NewtekOne, Inc. 8.50% Fixed Rate Senior Notes due 2029 (NEWTG) Q2 2012 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen and welcome to the Newtek Business Services Second Quarter 2012 Earnings Conference Call. [Operator Instructions] And as a reminder this call is being recorded. I would now like to introduce your host for today’s conference, Mr. CEO and Chairman, Barry Sloane. Sir, you may begin.

Thank you very much. Good afternoon, everybody, and welcome to the Second Quarter 2012 Financial Results Conference Call. I'm Barry Sloane, President and CEO of Newtek Business Services. Here with me today to present is Jenny Eddelson, our Chief Accounting Officer. Jenny would you be so kind as to read the safe harbor statement.

Sure. The statements in this slide presentation, including statements regarding anticipated future financial performance, Newtek’s beliefs, expectation, intentions or strategies for the future may be forward-looking statements under the Private Securities Litigation Reform Act of 1995. All forward-looking statements involve a number of risks and uncertainties that could cause actual results to differ materially from the plans, intentions and expectations reflected in or suggested by the forward-looking statement. Such risks and uncertainties include, among others: intensified competition, operating problems and their impacts on revenue and profit margins; anticipated future business strategies and financial performance, anticipated future number of customers, business prospects, legislative developments, and similar matters. Risk factors, cautionary statements and other conditions, which could cause Newtek's actual results to differ from management's current expectations, are contained in Newtek's filings with the Securities and Exchange Commission and available through www.sec.gov. Our Capcos operate under a different set of rules in each of the 6 jurisdictions and these place varying requirements on the structure of our investments. In some cases, particularly in Louisiana or in certain situations in New York, we do not control the equity or management of a qualified business, but that cannot always be presented orally or in written presentations.

Thank you, Jenny. For those of you that would like to follow along with the PowerPoint presentation, you can go to the investor relation section of our website where the PowerPoint presentation is currently available. I’d now like everybody to forward to Page 3. Looking at our agenda for the conference call, we’re going to be going over our Q2 2012 financial performance, cash position, balance sheet, discuss our recent buyback of common shares, have a general discussion over developments and business trends, focus on our revenue growth, focus on the new financing arrangement with Summit Parnters, reaffirm our 2012 guidance. Our key performance statistics for the second quarter. The company reported a consolidated pretax income of $1.9 million, that’s an increase of $1.8 million year-over-year compared to the second quarter of 2011. The company also had consolidated net income of $1.2 million, a $1.5 million increase and $0.03 a share in earnings per share compared with the loss of a penny diluted share for the second quarter 2012. Company had consolidated Modified EBITDA for the second quarter 2012 of $3.7 million, as compared to $1.7 million for the second quarter in 2011. The company reported for the full 6 months $0.07 of earnings per diluted share for the 6 months ended June 30, 2012, as compared to a $0.01 per diluted share for the 6 months ended June 30, 2011. Our electronic payment processing segment had pretax income, which was 42% higher than the year prior to $1.9 million in the second quarter of 2012 versus $1.3 million in the second quarter of 2011. And the small business finance segment had pretax income increased 43% to $1.5 million in the second quarter of 2012, compared to $1.0 million in the second quarter of 2011. We are also proud to say our servicing fee income generated from our SBA lender grew 170% period over period from $729,000 during the second quarter of 2011, $2 million in the second quarter of 2012. Servicing fee income, I will point out is re-occurring income, the average life of our loans are approximately 40 years in duration. So we are real happy that this particular segment of our lending business is growing nicely. We anticipate nice future growth in the future. SBA lender also closed $52 million in loans during the first 6 months of 2012, as compared to $29.3 million during the same period in 2011. Obviously, we anticipate doing about $125 million in loans closed during the year. Our pipeline in the third and fourth quarter is pretty full with the recent acquisition of the Summit Partners Capital, which came in, we’ve begun to ramp up and aggressively grow our portfolio. The company also announced it bought back 780,920 shares of its common stock in the open market during the quarter under its 1 million share authorization. We also previously announced in the quarter that we closed a $15 million facility, of which $10 million was drawn by Summit Partners. Those funds are primarily going to be used to support our continued growth, specifically in the lending business. Today we are re-affirming our full year 2012 EPS guidance of between $0.10 and $0.14 per diluted share, with pretax income between $6.5 million to $8.5 million, a midpoint of $7.5 million, and modified EBITDA with a midpoint of $15.3 million. Breaking down some of the second quarter results, when you look at revenue, our EPP segment was up 3% quarter-over-quarter, if you exclude the impact of the Durbin Amendment, which is important to our revenue, was up 11%. The Managed Technology Solutions business was down 4%, we’ll talk about that shortly. Our Small Business Finance segment came in at $6 million for revenue up 30%. Looking at the pretax income for the 3 primary income segments: EPP, Electronic Payment Processing, $1.9 million, up 42%; Managed Technology Solutions, up 12% from Q2 2011; Small Business Finance, up 43% in Q2, 2011, at $1.5 million. Company had $32 million in cash and cash equivalents and restricted cash at June 30, 2012, up to $25.4 million December 30, 2011. Looking at our balance sheet, our balance sheet grew slightly, that is primarily based upon our SBA loan origination business. Our liabilities also grew by about $6 million, total equity jumped from the end of the year of December 31, 2011, of $59.2 million to total equity of $64 million at June 30, 2012. Historically, we’ve talked about