NewtekOne Inc (NEWT) 2015 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Newtek Business Services Corporation third-quarter 2015 earnings conference call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions) As a reminder, this conference call may be recorded.

I would now like to turn the conference over to Barry Sloane, President, Chairman and CEO. You may begin.

Good morning, everyone, and thank you for joining us for our third-quarter 2015 financial results conference call. Today's call will be presented by myself and Jenny Eddelson, EVP and Chief Accounting Officer. For those of you that want to follow the PowerPoint presentation, it is on our website, THESPA.com, Investor Relations section.

Jenny, would you like to read the forward-looking statement?

Sure. This presentation contains certain forward-looking statements. Words such as plans, believes, expects, plans, anticipates, forecast and future or similar expressions are intended to identify forward-looking statements. 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 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.

Thank you, Jenny. I would like to move everyone's attention to slide number 2, third-quarter and other financial highlights. And before I begin, I would like to thank my executive team and associate workers of Newtek for their hard work over the course of the last year. We are approaching our one-year anniversary of transitioning into a BDC on 11/11/2014. A lot of hard work and great performance of the Company, its workers, particularly accounting, legal department and the Presidents of [our portfolio colleagues].

In the recently reported quarter, September 30, 2015, our net asset value came in at $174.7 million, $16.88 per share. That compares with $16.31 on December 31, 2014. On October 1 the Board declared a special dividend, $34 million dividend. This rationale for that special dividend was a one-time event by us converting to a RIC. As a result of the declaration on October 1, the Board adjusted the NAV to $135.6 million or $13.10.

For the quarter adjusted net investment income, $0.50 a share, $5.1 million for the nine months ended, adjusted net income, $15.4 million or $1.50 a share. During the quarter, we closed a public offering of our senior notes. The notes are traded on NASDAQ global market. Our common stock is now traded on the NASDAQ global market. Symbol for the bonds, NEWTZ. The bonds have been trading at a premium to where they were offered. Those were seven-year notes, interest-only. And the notes cleared at 7.5% yield. The Company also, on October 15, closed an underwritten offering of 2.3 million common shares of stock, that includes the exercise of Greenshoe, at $16.50.

Moving to slide number 3, looking forward, Newtek's small business finance highlights -- we funded $64.2 million of SBA 7a loans. That was an increase of 32% over the prior quarter and prior year. Our fourth-quarter fundings have historically been the strongest quarter, typically comprising over a third of total annual fundings. We've got some history on that slide to reaffirm that.

We are maintaining our range of 7(a) originations between $230 million and $270 million. And we anticipate in the month of November, hopefully within the next few days, to fund our first SBA 504 loan. We will go through the math and the mechanics of that, extremely important new product for us where we will be able to continue to originate loans to small and medium size business market and achieve extremely high rates of return and in case of the 504 loan, once we sell off the conventional first and the second, we have no balance sheet risk and nice gains on sale.

In the quarter we completed our sixth securitization of notes which stay on our balance sheet, 40.8 million, AA rated. The notes were priced to yield 2.5% to the investors, that was 100 basis point improvement on the overall yield on the last transaction. Think it's important to note we're executing on our plan, our securitizations which have been in the market since 2010 are reporting well, our ratings have all been maintained, our loss rates are good. Once again investment in Newtek is not an investment in a new company. We've been in business as a publicly traded company since September of 2000.

As of today we are announcing we entered into a new alliance partnership with Lending Tree. I think that should be a very lucrative partnership for us.

On slide 4, in dividend distributions we talked about the $0.50 per share that was paid yesterday. To date we've paid $1.36 in cash dividends off $1.50 of NII. We have also forecasted even with the additional share increase from the capital raise to maintain the $1.82 cash dividend per share based on the 12.6 million share count.

So we are happy to be able to keep existing shareholders whole on the $1.82. That's based upon our business model, where we get dividends from our portfolio companies, as well as the interest in capital gains that we get from our SBA 7a business.

We talked about the special dividend that we declared on October 1. That equates to a $2.69 per share, based on 12.6 million shares of common stock. We have indicated that approximately 27%, max, will be paid in cash, 73% in shares.

On slide 5 we talk about the senior note offering that we chatted about previously. That was our first issuance of publicly traded senior corporate debt and we are very happy with that execution. That deal was led by JMP and Ladenburg.

We talked about the third-quarter securitization. Sandler O'Neill acted as a placement agent. It was oversubscribed with the cut investors backed. It was placed with five institutional investors. There's continuing demand for that.

We think that Sandler O'Neill is a good partner in this particular endeavor, as they have got relationships with a lot of community banks that have a very strong appetite for floating-rate AA notes at a 2.5% yield.

The equity offering we did, which is on slide number 7, of 2.3 million shares, which included the Greenshoe of 300,000 -- KBW, Raymond James, JMP acted as joint book rating managers. Also Ladenburg and Compass Point Research acted as comanagers.

We've added new institutional investors as shareholders, the ones that are listed publicly, and there are some new ones that will pop up. And this is very rare for a BDC.

We are told BDCs are primarily retail products. Obviously, we are in a BDC wrapper, but the businesses underlying the BDC, we believe, have value above and beyond where a traditional BDC's assets trade. A traditional BDC has a portfolio of debt instruments, which are levered by debts themselves. Some of them have equity kickers. And it's a fairly static portfolio where values won't change a whole heck of a lot unless credit deteriorates or interest rates move.

In our case we have operating businesses, particularly in the area of the portfolio companies, that do qualify for the 70% test, and we do believe that the institutional interest that is invested in our BDC recognizes the tax-advantaged status that we have, plus the upside potential in the valuations of these businesses. So we are happy to report our top institutional shareholders as of June -- Wellington, Perritt, Zelman, Bridgeway, West Family Investments, Bard, Northpoint and Royce -- we are happy with those institutional investors. We've got new ones on the new transaction.

We are also happy to note that prior to becoming a BDC we had one company doing research on us. And we now have five analysts covering the Company. In the quarter, Compass Point Research and Raymond James picked up coverage.

Use of the proceeds for the transaction -- we continue to invest in the 7(a) business, which is a very high rate of return on equity. And we plan on using the capital to grow our 504 loan business. And we continue to explore acquisition opportunities similar to what we did with Premier at ranges of 4 to 8 EBITDA multiple.

In the acquisition pipeline we currently have one targeted company. It is a software development company. It has been in business for 10 years. They've got very stable products with stable customers, stable cash flow. We hope to consummate this acquisition between 4 and 5 times EBITDA, and it has tremendous synergy with Newtek Technology Services.

When we look at our business and we look at market comparables, we compare our 7(a) business to [LIBO Bank], trading north of 4 times book and at a very high multiple to earnings. And we compare ourselves to other small business lenders, entities like OnDeck Capital with very high valuations that just don't have our history.

