Q4 2019 Earnings Call
Ladies and gentlemen, please standby your conference call will begin momentarily again, thank you for your patience and please standby your conference call will begin momentarily.
[music].
Ladies and gentlemen, thank you for standing by and welcome to the Newtek business Services Corp, Oh, Your 2019 earnings conference call.
At this time, all participants' lines are in listen only mode.
After the speakers presentation, there will be a question and answer session.
Last question during the session you will need to press Star then one on your telephone keypad.
Please be advised to today's conference maybe recorded.
If you require any further assistance. Please press star then zero to reach an operator.
I'd now like to hand, the conference over to your Speaker today, Mr., Barry Sloane, President and CEO with New Tech. Please go ahead Sir.
[music]. Good morning, everyone. We certainly appreciate everybody get surrounding our full year 2019 financial results conference call.
I would like to call everyone's attention to the forward looking statement note on slide one about presentation for those shoes that would like to follow along to our presentation. You can go to our website <unk> newtek, one that new take any wjbk, Oh, I need dot com and please go to the Investor Relations section the Powerpoint <unk>.
Presentation being utilized.
It's been on there.
Electoral everybody's forward to slide number two and we're proud to report our full year 2019th financial highlights.
Total investment income for the year 59 point Threemillion up 19.8%.
Hi, good value on these 31 2019 at Fifteenseventy a share 3.4% from the your prior that investment loss continues to narrow an improvement of 27 and they have per cent for the calendar year over the prior year adjusted net investment income which includes.
Realized.
Games.
20.1% increase from the year prior.
At the equity ratio at the end of year, 1.36%.
Pro forma basis based upon S.P.A. loans and receivables.
Sort of roll over the end of quarter.
Personally liquidated subsequent to that 1.27.
Total investment portfolio continues to grow by 21% sitting here.
Pro forma number that we use for it that directly explanation is on slide number three.
That's right before Oh, we wanted to give the market up better understanding of how are any of the has changed over the course of time.
Our actual annual average over the last four years, approximately 2.8% with a 3.4% increase in the last calendar year.
Slide number five or closely focused on our gap.
Oh, the differentiator, obviously one of the Differentiators of the Newtek model is that we make launch and are able to sell one.
No. So therefore on a net <unk> and I basis gain on sale.
The seven eight guaranteed pieces, which we thought over the course or 17 years not included in that number.
That's a loss continues to narrow.
That's important because obviously that demonstrate sort of a form of what typical BDC investors analysts looked at as sort of we occurring.
And our cost of debt financing has continued to decline.
Not only as rates are declining what is tighter spreads are occurring particularly in the recent securitization that we've done well talk about some other debt cost of capital in a future slide in the presentation.
We're also seeing.
You treat dividend distributions from portfolio companies with respect to those contributions as well as future dividend contributions from our nonconforming joint venture, which we are looking to create additional JV is down the road with other partners that we have lined up.
Lastly, our servicing income continues to be an important side of our business. Once again another stream of income.
The benefit of the New Tech model comes and which is not necessarily credit related it does tend to be a recurring income and that's from the servicing of the lowest portfolio. Both on the 70 side and the nonconforming side.
Number six I'm talking about our 2019, a dividend performance you had a very robust fourth quarter.
71 cents dividend of 42% increase over the prior year I think it's important to note. We were asked a lot of in times like why is the fourth quarter, so much better than the first quarter.
Please understand that we are a lender too small to medium to middle market type companies.
It's a lot easier to make alone to a business that has given you it, particularly if there's issues or questions. When you want to be particularly airtight. When you cut their tax returns and you've got their financial statements, sometimes difficult to obtain in January and February because of that our business doesn't tend to be second half into your business.
With respect to this particular type of activity.
You bet cash dividends in 2019 of $2.15 approximately 31% of those dividends are classified as qualified and long term capital gains.
We think that's a significant advantage for investors that own our stock in a capital channel.
We're sort of a preferential tax treatment.
Income that gets dividended up in the portfolio companies and I want to repeat I want to refer to it that it is income income they get extended up dividended up from the portfolio companies is typically tax portfolio company level once.
And then the money that comes up to the BDC is on an after tax basis I think it's distributed to shareholders. So that shareholders when they get their tax information at the end the year.
Luckily blessed with a a nice surprise.
I can't predict at in the future, but I can just tell you what's happened in the past where they basically get some tax advantage dividends, which in 2019 was approximately 41% I do want to know that over the past 20 quarters than our BDC history or annual cash dividends have been between 90% to 100% of taxable.
Income dividends are paid out of income and we endeavor and plan on continuing to maintain that policy.
On slide number seven we wanted to compare ourselves to some of the other bdcs and the market like Aries Hercules and main street.
Could see main street has a little bit of an outlier. There. In addition, we're newtek is.
Also in internally managed BDC, they do have a a reasonable amount of their dividends that are preferential.
That is based upon.
Equity Kickers and other things that occur within the mainstream portfolio and in many cases those dividends are classified as special dividends.
Especial, especially.
In our case, we don't use special dividends, we have historically had a good track record of increasing our dividends over the course of time and we lump them into one category I think it's as important to note that over the past four years, approximately 34.8% or dividends are classified either as a long term capital gain or qualified.
This is based upon having a very diverse business model that is not dependent upon a typical BDC portfolio that might be leveraged loans or loans with a with equity kickers.
On slide number five we talk about our historic a dividend policy.
Once again.