our Certified Capital Company legacy business, which we began to discontinue in 2005, tax credits in lieu of cash and notes payable, which offset each other, one liability, one for balance sheet item are shrinking in size, the management time that we spent on Capco is shrinking in size, as is the accounting cost and miscellaneous costs. If you got to the Slide 10 of the presentation, you could see that the tax -- the balance sheet effects of tax credits are declining precipitously, we anticipate at the end of 2012 we would be somewhere around $7 million or $8 million, at the end of 2013, a little under $5 million, and declining from there. We talked about our buyback of common shares of 780,920 during the quarter. The average buyback price of these shares was $1.18. With our stock closing at $1.60 today, that looks like it was a very good buy and represents great value to our shareholders. Since July 27, 2012, with our stock price at about $0.50, we were up 32% since the most recent stock repurchase. We thought one of the things that we wanted to do was to start to put some market comparables out in the market. We've taken about 9 different entities, the top 3 Medallion Financial Corp, also known as TAXI as they’re small business lending entity; Heartland Payment Systems is in the payment processing space; Web.com, WWW, is primarily in the web design and web hosting space. The other entities, why don’t you take a look at, there are 6 other stock tickers there, primarily service to small business market, they’re primarily in business services, if you take a look at any of these entities and you compare us, as a percentage of book value, as a percentage of multiple sales, or as a percentage of multiple EBITDA, I think you’ll find our stock price is very, very favorable. But in the last couple of weeks an entity called Universal Business Payment Solutions, UBPS, which is expect announced an acquisition to spend $179 million to basically acquire 3 entities at the same time, the transaction is anticipated to close at the end of the year. They bought a credit card processing entity similar to ours. They bought a payroll and tax filing company, and they also bought a company in the technology space. The company announced, this is a NASDAQ company as well, stock ticker UBPS, that they believe that the 2012 EBITDA that they were buying was approximately $20.5 million up for those businesses, and that the revenues were about $80 million. If you take a look and add it, our payment processing business and you add it to our technology solutions business, I think you’d come up with favorable valuations, particularly on the EBITDA as well as the sales side. I will tell you they may compute their sales revenue differently than we do, with a higher cost of goods sold, which might reduce our sales number, but as multiple of EBITDA, I think you would come up with some pretty favorable numbers. Also announced recently Go Daddy, one of the major players in the text space, particularly for domain registration and hosting, announced a strategic purchase of a cloud-based financial management application company, to be able to provide outsourced business solutions to their customer base in the cloud. That is clearly our strategy on to manage technology solutions and the company has historically done a terrific job of dealing with small and medium sized business customers and providing them solutions from a military strength proof data center. So as we look to grow our business and offer all our solutions, payroll, e-commerce, insurance agency, lending, et cetera in the cloud, I think you’ll see major competitors are going this way. We believe that the marketplace of the small and medium sized businesses and independent business owner operators are going to be managing their business from a tablet or a smartphone with all their data and their important applications hosted in the cloud environment. We plan on rolling out our first cloud product on to the cloud authority, e-commerce in the cloud, with a national TV campaign in September. We, versus some of these other entities that have got significantly higher valuations, had historical experience in providing a suite of services to small businesses, we’ve done this over the past 10 years. All of our business conditions operate on a similar coordinated platform. We don’t have compensation differences, if you read our compensation plan structure in our K’s and Q’s, all of our business hedged, as well as myself for compensates for cross selling and cross marketing across the platform, we are not weighted for P&L. None of our business service specialist or customer service representatives are paid commission in any particular transaction. Our goal is to do what’s best for our client and we believe our clients will pay us back. In all of our business service solutions, we will be positioned to be available to business owners in the cloud and be available on our iPhones and iPads. We talked about the performance in EPP a little while earlier, revenues up 11%, pretax income up 42%, we think our payment processing business is an important business and it’s clear that electronic payments keeps growing. In this space we’ve seen a lot of information and articles on mobile payments, both from card issuance, where it’s likely to going forward, most Americans will wind up using iPhones or other technological devices to actually make a payment. And on the receiving end, we think the days of the terminal sitting on top of the retailer institution are in the past. And virtual terminals with card-not-present, tight payment structures, will be the future. Our company is extremely well positioned for that. That product type is basically a venture between our EPP division, our managed technology solutions division, effectively the payment processing space has really become more of a technological application. So as we are transitioning our Managed Technology Solutions business where historically the majority of revenues came from Microsoft, web hosting, shared and dedicated type products. Clearly the product is going forward for independent small owners will be cloud environment type hosted business applications. So clearly, our business is suffering a little bit as we transition out, but I want to let you all know we’re very well positioned for this transition and you’ll begin to see the first rollouts of our product in September and October. Our pre-tax income for the quarter was up 12%, our revenues were down 4%. And we’ve recently made several changes within the Managed Technology