NewtekOne Inc (NEWT) 2012 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Newtek Business Services second-quarter 2012 earnings conference call. At this time, all participants are in a listen-only mode and later we will conduct a question-and-answer session and instructions will be given at that time. (Operator Instructions). As a reminder, this call is being recorded.

I would now like to introduce your host for today's conference, Mr. CEO and Chairman, Barry Sloane. Sir, you may begin.

Thank you very much. Good afternoon, everybody, and welcome to the second-quarter 2012 financial results conference call. I am Barry Sloane, president and CEO of Newtek Business Services. Here with me today to present is Jenny Eddelson, our Chief Accounting Officer.

Jenny, would you be so kind as to read the Safe Harbor statement.

Sure. The statements in this slide presentation including statements regarding anticipated future financial performance, new text 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 revenue and profits margins, anticipated future business strategies and financial performance, anticipated future number of customers, business prospects, legislative developments, and similar matters. Risk factors, cautionary statements, and other conditions which could cause Newtek's actual results to differ from management's current expectations are contained in Newtek's filings with the Securities and Exchange Commission and available through www.Sec.gov.

Our (inaudible) operates under a different set of rules in each of the six 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.

Thank you, Jenny. For those of you that would like to follow along with the PowerPoint presentation, you can go to the investor relations section of our website, where the PowerPoint presentation is currently available.

I would now like everybody to forward to page 3. Looking at our agenda for the conference call, we are going to be going over our Q2 2012 financial performance cash position balance sheet to discuss our recent buyback of common shares; have a general discussion over developments and business trends; focus on our revenue growth; focus on the new financing arrangement with Summit Partners; reaffirm our 2012 guidance.

Our key performance statistics for the second quarter, the Company reported a consolidated pretax income of $1.9 million. That's an increase of $1.8 million year-over-year compared to the second quarter of 2011. The Company also has consolidated net income of $1.2 million and $1.5 million increase and $0.03 a share in earnings per share compared with a loss of $0.01 diluted share for the second quarter of 2011.

The Company had consolidated modified EBITDA for the second quarter of 2012 of $3.7 million as compared to $1.7 million for the second quarter in 2011. The Company reported for the full six months $0.07 of earnings per diluted share for the six months ended June 30, 2012 as compared to a $0.01 per diluted share for the six months ended June 30, 2011.

Our electronic payment processing segment had pretax income which was 42% higher than the year prior to $1.9 million in the second quarter of 2012 versus $1.3 million in the second quarter of 2011.

And the small business finance segment had pretax income increase 43% to $1.5 million in the second quarter of 2012 compared to $1 million in the second quarter of 2011.

We are also proud to say our servicing fee income generated from our SBA lender grew 170% period over period from $729,000 during the second quarter of $2011 to $2 million in the second quarter of 2012. Servicing fee income, I will point out as recurring income. The average life of our loans are approximately four years in duration. So we are real happy that this particular segment of our lending business is growing nicely. We anticipate nice future growth in the future.

Our SBA lender also closed $52 million in loans during the first six months 2012 as compared to $49.3 million during the same period in 2011. Obviously we anticipate doing about $125 million in loans closed during the year. Our pipeline in the third and fourth quarter is pretty full. With the recent acquisition of the Summit Partners capital that came in, we have begun to ramp up and aggressively grow our portfolio.

The Company also announced it bought back 780,920 shares of its common stock in the open market during the quarter under its one million share authorization. We also previously announced in the quarter that we closed a $15 million facility, of which $10 million was drawn by Summit Partners. Those funds are primarily going to be used to support our continued growth specifically in the lending business.

Today we are reaffirming our full-year 2012 EPS guidance of between $0.10 and $0.14 per diluted share with pretax income between $6.5 million to $8.5 million, the midpoint at $7.5 million, and modified EBITDA with a midpoint on $15.3 million.

Breaking down some of the second-quarter results, when you look at revenue, our EPP segment was up 3% quarter over quarter. If you exclude the impact of the Durbin Amendment, which is important, the (technical difficulty) revenue was up 11%.

The Managed Technology Solutions business was down 4%. We'll talk about that shortly. Our Small Business Finance segment came in at $6 million for revenue, up 30%.

Looking at the pretax income for the three primary income segments, EPP, Electric Payment Processing, $1.9 million, up 42%; Managed Technology Solutions up 12% from Q2 2011; Small Business Finance up 43% from Q2 2011 and $1.5 million.

The Company had $32 million in cash and cash equivalents and restricted cash at June 30, 2012, up from $25.4 million at December 30, 2011.