Refer to the diverse business model uniqueness of the model, it's not a business model that has loans less debt. So it's a fairly predictable straight line stream.
Oh and I also want to know that historically, we've had a real strong growth throughout our time frame.
I'm going to be captain obvious here for a second there is a lot of headwinds in the economy and then the market today Theres a lot of volatility whether its relating to interest rates for credit or.
Whether people are gonna have to work for home or not so forecasting is difficult.
We have recently reiterated our guidance for 2020 were comfortable with that I'll stick to that however, yes, we had a stellar year last year. Our adjusted then I was up.
Around 20% or dividends I think was up around a little over 19%.
No I want to know don't want to guide shareholders appropriately, although it's possible we might have a this type of performance I did I believe it is probable, particularly given the headwinds, but I can assure you were paying attention we're involved.
And I think we're going to be in good shape, which is why we felt comfortable at least at this point in time reiterating our guidance, we keep a pretty close eye on volume and the payment processing area as well as our small and medium size borrowers how they're doing the SPD just came out with a program to help.
Small and medium sized businesses, but if they're correct affected by the Corona Oh virus matter of fact, I think a bill passed the house yesterday, which creates that appropriation for qualified small businesses to be able to help them along we certainly appreciate the recent reduction of 50 basis points in the federal reserve.
Our which reduces the interest rates that are borrowers pay on our loans. Subsequently if you go to slide number nine.
Our cost of financing has gone down when we did our recent securitization, which is spread at approximately 183 over LIBOR floor.
When we priced deals a 3.84 coupon today, given where LIBOR is that's about 3.2% versus a coupon on the notes of around 7%. So you've got approximately a 380 basis point spread.
One of the highlights for last year was that a 63 million dollar deal a five inch recorder notes due 2024, a symbol any W.A. any W.P.L. on the NASDAQ.
And.
We've maintained our a minus rating by Egan Jones on those particular notes on slide number 10 or some of the highlights for.
The quarter in calendar year, we funded 183 million of 70 loans during the final quarter, 22% increase over the quarter.
And your earlier on the year, we had a 10.3% growth year over year on seven day loans funded or.
Third bullet we've forecasted.
Loans closing across our ecosystem in excess I want to repeat in excess of 25%.
For the ecosystem, we review the ecosystem as a loans are coming in to our big funnel.
The holding company and either convert into a seven day I will for secured line of credit or non conforming loan program, which could be funded by the joint venture will potentially by portfolio company also off their balance sheet.
For the three months ended December 31, close a total of two point.
249 million for those straight liners and I don't recommend you do it.
Gets to about 1 billion I will add that.
The fourth quarter is a more robust quarter than other quarters. However, our growing the nonconforming segment. So we feel generally pretty good about what we're doing on a going forward basis.
And in calendar year, 2019 ecosystem closed $643 million worth of loans across all the aforementioned categories in the on slide number 10.
The company recognized approximately 800000 dividend income.
From NCL.
That is our joint venture drink 29.
On slide number 11.
We talk a little bit about servicing this is important servicing stream income non credit related a significant portion of our business.
Spls a servicer for our joint venture at 100 basis points. SPL also provides origination closing and loan services too.
Newtek business lending and the servicing assets and the 70 business are capitalized at a fair market value.
And do.
Current income over the course of time as well as had some level of capitalization.
On the SBA seven a loan being so.
Slide number 12, we wanted to demonstrate to the markets and give them a feel for what our cost of debt capital is.
Capital one credit line for Unguaranteed.
Prime plus a quarter that we formed a half percent on the guaranteed prime less 75, 3.5%, we have baby bonds outstanding any WT, either six and a quarter notes due 2023 I believe they are callable sometime this month that is a an opportunity for us I think I don't have the exact number handy, but there is around 50 or so.
$60 million approximately of those bonds outstanding.
And we did talk about our recent 2019 securitization. We also lines of credit in our portfolio company Newtek merchant solutions as line of credit at LIBOR, plus 250, Needless to say those are pretty low pretty late rates of interest today that should be beneficial to our bill.
Let me to earn income and distribute dividends to our shareholders slide number 13.
We do utilization from our ATM.
Similar to main we've been able to issue shares at a premium to the market, which.
Tends to be accretive to NPV.
We did a lot of capital raising in Q3, and Q4 and in the first two months of the year before the market.
So to sell off as well as us being blacked out and.
As I said it was so it was good capital raising for us.
You could see the dollar prices.
So last calendar year weighted average of $22.72.
In January to February $21, and nice $21, a 91 cents.
Given our current ratios were in pretty good shape we.
Preferred issue shares said.
Higher prices, the lower prices and have plenty of capacity relative to.
Credit lines and other access to the capital markets.
Slide number 14, highlighting our seven eight business. We're now the second largest SP, a 70 lender in the United States.
17, your history of loan default in frequency and up markets down markets and all kinds of.
Credit changeovers during that point in time, one of the strengths of our model and I need to keep repeating this is our average loan size approximately 179000, when you look at the Unguaranteed balanced it sits on our books.
I think the.
Thanks to know here is that some of the headwinds that were experiencing and other public companies with respect to equity destinations and our case. There is one beneficial aspect to it and that is when we create SP 70 loans. It creates a government guaranteed security.
Guaranteed securities are extremely attractive today, particularly government guaranteed securities that float on a regular basis.
So with lower rates, we've seen pickups in prices in the first quarter.
Lets forecast what those prices are at this point in time.