Our retail acquisition strategy -- we've acquired over 500,000 business referrals. There have been people that over to us and said that we are a lead generation business. Endurance just acquired Constant Contact for $1.1 billion to be able to have relationships and contact with customers. We do that. And the investment in Newtek is an investment in this management team. It's an investment in a business visas. It's an investment in a business model.

So I know we have these calls and everyone is got their slide rules out and they are trying to figure out where the straight lines are and are we increasing or are we declining. The reality of it is we have been doing this for a long period of time. The business model is working and we are portraying a story to the investment community that this is a long-term investment. And you need to have patience, look at the business model and look at the steps that we are making. And I want to reiterate I am extremely out of executive team and all that Associates of Newtek that come to work every day and have driven such great results.

In drilling down to Newtek Small Business Finance from some of our new investors, where the largest non-bank 7(a) lender in the US. We are ninth largest still, even with the recent calendar year, which ended said timber. The return on investment in 7(a) lending, risk-adjusted, is in excess of 30%. We've got over a 12-year history of loan to full frequency and severity. We have been through the up-and-down cycles of credit. We have been through the up-and-down cycles of price changes on the government guaranteed pieces. We have done six securitizations. The risk in our portfolio on the lending side has an average balance of $173,000. So when you look at risk-adjusted returns and you look at what would you rather invest in, a diversified pool of $173,000 floating rate senior secured loan participations, or would you rather invest in leveraged buyout deals at four, five and six times EBITDA that are syndicated out. Well, we've obviously made our choice. We like our business model a lot.

The secondary market for 7(a) guaranteed programs -- it has been around for 61 years. We are also happy to announce that, obviously, there has been a new budget that's passed through Congress -- we won't have legit issues for two years -- and also to announce that the 7(a) program, very much of a bipartisan program where guaranteed was becoming in short supply in July. Both the House and the Senate agreed on something -- amazing, but we are happy about that. The President signed it over a weekend, $23 billion increased from $18 billion. This is a program that works. It puts credit in the hands of small business at affordable interest rates with long-term amortization schedules. And we are really proud to be part of it. Once we create loans, we sell the government guaranteed piece off and we ultimately finance the uninsured piece.

Looking at our stock performance over the course of the last year, on page 12, we were the number-one performing BDC. You could see how well we performed against the S&P 500 and against the Russell. If you had dividends in, Newtek had a realized return of 29% over the last 12 months.

Our current 7a pipeline on a year-over-year comparison is still continuing to grow. We are pleased with it. We believe this pipeline will generate the numbers that we've put out into public guidance.

On slide number 14, that's the classic 7(a) loan example that we have used historically. Please note that in the recent quarter our premium, 11.4% -- that was down from prior quarters. We are going to go into an analysis of that. Even with the lower premium we still cash out, once we do securitizations.

Slide number 15 talks about the gains and the income that comes off of a 7(a) loan, and I want to comment once again, that is risk-adjusted. And we have been very comfortable with the creditworthiness of our portfolio. Jenny will talk about, and as well you can see in our Q that we established, we've got a very good situation with respect to unrealized and realized losses in our 7(a) portfolio.

It has performed very well. That is based upon being in this business for 12 and 13 years, and obviously a good economy doesn't hurt, either.

I would like to note in Q3 referral fees paid to Alliance Partners were net of about 50 basis points, down from the average of 75. Some of the things that we were able to tweak in the model -- packaging fees, referral fees and the way we structure deals -- that will enable us to maximize prices. We have to make certain market adjustments, which we will talk about, to be able to maximize gain on sale and reduce expenses as well as receive additional fees on packaging and those things that we do to be able to give borrowers their ability to earn income.

Currently, as many of you are aware, we retain on its balance sheet 25% of the unguaranteed, to repeat, unguaranteed but not subordinated portion of the SBA 7(a) loans that it creates. Losses are shared pro rata between the government at 75% and Newtek at 25%. Those loans sit on our balance sheet on a nonrecourse basis in securitized trust, once they are cleared out of the Capital One backline, which we cleared out down to a zero balance.

Beginning in 2016, the Company is going to explore the option to sell a portion of the 25% unguaranteed piece. There are market bids that are beginning to surface that are coming in or around PAR or greater. That would effectively, to us, if you look at our business model, actually be another way for us to raise capital. Rather than have a 25% piece of the $1 million loan example or $250,000 that we have to hold capital against. In the warehouse line, we can effectively sell the 25% piece down to as low as 10% with that SBA approval. And being able to sell a 15% uninsured piece at PAR is very cost-effective capital for us; that is something that we are going to be able to explore going forward.

And these are the types of assumptions that we go out to give us latitude and range in our business model and will enable us to forecast going forward and enable us to hit our numbers, having flexibility in our business model.

When we look at guaranteed loan pricing comparisons we've got a history over the last seven quarters. I would note Q4 2014 we had a 111.73 and in Q3 2014 we had a 113.19. And that is the weighted average net price to NSBF, which is the real important price.

Obviously, the others are market prices. What is it that determines these prices?

Well, number one, it's the overall market clearing yield on the government guaranteed piece. The other aspect is, is it a 10-year loan that we are doing or is it a 25-year loan? 25-year loans tend to be backed by commercial real estate and they are used for the acquisition of real estate or refinance.

The other differentiator which has popped up for the first time that we've seen this is, the larger-balance loans in the month of September are discounted. That's based upon pool assemblers and investors changing some of their criteria. We have ways to structure around some of the issues that affect us in the month of September. We are in discussions with that, figuring out how to do that. So we can get a better benefit from gain on sale.

As you can see when you look at Q3 2015, the weighted average net price to NSBF on the 25-year deals was 113.04, which obviously was significantly higher than we were clearing. So the mix of 25 versus 10, the size of the loan, the ability to structure, selling earlier in the quarter versus later in the quarter are all things that will help improve pricing.

As you can see, our loan sale premium income trend continues to grow. We view this as a reoccurring event. We originate loans, we sell them into the market. The secondary market for SBA 7(a) loans has been around for a long, long time and not going away. That is our business model. So, although it's not viewed as reoccurring income like the reoccurring income that comes off of our payments business, our managed tech solutions business, our insurance agency or payroll business, gain on sale is something that we have experienced for the last 12 years.

When you look at our comparative loan portfolio data, we believe strongly we are able to continue to maintain credit quality. We are not cutting into credit. We think the competitive environment for what we do is still good. And we are getting plenty of attractive looks to make types of loans that we want to do.

SBA 504 loans, a new focus for our organization. We anticipate having a close in November. These are loans made to small businesses that are collateralized in loans primarily with commercial real estate. I don't believe we will do much in machinery or equipment in this area. The way the loan works -- it's a 50% LTV on a conventional first, a 40% second which the government takes out. The borrower puts down 10%.

So if the borrower were wanted to buy a $1 million piece of how property and put its manufacturing into the end, we can lend it to $900,000.

Look at slide number 21. That is an example of a first mortgage for $500,000, a bridge for $400,000, $100,000 equity injection buys the $1 million property. We sell off the 50% first, the 40% second is bought by the government.