Looking at our balance sheet, our balance sheet grew slightly. That's primarily based upon our SBA loan origination business. Our liabilities also grew by about $6 million. Total equity jumped from the end of the year of December 31, 2011, from $59.2 million to total equity at $64 million at June 30, 2012.

Historically we have talked about our Certified Capital Company legacy business, which we began to discontinue in 2005. Tax credits in lieu of cash and notes payable, which offset each other, one a liability, one is a balance sheet item, are shrinking in size. The management time that we spent on Capco is shrinking in size as is the accounting costs and other miscellaneous costs.

If you go to slide 10 of the presentation, you can see that the balance sheet effects of tax credits are declining precipitously. We anticipate that at the end of 2012 we will be somewhere around $7 million or $8 million. At the end of 2013, a little under $5 million and declining from there.

We talked about our buyback of common shares of 780,920 during the quarter. The average buyback price of these shares was $1.18. With our stock closing at $1.60 today, that looks like it was a very good buy and represents great value to our shareholders. Since July 27, 2012 with our stock price at $1.50, we were up 32% since the most recent stock repurchase.

We thought one of the things that we wanted to do was to start to put some market comparables out in the market. We've taken about nine different entities. The top three -- Medallion Financial, also known as TAXI, is a small business lending entity. Heartland Payment Systems is in the payment processing space. Web.com, www., is primarily in the web design and web hosting space.

The other entities I want you take a look at, there's six other stock tickers there primarily service the small-business market. They are primarily in business services. If you take a look at any of these entities and you compare us as a percentage of book value, as a percentage multiple of sales, or as a percentage multiple of EBITDA, I think you will find our stock price is very, very favorable. But in the last couple of weeks, an entity called Universal Business Payment Solutions, UBPS, which is a [SPAC], announced an acquisition to spend $179 million to basically acquire three entities at the same time. The transaction is anticipated to close at the end of the year.

They bought a credit card processing entity similar to ours. They bought a payroll and tax filing company and they also bought a company in the technology space. The company announced this is an asset company as well, stock ticker UBPS that they believe that the 2012 EBITDA that they were buying was approximately $20.5 million for those businesses and that the revenues were about $80 million.

If you took a look and added our payment processing business and you added our technology solutions business, I think you will come up with favorable valuations particularly on the EBITDA side as well as the sales side. I will tell you they make compute their sales revenue differently than we do with a higher cost of goods sold, which might reduce our sales number, but as a multiple of EBITDA, I think you would come up with some pretty favorable numbers.

Also announced recently, GoDaddy, one of the major players in the tech space particularly for domain registration and hosting, announced their strategic purchase of a cloud-based financial management application company to be able to provide outsourced business solutions to their customer base in the cloud. That's clearly our strategy under Managed Technology Solutions and the company has historically done a terrific job of dealing with small and medium-sized business customers and providing them solutions from a military strength approved data center.

So as we look to grow our business and offer all of our solutions, payroll, e-commerce, insurance agency, lending, etc. in the cloud, I think you'll see major competitors are going this way. We believe that the marketplace of small and medium-sized business and independent business owner operators are going to be managing their business from a tablet or a smartphone with all of their data and their important applications posted in a cloud environment. We plan on rolling out our first cloud product under the cloud authority, e-commerce and the cloud with a national TV campaign in September.

We versus some of these other entities that have got significantly higher valuations, have historical experience in providing a suite of services to small businesses. We have done this over the past eight years. All of our business divisions operate on a similar coordinated platform. We don't have compensation differences.

If you read our compensation plan structure in our Ks and Qs, all of our business heads as well as myself are compensated for cross-selling and cross-marketing across a platform. We are not wedded to P&L. None of our business service specialists or customer service representatives are paid commission in any particular transaction. Our goal is to do what's best for our client and we believe our clients will pay us back. And all of our business service solutions will be positioned to be available to business owners in the cloud and to be available on their iPhones and iPads.

We talked about the performance in EPP a little while earlier, revenues up 11%, pretax income up 42%. We think our payment processing business is an important business and it's clear that electronic payments keeps growing in this space. We've seen a lot of information and articles on mobile payments both from card issuance, where it is likely that going forward most Americans will wind up using iPhones or other technological devices to actually make a payment.

And on the receiving end, we think the days of the terminal sitting on top of a retail institution are in the past. And virtual terminals with card not present type payment structures will be the future. Our Company is extremely well-positioned for that.