It's also arguable, whether prepayments might slow prepayments are a function, particularly a robust economy, where businesses are being sold however, they couldn't be based upon refinance or competition from community banks or commercial banks, which we have seen but I will tell you that the recent price action.
The government guaranteed market has been constructive over the fourth quarter and will also mentioned that given that the fourth quarters, where most of the supply of government guaranteed loans sellers address the market typically depressed as prices.
Similarly in the first quarter, they do and second and third quarters, they do tend to be higher.
On slide number 15 growth in loan referrals.
We're proud that this trend has continued our loan referral grew last year year over year by 7.9% that's important because it allows us to be selective.
Currently anticipating on the run rate of January and February approximately 23 billion of referrals, which would be a 14% increase.
We're happy that we continue to get.
More opportunities to be selective and this trend has been going on for approximately 10 years.
Slide number 16, we talk about the gain on sale you.
You could see over the course of time it has been fairly stable. Although you do have peaks and valleys I'd like to remind everybody that in the third quarter of 2018.
The market sell off fairly short sharply where we were able to access the market I think at a price of one on nine decimal two seven the fourth quarter was slightly higher one or nine decimal seven eight.
These are approximations.
And then the market tended to rebound.
No that was in 2018, so you still had a weighted average of 10.5 to that was primarily driven in my opinion by <unk>.
Extreme robust forecasting on on GDP and pickup in speeds and economic activity as you could see prices have subsequently businesses that point in time as the economy has slowed modestly as well as the fact that supply of government guaranteed.
Loans have also slowed from an industry perspective.
Slide number 17.
We look at our loan and credit portfolio.
We think in a manner that looks at loans over the course of their life.
And we have historically said that as you get into a more seasoned portfolio.
Walter Port or non accruals will pick up.
Charge offs would pick up as well and we're getting into that season portion of the portfolio I want to point out that our forecast includes higher charge offs potentially higher.
On nonaccrual loans in our particular portfolio, we're comfortable with that and we analyze this on a regular basis using static pool analysis and data that we've accumulated.
Looking at slide number 18.
We have.
In addition to ourselves.
In the current pay.
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And looking at our SDK portfolio and other portfolios on a more simpler way evaluating loans because I think it created some confusion accrual nonaccrual. It's in much more of an industry standard amongst bdcs as well as bank analysts, which we are pretty much tend ourselves to lenders.
As to join the accrual portfolio loans that are.
On a percent current 92%.
Folio of accrual loans.
Actually 8% or the definition of accrual is loans that are paying that will pay PXI in full.
And at this point in time that category and that status is set where.
We are not relying upon the collateral to make that payment. It's based upon solely out of cash flow I think thats important to note so that and our definition of accrual loans will be spelled out in our 10-K.
I will note that's a different definition that the SBH has used and historically, what we've used in our presentations and Kazan queues.
As of December 30 worth.
December 31, 2019 going to slide number 19, you could see the percentage of loans and accrual status.
2% nonaccrual, 8%.
And once again this was done primarily to.
Hey, conform to more uniform practice is amongst bdcs and analysts that follow banks slide number 20, and 21, which many of you were very familiar with I will speed through.
Finish them.
Cash created and gain on sale from our seven activity.
Moving to portfolio Company review on slide number 22.
We talk about the general characteristics of our.
Well for lending business on slide number 23.
Slide number 24 for SP fiber for loans regarding portfolio statistics and forecast our NPL undertake business lending is close to 120 million a best be file for loans through December 31.
Since inception, three years ago on December 31st there's only one pilot for loan and the delinquency category of 264000.
We've also forecasted 2020, SP fiber for loans of $80 million to $100 million.
Slide number 25 shows the characteristics of a typical SP I will follow.
Slide number 26 shows the return on equity looks I will follow all slides that are familiar.
And have been presented in previous presentations.
On slide number 27, we talk about our non conforming loan program statistics and forecasts, we had closed 69 and a half million a nonconforming loans.
Through NCL, our joint venture since its inception in May of 2019 were no delinquencies and defaults in this particular category. We've also funded approximately 10 million hours in loans out of Newtek business lending.
I think what you'll begin to see going forward is in addition to utilizing our joint venture partners and their capital will also funded loans off of that offer a balance sheet as well.
We have a forecast of but nonconforming conventional loans and I would say that this is off of our balance sheet as well as using NCL, that's a little bit of a typo there of approximately 300 million.
On slide number 28.
And we've got over this in previous presentations.
The benefit of.
The income coming off of NCL, we get leverage on the coupon of the loans versus our cost of funds and our which bank line of credit we get leverage really do securitizations.
We get servicing income that's not part of the joint venture that's learned at SPL of 100 basis points.
Loan origination fees that are shared by the founder either in the joint venture or off with our balance sheet.
And just Indicatively Theres, a 10% preferred return to JV participants. So that's indicative of what we think is a minimum level of equity return to shareholders will experience off of this engagement.
Slide number 29, we've engaged a DBRS rating on our first on nonconforming pool. We also negotiating a memorandum of understanding for 175 million 60, securitize take out based on 260 million of collateral being placed into the SPV. We're also having to go.
Patients with two additional joint venture partners have significant equity each with a minimal contribution of 100 million.
Hopefully this is indicative to market participants that we're excited about this new line of business. Our pipeline is growing and we've got a lot of interest in investor receptivity here.
Slide number 31 of our portfolio companies new took payment.
Payment processing.
Important to note.
We have a portfolio mobile money and mobile money, which at one point in time had.
Internal and external staff working on the portfolio.
