Q1 2021 Newtek Business Services Corp Earnings Call
Ladies and gentlemen, your conference call is scheduled to begin momentarily. Please continue the standby and thank you for the patients.
[music].
Ladies and gentlemen, thank you for standing by and welcome to <unk> business Services Corp. First quarter 2021 earnings conference call. At this time, all participants on a listen only mode. After the speaker's presentation Dolby of question and answer session to ask the question. During the session you will need to press. The Star then the one key on your Touchtone telephone.
Please be advised of todays conference maybe recorded if you book.
The operating systems. Please press Star then zero.
I would now like to hand, the conference over to your speaker host today, Mr. Barry Sloane, President and CEO of net New Tech business services called please go ahead Sir.
Thank you very much operator, and good morning, everybody and welcome everyone to our first quarter 2021 financial results conference call. It.
It seems like yesterday, we were just doing are our annual call. Obviously, the first quarter of catch us up.
Pretty quick after we produce the annual results and with that obviously I wanted to put.
Special Thanks out to our accounting team.
Led by Nick <unk>, who joined the joining me on the call today Executive Vice President and Chief Accounting Officer, and did a tremendous job, obviously and the transition with Nick's taking up the responsibilities from Chris towers and lease Chamberlain and the entire team working very hard to.
Yes.
GAAP results out and get us into the market with all of our filings.
In addition, we're proud to report todays results and they are basically driven by a culture within the company of carry.
The culture is pervasive with respect to our clients and channel partners and all of the associates that work at new Tech either employee directly by the BDC and new Tech small business finance or employed by the portfolio companies and of which we own which total about.
420 overall.
The other thing on listening in today, you can follow the presentation of the wall on our website and new Tech one AWT K O and <unk> Dot Com go to the investors relations section and Youll see it and presentations.
The point of everyone's attention to the note on forward looking statements on slide number one and then move slow forward too.
And number two.
So looking at our financial results and we do typically.
Start off of our presentations, noting our equity performance I think it's important just to note that.
We always say that and investment and new tech needs to be done with the guide towards long term view long term vision with respect to what we do obviously, we give annual guidance usually and.
November of the year preceding the guidance looking forward.
We're not a quarter to quarter company.
The use the expression of a lot we're not a slide company trying to figure out exactly what that slope is in the line and not deviating from it and.
And we're certainly appreciative of the loyalty that our shareholders of provided us as you could see a 10 year returned 632 five year returns $2 56, two of your returns of 101, one year return 124, and so far this year were up 43, 4% and we certainly appreciate.
How we grow and as a business development Corporation since November of 2014, where I believe prior to the conversion we had about an $80 million market cap today were 600006 hundred 640, depending upon where the stock price falls out.
Moving to slide number three.
The calendar year 2020, clearly one of those challenging years, and our 23 years of operating history, we're able to shift its business model quickly and efficiently I think <unk> has proven to be systematically vital to the economy, when I say systematically vital.
Clearly provided financing to the all important small and medium sized business demographic. In addition to that the tech solutions that we provide our clients extremely important and we see clearly and the news with respect to what cyber security and cyber cyber hacking can do the business as we work with business.
Is to help them make sure they're safe and secure in addition to things like payment processing, we are seeing.
Incredible.
Lightning changes and how people are transacting and the economy.
Today, we announced that we're forecasting.
And annual record dividend.
Our record annual dividend excuse me of.
Between $3 of share and $3 30 of share for 2021, that's up from $2 40 to 290 previous guidance and we have a track record of paying our distributions.
Of dividends out of taxable income and important to do so the company is now firing on all cylinders looks forward to a fruitful 2021 definition of all cylinders going forward with PPP now ending with respect to taking a new applications that being <unk>.
<unk> five of <unk> lending and I can.
Forming lending, which we're going to be re launching as well as the real nice growth that we're seeing and payments and tech company as many leverage many streams of income of lot of diversification. We believe it's terrific model, we'd like to say, we're an overnight success of just took 23 years to work out of lot of the Kinks, and where we're still working them out, but we work hard and we paid a lot of them.
Pension, we believe new tech and other portfolio companies of very well position to go into 2021 and one.
Moving to provide a lot of forecasts and metrics and this presentation and hopefully will give you the same comfort on slide number four we talk about dividends.
The address the increased and that forecast of 53% increase over the midpoint of the 2020 annual dividend, which was $2 nine.
The dividend in 2019, I believe is $2 a flow.
So you can see a nice significant increase we're forecasting full year 2000.
$21 708 fundings of between $580 million of $600 million, we're looking for a very strong second half of their important to note. We were probably utilizing about 60% of our resources on PPP funding that is shifting as we speak.
As there are no new PPP applications being taken.
The SBA 500 and for funding and we've had a real good fourth quarter of last year, and we're rolling very nicely.
Forward and this business. This year. This is a business that comes out of one of our portfolio of companies NBL, we're estimating $125 million of fundings under our closings. We've got some good day to chat about that the relaunch of the non conforming conventional business, we'll chat about that with two partners.
PPP loans.
We are.
Indicating here of $600 million total will probably go past that and we'll talk about that and upcoming slides.
Slide number five.
The company paid of first quarter, 2020, one cash dividend of <unk> 50, a share on March 31, and.
And on May 11th.
With that being late yesterday, the board of directors declared a second quarter 2021 cash dividend of <unk> 70.
The shareholders of record of June 32021.