That product type is basically a venture between our EPP division and our Managed Technology Solutions division. Effectively the payment processing space has really become more of a technological application. So as we are transitioning our Managed Technology Solutions business where historically the majority of our revenues came from Microsoft Web hosting, shared dedicated type products, clearly the products going forward for independent small business owners will be cloud environment type hosted business applications. So clearly our business is suffering a little bit as we transition out but I want to let you all know we are very well-positioned for this transition and you will begin to see the first rollouts of our product in September and October.

Our pretax income for the quarter was up 12%. Our revenues were down 4% and we have recently made several changes within the Managed Technology Solutions division. We have a new president of Managed Technology Solutions, new head of customer service, new head of the sales department. As we mentioned before, all of our products will be cloud solutions-oriented and although we are clearly very interested in servicing our Microsoft and Adobe ColdFusion clients in our customer base, we are working very hard and will be announcing many, many rollouts of other software-based solutions in Linux and Ingenix for our customer base as well as our wholesaler, intermediaries, designers, and developers.

Going to slide number 15, we're extremely proud of the progress and developments in our Small Business Finance segment. Our revenues grew by 30% in the quarter year-over-year. Our pretax income grew by 43%. We have historically said this for those of you who have been following the company year after year that we believe this particular segment offers -- this sector offer the best business opportunity for Newtek shareholders. That is being borne out.

We did a securitization in December 2010. We did a securitization in December 2011. We are hopeful that we will do a securitization in the fourth quarter of this year as well and we recently closed on a capital raise which I'll talk about shortly.

For every $100 million increase in our loan fundings, we increase our pretax dollars or our pretax income in the segment obviously on a consolidated basis including the cost of the mezzanine capital by $4 million. We've previously announced we anticipate going to $200 million worth of loan fundings in 2012.

Another thing that we are proud of is the growth in our servicing portfolio, which is recurring revenue as we service loans for our own account and for others. From June 30, 2011 to June 30, 2012, our servicing portfolio increased by 74%. We added $128 million in external servicing in the second quarter. We anticipate our servicing portfolio will be at a minimum of $650 million by the end of this year.

Newtek Payroll Services will be a product that we will be offering as well in the cloud, so business owners that come to us will be able to make payroll, make payroll changes in a cloud environment from an iPhone and iPad and as the market begins to further embrace integration, health and benefits and workmens' comp also are anticipated to be offered on our client devices of iPhones and iPads as we deliver those cloud solutions to our customers.

In order to be able to do this, you need to be able to actually have their own software and our own staff. We are fully independent of third parties in this particular product area. We're extremely optimistic that we have got an incredibly competitive product against the market leaders, Paychex, ADP, and Ceridian that they currently own about 85% of the market.

So when you look at our business owner clients in the future when they have their desktop or their workshop on their iPad, they will be able to have an icon for payroll, an icon for payment processing, an icon for Web traffic statistics, an icon for insurance agency, and an icon for their loan. In all cases they will be able to pull up all of this data on a real-time basis right to their smartphone or their iPad.

Our growth strategy with respect to revenues is to continue to use the historic distribution channel of alliance partners, community banks, credit unions, insurance companies, broker-dealers, and trade associations where clearly emphasizing cross-selling and cross marketing into our customer base is working exceptionally well.

We will shortly talk about the outbound campaign, which will really gravitate from local and regional radio to national TV and we anticipate growing our presence. As a business service provider, all of our business applications hosted in the cloud.

When we look at our Company, we view ourselves as a thought leader and a destination for independent business owners and operators. Newtek, The Small Business Authority, provides product services and data to small and medium-sized independent business owners all across the United States. This is a market according to the Small Business Administration that has 27 million businesses in it and represents in excess of 50% of [non-foreign] GDP and 70% of the job growth.

Our referrals quarter-over-quarter grew by 6%. We do anticipate improving upon these particular results. Some of the reasons for the reduction in growth are not functioning at a high growth rate. If we weeded out some alliance partners that were actually providing us referrals that were not converting at particularly high rate.

When we look at some the things we're doing particularly positioning our website, you clearly see some terrific trends here. Total visitor growth Q2 2011 to Q2 2012 grew from 73,000 to 121,000. Total unique visitors grew from 38,000 to 77,000 during the same period.

We will announce that we are going to go to a new facelift of our website. We anticipate that viewers will find it to be cleaner, less cluttered, simpler to navigate, have much more direct focus on our products. That probably will be available in September. At the same time when we roll out our national TV campaign.