When you go to slide number 22, you can actually see the net cash created pretax on a loan of this type. We are able to actually earn origination fees in 504, which we are not in 7(a). We are able to sell off 100% of the loan so there's no balance sheet. We also get servicing income over time, which is not included in this example. But you can see the return on investment is extremely high.

Slide number 23 -- we acquired Premier Payments in this quarter. Premier Payments is our second operating business in the payment processing space, $16.5 million purchase price, approximately 6 times EBITDA. This is the business that is growing fast topline and bottom line. Look at the year-over-year comparisons -- 20% rev growth, 67% EBITDA growth.

Newtek Merchant Solutions, we compare our payments business to other publicly traded comps. First Data Resources recently went public; that was the KKR company, 16 times trailing 12-months EBITDA. You can look at the other public comps -- Heartland, Vantiv. Obviously, we are smaller and we have a private equity valuation. But, clearly, we are very comfortable with our valuations on these businesses.

These are the valuations that are going into our NAV, which last quarter, Jenny, $16.88?

Yes.

$16.88. So we think that these businesses are valued appropriately. And ultimately, over the course of time, with scale, there's upside to our model, which is why you cannot really look at Newtek and comp it to other BDCs. Look at it quarter to quarter; take that slide rule out. We dividend money up from these portfolio companies when it is appropriate to do so, whether that's merchant solutions, whether that's the insurance agency, payroll, managed tech solutions.

We think there's a great opportunity in the payment processing business. We believe that we will be able to add additional alliance partners. American Express in the last year has gone to what I would call an acquiring model similar to Visa and MasterCard. So where, historically, an entity like ours wasn't able to get residual income, we can now do that through the Amex Blue program on smaller accounts.

Tablet and mobile-based cloud computing is clearly a growing trend. For those of you traveling through airports, you almost can't eat unless you put your order through an iPad these days. I know we see that quite a bit in New York and some of the other major cities. That's a growing trend. We are well positioned for that.

And EMV-compliant solutions, only 40%, according to a recent survey that we did, as well as other industry payment processors, have converted to compliance solutions. So we feel good about the fact that we will be able to go to clients and gain market share.

In our Newtek Technology Services business, Jenny will talk about this, and this will clearly be in the MD&A in the Q. We recently significantly cut into the revenue decline, as well as the EBITDA decline. For the first six months, I believe our revenue in this portfolio company was down about 15%, with EBITDA down about 50%. That's 5-0.

In the third quarter, I believe our revenues were only down about 7%, and I believe our EBITDA was only down about 16%. We look forward to reporting the fourth quarter in this particular company.

New management changes, expense reductions, and really a renewed focus on different what I would call data center services and products are rejuvenating this business. This business historically has been a great opportunity for Newtek. It was acquired in 2004, when it was doing $6 million of revenues and $2 million of EBITDA. At its height, this business did $7.6 million of revenues, and it did -- excuse me, over $20 million of revenues and $7.6 million of EBITDA.

So when we look at opportunities in cloud computing, people say, gee, how are you going to compete against Google, Azure, and Amazon Web Services? We're in a different market than they are. They are in the rack-and-stack business. They are in the data center business. They've got plenty of capacity to give out. We believe we can service customers as they migrate dedicated service to our data center and put their hardware and software in our cloud. That will save them costs on equipment.

Two, 24/7 outsourced managed service solutions save some costs on labor. Pick up the phone, call us anytime 24/7. We will certainly help them manage whatever solutions that they have.

We also can give them hot backup and live redundancy globally. We now have footprint in London, Singapore, New Jersey, Phoenix, and Scottsdale. We also historically have been a player in HIPAA compliance solutions. We'll be rolling out some new solutions which are very, very important to the medical professional under the Affordable Care Act.

Slide number 28, EBITDA forecast. I've had people say, gee, you are very much wedded to gain on sale. It's all based upon selling the government-guaranteed piece off. When you look at the adjusted EBITDA breakdown of the businesses, there was one research piece that was saying 87% of our business is from the lender.

Well, when you look at the EBITDA breakdown, I'm not in agreement with that. The cash flows coming off the other businesses are significant, and we want them to be more significant going forward. Those are reoccurring cash flows from payments, payroll, insurance agency, and cloud computing. Approximately 64% of the forecasted 2015 EBITDA emanates from the lending business, 36% from business services.

Obviously, we are an internally managed BDC. Many of you that are familiar with us know that. Our interests are very much aligned. The insiders, other founders, the Board own a major portion of this Company. We went to those numbers. Internally managed BDCs for the most part are trading at a medium premium to now.

We are moving into a new location in Lake Success, New York. I know Lake Success sounds fancy, but it's on the Queens and Long Island border. It's a great location, 34,000 square feet. We anticipate really getting tremendous economies out of putting many of the business lines together under one roof.

We recently made a new hire. John Traynor has just joined us as President and Chief Operating Officer of Newtek Merchant Solutions. John has over 35 years of experience in the banking business, a very senior banker, very highly experienced in what I would refer to as transactional banking, both in the United states as well as overseas.

Looking at Newtek from an investment summary standpoint, NAV on September 30, $16.88. Obviously, we declared the special dividend on October 1, which will be paid out. The cash portion will obviously reduce NAV, and when the shares are issued to shareholders, that will increase NAV.

We made this conversion because we believe the Company clearly, in the last year, the stock price has proved that, was better suited for investors of the BDC versus a C-corp. We had very good stock performance in this past year, particularly versus our peers. Most BDCs have traded down below NAV significantly. And I think the institutional interest in our stock has appreciated what we're doing and what our business model is.

We anticipate, as we have revised our guidance with the share raise, $1.82 cash dividend pay. And obviously, we have also stated that is anticipated to be paid out of earnings.

We have been in these businesses for over 10 years, and so we are not new to insurance agency, managed tech solutions, payment processing, or SBA 7(a) lending. Our interest are very much aligned. Between my own holdings, founder, management, Board, we own approximately 16% of the outstanding shares. We are not investing in risky debt securities to get these yields. Your senior secured participation certificates, primarily, no second-lien or mezz financing, no direct exposure to oil and gas.

I apologize for the length of this today, but we had an extremely active third quarter and wanted to make sure we got all this information out.

Jenny, could you do a financial review?

Sure. Good morning, everyone, and thank you for joining today's call. I would like to start with some financial highlights from our third-quarter 2015 consolidated statement of operations. Please keep in mind this is our third full quarter reporting as a BDC, so there are no consolidated BDC financial statements to refer to for the comparable prior period.

Please turn to slide 34. We had investment income of $7 million, which included approximately $2.2 million of interest income. Substantially all interest income for the three months ended September 30, 2015, and September 30, 2014, was derived from our SBA loan portfolio, which generated $2.1 million and $1.6 million of interest income, respectively.