Most important thats been eliminated in mobile money for the most part is simply a portfolio of accounts, so newtek merchant solutions in mobile money.
Basically.
On a going forward basis, given that mobile money is just a portfolio of accounts.
Our now combined processing approximately 5.8 billion in processing volume in 2019, our adjusted EBITDA forecast 16.2 million, putting in Eightpointthree multiple on.
That forecast.
Come up with an equity fair market value of approximately 125 million the enterprise value, which is debt less cash on the balance sheet. There is significant cash there.
Just to 134 million in enterprise value multiple comes in against the enterprise value, we looked at the enterprise value in other publicly traded.
Our processing companies and you could see that we think we are appropriately value.
On slide number 31 off these are some things that maybe Frank with you.
We try not to get it too much of the weeds here as a BDC portfolio companies are not consolidated as reason for that but there are certain things that it's difficult.
For the market and analysts to forecast we've talked previously about the concept of looking at Newtek as Pete Times Q.
What's the price of the government guaranteed portfolio versus what's the quantity of government guaranteed loans and although I continue to say this and we'll continue to do so because it is what happens.
We need to be looked at a little differently.
So in the processing business Weve resolved and long term litigation.
Okay.
A favorable verdict.
We were able to.
When on all went on all counts, but that was a significant drag a legal expenses. It straight line. It was approximately half a million a year or two and half million over five.
No longer hit our processing business. We've also closed our Wisconsin office with the acquisition of Premier payments, we were able to consolidate and move.
It's higher well most of the operation is in Lake success. We've also got staff in some of the other satellite offices, but the Wisconsin office is close which will ultimately reduce real estate clause costs.
As well as employee head count.
Slide number 32, we've talked about in the past Pos on cloud. This is an important part of our of our future.
Being able to provide to number one our alliance partners end to end users.
Stated the art Pos system, which will be good for restaurants retail just living facilities, we have government agencies that use Pos on cloud in their parks and cafeterias and its special events.
We weren't able to give this Pos system for alliance partners, there will be able to put it into their clients as like a blank bank payment systems or.
Thank you the blank credit Union payment system. So why is an interesting we give our alliance partners a branded payment system. What does this payment system do it allows them to take.
Electronic payments at point of purchase it allows them to use a time clock in the Pos which will data will be pushed into newtek payroll solutions, which in turn has the capability through our insurance agency to offer workman's comp health insurance to our customers the benefit that our alliance partners.
It is we're able to get the count.
For the payments account, whether its card present, our online payment systems will integrate with our online.
Capability of our clients will also feet data into the GL I believe we have quickbooks online and we'll have zero online and other accounting systems. In addition, our agency will be able to offer workman's comp and health insurance, which has followed in our current payroll system. So that's a big opportunity for us the the market is shifting.
As you could see by many Pos providers in the market at a huge valuations.
We have the distribution we have the payment system, we have relationship with Alliance partners. This is a good fit for our growth going forward.
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Slide number 33, our technology portfolio company, we started to address this in the last couple of quarters.
Newtek technology solutions, which is our managed service provider I wouldn't Phoenix, we are now comfortable forecasting 2000 $23 million to $4 million of EBITDA.
That's a tremendous turnaround from 18 to 19.
We also have other portfolio companies IP and providing professional tech solutions as seen on both that provided dividends up to the BDC, which we've distributed to shareholders.
Slide number 34.
Going back to our Phoenix operation, we've enhanced our datacenter presence, we've moved to a new datacenter aligned datacenter made acquisitions of hardware and software significantly upgraded our space.
We've actually been running two data centers I believe over the last six months and paying rent on both so we've had rent that is duplicitous.
This change in in data center, a duplicity as well as eliminating the higher cost data center or result in $2.4 million per year, where they're therefore comfortable.
With this forecast of $3 million to $4 million of adjusted EBITDA in 2020, a significant increase over 203000 in 2019 I want to repeat this income will be taxed what gets distributed up will be income. That's after tax income that gets distributed.
To shareholders and it comes in the form of a preferential dividend preferential tax rate dividend as qualified.
Perspectively long term capital gains.
35 talks about the opportunity in cloud services.
36 talks about.
In investment in new Tech so look.
And investment in New Tech is an investment in a company it's been publicly traded since September.
2000.
The 1998 set long term management in place.
As had tenure returns that are pretty strong 25% year, 800% over that period of time.
Returns, 20% three returns, 88% when you returned 42% I need to add.
Basically people on this call our shareholders, we've had a rough first quarter as many other companies have as well.
We are typically not great.
First quarter stock with respect to our quarterly dividend payout or adjusted NII as I said earlier a lot of our income has generated from our loan activity.
We do less loans in the first quarter, because it's hard to get tax returns and in many cases impossible as well or audited financial statements. So you are trying to understand why we don't do a lot of business in the first quarter versus the fourth quarter of the rest of year hopefully should be.
Helpful Eliminations.
Slide number 38.
We look at this their investments summary word internally managed BDC, they're a bit of a rare commodity interest a much aligned with shareholders.
Compensation comes out of.
The business Theres no separate management fee that gets paid out or no incentive to accumulate assets under management and get higher higher management fees.
Once again diversified business model or six different entities that are currently comprising the dividend and we hope to get greater diversification of participation from them down the road.
We've increased our NPV historically, you've increased our dividend historically.
And we've got a management team has been through a lot of different.
Lending cycles and interest rate cycles and we.
We one of the thank you.
We're going to turn the presentation over to Chris Towers, and then we'll do acuity.