And I am sorry payable right.
<unk>.
And I showed them a record on June 15th payable on June 30 of 2021.
The second quarter of dividends of 25% increase over the prior year second quarter, 52% increase over 2019, and when you look at the first half of the year, we're looking at above 20, and dividends of 20% increase over last year.
The the estimate and we have for the full calendar year.
We are forecasting that we'll pay out another day.
90% of $2.
For the rest of the year from a forecast perspective.
And we always talk about paying that out of earnings slide number six looking at the financial highlights for Q1.
Shuffling down to the second bullet.
Five.
Adjusted.
NII the adjustments for those that are new to our story is primarily the addition of the capital gains all of the gain on sales from 700 and lending.
This was a record.
Adjusted NII for the first quarter not four.
New tech, but for the first quarter.
Big increase over the prior year prior quarter.
Primarily due to the funding of PPP loans as well as the funding of seven day loans, which had the support which were disrupted due to the pandemic and the first quarter of 2020, So we had growth and total investment income.
Managed our debt to equity ratio of very nicely of 127%.
Total investment portfolio increased any of the also increasing nicely at five 4% per share compared to the $15 45.
On December last year slightly keeping.
And I'd number seven which.
When we sell loans that settling or over a quarter and actually inflates our.
Debt to equity ratio without that.
Sales transferring over second quarter, we'd be a little bit of 123.
Tom.
Moving to slide number eight.
Paycheck Protection program. Most of you are familiar with this we've been talking about this through various presentations. So I won't spend too much time on the slide however important to note that.
We're going to get and excess of $1 8 billion of PPP loans and 2000 22021.
From all of the financings, probably getting close to 24001 on units.
We're impressed by this volume of PPP loans, obviously in 2019.
Looking at all loans, seven day, and fiber for companies and about $650 million.
If you look at what our forecasts are for 2021 600 million PPP five $8 million to $600 million of seven day and put the firewall for the NCL and there you are looking at around one $5 billion worth of loans.
Important to note as you try to figure out with.
And with 2022 looks like when you create a baseline how do you grow the business.
And should be able of important to note.
Don't do $1 $8 billion worth of loans without donating a significant amount of time attention and resources to at.
And at that time attention and resources and staffing will now be devoted to the other segments. The new Tech has been actively involved and historically I do want to point out if you go back to 2000.
19 without PPP, we did about two point.
The $2.32 I think of adjusted NII or two years further down the road or two years better.
And we're really got a lot more products a lot more firepower. So those of you who are trying to figure out where are we without that business, we're pretty comfortable with it and we're pretty comfortable where we are and the market with respect the business plan share price and be able to deliver we'll look for us to forecast 2022, as we get out probably.
In October November.
Let's go to slide number 10.
Looking at our 708 highlights of $104 million of seven day loans funded compared to $52 8 million and.
In the year earlier same quarter.
And up from $97 8 million.
And once again point out the $97 8 million was done without any PPP. So we were very busy with funding of <unk> and PPP at the same time.
Using similar resources.
C.
Last bullet focusing on price, which would talk about also in the later slide.
And.
The company made a decision due to price stability and loan sales, we've held over about $43 million and guaranteed portions of seven and eight loans on the balance sheet, we have plenty of capital and not highly leveraged take advantage of the 96% coupon and on additional interest income during the quarter.
Slide number 12.
Baby bond issuance in January we closed a $115 million public offering of five and 8% notes.
These notes are investment grade rated by Egan Jones, Triple B, plus and that's the rating of the holding company and the notes by Egan Jones. These notes of a five year term and are callable without any prepayment penalty after one to potentially take advantage of.
Drop in rates or any other opportunities that we have to basically use increase leverage and.
And grow our business model overall.
Obviously, the capital raise created drag on Ann and I do the refinance the acceleration of the.
Refinance fee on the other nodes, but the baby bonds block and the lower financing rate for five years that cost us about $1 million of four to five.
Drag of the NII and the first quarter.
And that's.
Moving forward to slide number 12.
<unk>.
And some additional lending highlights.
<unk> 7 million of 504 loans funded in Q1 31 million funded and the month of April. So if you put that together first four months of the year of 33% of the year gone funded at about $52 million of 504 loans were pretty excited about our opportunities in NPL and fiber for a portfolio company.
And we're forecasting approximately $6 million of pre tax income for the year and be able did not dividend.
Any earnings up Youll see that and our Q.
Of note at NMS, and where the MTS and the first quarter those independent boards elected to keep the earnings and the cash flow down at the portfolio of company level.
Slide number 13.
Positive cost cutting effects on.
The COVID-19, we've obviously heard the story from others and it's true of the new deck that one of the benefits of the pandemic was really caused companies to focus on business shift their business model make changes that will be consistent going forward, our real estate footprint continuing to shrink.
We were able to get out of our New York City lease and one of our portfolio companies at no expense whatsoever.
Irvine lease we let go that was the BDC expense, the Milwaukee lease and NMS expense, we let that go no longer affects us.
San Antonio Dallas also portfolio company leases, let go and Phoenix.
The headquarters from managed Tech solutions, we moving to the aligned data Center, we gave up our office square footage of around 8000 square feet and moved some office space and the line data center for our staff to be when they need to be near our hardware and software.
Clearly we've developed other.
The software systems to <unk>.
Manage employees efficiency working remotely through our time tracker program, which gives managers the ability to monitor what staff is doing 24 seven.
Through.