The increase in interest income can be attributed to the increase in the average outstanding performing portfolio of SBA loans, which grew from $106.4 million at September 30, 2014, to $140.7 million at September 30, 2015, at fair value. The increase was a result of new net loan originations over the 12-month period.

Servicing income, which is recurring revenue that we earn from serving the guaranteed portion of loans originated and sold by NSDF, increased $347,000 for the three months ended September 30, 2015, compared to the same period in 2014. The increase was attributable to the growth in the size of the total SBA loan portfolio, for which we earned servicing income of approximately $145.5 million period over period.

Dividend income was approximately $3.1 million for the three months ended September 30, 2015, and represents dividends declared from our controlled portfolio of companies. Specifically, we received a $1.3 million dividend from Universal Processing Services of Wisconsin, $300,000 from Premier Payments, $200,000 from small business lending, $200,000 from managed technology services, and a one-time nonrecurring $1 million dividend related to the liquidation of Exponential Business Development Corp.

Our expenses for the quarter totaled approximately $8.5 million and include salaries, interest expense, and other G&A such as rent, marketing, and referral fees. As an internally managed BDC, we do not pay any incentive or base management fees to an external manager. And we believe the internally managed structure presents multiple benefits to shareholders, including better aligning the interests of our employees with our shareholders.

Our net realized and unrealized gains for the period totaled a positive $6.2 million and primarily represents gain on sale of the guaranteed portions of SBA loans we sold during the period. For the three months ended September 30, 2015, we originated 75 loans totaling $64.2 million and sold a guaranteed portion of 76 loans for a total of $50.2 million, which included $6.8 million in realized gains.

The average net sale price for the third quarter of 2015 as a percentage of the principal balance was 111.34%. During the same period last year, the Company originated 47 loans totaling $48.7 million and sold the guaranteed portion of 39 loans for a total of $36.5 million, including $5.8 million in realized gains or premium income. The average sale price in the third quarter of 2014 was 113.19%.

Overall, our net increase in net assets from operations was $4.7 million, and our net increase in net assets per share was $0.46 for the quarter.

Please turn to slide 35, which is an analysis of changes in NAV and NAV per share for the first nine months of the year, as well as our NAV as previously reported on October 1, when we declared the special dividend.

Overall, our NAV per share increased by $0.57 or 3.5% for the nine-month period. We began the year with NAV of $16.31 per share. Changes in NAV for the first nine months included $6.3 million in net investment loss or $0.61, offset by $25.9 million of net realized and unrealized gains, including the recurring gain-on-sale income we recognized from selling the guaranteed portions of loans and net appreciation in our portfolio company investments for the nine-month period.

Overall, the preceding represented an 11.8% or $1.93 increase in NAV per share for the nine-month period. NAV was also reduced for the first- and second-quarter dividends of $8.8 million or $0.86 per share, as well as other adjustments, which decreased NAV by $2.5 million or $0.50 per share, bringing NAV on September 30 to $174.7 million or $16.88 per share.

On October 1, 2015, the special dividend of $34 million as well as the third-quarter cash dividend was declared, which reduced NAV per share to $13.10.

And finally, slide 36 is a reconciliation of our adjusted net investment income, which includes our net investment income loss plus realized gains, which are recurring revenue for the Company, which we recognize when we sell the guaranteed portions of our SBA loans. Our adjusted net investment income per share for the three- and nine-month periods was $0.50 and $1.50, respectively.

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

Thank you, Jenny. Operator, we will take questions now. That concludes our presentation.

(Operator Instructions) Chris York, JMP Securities.

Thanks for taking my questions. So, Barry, could you walk us through the mechanics of the special dividend? Specifically, what is the formula for the share price for the issuance of stock dividends? And then can you remind us when you will know the election of shareholders' decision for cash versus stock split?

Chris, I appreciate the question. I think you got me without doing my homework, so I'm going to do the best that I can on this one. But there is specific instructions that are on our website in the Investor Relations section to the exact dates.

What is going to occur is American Stock Transfer will be sending out an election document to all the shareholders, who will have the opportunity to elect whether they want cash or stock. Historically, based upon what we've seen, most people elect cash. But there's actual -- an election to be made. In the event you do not make an election, the default is cash, because we believe that would be the intention of most shareholders.

The price of the -- so the dollar amount of the equity portion of the dividend is $25 million. So the price of the shares and the amount of the shares will be determined on three dates in December.

November.

Is it November?

Yes.

No; I think November, Jenny, is the ex-date. The date of the price of the share determination is three dates in December. I could be wrong. I think it's three days in December.

Okay, I have now got my Q notes. Yes, December 11, 14, and 15 is the valuation period for the stock portion of the dividend. The ex-dividend date is November 16. So once we know what the share price would be, there is a deadline to receive the election form from the shareholders, which is 20 days from the mailing. That deadline is the 22nd.

American Stock transfer will calculate that on the 24th. Newtek will issue a press release upon that calculation to determine the exact number of shares that are issued. And on December 30, American Stock transfer will be the mailing date for the dividend checks. And the payment date for cash and stock election is December 31.

Perfect, that's very helpful. So that process clears up a couple things for me. So the 11th, 14th, and 15th is -- so the average price of those, of the closing stock price in December, correct?

That is correct. And I would like to add, and obviously, to a certain degree, this is -- and I'm going to use the word market speculation, so I will characterize it as that. The stock portion of the special dividend, in my opinion, is similar to a stock split. So whatever the share price is, it is. Essentially, assuming that the market is efficient, investors are going to be made whole. It's just a valuation issue on what the stock happens to be trading at. The valuable portion of the stock dividend is the cash portion.

Got it, makes sense.

And as I say, that's just my own opinion. That's my opinion as a shareholder as well. But other people may differ. But I think that nobody really should be overly concerned what the price of the stock is on those given days because if it's lower, you are going to get more shares. It's equal to the value.

Helpful. Switching gears, on expenses, so we have seen this line increase sequentially throughout the year, which was to be expected. But I'm curious to learn your expectations for this line item in 2016 and the potential for operational leverage.

On the expenses, which expense are you referring to, Chris?

Operating expenses. So on the income statement --

Just overall?

Yes, so salaries and benefits and pretty much G&A.

I mean, to be frank with you, I do not expect there to be significant increases in that. As a matter of fact, from my perspective, I would expect to hold the line. I think from an operating leverage perspective, we've got a platform that is very, very scaleable. We've got our lending lines in place. We've got our cash in place. We were a SOx filer this year, so that increased some of our expenses. We also had some litigation this year that we had to defend ourselves and also, frankly, countersue some counterparties in that area. I feel pretty good about us being able to hold the line on expenses.

Great. And then lastly, so in the press release, you guys noted the potential to close in November 504 loans. It might be early, but would like to get your thoughts on the potential size of that business at Newtek or that portfolio for maybe 2016 and beyond.