Thank you Mary and good morning, everyone.
You can find a summary of our fourth quarter 2019 results on slide 40, as well as a reconciliation of our adjusted net investment income or adjusted and eye on slide 42.
Fourth quarter 2019, we had a net investment loss of $3 million or 15 cents per share as compared to a net investment loss of $1.1 million of six cents per share in the fourth quarter 2018.
Adjusted and I wish is defined on slide 41 was $13.5 million or 68% 68 cents per share in the fourth quarter of 2019 as compared to $10.8 million or 57 cents per share the fourth quarter 2018. It was a 19% improvement on a per ship basis.
Focusing on fourth quarter 2019 highlights we recognize $15.4 million in total investment income of 4.8% increase over the fourth quarter 2018.
Interest servicing and other income were the primary drivers for this increase with interest income increasing by 10%, resulting from a year over year increase the accrual loan portfolio.
Servicing income increased by 13.1% the $2.6 million in the fourth quarter of 2019 versus $2.3 million in the same quarter last year, which is attributable to the average servicing portfolio growing from $1 billion to $1.2 billion at December 31, 2019.
Other income other income increased 30.2% fourth quarter, 2019, resulting mainly mainly from year over year increase in originations.
Distributions from portfolio companies for the quarter included $3.6 million from NMS $750000 from ITM 50000 from Cisco 100000 for mobile money and $394000 from new Tech conventional lending.
Total expenses increased by $2.6 million quarter over quarter or 16.4%.
Salaries and benefits decreased by 34%, primarily due to SPF employees being hired by small business lending LLC or SPL one of Newteks wholly owned controlled portfolio companies on January 1st 2019, SPL. The lender service provider that effective January one 2019 provides SPF loan origination and loan processing functions form.
By its employees SBS charged SPL charge SPF $3.2 million in the fourth quarter for these services, which is reflected on the statement of operations as origination and loan processing from related parties.
Total interest expense increased by 800000 in the fourth quarter 2019, primarily due to higher average outstanding balances.
Realized gains recognized from the sale the guaranteed portions of SPD loans sold during the fourth quarter totaled $17.3 million, that's compared to $13.1 million during the same quarter in 2018 in the fourth quarter of 2019.
We sold 199 loans for $135.1 million at an average premium of 10.73% as compared to 158 loans sold during the fourth quarter of 2018.
For $108.6 million at an average premium of 9.97%.
Realized losses on SP loans for the fourth quarter of 2019 were $1.7 million as compared to $1 million in the fourth quarter for anything.
Overall, our operating results for the fourth quarter resulted in a net increase in that assets of pulp point $7 million or 64 cents per share and we ended the quarter with NAV per share of $15.70.
I'd now like turn call back to Barry.
Thank you operator, let's open up the call to questions.
As a reminder, ladies and gentlemen to ask a question you will need to press Star then one on your Touchtone telephone to withdraw your question press the pound Keane.
Our first question comes from the line of Mickey Schleien with Ladenburg. Your line is now open.
Good morning, Barry how are you.
If you doing great how about yourself okay. Thank you.
Two questions Barry.
I do appreciate that you and your team have managed newtek for a long time, you've seen ups and downs.
So I want to ask about what your expectations are given all the noise around the covert fighters.
You do have borrowers in industries likes restaurants, and laundries in ambulatory health care, you lose or places, where we would expect folks to maybe avoid at least for a few months.
And I would imagine payment processing could be impacted too so in that in the past when we've been in the down cycle. How are these borrowers.
Formed.
Mickey Great question that we appreciate it.
Look I think part of that question revolves around.
Class within an industry code.
I think number one thing to point out we're very diversified I don't believe we've cut in the industry is specific industry class code, that's greater than 8%.
So we try to stay diversified so far in the payments area and I do as fairly regularly have been checking payments this year last year.
And I do it on a daily basis or how we don't for the month.
The consumers pretty flattish at this point in time now ill tell you last week.
And I was on planes Alot air traffic busy is at a conference placement sold out did I did flying on Jetblue yesterday and for the first time in a long time that plane was 75% occupied.
I think from our standpoint, we are thankful and appreciative that Congress through the house yesterday.
A portion of plan, which the FDA will be providing assistance to smaller businesses that are affected by the corona virus. So our business owners will be able to go and get.
Very very low cost attractive financing, which the VA has done from time.
We've seen this with Hurricanes, we've seen this with storms and disasters. So that's something we're going to pay close attention to.
The only way.
Lenders like ourselves do well in these particular areas is number one where collateralized lender we.
Personal guarantees and we when people to that.
We do have a lot of tools to box depending upon the S&P.
Standard operating procedure DSP to work with borrowers, but we speak to them and communicate them more accurately servicing these accounts and I'd say at the moment, we haven't seen it now I do believe that could change pretty sharply.
Got a situation where I think.
There's a school closing in Riverdale Youre you've got.
More imports of companies telling people to work out of their homes. It's good it's going to have an effect.
We're on top of that we're working with borrowers and I believe.
This too shall pass.
And hopefully pretty quickly.
Thank you Barry that that's helpful and.
I understand just one more question.
SPD 70 premiums.
We're very solid in January and February up.
Pretty meaningfully from the end of.
2019, I Havent seen data, let's say for the early part of March and I know you don't want to be as of right.
Offering price discovery, but.
Just directionally our premiums behaving very recently given.
More news about the virus.
Well.
Thank you for that because Thats helpful. You you help with the forecast but look.