Looking at.
And all text messages and recorded phone calls inbound outbound and time on the phone.
The great job and helping us work with staff to make sure we're doing what we need them to do during the pandemic.
It's shown and our results our staff worked extremely hard really caring and developed tremendous solutions for our clients that needed help with tech payments loans et cetera.
Also our staff benefited tremendously from not having the commute with and Thats a half an hour each way and our each way, we're pretty well set up going forward, we most likely will adapt the hybrid model.
Continue to use our office space and key locations for meetings cooperation and coordination communication, which we think is extremely important going forward.
Slide number 15 and should be.
Look at our our organization and we talked about this generally speaking the solutions that we have whether it's people needing help with their new insurance plans.
Adjustments and tech solutions adjustments and ecommerce any additional capital for growth whatever it might be tremendous opportunities in challenging market for all of the new Tech business silos, and we're very very well positioned for the future across across the company.
And I'd number 15 of the slide that we.
Leave and our deck for newbies to our company and those of you that aren't familiar with the fourth largest seven day lender, including banks largest non bank.
And and the business.
Since 2003, we've done 10 rated securitizations of our uninsured pieces, we have a diversified portfolio of.
On insured loans on our books 172000 average, 6% coupon currently quarterly adjust prime plus two and three quarters.
<unk>.
Slide number.
Yeah.
<unk> growth and loan referrals.
The important slide for us.
We continue to grow our business.
First quarter, 170170, 7001, referrals and units we've of deep database of opportunities cross selling efforts being realized.
And doing this over the course of 18 years, we do look forward to more normalized lending environment to focus of all of our efforts and energies with those referrals and others on seven day fiber for NCL and secured the line of credit.
Slide number 17.
The important for gain on sale, we're clearly seeing excess of pricing and the government guaranteed market first quarter, we averaged $13 two a net to us.
Significant increase over historic prices and trends prices will go back.
Once the SBA.
Eliminates.
Or I should say replaces the 55 basis point fee, which was eliminated.
The one of the COVID-19 programs, the 55 basis points comes out of the coupon so that reduces the coupon we pass through of investors, which reduces the price. We do expect this to come back down to a more normalized level, but also of prepayment speeds.
As well as a will be a portfolio on another reason why.
All of the securities of traded so well across the industry. We did make a comment previously that we held $40 million over and the first quarter to take advantage of the extra carry.
Slide number 18, we always want to point out that we have the season portfolio on our books as of March 31 of the uninsured portions of our SBA loans 37, four months of seasoning, we have a good piece of research and there the talks about.
And the default curve.
Understand that the <unk>.
Pandemic.
And they have changed.
Some of this historic seasoning around but we do enjoy and like the fact that we've got a nice seasoned portfolio of business owners that had been with their business for quite a while slide number 19.
Currency rates you could see approximately 95%. We appreciate the currency rate, we do think it might potentially the grade as the year goes on as we lose some weaker businesses that arent fully able to recover through the pandemic, but we're very pleased where we sit here today.
And interesting data point, which some of you will be able to do a little research when you pull out.
The current Q, if you go back and look at.
Total gross dollars and on non accrual.
Portfolio of marked at fair value.
Those were like $34 2 million.
In December 31, 2019, $29 $4 million December 31, 2020, and the $3 31, 21 down to $27 $2 million and we've made a nice downward movement on our non accrual portfolio and.
And many people look at our loans and they try to draw comparisons to a bank portfolio two of credit card portfolio or and the BDC world two of BDC portfolio and I'm, telling you just cant first of all of please take into effect that.
And many different jurisdictions.
You still can't foreclose, particularly over the last year, that's been the case and many different areas.
So if you have non accruals takes a long time to work them off and we've had some really good experience, particularly with the valuation of real estate, which are backing.
The majority of these uninsured loans.
One we had one instance of <unk>.
Hotel and the hills of North Carolina, which we were able to liquidate all of <unk>.
Cash back.
One might not think that our hotel and.
And the pandemic would do well well, we were able to recoup everything including accrued interest based upon personal guarantees other assets of the borrowers and frankly good property. Good location good business, so the new owner and we wish them well and we certainly appreciate getting paid.
The off in full.
Slide number 20, and 21 of our basic slides and our deck and won't go into them, but it's indicative of cash created on the seven day loan for income and for cash.
Let's move into our portfolio of company review on Slide number 23.
We talked about five of four lending we talked about.
<unk> $52 million of SBA <unk> loans closed and funded through the end of April we're real excited about that we're really excited and also that we've got two five of four facilities of $100 million facility with Deutsche Bank $75 million existing facility the capital one which got renewed this gives us the ability to.
And with a lot of confidence go out and grow this business. The 504 business extremely interesting the fiber <unk> and debentures of.
And $2 eight five range currently so that gives a borrowers of tremendous opportunity between our first to blend it.
Big fans of the five of four business, which accounts.
24 is the depiction of how you make of $5 four alone.
25 talks about the return on equity of the business.
One of the nice aspects of this business as you make alone you get taken out by the second debenture by the SBA and you have of 504, first which we've been selling readily and frequently and you're left with no balance sheet and in some cases youre able to retain the servicing when you sell the first summer sales service released we've had good success.
<unk> on that.
And this particular calendar year.
Go on to Slide number 26, we talk about are we referred as the nonconventional loan portfolio.
Real good performer during the pandemic.
It's funny, we sometimes have to answer questions why is your portfolio do.