And I look forward to chasing Peter Downes over the next three days with the same question, Chris. But I would tell you that I think that in 2016, we are hopeful that we could close between $20 million and $40 million of 504 loans. That may be on the conservative side. I would like to sharpen my pencil on that. The nice thing about 504 loans is you could do up to a $10 million loan in a 504 loan. So realistically speaking, those numbers could be grossly understated.

The nice thing I like about 504 loans from a profit perspective is, number one, effectively all the risk goes off your balance sheet, because the 40% second is effectively owned by the government, and the 50% first is sold conventionally. And there's deep bids for the 50% first. So our returns on this business are cash up front with very little balance sheet implications except for the time that you need to keep it in the warehouse line. Sterling National Bank increased our total facility from $15 million to $50 million in the quarter. Part of that facility is used for 504 loans.

So I think what we are going to be doing, once we get this share count in line, Jenny and I will be going out and giving the market some guidance based upon appropriate share count. One of the reasons why we did not give a 2016 picture today is we really would rather go out -- and everybody looks at things, dividend per share, etc. We really want to get that share count down, and hopefully we will be able to get closer to that middle of December.

Great. I'm going to squeeze in one last one and then jump in the queue. So the premium sale price fell below what I'll call maybe the three-year average, roughly around, like, 112.8%. We are here at 111%. Could you explain the dynamics that are going on there or what caused the decline sequentially?

Yes. I think there were three items. The first one I will define as the mix, more 10-years versus 25-years. The bigger issue was bigger loans. We sold a lot of short, large 10-year loans into the market. And the problem with the short 10-year loans is the 10-year loans don't have prepay penalties. And when a pooled assembler buys a 10-year loan, it totally -- particularly -- now, in a smaller loan it's a smaller portion of the whole pool. But when it's a bigger loan, it's a bigger portion of the whole pool.

So one of the things that we need to do is -- and by the way, we have never experienced this before. So we may need to take these bigger loans, instead of doing the $5 million loan, do two $2.5 million loans or three smaller loans and disperse them to different pool assemblers so that when they sell the pool, there isn't as big a hit to the short WAM, to the lack of prepayment protection. There's got to be some more engineering on our part.

The important aspect of the pricing decline that we had in the third quarter, it was some effect of market changes, but not a lot. It was mostly affected by portfolio mix and by a change in the market that we need to shift how we actually sell these going forward. It's not the first time that we've had dips. That's why I pointed out in the fourth quarter of 2014 you had a $111.73.

We are very cognizant of the price issues. And our way to combat changes in price issues are through volume and putting on additional value through 504s. So when you look at our guidance, our guidance really doesn't have 504 in it for this year. So 504 should be incremental to next year. And we need to do a better job in engineering. But there haven't been any real major changes in market prices for the 7(a) product.

And then with the new capital, potentially a larger balance sheet. So the larger ticket sizes that you are selling in, is there a potential that the premium could stay in maybe a sub-112% level for the remainder of the year?

Remainder of 2015 or the remainder of this year?

Yes, remainder of this year.

That's a hard question. Boy, I would like to think that we will outperform the third-quarter price, but I won't go much further than that. I think that we have for price that we are very comfortable with, which is consistent with what I discussed on this call, to be able to deliver $1.82 in a dividend for the full year, paid out of earnings, even with conservative pricing.

Got it. That's it for me. Thank you very much.

Mickey Schleien, Ladenburg.

Just one follow-up to Chris's question about the pricing. Was there any effect on the pricing from perceptions about prepayment risk changing, given how volatile the markets were in the third quarter?

Very minor, Mickey. Our bigger issue in pricing was portfolio mix and size of loans.

Okay. Barry, can you give us some update or any color on the integration of Premier and your perspective on adopting its best practices at NMS?

I appreciate that, Mickey. I just spent two days in Wisconsin with John Schrader, who is newly appointed President and Chief Operating Officer of UPS Wisconsin. We've also named Jordan Stein as President and Chief Operating Officer of Premier Payments.

John and Jordan are and will be working together to develop what we view as a best-practice approach to being good in the payments space. With the acquisition of Premier, we pick up a second platform. Most people know Newtek to be primarily a First Data front-end and back-end shop. We now -- on First Data, we have Elavon. We also do have a front end from TSYS and would look to also have a TSYS back end in the near future.

With that said, with respect to best practices, Elavon has got two interesting tablet-based solutions. One is Silver, which is an NCR product. Second tablet I'm not familiar with. We have FDR Clover and we have Rebel.

Moving into the new facility in February of next year will really help us integrate particularly the front end of the business. Tom Harkins, who has been with our organization for close to two years and came to us with over 20 years of MasterCard experience, is moving over as part of John Traynor's management team to work on the front end of the business along with Jordan.

So we feel pretty good about some of these changes. They do take time. Some of them, I think, will be helped by the geographical movement into the Lake Success space. But we have also made some management changes to enhance that, some platform changes. And Premier had a terrific quarter, and we think it will have a terrific fourth quarter as well.

So we look forward to growing these businesses. We think they are important, and we think there's very good opportunities in the payments space.

Sticking with the payments space, Barry, I've noticed that a lot of merchants have installed the chip readers, which has been required, but they aren't actually using them. They are still requiring us to swipe our cards. So can you remind us, how does that affect their liability? And what opportunities does that present for both Premier and NMS?

Yes. I do my own statistically significant samples. Every time I take the credit card out, I asked them, do I insert or do I swipe? Right now, we estimate, in other market participants, only 40% of the market is EMV compliant. So although many people have the equipment, Mickey, you would find this hard to believe, as I do, and we are 30 days past the deadline, major payment processors who I will not name on this phone call do not have the software downloads into existing terminals to actually make the merchant totally compliant. So the industry, frankly, has let down retailers.

Now, where is that opportunity? A lot of smaller merchants do not have equipment. They've just delayed purchasing it. We are actually seeing, believe it or not, fraud in restaurants and pizzerias. The common thinking was you wouldn't have that in a smaller merchant. It's not extensive; it's not big money. But it's encouraging the smaller guys to make the $200 investment.

From our standpoint, given that we do have equipment in stock, we understand these markets, and our model is not a rep model. And I don't say that and try to be too disparaging. Most reps cannot bridge the technological needs of the client. We can. We use people in-house that are really experts in the area, a little less sales-y but a lot more technically astute.

So I think there's an opportunity for us to gain market share. There is an element of risk here. Technically, if the merchants can't handle the risk, ultimately that would fall back on us to be responsible for it. But so far, in the first month, it has not been a big deal or a big issue at this point.

Okay. My last question, Barry, you mentioned the potential to, perhaps next year, starting to sell the unguaranteed 7(a) loans. I'm just curious. Who are the natural buyers for that paper? Certainly I could understand the market for the guaranteed portion. But, given all the uncertainty as to how the Fed is going to behave and the outlook for the economy, I'm just trying to gauge what kind of demand there would be for that paper.

Appreciate it. Yes, believe it or not, it's banks and credit unions. Loan demand is still high. Even if rates go up a little bit, I can't see that changing. And they're financial institutions that were interested in buying participations. So a lot of that has traded. I believe one of our competitors, Live Oak Bank, in their public filings have stated they have been selling that off.