Our traffic to our site clearly has increased significantly. You can see our Alexa traffic ranking. We are the 42,000th most highly trafficked site and across all metrics whichever way you look at it, our search traffic, our referral traffic, our direct traffic, everything seems to be growing very nicely. We are currently averaging in excess of 1000 unique visitors today. Even with the radio campaign ending at June 30 and no external advertising, we have continued to maintain such a positive pace.

The Small Business Authority now has a business index, the SB Authority Index published by Bloomberg and CNBC monthly as well as the SB Authority Market Sentiment Survey. As many of you are aware, we publish a blog on blogs.forbes.com/thesba. We put out a blog two weeks ago that has attracted over 20,000 visitors to it.

We put out a blog yesterday on Facebook not being free basically that Facebook has got all the customer data of most clients in terms of people traffic the site, and things of that nature. That particular article attracted I think in excess of 1000 views within less than 24 hours.

So we are developing a pretty good feel and reputation as a blogger, as a provider of important business content, the small and intermediate sized businesses and we are also tweeting regularly. We welcome all of you to become a follower on our twitter page.

We've been a Forbes contributor since 2011. We published over 70 articles that are all available on blogs.Forbes.com.

We talked a little bit about our marketing strategy. We have increased our outbound marketing budget by 50% going from $1 million to $1.5 million. That's primarily going to be based in national television with a small amount to digital.

We talked about the SB Authority Index, the SB Authority Market Sentiment Survey. Looking at our market focus, we are clearly getting more of our business which you can see on slide 29 coming from the direct channel. We think this is important. We had a 13.6% increase year-over-year from the prior quarter. We look forward to that continuing to grow.

As we do grow our business obviously Internet and Web-based search is going to be extremely important to us particularly with our new design website and all the content that we have out there as well as a digital campaign. We believe that we are going to continue to be increased and recognized as being an authority on small and intermediate sized business issues.

As many of you are aware and you can see some of our videos on our website for public relations and videos, we are fairly regularly on Fox Business News and Fox News. We do anticipate being on CNN probably this week. There is a taping this week. I'm not exactly sure when they're going to air this show but we will tweet that out when we know the show is going to be on the air.

Last two items for me before I turn the presentation over to Jenny, slide 32, I always say this is my favorite slide, a great nice upward sloping trend in our earnings with $7.5 million forecast for pretax earnings and when you take a look at our 2012 segment guidance, as we've mentioned before, we are forecasting a range of $0.10 to $0.14 in earnings per share for the year 2012. So far in the first six months, we have recorded $0.07 a share and you can see we have our businesses segmented out.

The Payment Processing segment, Managed Technology Solutions, I would suggest for those of you looking for valuation and market comparison, those are two decent businesses to combine and look at the comparison to UBPS as a market comp.

With that, I would like to turn the presentation over to Jenny Eddelson to do the financial review.

Thank you, Barry. For the quarter ended June 30, 2012, the Company had consolidated pretax income of $1.9 million and after-tax income of $1.2 million, both significant improvements from the second quarter of 2011. Each of our segments reported improvements in current quarter earnings compared with the year ago period and EPS also improved from a loss of $0.01 per diluted share at June 30, 2011 to income of $0.03 per share at June 30, 2012.

Please turn to slide 36 for a summary of revenue, pretax income of loss and modified EBITDA by segment for the second quarter of 2012.

Electronic Payment Processing segment revenue increased by $656,000 or 3% period over period to $21.4 million predominantly due to a combination of growth in processing volume, selective fee increases, and additions to services provided to our margin.

Pretax income increased by $560,000 or 42% to $1.9 million for the second quarter of 2012 compared to $1.3 million recorded in the same period last year. The increase was due primarily to a $436,000 improvement in dollar margin of operating revenues less Electronic Payment Processing costs resulting from the introduction of new higher margin products and services during 2011 as well as the impact on revenue from EPP costs resulting from debit card pricing and interchange cost adjustments.

In addition, depreciation and amortization decreased by $211,000 period over period due to intangible assets becoming fully amortized.

Managed Technology Solutions segment revenue totaled $4.6 million for the second quarter of 2012, a decrease of $197,000 compared with the year ago period. The decrease was due to a reduction in the total number of Web hosting plans sold as well as a decrease in Web design revenue for the period, which was offset in part by improved revenue per plan. The increase in the average revenue per plan reflects the growth in average cloud instances, which nearly doubled quarter-over-quarter, and customers purchasing higher cost plans including additional options and services.

Pretax income for the quarter was $1.1 million, a 12% increase over the second quarter of 2011. The increase in quarterly earnings period over period was impacted by a one-time expense of $190,000 recorded in the prior quarter. The small business finance segment has $6 million in total revenues for the second quarter of 2012 versus $6.3 million in the second quarter of 2011.