<unk>.
And you have a credit crisis, and we feel like the one we just had.
Well, we've done very well our portfolio is really done well and a couple of loans pay off.
Actually during the pandemic.
And it's really been of very well behaved portfolio.
We are announcing today on slide number 27, as we have previously that we've signed.
New joint venture agreements.
One one player we have the JV signed.
The middle market financing company, we're excited to get going on that we're putting the leverage facility and place second entity, we have and agreement on the.
On the term sheet were close to finishing the JV agreement global money managers and these are important businesses, which should really have a real nice effect in 2022 and should produce some income in 2021.
And of our Jv's.
As a reminder of <unk> and controlled portfolio companies of taxable.
Slide number 28, and we talk about of merchant business.
Lot of information and our Q on the merchant business as it is of significant portfolio company. Therefore, we've got to give the material a lot more information from the SEC perspective.
Equity fair value of $111 million enterprise value $119 million.
And we're forecasting about a $14 $5 million EBITDA.
And we also did not distribute any of our earnings in Q1 of <unk>.
<unk>.
Looking at slide number 29 and.
And looking at the value for the mass.
We had a very significant increase and sales volume for the month of April.
2021, which was the depth of the pandemic believes were down 30% to 35% and April 2020 versus April 2019, So an increase of 51% obviously, the total increase pre pandemic.
Lot of stimulus and the economy, we anticipate continued growth and pricing volumes, we're seeing some really nice numbers coming in from May.
Premature to forecast that only 12 days in but we look at our our payments business. We believe we book where winner in this space as we've got the right software and product solutions are in.
And merchant accounts, new tech payment systems.
New tech billing manager of.
All great products, we have products from financial institutions like demand deposit opening principal and interest payment. So we're excited about our future per NMS, particularly with the addition of our new hiring staff.
Four new major executives, joining the management team of Mike Campbell, and the devers refer to them as the class of 2021.
They are getting a lot of of.
<unk> policy and procedure and strategy to that business. We're excited about it slide number 30, we've historically talked.
<unk> talked about new Tech payment systems I would just suggest the easiest way to get your arms around new Tech payment systems go to our website new tech payment systems Dot com, it's a great video.
This is our point of sales system, it's a cloud based system.
<unk> payments.
And it integrates with ecommerce so on the inflation adjusted World. If the cost of your finished chicken and steak is going up you don't have to go to your web designer and change. It you just change it and the Pos automatically change it on the ecommerce site and integrates the food delivery services integrates with general General Ledger accounting so.
And where door dash Uber eats Grubhub <unk>.
Also integrates with new Tech payroll solutions for the time and attendance function.
Right and to payroll so that the system that handles payroll taxes workman's comp health insurance 401k card present.
And E Commerce for depository, and we can white label is and their name to give them total branding for the business for the employees and the business and for the people that are going into restaurants at the table.
And we pay at the table solutions.
Slide number 31.
And our technology portfolio companies.
The fully merging the main at the end of June we're really excited about the great rebound, we've had and our tech business. We continued to state and say that this is the business where segment from a growth and multiple perspective, we're most optimistic about net.
Of all of our children, but.
The amount of work that needs to be done.
Managing hardware and software.
The 47, particularly for the SMB market is significant.
We're forecasting and EBITDA of about $6 million for the calendar year, we've got the stay at any of the $7 million.
Non dividend distributions were made by the portfolio of company up from earnings standpoint, there will retain to invest in that business.
Okay.
On slide number 32, we talk about the purpose of the merger.
Being able to provide hardware software professional services and managed services and be able to do that to major.
The organization some of the biggest ones and the United States as well as one of the medium sized businesses 24, seven and the merger consolidation reduced back office accounting and operational expenses that should drop right to the bottom line on.
Obviously, we talked about what we see is the huge opportunity in cloud services, whether it's infrastructure as a service.
Possess the recoveries of service software as a service security of mail hybrid cloud.
Storage as a service.
<unk> cloud, we can do it all.
Slide 34 silo of four and five of our payment our payroll business doing real well share and agency still polishing up our offering here, but getting better every day.
Excited about these two units wells as the total bundle.
Looking at new Tech from a risk reward standpoint, I think it's important to note. We've clearly illustrated that in the presentation today, our business model allows for alternative streams of reoccurring income, giving it many engines of growth and diversified sources of revenue or business model utilizes technology to acquire clients and the most cost effective manner.
The process business remotely without brokers bankers branches or videos, which we believe creates value, particularly in the current environment and and the environment going forward.
We believe the new techs homegrown technology with respect to which new tracker system and secure file of all the solutions and it's creating and payments will be used one day for resale of the financial institutions, demonstrating its and a value and not too dissimilar from what live Oak Bank has been able to do.
We believe shareholders can realize long term rewards due to our unique infrastructure and business methodology.
Go on to slide number 36, if you look for catalysts the renewed seven day effort to resume joint venture activity with respect to.
Conventional lending.
Real good opportunity there.
Three of four years and you look at these combined entities.
They were probably flat.
Now 6 million of EBIT and growing we're excited about it as well as the repositioning of our payments business.
On to slide number seven once again can't say it enough where different differentiation.
Differentiated diversified BDC model so.
For those of you that are going G.
This is a huge premium to NAV.
That is a measure however, the standard BDC does not grow its earnings it does not grow its dividend.
So therefore, there shouldn't be much of a movement of NAV.