Okay.
Premium pricing and I'm kind of given yet.
Stuff, that's what you've observed was accurate as of yesterday, that's about all I can say when you would you've observed as accurate as of yesterday.
Okay I understand those are all my questions Barry I. Appreciate your time. Thank you. Thank you ms.
Our next question comes from Marc Silk with Silk investment Advisors. Your line is now open.
Hey, Barry.
Can you hear me Hey, Mark Good morning, Mark how you doing.
Good I'm going to self fund so hopefully the reception time.
So first of all actually I feel on CNBC I see on CBC. All the time can you quantify that.
He is working right now.
Sure.
Well it is because you saw me side.
Look I think that.
[music].
The.
The campaign, where we have a fairly modest spend.
And we've been doing it for five or six years.
Has been beneficial.
I've recently, I would say over the last nine months.
Im working with the Pasha coordinate our chief revenue officer.
Some additional work on our website to do a better job of capturing that inquiry through.
More aggressive.
Activity in terms of like chat with respect software.
Making sure that referrals that are coming to the website are hitting business service specialists immediately.
And I.
I would say number one the reason why you've noticed it is we've shifted some of our spend which was almost exclusively cable news MSNBC CNN and Fox to do some on CNBC, which tends to be more expensive and Bloomberg, which actually is less expensive.
So, it's giving us different people different notoriety its grading activity people looking at US you don't want to thing I'll tell you about advertising, it's an investment it's a capital investment and we expense it.
From an accounting standpoint immediately but it does build it does build overtime and we can pretty much quantified that for the most part it's breaking even although I'm totally confident that that span is generating a lot of activity that is hidden and we havent quite.
Able to quantify so we're we're comfortable with that spend.
For the for the foreseeable future, but I do believe we're going to start to.
With our database, which we really havent utilized start to.
Pay more attention to using digital techniques. So.
We think theres upside, obviously, what we're doing that over 800000.
Referrals that have gone into new tracker, we're still getting.
I'd say 275 to 300 today, so we feel pretty good about where we are.
Okay.
So you know what this corona virus are you seeing more inquiry, so basically business owners knowledge that event that eventually things going to stop for a while or slow down for a while are they kind of jumped the gun here in saying you know what I don't need money, now, but and I might need the money that gets worse. So is there a possibility that maybe more.
You know incoming inquiries or are going to happen or have been happening.
Yes, so we've got two things going on obviously.
Weve turned this big hit on for the Nonconforming sector and we've also got a lot of more businesses that are looking for loans and some of these some of these avenues or are shut off. So no. This is going to be more difficult I think for non collateralized lenders.
We are very much a collateralized lender.
There's no question, we're not seeing people looking for that funding and that's why we're we're paying more attention to things like personal credit scores and SLK scores, which are business credit to evolve a sudden we see strains on businesses, where they can pay their bills or the slowing things down.
You know you got to pay attention on our real time basis.
So the answer is we got to be exceptionally careful today and pay attention to the geographies, where the viruses are affected and we've got we've got to be little bit more careful. There is no. This is there's you know I have made comments there's no question that.
This thing is not it's not one or two it's I don't want a two week of that this company with us for awhile and it will slow things down we feel.
We feel like we're on top of paying attention.
I mean, you've done a great job mitigating risk in the past so I just sounds like you're putting a few more elements like like exactly right like where people's credit scores changed quickly and like you said you're going after you go fishing areas that are affected so on the government EFI a potential you know boost of helping out does that like is that like a tied lifting all boats.
Meaning that if that happened you could potentially get more interest or that's just go to a specific few SBA lenders.
I'm glad you asked the question because I probably wasn't clear those are not loans that we make we don't touch that those borrowers go directly to the small business administration and the loans, which are tends to be small in nature and focus on working capital liquidity are made directly to the business.
I know this is like hot off the press, but traditionally those disaster relief type loans tend to be.
20 to 2020 year type repayments.
Mike.
Way below market rates of interest.
Okay, and then last question.
You, obviously talked about your other businesses and I've asked you. This is a few years ago. Besides obviously, the FDA loan, which you're obviously done great job on what part of the business are you hoping for expecting for there will be your number two business, let's say two or three years down the line.
Yes, I'm going to I'm going to pick one I'm going to get three people Mad at me market [laughter].
Yes look I think that.
It's it's easier for me just at least to discuss.
Ones that are a little bit bigger and a little bit more robust quicker path I think that the the business that we have.
Uniqueness in.
As a major differentiator and we we've had.
Issues with that obviously by some of the numbers is the tech business people are readily spending money on technology. We're in the early innings, we're very well set up.
I brought in a new manager I think he seven eight months and maybe nine has really changed the culture. It ever it's been nine day and the good news is.
You know managers that come into the organization, it's got to fit into sort of what our strategy. So when you think about technology. So many that werent wants to do business with you on the street salespeople value added resellers.
Bottom line is.
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That's a market thats going to grow the tech spend is going to grow and our customers and got to make changes and when I say that we're not competing with the zohr and Google I want to be clear here or NWS.
Smaller businesses, they have a hard time dealing with those entities and those entities really arent set up to do business with them I want to point out we will manage workloads in a WMS and manage workloads in a zohr.
You don't have to use our data center.
Or in the clients have.
Our hybrid set off they could be on prem and they could be in one of those entities are an hour and our facility lot of lot of options. That's the one that's probably got most upside putting that aside.
The payments business looks great.