Servicing income increased by 170% or $1.2 million period over period as a result of significant additions to both third-party servicing as well as to our own loan portfolio. The segment originated $21 million of SBA loans in the second quarter of 2012, a decrease of approximately 9% over the second quarter of last year and purchased $22 million of receivables compared to $18 million during the second quarter of 2011.

The decrease in total segment revenues was related to the recognition of $1.7 million in premium income associated with loans that achieved sales status of the results of the warrantee period expiring in the year ago quarter with the corresponding reversal of fair value adjustment to SBA loans transferred subject to premium [recourse].

When taking this $1.7 million adjustment into consideration, total revenues for the segment increased by 30% or $1.4 million period over period. Premiums averaged 114 for the second quarter of 2012 versus an average of 111 for the same three-month period in 2011.

Total expenses for the Lending segment increased $1.2 million period over period and was partially attributable to a $518,000 increase in interest expense, the majority of which was devoted to the Summit Financing transaction. In addition, salaries and benefits as well as other G&A increased by a combined $564,000, both of which are attributable to increases in the amounts of loans serviced and year-to-date loan originations.

In sum, the segment had pretax income of $1.5 million for the second quarter of 2012, a 43% improvement over the same quarter last year.

The All Other segment pretax loss decreased by $104,000 or 30% quarter-over-quarter. The improvement was due primarily to both increased insurance commissions earned on forced placed insurance policies as well as revenue growth from our payroll services subsidiary.

In the Corporate segment, the pretax loss decreased to $1.9 million , a 20% improvement compared to the year ago period. The improvement was in large part due to decreases in salaries and benefits as a result of reductions in headcount period over period as well as a $276,000 severance pay accrual recorded in the prior quarter.

Additional reductions in professional fees and rent and related expenses added to the improvement for the quarter and are reflective of the Company's continued cost-cutting measures.

The pretax loss in the Capco segment also decreased in the prior quarter. This segment had an $87,000 improvement over the year-ago period and primarily reflects reductions in related party management fee expense, which is expected to decline as the Capcos mature and utilize their cash.

Slide 37 reflects our previously issued guidance for full year 2012. We are reaffirming our consolidated midpoint pretax income of $7.5 million as well as midpoint modified EBITDA of $15.3 million.

I would now like to turn the call back to Barry.

Thank you, Jenny. Operator, we'd like to take questions now.

(Operator Instructions). Marc Silk, Silk Investment Advisors.

Hi, Barry. Congratulations on another good quarter.

Thank you, Marc.

Let's see, first of all on your -- you talked about the direct channel referrals. Is that internal business referrals or is that -- I guess my question really is is your SB Authority like Index and Market Sentiment, are you getting business because of that? Can you kind of judge it as far as how it's progressing?

Yes, the direct channel numbers that we've talked about today are basically customers that have gone directly to the website, have not come through an alliance partner, and that is a function of search. It is a function of the amount of content that we have through the Index, through our blog, through tweeting, through our newsletter. We put out 65,000 newsletters every month to customers.

We also have an SB Authority magazine. If you'd like one, I certainly can send it to you. It's about 35, 40 color pages. We've got all the content with all articles about business and we haven't done any -- we haven't put any digital dollars up any significant way. When I say that, it may be $1000 a month, nothing significant.

But we are going to be buying key words, key phrases. We're also going to be putting banners up that will wind up searching for people that come to our site or other types of sites to really take advantage of that. So the 13% that you are seeing is from the direct channel and we think that's from our strategy of positioning ourself as an authoritative presence in business as well as advertising, PR, etc.

Also on the like the SBA Index Market Sentiment, you talked about eyeballs growing and maybe you don't want to do this, but could advertising be in this model at some point down the line?

Yes, as a matter of fact, what we talked about today historically in the last 18 months which ended in June, we had a radio campaign with WABC. That campaign has ended as of June 30. That was primarily in the New York market. I think occasionally that would get up to (inaudible) on the channel. I heard people say they've heard it in New Hampshire.

But anyway, we will be launching national TV in September. You will see small business authority adds. The primary ads will be on business lending. We will probably have ads on healthcare and health insurance I should say. We think that health insurance is the number one need or question of business owners and they need participants like us to help them navigate through what their questions are with respect to health and benefits and whether to go to exchanges or not.

So we are clearly going to use our national health insurance agency at [Legend], but you can see we are going to be out there with our e-commerce in the cloud and all these offerings and you will see these commercials on major cable channels or major networks.