And then just it's just math stock prices are based upon future stream of income and.
And given that we are different different from the standpoint that we can grow.
And.
Dividend grow income, which we've historically been able to demonstrate the.
And that's why we get a bigger multiple and.
It certainly makes sense to me hopefully makes sense too, which certainly makes sense to investors that have bought our stock over 10, five three and the last year.
With that I'd like to turn the presentation over to Nick Ledger, our Chief Accounting Officer.
Thank you Bobby and good morning, everyone. You can find the summary of the first quarter 2012 and results on slides 39, as well as the reconciliation of our adjusted net investment income or adjusted NII on slide 41.
So the first quarter of 2021, we had net investment income of $15 2 million or <unk> 68 per share as compared to a net investment loss of $280000 or negative <unk> <unk> per share and the first quarter of 2020.
This represents a 126% increase on the per share basis. Please.
Please note that the income related to the PPP is included in investment income in 2021.
Adjusted net investment income, which is defined on slide 41 was $23 5 million of $1 <unk> per share and the first quarter 2021, as compared to $4 3 million or 21 cents per share for the first quarter of 2020.
Focusing on the first quarter 2021 highlights we recognized $34 7 million and total investment income of 119% increase over the first quarter of 2000, Twenty's total investment income of $15 8 million.
Interest income related to the fees from the PPP was primarily the driver for the increase we recognized $24 2 million of income related to the origination of approximately $425 million of PPP loans during the first quarter of 2021.
There were no distributions from portfolio companies for the first quarter of 2021 as compared to $4 4 million and the first quarter of 2020.
Moving on to expenses total expenses increased by $3 4 million as compared to the same quarter in 2020, or 21%, which was mainly driven by an increase and the SBA seven loan referral fees and compensation related costs and a onetime loss on extinguishment of debt.
Moving on to realized gains realized gains recognized from the sale of the guaranteed portions of SBA loans sold during the first quarter totaled $8 9 million as compared to $5 million. During the first the same quarter in 2020.
And the first quarter of 2021, we sold 107 loans of $57 8 million at an average premium of 13, 3% as compared to 67 loans sold during the first quarter of 2020 to $38 $1 million on an average premium of 10, 9%.
The increase and realized gains was attributed to higher SBA <unk> loan origination volume and the first quarter combined with higher average premium prices when compared to the first quarter 2020.
As I mentioned earlier income related to the PPP is included in investment income not unrealized gains.
Realized losses on SBA non affiliate investments for the first quarter of 2021 was $1 5 million as compared to $447000 and the first quarter 2021.
Overall, our operating results for the first quarter of 2021 resulted in net increase and net assets of $30 1 million.
The $1 35 per share and we ended the quarter with NAV per share of $16 and 28.
I would now like to turn the call back over to Barry.
Thank you Nick.
I appreciate that operator love to open it up for Q&A.
Thank you, ladies and gentlemen, if you'd like to ask the question at this time. Please press. The Star then the one key on your Touchtone telephone.
Which I had a question press the pound key.
Please turn back on we compile the Q&A roster.
Now the first question coming from the lineup Paul Johnson.
Your line is open.
Okay.
Good morning, guys. Thanks.
Thanks for taking my questions.
The first question today.
And just like to get maybe a little bit of commentary.
And just the lack of the income from the control companies this quarter and.
And just what drove that and.
And whether that was due to retaining earnings or.
And something.
And we could expect.
Going forward, but any color there would be helpful.
Sure.
I appreciate that Paul.
As we stated and the presentation. There was no lack of income there was just no distribution.
The portfolio companies independently make decisions whether to distribute.
The income and dividends when and retain the capital for other uses so.
We.
Did forecast.
Earnings from entities like NBC.
We forecasted.
Earnings on NMS, we forecasted earnings on managed Tech solutions, which would be three of the larger entities that typically do dividend out.
So no there was there was income.
But those entities decided not to distribute.
Okay. Thanks for that.
And then.
Maybe just get a little bit more.
And you touched on on a little bit.
Commentary on.
Your just your decision to hang on to some of the guaranteed loans that were originated this.
And this quarter.
Do you think you would expect to continue kind of doing that.
Here in the quarters ahead or is this more of the just sort of of onetime thing that you chose to do just given the strength of the premiums this quarter.
Yes.
Yes, I would say and it's a.
It's a good question Paul we are classically.
Originate and sell.
We are the market that isn't classic these days.
A couple of things one we have.
On excess capital.
And our belief regarding pricing, which is that the.
These particular securities of very attractive.
Non highly likely to prepay quickly.
And.
On the current price movements, so hey, just hang on to the coupon.
But.
I think it is although I can't I can't forecast this with specificity.
I think it's likely we will take advantage of.
The the strong pricing.
That the seven day market, we'll have all the way through September 30th.
And where the 55 basis points, which.
We will get taken out of the coupon okay.
Ultimately reduce prices on October one versus September 30.
The massive that that's about as best we can do I think the important aspect of the question is we have not changed our methodology, but we had a lot of excess capital.
And a 6% coupon is better than keeping it at zero.
Sure, Yes, it's understandable.
And then.
Lastly, I'd, maybe just kind of like to get your sense of.
The borrowers in your portfolio and and possibly also just.
Companies are loans that you looked at here recently.
Have you noticed especially for small businesses businesses with.
The more labor intensive.
Have you noticed any sort of inflation and wage pressures on these businesses cropping up.