We've done preliminary conversations with some investors, and we would certainly consider executing on that.

Okay. Thanks for your time this morning.

Jefferson Carlsonn, KBW.

I want to ask you about Lending Tree. How significant is that addition to the fold? And what sorts of referrals can we expect from them?

It's fairly new at this point, Jefferson. But we've spent a lot of time working with them, integrating technology to technology to get their leads. And we believe that we've offered a different alternative to them than our competitors, because we are technologically situated. So when you look at our model versus our competitors, we don't have $500,000 or $750,000 producers driving into verticals. We have really dedicated professionals that are lending finance specialists that can take a data feed and then call up a client very quickly from a remote location and start to assemble the loan without having a vested interest in the sale. What I mean by that is noncommission. And that's extremely important.

So we think that Lending Tree, who I believe has got a public offering in the market and is raising capital, so far, from what we've seen, is going to be a good partner to us. And it won't be insignificant. However, that's very fresh. It's two weeks fresh.

All right. Got you. I think you guys mentioned about Exponential Development Corp., in passing. Is that a company you've sold? Or what happened there? And what was the strategy, if you did sell that company?

Yes. Exponential Development Corp. is an entity that we have owned and operated for, geez, about 11 years. It is one of our legacy capital businesses. We managed those assets, we liquidated those assets, and we are able to take dividends out of the liquidation of those assets.

The one thing I will say, Jefferson, and I won't say Newtek is an easy follow. But we do manage our business. We have a lot of assets within our structure and organization. And that was just one of the benefits that we were able to get value for our shareholders. And there are other things in our portfolio and our Company that are out there as well.

Okay. And lastly, on the -- I think you were talking about the timing of your 2016, when you are going to talk about maybe originations or dividend guidance. Did you guys -- do you believe you will do that before year end, when you get the share count done? Or is this going to be end of January thing, when the next earnings -- or beginning of February, when the next earnings come out?

I'd like to do it this year. I'd like to do it when we get the share count. I just -- we talked about doing it today. It would have been premature with the share count. It would have been confusing. So we figured it was just more prudent for people to enjoy the cash dividends and the special dividends and the 30% return, and trust that management is going to bust their backs to do it again next year.

All right. Got it. Thanks, guys.

Robert Dodd, Raymond James.

Going back to the 504 program real quick, obviously you talk about it being in a portfolio company. So is the intent to have any gains, origination fees, etc., premium earned, accrue to a portfolio company and then make a decision about whether that dividends it up to the parent? Or is it going to be accounted for like the 7(a) program, where we see the gains, premiums, etc., just consolidated on the BDC balance sheet?

The former, Robert. So it will be sitting in a portfolio company. I appreciate you asking that question. It's a good one.

Okay. Got it, thank you. And then looking at the payment business and the legal expenses you are talking about, $1.3 million so far, was that concentrated in this quarter, or has it been spread out? And how long do you think those kind of expenses are going to go on for? Obviously, I'm trying to get a handle on the sustainability. Excluding Premier, it was 1.4 -- $1.5 million dividend from that unit in the second quarter, $1.3 million in the third. How much movement is there going to be in that?

Q3 was a pretty big chunk of that number. I think that number should begin to tail off significantly. I can't swear to it. My Chief Legal Officer and I have lovely conversations about this on a regular basis. And for those lawyers on the phone, I love you all. But, no, I would like to think that the worst of this is behind us. I'm not saying we won't have another quarter. But this is not really -- I don't expect to see that type of the number in 2016 at all.

Okay, got it. And then just last one -- on originations and sales in the 7(a), obviously you talked about trying to manage the timing of when you sell, maybe not necessarily wanting to be so large loans or so backend loaded. We are through October now. Any color you can give us on how that has gone in terms of managing the timing a little differently to maximize that gain on sale?

I think that -- I don't believe you will see significant overhang from a timing perspective. The only thing I would or might say is that if all of a sudden we see strange year-end pricing, that could change our thought process. But I think from our perspective, we don't anticipate it. And I think we would like to, for the purpose of this year, sell. Now, as I go into 2016, particularly with all the excess capital that we have and the excess cash, I certainly -- and this is something to think about.

First of all, from my perspective, it's always important to deliver what you said you were going to do to the margin. So that's item number one. So we are already baked there. But as I look into 2016, and I could sit on $40 million, let's say, of government guarantees at 6%, I may want to hold them a quarter. So as we think about things going forward, and I want to share that with the marketplace, that's kind of why I caution everybody -- not, per se, for 2015. But for next year, the world isn't necessarily a baked cake where everything is really straight-lined, you take your ruler out and it's sequential.

So I believe what we will do is look to forecast long term and deliver a long-term look on the outlook. We may decide in Q1, for example, to hold. I do not believe we will do that in Q4 unless we just see something really weird in pricing.

Okay, got it. Very helpful, thank you.

Fred Small, Compass Point.

Can you walk through what was going on with cash balances at the end of the quarter? And the main questions being why no -- for the regular dividend, why doesn't that show up on the balance sheet, the accrual for that? And then what was the net cash that you received in the September securitization?

Thank you. I guess I will go to the last one first. That's the one I remember. Jenny, you can handle the middle one. The net cash off of the securitization was, I think, about $7 million to $8 million, not including the prefunding. Right? So not including the prefunded amount, we were able to pick up $7 million to $8 million. We were able to open up an old 2010 deal which had excess collateral. It was very beneficial to us.

I would also state, Fred, that we have mezzanine classes that we could prospectively sell off of older securitizations, if we wanted to and have the capability to do.

What was your first question? Oh, why are our cash balances so low? At zero interest, it pays to not hold any cash. So rather than, like, as we used to do as a C-corp, we want to show a lot of cash, we basically paid down every single line of credit that we had. And it just does not pay to sit on cash. So that was question one and three.

Jenny, I'll let you handle -- could you repeat the middle question, Fred?

Sure, just the regular dividend, not the special, is that consolidated somewhere else on the balance sheet now, or did that just --

No. Actually, the third-quarter dividend was declared on October 1. So it was not recorded as a liability at September 30. So it's recorded on the date of declaration.

Right. You don't record the liability -- you don't accrue. You only record it when it's declared, which is why October 1, we declared all the liabilities.

Right.

Okay. But just so I understand, that would have been negative? That would have made the cash balance negative? I mean, at the end of the quarter, had you done that, had you treated it like you do in --

Sure. It would have been -- if we had recorded it on September 30, it would've been a reduction in NAV on September 30 and an increase in dividends payable. So it wouldn't reduce your cash balance until it's actually paid.

Right, okay. That makes sense. Thanks. Then you said on the prefunded amount in the mezzanine of the older securitizations -- about how much is that? Sorry, those are two different things.

Yes. Those are -- yes, so --

What was the prefunded amount you mentioned?