And I think we've made some changes in payroll and insurance that will also bear fruit. This year. So if you if I have to pick one getting three people Mad at me I'll pick tech.
Okay and then the last thing more of a P.S.A. I was I was on plan in a while someone came out with that negative or maybe a short sellers trying to come come. After you, which is that's fine that's what makes markets, but I'm going to shareholders since 2006 and that I've invested at an average down during the financial crisis and.
This is Todd.
I think thats the biggest misnomer alethia, considering since 2015 my shareholders have received 11006 nine cents dividend and you've done a very good job controlling costs from growing business. So I think the a proven in the putting and again I've been a very happy shareholders. Since 2006, my clients are extremely happy and.
Thats all I can say that's that's that's the true. So good luck going forward and I know, it's going to be Rocky Road does this year, but I feel very confident that you'll be able to proservia.
Thanks, Mark appreciate it.
Our next question comes from Robert Dodd with Raymond James Your line is now open.
Hi, guys morning, Barry.
A couple of questions portfolio companies first and then the seven a business on NMS you highlighted a couple of cost savings I mean, the legal legal expense go away a closing the Wisconsin office et cetera.
I'm, but has the 10.9 pre tax in the back of the presentation for 2020 the.
Forecast it would be down year. So can you tell us what's the driver that is given the cost saving.
That is going to flow through this year.
Yes. So are you Robert are you asking me.
About the EBITDA forecast of 16 million for payments and mobile money is I would you are asking.
Effectively yes, I mean, what I'm looking at pre tax, which you said there Robert Robert Robert years, right, where I stand by the forecast.
Okay.
Or investment forecast on revenue and expense I stand by the forecast.
Portfolio Company, we don't consolidated I've tried to give see the problem with giving you a little pick under the Hood.
As you want to put your home the there and I Love your Robert but that's what I got and.
Very comfortable with the forecast.
I understand that is indeed, my instinct to climb under the Hood, so moving onto the next one the tech business.
By the way you're always welcome are always thank thank you on the tech business and you just just gave us some color on that Youre optimistic that obviously, if you focus on that that would be a big improvement and.
Yes would it be the plan to distribute that EBITDA after tax pre tax however, we want to a former or to maintain it.
For reinvestment given your Youre you seem quite excited about that business and it might have some good capital. Please.
Oh.
So Robert I would say the the historic trend of the company over time has been too.
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Payout.
Hey on earnings as they come in I don't believe we're going to have significant capital needs in that business, because we just spend a significant amount and again you never know so that they can count comes in.
I want us to buy hardware and software for them. It's a long term opportunity so that could change those decisions on dividends are made at the board level of each portfolio company, which has a separate and different board and the board and the BDC.
Got it go I appreciate it and then just on the 70 business and we go back to that the last quarter cool you'd had a couple of tough months and and you sounded quite optimistic clearly.
Fourth quarter with with that was a lot of growth and you did a lot of 70 loans. So can you tell I mean on the last call. You said there were some internal issues and then you were reporting some loans because if you didn't like the credit quality metrics. So can you tell is in into the fourth quarter, either what you did internally with system.
So what change to really accelerate that I think I'll give you made maybe a bit fast them even than than you thought it could get last quarter, you said it could take three to six months disorder.
Yes, so Robert I appreciate that look the the comment about.
No.
The energy management changes in repositioning we we have.
We've got four different buckets.
That are now.
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For different.
Receptacles for different loan programs and.
When you're when your business is growing in each of these different buckets.
And one point you had one person that was managing 26 people well.
As a person windup meeting out so that you divide that up into three where you've got to get an situated you've got different reporting responsibilities, we got to get used to the different systems.
So.
Financially I got I wish I wish it was that easy just to ship things around but.
I know you've got human beings and interaction you guys systems, you got reporting et cetera. So look we're still in the process of working through.
Efficiencies with respect to management changes, because we obviously needed.
Different that additional underwriters.
We've needed.
Different assemblers and alone area and we're still working through those issues we're not.
Totally where we need to be at this point in time.
When you say.
Troubled categories, one category Thats been difficult for us is transportation.
You know more <unk> and this is the this is a world that we live in right. So.
Yes, prenatal Amazon dominating transportation or.
Yes, a lot of transportation companies in your finger Gee, it's a great business because the economy is robust et cetera, but all of a sudden you got problems with insurance you can't hire truckers.
You got a couple of litigation issues that caused businesses problems with people getting sued and so that's been one of our tougher categories.
No no exposure is modest there thats a category at one of the categories that we've had.
Tough tough times and so we try to keep on top of this on a real time basis, we try to be nimble.
But I don't think we're out of the woods, yet relative to we're nowhere near 100% of where we need be relative to GE. My final four processes down my NCL process is complete now my seven eight process is completely down plus you now have this whole new issue that.
Everybody in the World is adjusting to which is the corona buyers, but as I said, we're kind of on top of things were freesheet above.
Housing.
Passing that bill that's going to help our borrowers out and give them whatever liquidity they need to come through this.
Frankly, I feel pretty good about our borrowers and entrepreneurs being extremely nimble in dealing with the issues that they have to because in our case.
Robert they're all in.
Got their personal guarantees they got their house on the line personally guaranteed joint and several so they've got everything on the line to make sure that these loans workout. That's now hopefully that answered your question.
Hello can.
Can you hear me I hear you know.
I hear you now yep.
Yeah, Robert you there.
Okay.
Yes.
Operator, maybe we'll go to next question.
As a reminder, ladies and gentlemen that is star then one if you'd like to ask a question at this time.