On.
Again within your portfolio or sort of across the landscape of borrowers that you look at it.
I think that.
We definitely hear and see part of it is.
Here and and see it on TV right.
And the reality of this of true.
Labor is tight right now, which is kind of odd because it is a reasonably high unemployment rate.
I do believe this is a short term phenomenon when I say short term phenomenon, we've got another.
Couple of months to go through it I think people are figuring it out.
I think that to be Frank with you. Some of these owners the we're not going to say it on TV and will wind up paying their staff off the books rather than on the books to make things work, but the one thing about our customer base. They are resilient and they don't go down very easy.
No.
But there's no question the areas a bit of a labor shortage, but I think 90 day is down the road that goes away as these unemployment benefits unwind.
Thanks for the that's helpful. Those are all my questions.
Thank you I appreciate that thank you.
Okay.
Our next question coming from the line of Robert Dodd with Raymond James Your line is now open.
Morning, guys and congratulations on the quarter with or without PPP frankly.
On on just going back kind of to Paul's question on the on the dividends from the.
The portfolio of companies I understand the point they did the elected not to distribute in Q1, you've given us some earnings outlooks for those which will flow through into <unk> on.
Our dividend.
Just different places where it shows up but is it yes.
Do you have any color you can give us on whether you expect.
That dividend the dividend non non distribution pattern to it.
Continue for all of the lull periods may be all year.
Sounds like they've got a lot of investment opportunities.
So is that just your expectations, maybe they don't distribute this year and they do again next year. If there was any color then a little longer term.
Robert it's of Great question.
We probably won't know that for sure is.
Until we keep moving through the quarter however from.
And from your perspective.
And I always think histories of reasonable guide.
To look at.
And from that perspective.
Thank you Kim.
Think about number one.
We've laid guidance out there.
That's important for us to be able to deliver.
And our current.
The format.
Between three and $3 30.
Of dividend net of income.
Historically.
And those companies have distributed their income, but right now some of them are looking at reinvesting and new loans like and NPL.
There's some very interesting technologies that are available.
And some of these entities.
The M&A side of thing is clearly loosen things up there of winners and losers, so but I think looking at history as the guide would be good for you going forward I can't determine that it's.
It's a great question, but and I understand we do need to do on your side of it.
You look at the company and re forecast, but I would use of I would use history as a guide I think that will youll be okay with that.
Okay.
Thank you on that front.
On the on the conventional lending JV.
Sorry, I don't have the presentation of et cetera, and fun of me I mean.
These expected to be.
The 50, 50, JV ease of getting to give me any give us any.
High level view on what you expect the structures could be I, just don't have that kind of information in front of me if it if it's in the presentation of the doesn't even though the.
Can you give us some of these can you gave us the.
And the growth, but what's the the Buck.
And I'll make sure.
Sure share wise.
On the 50 50, the 50 50.
And structure, which was our original structure.
And this is.
I'll, just say publicly available information, we could talk about it.
On the deal that got Inc.
It's identical.
It's identical.
So the JV that is live.
And action, it's the fifth.
50, 50, JV and what now let me make this one comment.
All of the Jv's.
That are done.
Our 50 50 with respect to a true partnership.
Some of that means all decisioning are split with the with the JV partner, which is why it's important that we pick really good partners day.
We have seen viewpoint and same vision on because we're stuck to each other.
But the economics everything is 50 50 on that JV that got printed yes.
Got it got it thank you.
And one more if I can on on the the FIFO force.
And your guidance is $1 25 per the year, you've done 52 already.
April is this.
A counter seasonal business I mean over the 700 force tend to be more backend loaded is the fiber foldable plum and loaded on more even distribution of noise. The 125 just of a conservative number.
Yes, I think it's a fair question and.
So.
And as my sitting in the seat.
If you look of what we did in April.
What I did more of loans in April of fundings, and closings and I did and the first quarter.
Right so.
And I really think of you stick to the 125 you'd.
And you would be good.
Okay.
Yes.
April was the Genesis of the question.
Yes, it's very it's very hard to gauge the 504 business because.
And the <unk> business, we are full delegated underwriting and the 504 business. The CDC has got to prove it the.
The SBA has got to approve it.
And then you're good to go and depending upon the supply and demand that stuff could get tied up slow down it messes up all your numbers. So yeah. That's why.
Having these differentiated business lines and models has enabled us.
To do Okay. If things are moving around but I think if you stick to the 125, it's a good it's a very good yes.
Okay got it.
Appreciate it thank you and again congrats on the quarter.
Thank you Robert Thank you very much.
And as a reminder, ladies and gentlemen to ask the question. Please press Star then the one key on your Touchtone telephone.
And our next question coming from the line of Richard Greenspan with UBS. Your line is open.
Thank you.
Good works Barry how are you doing.
Thanks Rich thank you.
I wanted to just ask.
How important.
The portfolio of companies as a contributor to total earnings.
Savers of the SBA seven day lending.
Yes.
Look I think that.
For the for the long term.
Investors and holders of new Tech.
And hopefully it's readily apparent that we we believe and all five silos and historically as a percentage of the dividend income the portfolio of companies have contributed with the exception of last year, which I'll go into for a second somewhere between.
35% and 30% of the.
The income net wound up being distributed now.
That's beneficial because that income is taxed.
No.
And the distribution of that income comes through as qualified so for those holding the stock and taxable accounts beneficial for those and a retirement account and it's irrelevant.