Prefunded, about $9 million. So of the securitization, of the $40 million securitization, effectively $9 million sits in cash, and we were able to fill that with future originations. So the nice thing about it, it's like a warehouse line at a 2 1/2% yield.

Okay. And then the amount of the mezz bonds you said that you have out there that you could sell?

Yes. I'd have to go back and recalculate bypass securitizations. And I wouldn't want to get -- it's not an insignificant amount. It's probably $5 million or $10 million, but I'm just guessing. But the nice part of it is that would be, if we wanted more debt, it would count for the leverage test. It would be collateralized debt and should come at a fair price.

Got it. Thanks. And then just on selling the unguaranteed piece that you talked about, how much do you think you could do overall there?

Oh, on the uninsureds?

Yes, on the nonguaranteed piece. I think you said you could sell it down to, what, 10% without getting SBA approval?

Yes. So let's, for argument's sake, use this year's production. Say it's -- let's just use a number that I can easily divide by. Let's say it's $240 million. So it means create $60 million of uninsureds. Theoretically, you can sell 60% of the $60 million, or $36 million. So on this year's production, you could have theoretically sold $36 million of uninsureds.

So, once again, I'm just talking theoretically. So if you could put $60 million against a 55% warehouse line, right, that's $30 million. So let's say you only have to warehouse $24 million. Right? Then you only need $12 million. So it's a savings of about, like, $15 million of capital. So that's $15 million of equity, prospected. It's like equity. When you sell uninsured pieces off, it's like equity.

Yes, you're getting cash. And there's no recourse to you. Right? So it's better than the securitizations because --

Correct, correct. And you are offloading the risk.

So that saves the business model from bumping its head against the leverage restrictions all the time.

We call it tools in the tool chest.

Got it. Okay, and then when do you expect the 10-Q will be out?

Tomorrow.

Tomorrow.

Okay, awesome. Thanks a lot.

(Operator Instructions) Rob Brock, West Family Investments.

Great quarter. Most of my questions have been answered, but could you tell me a little bit about the genesis of the 504 program? Who is in it now? How big is it? If the profit margins are as big, what kind of competition do you see?

And with regard to Lending Tree, would you mind spending just one minute and kind of walk through what exactly your role is in the Lending Tree platform? And are there anyone else who is actually providing this kind of service?

Sure. I'll start on the last item. Lending Tree -- many people are familiar with Lending Tree from seeing it on TV. Historically, it has been a residential lending brand that did a ton of business in the residential loan market, still does. There's a stock deal currently on Lending Tree on the market that I'm aware of. And you basically go to them, and what they do is they bid the deals out amongst different participants.

They apparently are diversifying into small business lending and other types of lending. So I guess they have looked at what a Lending Club did. And they say, hey, listen -- and I'm paraphrasing; this is not their words. This is just my opinion -- we can be an exchange, too.

So in our relationship, we have given them all of our loan products -- receivable line of credit, inventory line of credit, 7(a), 504. We believe we will wind up being, in this space, the provider of choice because of our technological competency. When I say technological competency -- this is really important -- we do not have a rep-oriented business model. It is a process-oriented business model, unlike most of the other originators in the space.

So we are getting leads from them. I'm not going to specify the numbers, but I won't say they are insignificant. But they -- look, we don't want anybody to dominate us. We want an alliance partner. Our better alliance partners are maybe 5% today. So I wouldn't be surprised if they become a 5% partner.

We are somewhat surprised at the size of the loans. I hate to even talk about this, because all my competitors are listening, and they will be following me into this, Rob. But anyway, you're going to owe me a cup of coffee for this one. But anyway, we think it's going to be a good one. And we like the relationship, and we've worked well with them.

And we are, importantly, technically aligned. And we don't have Black Box. Right? So when somebody comes to us, and we can offer them a 6% loan with a 10- or 25-year am schedule, and the borrower signs our prequal letter, they move some money to us, and we lock them down and we get a guarantee fee, we get a guarantee number, we are it. We are the lender, we are the player.

So I think that we have a history of operating in this way. And our business model is based upon how do we disintermediate -- not to be disrespectful -- to sales agents. It's a technologically based model, how we get lead flow and how we deal with that lead flow. So we are not looking to sell people finance. There's boiler room operations today doing this high-rate finance out there. It's crazy. That's not what we do. We look to provide real, good business solutions. So that's where we see the Lending Tree relationship going.

What was your other question, Rob? Sorry. Oh, 504. So 504, gee, I think this year this market -- and this is a guess -- it's nowhere near the size of 7(a). I'd say it's like $3 billion to $4 billion in 504. 504 loans are typically driven by CDCs or community development corps. They are not-for-profits. They are all dispersed across the United States. They provide these loans in the community.

So a business owner can go to a CDC or they can go to a lender like us to try to get a 504 loan. So if we get a 504 opportunity, we are going to go to the local CDC. And the local CDC will be in the position to take the second, which ultimately goes to the government. And then we take the first.

It's a valuable program. I don't know the longevity of it. I've got to bone up on that a little bit. It has been around as long as we have been in this business. So I can clearly say it's been around for 14 years.

504 does not provide working capital, which 7(a) does. So one of the benefits is we are one of the few 504 lenders that does 7(a) and one of the 7(a) lenders that does 504. So that is beneficial. As a matter of fact, we have a few deals in the pipeline where, because we are doing both, we are going to get both. So we can provide the working capital out of the 7(a) and do the 504.

Also, 504 loans can be done fixed rate with a prepayment penalty. That's where you get the premiums. I think it's a great addition to what we are doing, and it should be a nice supplement to net income.

Is there anybody who is really big in this space now, Barry?

I don't -- there are 504 lenders that have got portfolios. Let me just say this. The bigger banks do a lot of them. But a lot of them could be a couple of hundred million in a year. So there's nobody that dominates this business. When GE was in the government-guaranteed lending business a long time ago, they were pretty significant, as was CIT. But there's nobody that really dominates 504 lending today. It's very fragmented. Community banks love it because it's a 50% conventional first, 50% LTV.

Got it. Thanks very much. I appreciate it.

Marc Silk, Silk Investment Advisors.

Great quarter. A lot of my questions have been answered, so I've got a few here. So a shareholder who owned your stock before you did this, your $2.3 million share offering, was expecting a dividend of $3.29. Now it's $2.69. And I know you are a big shareholder as well. So I guess the spin on it could be something like, listen, we don't mind taking a step back as far as not as much of a dividend for the existing shareholders, because by doing this, we see so many opportunities that we want to make sure that the dividend going forward is going to basically be strong, based on your earnings. Is that probably the correct assessment I can relate to my client base?

Yes. You certainly can't -- Jenny, what was it before the $2.69? It was --

$3.29.

$3.29.

$3.29. So here's what you've got to tell them. From $3.29 to $2.69 -- now, by the way, that's not part of the 30% return. So I think what you got to say -- are you kidding me?

