 to $21 million from $9.4 million in 2010. This segment had improvements in all revenue areas. The primary contributor, premium [on loan] sales was up over 400% and even when factoring in the $3.4 million reversal of the change in fair value for SBA loans transferred subject to premium recourse, loan sales premium net of the change in fair value was up over 57%.

There will not be any further impact to the income statement from this particular fair value line item, as both the asset referred to as SBA loans transferred subject to premium recourse, and liability referred to as liability on SBA loans transferred subject to premium recourse, reached zero in 2011. The increase in loan originations, additions to owned and service loan portfolios and improvements in portfolio performance were sufficient to offset a $1 million increase in the combined loan loss provision and change in fair value for loans held for investment and a $1.7 million increase in operating expenses, primarily from additional salaries and loan origination costs.

The Lending segment had a 100% increase in pretax income of $4.1 million for 2011 versus $2 million in the prior year.

The all other segment decreased its pretax loss from $1.6 million in 2010 to an $861,000 loss in 2011. The improvement was due primarily to a $500,000 write-down of a cost basis investment in 2010 and the sale of an investment in the current year, which generated a $300,000 gain. Also, insurance commission revenue increased by 21% and exceeded $1 million in 2011. And salaries and benefits increased by $318,000, as a result of the start up of our Payroll Services subsidiary.

For 2011, the Corporate Activities segment recorded a pretax loss of $10.1 million, which is a $3.3 million increase compared to the prior year. The primary reason for the increased loss was the $1.2 million reduction in Capital Management fees, which was expected. Total expenses also increased by $2.1 million. This includes the $1 million lease restructuring charge, a $500,000 increase in salaries and benefits partially attributable to a one-time severance accrual, and an additional marketing and advertising expenses of approximately $0.5 million.

The pretax loss from the Capco segment decreased by $1 million to $2.2 million in 2011. This decrease in loss primarily reflects reductions in management fee expense and in professional fees and other G&A year over year.

Now please turn to slide 40, which reflects our revised guidance for 2012. We are revising our 2012 full year guidance to reflect midpoint consolidated pretax income of $6 million. Our bands for pretax income, which we had previously set at $3 million to $6 million have been narrowed to a range of between $5 million and $7 million.

Similarly, our forecast for 2012 midpoint consolidated modified EBITDA is now $12 million, a $1 million improvement over our previous guidance of $11 million, and a consolidated revenue range of between $130 million and $133 million with a midpoint of $131 million. This $7.5 million improvement over previously issued revenue guidance is primarily due to forecasted revenue growth in EPP and Small Business Finance segments. I would now like to turn it back to Barry.

Thank you. That concludes our presentation for today. Operator, we'd like to take some questions.

(Operator Instructions) Adam Morton with RBC.

Hi, Barry. Congrats on a great year.

Thank you.

Can you talk a little about -- the SBS side of things looks great, obviously looks like something that has a lot of potential. Can you talk about some of the challenges that 2012 may bring, or possibly bring to that side of things? I know interest rates over the past week have had a big jump up and it always seems like regulatory concerns are constantly overhanging us.

Okay. Thank you. I think that our Lending business is -- it's an interesting story with respect to interest rates. Our loans are variable. So we don't have an asset liability issue or mix and there isn't hedging costs or issues associated with it. Unlike the residential market, which is extremely sensitive to an increase in rates based on the concept of affordability for home, our loans are primarily driven by a 7- to 25-year amortization schedule. Clearly, we certainly prefer prime to be at 3.25% than 3.5%, or 4%, or 4.5%.

As rates do go higher, I don't think that would necessarily impede the need or demand or appetite for our loans, which right now is pretty high because really a lot of financial institutions are not providing competitive finance. I do think that as rates go higher, we do have a little bit of concern over the concept of credit risk, although I'm not overly concerned about it. The thought being particularly on floating rates, that is rates are going higher, the economy is stronger, inflation is coming into play. And for most of our businesses, that's a constructive thing.

So all in all, a higher rate environment with respect to our Lending business, not terribly concerning. One of our businesses actually should do very well in what I'll call an inflationary environment and that's the Payment Processing business. Obviously if costs of things are higher and the ability to pay in electronic terms is linked to that, we do significantly better in that kind of an environment. We actually do have an interesting business model for a business where rates are going higher and inflation is picking up.

Relative to the economy or economic growth being tepid versus being robust, we believe that we've got extremely competitive products where we will be taking market share away from our competitors. Even if you've got a tough economy ahead of you, which we've had the last two years, we're pretty excited about our opportunity to grow a bottom line and a top line.

Thank you. Any regulatory concerns, just general over stuff that's been out there?

Not really. At this point, things like Dodd-Frank doesn't really affect us at this point. I think Obama Care is definitely, is definitely interesting, if in fact we continue to have pressure on health insurance premiums. It's not going to be helpful to anybody, particularly smaller businesses.

On the other hand, our 50 state license insurance agency we believe will be able to take advantage of the turmoil in Obama Care as businesses are looking for solutions. In the insurance agency and the -- particularly with respect to healthcare, the model may actually change from a commission-oriented business to a fee-oriented business. We actually charge businesses to help them with their insurance, bring them to an exchange, and I think that dislocation in the market could be advantageous to it. So I definitely appreciate the question and we try to think about what's going on in the market on a macro basis and make sure we've got the products to be able to handle it.

Thank you very much.

Thank you.

Harold Ellis with UBS.

Hi, Barry. It's actually [Mike Kaplinsky], Harry had to run to an emergency. But he wanted me to ask whether you're seeing greater competition in the SBA and Lending space from banks or credit unions? Because certainly the press is reporting now that banks are finally loosening up their lending activity.