<unk>.
Those business as a real important.
And we're going to continue to dedicate ourselves to growing them, making them pertinent.
And what prospectively increases the net asset value of the company.
Amongst other things addition of growing the dividend.
And I think.
And for investors that are trying to figure out on a going forward basis.
I would suggest we go back to.
The 2019 numbers take a look at where we were where there was no PPP.
With two years down the road or two years better our technology's better our human capital is better.
Our alliance partners are better and it's a good base to begin to forecast.
We might be without PPP, but we have.
<unk>.
Exciting.
The futures ahead for payments Tac and.
And ultimately.
Payroll and insurance so I appreciate the question rich thank you.
Alright, Thanks Barry.
Thanks.
And our next question coming from the line of Scott Sullivan with Raymond James Your line is open.
That's all from your line is open please check your mute button.
Sorry, I had mute on their apologies.
That's the 2021 version of the conference call questions.
Exactly exactly user error.
My first question also centers around where you see new tech after the windfall PPP business and can you give us some color on the improved resources and some of the other areas for 'twenty two and beyond.
Sure Scott I think that.
We.
Mentioned this in the in the presentation.
On.
In 2020 and 2021.
24000 units processed.
Close to $1 billion and PPP funded loans and that's.
Yeah, that's a lot of wood burning.
And that's a lot of management time, and that's a lot of software development. That's a lot of closing on a lot of conversations with clients. In addition to the fact that we've got.
24000, new.
The new units with clients that we price and due to the 24000.
I'm going to say, we must have spoken to.
60 or.
$70 million.
Maybe the.
It took a lot more data and and a lot of other so those resources are going to get shifted theyre going to get shifted to seven day, they're going to get shifted the firewall for they're going to get shifted to non conforming because all of that stuff comes in and the front end of the funnel. In addition, the management resources of myself and the accounting department of the legal.
The sales and marketing Department will now shift to all of the five silos, so that we will be able to.
God willing and prospectively grew.
Grow payments growth tech grow insurance growth payroll.
Sharpen up our new tracker system developed New Alliance and channel partners, So I think that.
We're very excited about where we are.
We don't have any new PPP loans coming through we've probably got a good amount of distill process left there's still a window to get these things funded.
Forgiveness, we've done of I think of really good job and automation to automate the forgiveness process with clients that have stepped up to the plate, we're working on that from the servicing standpoint.
And.
I feel pretty good about our ability to sustain and.
Tractive levels of income and.
Without PPP once again I go back to.
That 20.
19, adjusted EBITDA number of $2.31, which obviously is going to be markedly different and this year and I go. Okay. Now we're looking at next year. So the.
2021 under our belt with a run rate, particularly with the NCL coming on I think we're going to be just fine and I'm excited about it.
And the.
I think when you look at us versus other Bdcs, It's it's night and day.
Yeah totally agree on and that's very helpful.
So given the impressive growth metrics and what.
I'd like to call the Fintech side of your of your company.
And how scalable is this model and in other words would it be and attractive.
And potentially to M&A and.
And separately what is the greatest post PPP opportunity.
So.
I think that from our standpoint.
We got to do what's best for all of our all of our stakeholders and I think that we built a model business and that works great and the BDC construct.
But it can also work well and other construct and Thats why when everybody else is doing.
Five year fully locked out notes.
We're willing to give up some coupon to have that flexibility.
Alright, I just think that.
We owe that to people.
To do what's best for everybody everybody that's involved.
Relative to <unk>.
When you look at what we're involved with.
And it's funny.
You mentioned the word fintech so.
I don't think were of Fintech I think we're on new Tech.
So I like to use that word because of.
I don't know what the <unk> are doing to be honest with you and I say that.
Euphemistically, but I know of new Tech is doing and new Tech. We do is we take.
Real smart technologies and apply them to tried and true principles and let's be clear.
You could do payroll.
By going to.
Quick and our quickbooks, not talking to anybody putting in a little bit of data and getting some kind of result.
But god forbid if you've got a question or a problem or of concern you.
<unk> got nothing to do.
On the same thing I guess, you can go buy and insurance policy from from Lemonade and go on lining of nobody to talk to.
Or for that matter you can try to go on line and get on loan from from lending club.
And you might get a personal loan and I don't know, whether youre doing business or not but there's nobody to talk to.
Our business model is there to provide technology and of human being associated with the solution because of our business clients, particularly the larger ones and I would say the larger ones.
We service to.
And to employee companies. We serve is 'twenty. We served 200, we serve as 2000 and we're there for all of them and.
And in many instances the two of five.
And five person company ultimately grow significantly larger and we're able to keep them and retain them. So we're very excited about our business model and how we're positioned.
Where we sit today.
We've got the right capital structure and equity is in good shape of our liquidity is in good shape, but boy what a difference of the year makes right.
And then.
Absolutely.
That's great. Thank you again and congratulations.
Thank you I appreciate it Scott Thank you very much.
And our next question coming from the line of Merrill Ross with Compass point. Your line is now open.
Hi, good morning.
Congratulations and it's a good question.
And Im new to the story. So I may ask a question that the baby naive, but did you provide the business services to customers that are not on.
Applying for credit.
Yes, Thank you marilynn and I appreciate you.
Picking up coverage on us.
100%, absolutely, yes, I think it's important to note that.
There is no zero requirement.
Two.
Take two products very important we don't tie.
Many of our clients the.