Shifting to your lending, on the collateral side, what would you say is your mix? If someone picked up a piece of property to secure their SBA loans, what is the mix between residential and commercial?

I would say to go to the more macro category about 80% to 85% of our loans have a real estate lien on it. I would venture to guess within the last six months because the world does change but in the last six months of all loans with a mortgage lien I would say 70%, and this is a guess, probably 60% to 80% have a lien on a piece of commercial property. The rest residential from the guarantor.

Okay, so the clients that are coming to you on the lending, it's nice to get anecdotes so are the banks willing to lend these people? Are some of these people just flat out being rejected by banks? What have you kind of seen besides obviously the normal channel you get?

We love the lending opportunity and the lending space because we are seeing conventional credits in a government box and we are seeing them in a government box, we are basically able to take a loan or a bar that's been banking with a bank for three years, five years, 15 years, 20 years and that banking relationship, the banks cannot hold that client on their books anymore because they are being forced to shrink, forced to delever.

When banks are forced to shrink and forced to delever and they've got to get their asset size down, you know which credits go first?

Which ones?

The best ones.

The best ones, right.

Those are the only ones that can get financed away.

Right, if you don't need money, there's plenty out there.

You've got it, so what typically happens when they have to shrink is they lose the stronger credits first. We are getting those stronger credits so we are getting exceptionally strong credits. This is going to give us the fuel as we get out there and let people know in real simple outreach that we are here to provide money, seven to 25 year amortization schedule, $50,000 to $5 million. We are a national lender -- come to us.

We think we are going to get a lot of opportunities from that so we are seeing good credits. We think we will grow our volumes without having to press the credit box. I will reiterate we do not use brokers. We do not let sophisticated intermediaries define what the loan looks like. We do that directly with our clients and there is nobody in that chain within our organization that assembles a loan or underwrites a loan or runs a lending division that is paid a commission or a percentage of the profits and that includes yours truly.

That was very diplomatic calling them, I don't know if you called them responsible or I forget the word you used -- but anyway --

We just looked at what everybody else messed up in the last five or 10 years so we don't want to make the same mistake as the market expands.

So now we are headed to this fiscal cliff and the question is will this make banks even more wary to lend in the short term as is more questions which could be short-term opportunity for you guys?

I think the trend of banks providing balance sheet is downward sloping and I think the fiscal cliff, it is what it is. Obviously we have an election coming up. Some people think there won't be one if one guy gets in, there will be one of another guy gets in. I don't know. We are here no matter who is the president and what the president is, we will welcome him and embrace him and do the best job that we can.

We think it that in a market that -- I would certainly prefer strong economic growth -- but in a market that's declining 1% or 2% GDP, and a lot of people look at that tax (inaudible), Armageddon. It's a disaster. Even in that environment, there are plenty of businesses that need financing and need cloud solutions and need to improve their technology.

One of the things that we're seeing right now although there's not a lot of robust economic activity but one place where businesses are spending their money is improving their operations and their efficiencies, and that's why our cloud solutions we think are going to be very well-suited to business owners that want real-time payment processing information. They want to get rid of their IT costs both internal and external and reduce it and be in the cloud.

So we think good economy, bad Economy, we're well positioned and we're not overly concerned on the lending space because we are of avoiding clients and credits that are on the bubble.

And then the MasterCard/Visa settlement, is that -- do you want to just comment on that in regards to your EPP division?

Yes, I think the Visa/MasterCard situation really is irrelevant to us in terms of the settlement and the payment to retailers. I think we are uniquely positioned as I guess what the industry would refer to as an ISO. But I think from our perspective, business owners are going to need guidance and that's what we do. Our job and our function is to deal with business owners and as business owners are going to be using virtual terminals and mobile payment processing solutions, they are going to want to do business with entities that can be transparent, show a balance sheet and an income statement, show that their data is at a (inaudible) 70 level for a data facility, give them $100,000 insurance certificate in the event that they get fined by Visa and MasterCard. And because we own our own gateway, be able to deliver real-time payment processing data and information to their iPhone and their iPad.

Okay. Lastly and I will turn the call over, is I haven't gone on twitter up to this date, so now you're killing me. So what is your twitter address?

I will give you the corporate one, which is THE_SBA and I think mine is @SloaneBarry. I am not on Facebook but I had to do the twitter thing.

I got you. All right. Keep up the good work, Barry. Thanks a lot for taking my questions.

[Adam Norton], RBC.

Barry, great quarter. Good job. Can you talk a little about the cloud services strategies that you had mentioned that are rolling out this fall and maybe talk about the marketing strategy behind it, how it may compare to what some of the other guys in the space are doing, what opportunity you see, where you see it going?