Our next question comes from a line of Luke Larson with KBW. Your line is now open.
Hey, good morning, Barry.
Hey look good morning, how you doing.
Doing well first question is actually just on.
On the SBA seven a loan pipeline I know historically you guys have included that slide that kind of detailed the open referrals prequalify loan.
And such as for the total pipeline do you might just running off those numbers.
Yes so.
Given some of the changes that I just discussed with the Robert.
It's been more difficult for us to disseminate pipeline issues. For example, as loans are coming in from a pre qualified perspective now.
The warranty issues that were addressing his which.
Program is this borrower and this phone situated for so.
Born a pause position on that what I can tell you are apparels are up significantly.
We've just given the market.
A forecast of growth across the ecosystem, which is fairly robust and I think thats. All we could do at this point in time the problem is as I reported pipelines.
Lumpy going to committee and winds up it's better situated for another area. So I didn't want to put anything out there relative to a 70 pipeline that ultimately goes into the different bucket.
Okay.
That's helpful.
And then I wanted to switch over kind of just on I mean kind of touched on earlier, but just trends in the in the credit community and just kind of ongoing trends. It seems like the portfolio seasoning kind of moves a step back from from last quarter was 20.9 month now 28.5 month and just kind of.
Sounded like the the realized losses were a little bit higher this quarter and obviously a lot of these the alone there are priced price for a lot of that the the the estimated losses, but just kind of wanted to hear what your thoughts were on trend.
For sure trending credit overall.
Well I think that and we said this when way back when when we're looking at 35 basis points of annual charge off that that's not.
Where we're going to be.
I think that we'll have charge off numbers that more accurately reflect close to one and a half percentage of the portfolio on you could use that as a guide.
You may want to use that as a guide I don't know thats helpful or not but we've got.
The charge offs, all factored into our forecast.
We feel very comfortable with the.
The business model relative to what you're going to get from 70 and the other business segments.
I think relative to credit I got to tell you allude, it's too hard Hello, right now and.
I think I like a lot of other people that are on this call.
Watching the news every night, we're trying to get our arms around things.
Yes, it's constructive China is the lead player here there if you believe their information.
I'd like to I'd like to think that if there were lying I think the globally.
Although they havent doesnt necessarily mean that held here to it but I I think China, hopefully as forthright this time situation China.
Here's to be plateaued, when I think that's what we're looking for here as people try to gauge how bad is going to be.
Clearly I think theres nobody doesn't feel hysteria is.
Is greater than the reality, but nobody wants to be the has this terrible person that contraction. So we certainly understand when people are overly cautious when they wear masks when they don't want to go out with a.
These we cancel vacations, it's going to have an effect I do think it's going to be.
Short lived and that means 123 quarters in fact going to be one two or three years Thats My guess and our borrowers which are typically collateralized borrowers will be able to get through these times, particularly with government assistance.
Okay.
That's that's definitely that's definitely helpful. And then this is kind of just a side note and in your Oh underline.
And distribution.
By category do you guys have outside exposure to any of the hospitality industry or I don't know if it's broken out.
Anywhere they can find.
Hi, what do we got the Chris it's typically like 2% means usually pretty well, but I couldn't be wrong.
Okay. That's we're sending I'm, sorry, I missed the motels Chris.
Uh huh.
Telx hotels on though.
I think hotel portfolio hotel motel portfolios by 2%.
<unk> percent. Okay. That's helpful. And then the last thing I want to.
Thats a tough.
Category, and we have historically avoided that category in robust up more so it's a tough category.
Lot of business acquisitions are done there. So we've got the low profile there I will.
We'll circle back later, I don't think him to off on that number.
Okay. That's helpful. And then the last thing I wanted to touch on was just the equity issuances from the ATM. The past couple quarters, I mean, you talked about a little bit earlier it sounded like.
Threeq and Fourq, you are definitely been higher than normal and with the pricing that you're currently seeing in the market, maybe taking a step back on that but just kind of wanted to get your thoughts on on the uses of that that ATM. I mean, I think you still had you had about.
He was just over a million in a shares outstanding under the current issuance, but just.
Wanted to hear what your thoughts were down for that for us the 2020.
Yes look I know I think.
Permit from an issuance standpoint, and the management standpoint right now.
Look at the debt market.
We've done.
Baby bonds with KBW.
Hi.
I don't know, but would love to be able to look at our current.
Six and a quarters.
Don't have in my opinion much leverage at all so plenty of room here thinking important note is we don't need push stock out.
I will tell you I at retail and.
Some institutional investors that talk about main street strategy of constantly issuing mats that doesn't make any I mean, it helps but doesn't make any sense to me.
We don't issues that we don't issue shares for the sake of issuing shares.
Yeah, No makes sense.
And then actually just just final one do you mind, Chris just identifying what the the.
The dollar amount of the charge offs were I think you gave it a little bit earlier, but just wanted to make sure I got that number it.
In the fourth be effort.
Yes, Q4 plane 19 was $1.7 million.
Q4 in was $1 million.
Okay, Alright, perfect and that's all questions from me like yes.
Great and look I think once again I want to repeat those numbers will be significantly higher this year and that we can sustain that where we currently forecasted.
I'm showing no further questions in queue at this time I'd like to turn the call back to Mr. stone for closing remarks.
All right well, we certainly appreciate everyone attending the coal up, particularly with what's going on in the markets. Good luck to everybody and we look forward to reporting at the end of Q1. Thank you.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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