Okay. We're not seeing that to a great degree. I mean, I will tell you that we are seeing some things in the market when it comes to maybe labor getting a touch tighter. But the loans that we're closing, that we closed in the fourth quarter of last year that are in a book this year, we're losing very few loans, if any, that we're offering commitments to borrowers on. That's the strongest sign or an indication that as we sit here today it's not there. I don't believe that'll be the case going forward. I do think that competitive pressures will pick up at some point in the future. We're just not seeing them right now.

Okay, great. Thanks.

Marc Silk with Silk Investment.

Hi, Barry. Congratulations, great job.

Thank you, Marc.

So basically your loans originate -- origination went up 49.5% last year while we had US GDP of about 1.7%. So first of all, congratulations again. Second of all, I just want you to comment on your growth, I think that would be helpful.

Well, I think that one of the important aspects of our growth is I guess what I'll call the development of our reputation. We became in 2011, the largest non bank SBA 7(a) lender and when you put banks in the mix, we were 20th largest. I think that our strategy of positioning ourselves as The Small Business Authority, we've got people coming to us knowing that we have loan solutions for them. Going forward, we look to add to the menu and be able to offer a business credit card. An unsecured line, I will tell you those are risks that will lay off the third parties. But we'll just be in the middle of that and be a provider to the business customer.

So I think that we haven't changed our credit box from -- with that said, the looks that we're getting in the marketplace are clearly better. There's no question the credits that we're doing in 2011 and 2012 are significantly better than the credits that we did in years gone by. That's defined as doing less startups from scratches, less business acquisitions and providing more funds to existing businesses in the market. So not only are we doing more business, but our credits are improving, our currency rate is very high on our delinquencies. Our servicing portfolio is growing. It's just a segment of our business and the overall market that we like a lot.

So on your -- most companies margins on -- just switching gears here, on the Payroll Services are usually thin. It sounds like to me that you are adding value, so that's why I'm assuming you can get better margins than the norm?

I think on the Payroll side, we did not -- we didn't give much data. It's at this point from a financial perspective not material. But a question around your question would be what's interesting about payroll and why do you like it? I think what's interesting about payroll is it's clearly a core business operation, and we look at the payroll market a little bit like Microsoft 10 years ago. So 85% of the market is with three providers that typically has provided a service to a lot of independent business owners using an expensive sales force and basically selling them add-ons that are extremely expensive.

Our Payroll Solution has a better software product, has a human interface on the back end where it's most important. We own the software and the code and are in the process of developing integrated products along with the workmen's comp, which is ham and eggs to payroll, as well as health insurance and benefits, which maybe is the hash browns, so you got a whole breakfast plate. Being able to provide that solution to a business owner in the cloud, which is where we want to be, is extremely powerful. The other providers, we don't believe, are going to be able to do that.

Furthermore, the ADPs and the Paychexs of the world are competitors to most of our alliance partners because they take the asset-sensitive part of their business away, particularly the 401(k) and other types of products, away from those entities that we're partnering with. So, it's a tiny opportunity for us today, but we believe it will wind up growing into something significant that we could segment out and report profits down the road.

It sounds like you're planting seeds to an exciting product.

Yes.

Your newsletter, how has that been in regards to the success of the cross-marketing campaign and how long has the newsletter been out there in that capacity?

Last year, we rolled the newsletter out. I believe we're issuing about 55,000 newsletters a month and I think our open rate is, I'm going to say around 14% or 15%, which is pretty high. We think that business owners are -- they're following the SB Authority Business index and The Market Sentiment Survey and there's 10 new articles in that business letter every month that are written by our own writers.

We have a Newtek University writers group, so there's good content in that. Obviously there's links back to our site to create an awareness that we can do -- that we do do many multiple products and different things. So I think clearly, the continued growth of that newsletter and being able to distribute it to more parties is important to us.

Lastly, based on your updated guidance and the fact that if there's some headwinds in the economy, whether it's inflation, et cetera, you have some interesting hedges. Obviously we look at the stock price and it's definitely disappointing, maybe it's a product of just people finding you, but -- and I know you'd be for this, but I guess this is a question is for the Board.

I think having a $0.01 dividend going forward is not the worst idea because if you are pulling in $6 million, this is about $1.4 million, but from a $1.50 entry point, the yield is 2.6%. It might just get other investors looking at this thing -- look well they're generating revenues, kind of a good chunk of business like a bank and they're giving a dividend and they've been around for a while.

Well I would say this -- being a shareholder myself, I do like dividends. And as you're aware, we meet with our independent directors on a regular basis. One of the things I will tell you, Marc, which may not be obvious, the financing market today -- for us to finance our business with our senior lenders, it's a very sensitive market. They're particularly sensitive to dividends and stock buybacks and things of that nature.

So, what I can share with you is there's limitations on that, that we deal with on a regular basis. I think we recognize, particularly given where we are, last year and today, that there is a real good opportunity for people to commit to the stock and to get a return based upon price appreciation or a cash flow. So your comments are -- do not go on deaf ears, they're considered and we'll see what we can do.

I agree with the first point, because I know banks don't want to see you lending money -- giving out money when they're lending to you. So keep up the good work, Barry.

Thank you very much.

(Operator Instructions) I am not showing any other questions in the queue at this time.

Okay. Thank you very much to our Operator and to all of our participants and listeners on the call today. We look forward to reporting our first quarter earnings. Thank you very much.

Thank you. Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the conference, you may now disconnect. Good day.