We are thrilled about what I would call the cloud trend and the big issue about the cloud trend is, and I've watched a boatload of TV and media -- IBM, AT&T, Verizon in my market is constantly advertising the cloud. We also know that Amazon is out there with a cloud product and Google etc.

Those enterprises are typically positioning cloud services to large corporations or larger sized businesses. We offer a cloud solution to small businesses and it is the small and independent business that can least afford to have an internal employee for IT or can least afford to have the local break fix guy or girl company charge them $3000, $4000, $5000, $6000 a month, whether they use the service or not.

So the benefit of cloud is it is pay for what you use. You don't buy the server. You don't buy the software. Effectively you rent it and all your data is in a military strength approved facility if you use our cloud.

Where we are positioning ourselves under that Newtek Small Business Authority moniker is we are also the cloud authority and we're going to be able to deliver our business service solutions in the cloud. So our payroll will be in the cloud.

Look at yourself as an insurance user. You would like to be able to access every one of your debt pages and policies on your iPhone or iPad. You would also like me to notice you 120 days out when your policy is about to expire and then 90 days out and then 60 days out. You may also want me to send you a bill which gives you the ability to put your credit card in there so you can pay. These are all things that we are going to be able to deliver to business owners because of who we are and how we are positioned.

Because we have our own data center, because we are used to dealing with technological solutions and applications for business, we think we are very well-positioned to get this out in the market.

Now what's our marketing strategy? We clearly plan on embracing designers, developers, and technology providers. We're going to be doing a lot of blogging, a lot of posting. We are going to be using a digital campaign to attract those intermediaries and give them discounts to recommend us to their customer base and we're also going to be positioned ourselves on national TV as an authority in the cloud.

So we think it's going to be a big opportunity for us and we also view the payment processing space as we're historically -- we think it's a technological application that a company like ours is well-positioned and suited for. The days of selling payment processing by knocking on a store's door and saying can I see your statement, I can beat the price, we think are behind us.

Thank you so much. Good luck, guys.

Keith Zdrowak, National Securities.

Barry, great quarter. I guess the question is with how well the Company is doing, is it time to really try to focus more on trying to get the stock price going? The stock, it's nice to see them move up a little bit but it still seems like it's grossly undervalued and I guess is it time to look to spend more money, even more money on IR trying to get the word out, get more exposure for the stock? Do you spend more money trying to get companies to do more research on your stock?

Do you look at a possibility of paying another dividend to shareholders, seeing if that gets more attention for the stock or at least reward the shareholders with a dividend? Or do we -- is it time to even explore the option of do you hire a firm to see about trying to sell the whole Company and if the Company is grossly undervalued, is it possible that somebody out there could find a value for that?

So I'm just -- I guess the question is how do we get the stock price going and with what I'm mentioning, are these things that are on the table or that you're looking into?

Okay, for the five questions, the first three are easy -- yes, yes, and yes. And I will go back and detail each one. Question four on the dividend and question five selling the Company, let me go to four and five first.

Regarding the dividend, we always look at dividend strategy and buyback. It's something I discuss with the Board at most Board meetings. I would say every one but most Board meetings it's discussed and we always take a look at it. We have limitations on our ability to do that based upon our lender arrangements and you could certainly feel free to look at those documents at sec.gov.

So we clearly have got limitations in that particular area and I for one have a vested interest and am always interested in seeing a higher stock price.

Regarding the concept of selling the Company, if that was something that we had an intention of doing and had a mandate to do, it would be announced. So with that said, we believe that our strategy is gelling, coming together and is to be noticed and is now to be highlighted sort of on a bigger platform and bigger theater.

So I think that the concept of valuation is always left up to you in the market. And my belief is that if investors think the stock is undervalued and we pointed out other companies and market comparables for you to take a look at, we do believe we're finally going to get there because it is really -- part of it is a function of being big enough to be discovered or be found.

So I think we are smart enough, sophisticated enough. I've got an intelligent enough Board and a great management team with the wind at our back finally and a lot of the distractions related to Capco and other things away from us that we will be able to reap the fruits of our labor and shareholders like yourself that have been a shareholder for a long time will be able to do so as well.

Regarding how to get there, we did hire an investor relations firm. If you take a look at today's press release, there is another investor relations professionals name on there, Jayne Cavuto, who was working for our Company as internal IR, has rejoined our firm. We have rehired her. We will be actively involved with her in September and we will be aggressively marketing our story to some of those companies that you see in our PowerPoint presentation, where investors have got a stake in them and they think they should take a look at our organization.