Are dealing with us and payroll of tech don't borrow any money at all.
That's actually.
Almost more of the rule there is no reason why.
We'd like them to do multiple things.
And in many cases, they do but no. There is no there is no tie between the two at all.
Okay. So if you went to look at the opportunity to continue.
Continue to deepen your client list, it's not tied to them.
On the referrals.
And to your credit programs.
Not at all and the one skill we need to get better at which we recognize is the ability to outbound into the existing customer base.
And introduce.
So many times.
We will speak to our clients could you I didn't know you did that.
This is the one skill set that we're currently not very good at but it is a target focus and I greatly appreciate the question.
Okay.
And this question and this is truly the question.
But.
And Youre looking at.
Rapid ramp and the second half of the year.
And you mentioned that the net premiums will go down at the end of September and then.
And then and the two.
And to kind of work against each other so and so aside from the dividends from the quite freely other companies what gives you the day.
Confident that.
The well and with a higher dividend run rate.
Well, yes, it's a good question I guess the first thing is 23 years worth of experience with the model, we are comfortable and from a pricing standpoint, we clearly will.
The seek too.
Net whatever can get sold.
Through September 30 of sold.
In addition to that.
On.
The seven day market and one of our slides sort of has what it's been over the last five or six years. It sounds like it's going to.
Well first of all of anything can happen.
But we don't we don't expect it to go from like $1 13, and change down to like 109.
So far.
Argument's sake, let's say for example, it goes too.
111, and a half.
That's.
I mean, all of this is factored into our own internal forecasting. So we've already assumed in our own modeling and we go out and give give dividend guidance that will probably not have as an attractive price in the fourth quarter by the way. The other thing Mero two to think about is the.
90% guarantees will convert to a 75% guarantee.
Post September so all of that is factored into our forecasting and modeling. In addition to the fact that we think most likely and this happens every single year. It's happened for 17 years, the biggest loan volume hits in Q4.
Mhm.
I wish I wish it were different but that's.
No and there's seasonality of it.
Small business right.
And I'd say.
And I can't make a bar fun and September when they want to fund in December.
Alright.
Well, thank you and I appreciate that.
Thank you thank you Marilyn.
Alright, and our next question coming from the line of Paul Johnson from K B W.
Yeah, Hey, guys. Thanks for taking my questions again, I just had sort of one modeling follow up for you guys.
And I was just wondering about.
Sort of like G&A expenses comp comp expenses quarter over quarter year over year are obviously up you guys are coming.
Coming off of pretty successful year, So maybe no surprise there but.
I'm, just curious kind of from this level of $4 $5 million this quarter for salary and comp expense.
Should we kind of expressed the expect this sort of level from here going forward or is there any kind of one time items in there that would maybe.
And I'm down to more of a normalized level and the.
Quarters Ed.
Yeah, Paul I'm glad you I'm glad you brought that up because that is.
Something to think about.
And it also gives you insight into our thought process and that is.
<unk>.
We think that.
This particular calendar year.
Given PPP given the economy.
Given the way our staff has worked.
Incredibly hard we felt it important to reward them now the comp expense.
It was very well and I don't think its broken out that way, but it was very bonus related and it was.
And also offered what I'll call on and meritocracy. So in addition to our shareholders benefiting and our creditors benefiting and our suppliers benefiting we wanted to make sure that our staff benefited so I think that it's reasonable to assume.
Not on a straight line basis. However.
Net.
We will have an elevated level of comp.
In 2021.
<unk> 2020.
But.
You won't see that going out unless it's sort of commensurate with what we're doing so I don't know if I would if that was helpful. I didn't put numbers around it but I think it was and it's an important note that our comp jumped at.
It's not because.
And Mike total salaries jumped basically 50% it was that we wanted to make sure the.
That.
Our other stakeholders, which is our staff equally benefited.
Because they they wanted the producing the results at the end of the day, So that's where that's coming from out of all if thats helpful, but hopefully hopefully somewhat.
Yes.
That's helpful for me.
Thanks for taking my questions again and congrats.
On the good quarter.
Thank you again.
And I've got one more.
Analysts, who is not able to make the call because he was doubled of Mickey schlein I'm going to read his questions off on.
Mickey Schlein from Ladenburg.
First question the outlook for 70 pricing and why has it been so strong we chatted about that and that has to do with the.
On the 55 basis point government guarantee fee that will get reintroduced in.
Post September 30, which will reduce the coupon.
How can you take advantage given that the fourth quarter tends to be the strongest.
Generally we can accept it we will try to pull as much of loan closings as we can and to the third quarter.
And then the last question was from Mickey.
Sort of give a sense of the pro forma results without PPP and.
And my suggestion.
Which I guess that's the.
Mickey and <unk>.
And I think you've got to go last.
And <unk>.
I think using the 2019 base.
Assuming we have grown significantly from that.
Looking at our historic distributions from all different entities with the growth rates should be able to get you. There and give you gave you of base and be able to pull us out but also please do so with the fact that.
It takes a lot to do $1 $8 billion worth of loans in 2020 four 'twenty 5000 units so.
Really appreciate the.
The questions the thoughtfulness of the investment and look forward to producing great results through the rest of the year and beyond so.
I'm assuming operators no more questions.
I'm showing no further questions on the phone lines.
Thank you very much everyone have a great healthy day.
Ladies and gentlemen, and that does conclude the conference for today. Thank you for your participation you may now disconnect.
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