No; trust me, we are very --

By the way, Marc, that's the most popular question that I've gotten over the last 60 days.

Sure. Listen, trust me, we are very happy. But --

No, Marc, I love you. I'm just teasing you. But that question? You can't -- I can't believe it.

Yes, exactly.

I've actually started drinking heavily.

Well, you know, Barry, if you didn't own so many shares, then people could say, wait a second. But you have skin in the game more than us.

So the other thing is, based on the public offering, what people did bring up in this conference call, this selling the unguaranteed portion, it's just like another capital raise without diluting us, which just could be huge, because I think back in the day, you were able to sell off 90% of the guaranteed portion.

A long time ago, prior to the credit crisis in 2008/2009, there was a fairly active market for uninsured loan participations that were at a premium. I would tell you it's not a liquid market. But it does have value.

And by the way, as we look at our uninsured loan participation portfolio -- and this is really important -- based upon where we have it on our books, using loan forecasted frequency and default, they are marked very well. So that's an important aspect of what we try to do here.

And back in the old days, before there was all this information, people used to invest in managers and business plans and companies. And we are still old-school. So we have a lot of things going on. We are always looking forward. We never want to get caught behind.

And things are going to change. I'm not going to sit here and tell you we are always going to get 112% on our bonds. Maybe it will be 110%, maybe it will be 116%. I don't know. But we are going to figure out how to deliver returns to shareholders. This is one way to do it.

We won't be able to, obviously, sell what's out of the existing portfolio because as long as those are in securitizations and they are not at the point where we can call them, those are locked up. But for new production, that is a possibility. And that would be a significant boost and boon to our business model. And there are other people out there in the public domain that are getting these executions. We need to find those buyers. We have not, as of yet, but we have actually begun discussions with some people that are indicating they would be interested in buying.

Well, it's good to have that option. And you know, it's funny. You mentioned that back in the day, the only questions on your calls were me and my older brother, Steven. So since there's so many questions, I'm trying to figure out where to go from here.

But I have two, actually, for you that haven't really been discussed. So I know on the last call, I asked you where do you see potentially the next growth engine coming from your Company. And you really pounded the table on your, let's say your cloud business. So you had two announcements this quarter, LookSmart and, I think, [Ware]. I'd like to hear more about this, what you are bringing to the table. And is this maybe a sea change for you that now you're getting some very interesting relationships?

It's a good question. And we have a lot of nice things in the pipeline in terms of business acquisitions, the pipeline companies that I talked about that comes along with very interesting personnel that will help us in that particular area. And we have some real interesting transactions in the pipe to take advantage of the fact that we have cloud solutions where somebody could have their software and hardware in New Jersey and backed up in London with hot backup.

We have invested in hardware and software that enabled us to do that. The Company has had a 10-year-plus history of being 24/7, answering phones and helping customers. And that is not what Amazon, Google, and Azure do. They just don't. That's not to say that you can't call them up and stack boxes in there or get software products that people can develop on for free and then they get charged huge amounts of money.

So most people go to Amazon because they give you a lot of stuff up front free. But then AWS isn't making all that money because -- not because they're not charging people for it. So there's a very good market out there for us in what we do. And we do plan on taking advantage of it. There's nothing we can really announce at this point in time. Sometimes it takes a long time for the cake to bake.

And then one last area. I know one of your favorite subject is Obamacare. And this quarter, again, you mentioned your health insurance option, small business owners' exchange. So you are hearing some states are basically only now offering just one solution as far as insurance to people. So how does this play in? Can this take advantage of that, or it's really a state-to-state type of thing?

I would like to think that we could take advantage of this opportunity. I'm not sure that we are able to do it at this point in time, just to be honest with you. That's just based upon what we have in-house at the moment.

Generally speaking, just from a market perspective, huge opportunity to work with businesses to solve their health and benefit solutions. The mix has changed. We are just small at this point in the insurance agency space. We need to get bigger. That probably happens through bulk and acquisitions and things of that nature.

But there's a huge opportunity in that particular segment. I won't exaggerate on our ability to take advantage of it, but it's definitely something that's out there. So we are looking at it.

And my last is more of a comment. In this environment of low interest rates, where you get a 10-year for 2% and people are buying junk bonds and getting 5% or 6%, if they are lucky, the fact of the matter is on your dividend -- forget about the special dividend -- that rate of return, not to mention that, like you said, your BDC is not necessarily your typical BDC, that you can really grow this Company and really have stock appreciation in addition to the healthy dividend. So on behalf of my clients, we want to thank you for a great job you are doing, and continued success.

Thanks, Marc. I do appreciate that. I think, if you look at most companies that are operating businesses that are paying a 2% or 3% dividend, there's an inconsistency. Now, putting that aside, we are going to continue to grind this out and tell our story and want to be rewarded. I have to say, with a lot of our BDC competitors trading at a discount to NAV, in our mind, we are trading at a premium to NAV. And I realize there's different definitions, and you are looking at NAV 7/30, you are looking at NAV October 1. When are you looking at NAV?

But we do appreciate the investment that you and other people have had. Marc, you are one of the long-term investors. I've got a very significant group of people that have owned this thing for 10 years. I know people are, like, horrified. But the fact of the matter is they've got a basis in the thing, split-adjusted, of $1 or some under $1. And they have been rewarded for a long-term, patient play in what we are trying to do and accomplish here.

So at $220 million, I still think we are very small. We need to get bigger. We need to get to critical mass. And then I think we will just take off. So that is our goal here. Our goal is we need to get significantly bigger than we currently are.

As far as under $1, you're right. I remember after the disaster in 2008, you were trading for $0.50, which is split-adjusted at $2.50. And we were buying with hand over fist, and that was really because of our belief in what you're doing. So, again, continued success, and look forward to next conference call.

Thank you, Marc. Appreciate it.

Kevin O'Leary, UBS.

Congratulations on a solid quarter. Most of my questions have actually been addressed. But perhaps you could just give me a little more color on technology. Specifically, I'm surprised that more business owners haven't been investing in the technology to have the iPads to enhance the customer experience. What are your thoughts and projections in that area?

I think that when you think about technology, we believe that business owners are going to run their business from tablets. Desktop solutions and desktop computing is going to be a bigger and bigger area. So there's a mad rush amongst software providers to be able to deliver software solutions to people's tablets on a wireless standpoint or on the desktop.

And that is why we are saying in our space, we want to be the back-end service provider to be able to get people to, whether they are -- even smaller businesses to be able to use the tools that larger businesses use today. So we think it's a pretty good space to be in. Once again, it's just really a matter of getting critical mass and getting bigger and being able to take advantage of and execute on things.

Okay, thank you very much.

I'm showing no further questions at this time. I'd like to turn the call back to Barry Sloane for closing remarks.

Super. I appreciate everyone's interest in Newtek and in our call today. And thank you for your patience and your questions. So we look forward to reporting our annual results. Thank you.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program. You may all disconnect. Everyone, have a great day.