We are also speaking at a variety of different investment banking firms. We recently spoke at the Sidoti conference. There are some upcoming conferences that we do have an interest in attending. Please stay tuned. We find those conferences to be worthwhile and we were fortunate enough to get picked up by the Street.com with independent research this year.

(inaudible) you haven't looked in the last month or two to see if they've updated their report. It will be interesting to see what they do with this piece of data and this piece of information. If you look at our earnings and our EBITDA number and our stock price, we are pretty much trading at low multiples.

So if we continue to grow and execute on our plan, I think in the past I thought we always had a good story but you didn't necessarily generate EPS. Now we are generating EPS and I think the market will take a look at that and really be very much driven by the numbers.

From my own standpoint, I could tell you honestly that I will allocate a bigger portion of my time to investor relations and that I am confident that the shareholders will get a better return on it than necessarily what I've done in the past. So I am pretty constructive on where things are going, good economy, bad economy and I think we are in a good spot.

Okay.

(Operator Instructions). Harold Elish, UBS Financial Services.

Hi, Barry. I wanted to follow up on a couple of things. Marc earlier was asking about the way in which you measure how your marketing efforts are going. I'm wondering if you could comment a bit on what you see the payoff thus far for the alliance with WABC.

Good question. We -- I have to say we are -- from what I understand I think we are reasonably sophisticated in terms of how we measure how our clients come to us and a lot of that is based upon our technological platforms, the new tracker system that we've built, which pretty much can capture where clients are coming to us from, what they are asking for with full information and note taking as well as our business as a Web host. So we look at the information daily, to be frank with you and track Web traffic and referrals and close rates and things of that nature.

When we embark on a WABC campaign, we had a goal in mind and the goal was we wanted to learn. We wanted to learn about the market and we wanted to do it sort of in our home base. We put out a lot of different messages. We did a lot of branding. I'm actually currently looking right now at the poster that was hung behind Bernard McGuirk on the Imus In The Morning show, which is now in my office. I guess when you stop paying them they give you the backdrop.

So the Small Business Authority studio, radio studio is now in my office. I think that -- I went in a meeting today with a top 20 insurance company and the first thing the gentleman said to me was hey, that was a great picture in the post last week and then he said and you are all over the radio. So the fact that we have been off for a month doesn't make a difference. But if you are a WABC listener, he heard it. That provided a lot of value.

I think we got much more branding value out of what we did on WABC radio than direct response. I think what you are going to see in the TV ads in particular as we roll them out because we are extremely focused and determined to offer our product in a more direct response mode.

Now mind you, I wish we were offering the My Pillow because -- you are laughing. That guy, he's selling an $80, $90 pillow, he's hotter than a pistol and consumers react that way. It is a lot more difficult to market and brand a B2B product, which is what we have. Now here's the however.

When you are offering business loans in a market where there really isn't a lot of funding out there and if you are a business owner and you are sitting on the couch and someone says hey, do you need a business loan, you are going to jump off the couch. If you are one of 27 million businesses out there that have been affected by the Affordable Healthcare Act and you're really not sure if what you did last year and the year before is going to work going forward and you've got somebody that sounds interesting and is going to offer you an opportunity to look at what you have to make sure it's right, you may be attracted to that.

So what we are trying to do is get to things that are sort of state-of-the-art hotter than a pistol. I think cloud is hot. I think mobile payments are hot. I think business owners are going to react particularly in an economy no matter who gets hit or what happens, you are not going to have an economy with a lot of growth.

The one thing I know is one of the bigger items in demand are technology staffing and that's primarily because every company, whether they are a small independent business or they are a large company, they are trying to improve their technologies and improve their efficiencies, because it's frankly the most sensible and easiest way to improve your bottom line versus try to grow the revenues.

So we think that we are optimistic that our marketing and advertising strategy going forward will be rewarding and obviously we will be tracking it. We think that what we did with WABC worked well. It was a great learning experience. If we were to go back on radio -- and I'm not saying we won't, I think we may -- I think we would do things a little bit differently and we learned a lot and I think we are well-positioned for the fall.

Barry, I really appreciate it. Thanks very much.

Thank you. This does conclude our question-and-answer session. I would now like to turn the call back over to Barry Sloane. Sir?

Thank you. I appreciate everyone tuning into the call. We had a great audience, great questions, and I also thank you for your patience and investor participation and look forward to reporting good results in the third quarter. Thank you very much.

Ladies in gentlemen, this does conclude your conference. You all may disconnect and have a good day.