Solutions division. We have a new President of Managed Technology Solutions, new Head of Customer Service, new Head of Sales Department. As we mentioned before, all our product will be cloud solutions oriented and although we are clearly very interested in servicing Microsoft and Adobe ColdFusion clients in our customer base, we are working very hard and we’ll be announcing many, many rollouts of other software based solutions in Linux and Nginx for our customer base as well as our wholesaler, intermediary designers and developers. Going to Slide 15, we are extremely proud of the progress and developments in our small business finance segment, our revenues grew by 30% in the quarter year-over-year. Our pre-tax income grew by 43%. We’ve historically said this to those who that have been following the company year after year, that we believe this particular segment -- sector offers the best business opportunity for Newtek shareholders, and that is being born out. We did a securitization in December 2010, we did a securitization in December 2011, we are hopeful that we will do a securitization in the fourth quarter of this year, as well, and we’ve recently closed on a capital rates, which I’ll talk about shortly. For every $100 million of increase in our loan fundings, we increase our pretax dollars or pretax income in the segment, obviously on a consolidated basis, including the cost of the mezzanine capital by $4 million. We’ve previously announced that we anticipate going to $200 million worth of loan fundings in 2012. Another thing that we are proud of is the growth at our servicing portfolio, which is recurring revenue as we service loans for own account and for others. From June 30, 2011, to June 30, 2012, our servicing portfolio have increased by 74%, we had $128 million in external servicing in the second quarter. We anticipate our servicing portfolio will be at a minimum of $650 million by the end of this year. Newtek payroll services will be a product that we’ll be offering as well in the clouds of business owners that come to us will be able to make payroll, make payroll changes in a cloud environment from an iPhone and an iPad. And as the market begins to further embrace integration health and benefits and worker comps also are anticipated to be offered on our client devices of iPhones and iPads as we deliver those cloud solutions to our customers. In order to be able to do this, you need to be able to actually have our own software and our own staff. We are fully independent of third parties in this particular product area. We are extremely optimistic that we’ve got an incredibly competitive product against the market leaders Paychex, ADP and Ceridian, they currently own about 85% of the market. So when you look at our business owner clients in the future when they have their desktop or their workshop on their iPad, there will be an icon for payroll, an icon for payment processing, an icon for web traffic statistics, an icon for insurance agency and an icon for their loan. In all cases, we’d be able to pull up all of this data on a real-time basis, right to their smartphone or their iPad. Our growth strategy with respect to revenues is to continue to use the historic distribution channel of alliance partners, community banks, credit unions, insurance companies, broker-dealers and trade association, while clearly emphasizing cross selling and cross marketing into our customer base, and it is working exceptionally well. We will shortly talk about the outbound campaign, which will really gravitate from a local and regional radio to national TV and we anticipate growing our presence as a business service provider where all our business applications are hosted in the cloud. We look at our company and we view ourself as a thought leader and a destination for independent business owners and operators. Newtek, The Small Business Authority, provides product services and data to small and medium sized independent business owners all across the United States. This is a market, according to the Small Business Administration, that has 27 million businesses in it, represents an excess of 50% of nonfarm GDP and 70% of the job growth. Our referrals quarter-over-quarter grew by 6%, we do anticipate improving upon these particular results. Some of the reasons for the reduction in growth, we are not functioning at a higher growth rate as we weeded out some alliance partners that were actually providing us referrals that were not converting at a particularly higher rate. If you look at some of the things we're doing particularly on positioning our website, you clearly see some terrific trends here. Total visitor growth Q2 2011 to Q 2 2012 grew from 73,000 to 121,000. Total unique visitors grew from 38,000 to 77,000 during the same period. We will announce that we are going to -- we’ll do a new facelift on our website. We anticipate that viewers will find it to be clear, less cluttered, simpler to navigate and much more direct focused on our products. That probably will be available in September at the same time we roll out our national TV campaign. Our traffic to our site clearly has increased significantly. You can see our Alexa traffic ranking, we are 42,000 most highly trafficed site and across all metrics, whichever way you look at it, our search traffic, our referral traffic, direct traffic, everything seems to be growing very nicely. We are currently averaging excess of a 1,000 unique visitors to date, even with the radio campaign ending on June 30, and no external advertising, we’ve continued to maintain such a positive pace. The small business authority now has -- had business index, the SB Authority index, published by Bloomberg and CNBC monthly, as well as the SB Authority market settlement survey. As many of you are aware we publish a blog on blogs.forbes.com/thesba. We put out a blog 2 weeks ago that has attracted over 20,000 visitors to it. We put out a blog yesterday on Facebook, not being free, basically the Facebook has got all the customer data of most clients in terms of people trafficking in site and things of that nature. That’s a typical article attracted, I think an excess of a 1000 view within less than 24 hours. So we are developing a pretty good field reputation as a blogger, as a provider of important business content in the small and the medium sized businesses and we’re also tweeting regularly, we welcome all of you to become a follower on our Twitter page. We’ve been a Forbes contributor since 2011, we published over 70 articles that are all available on blogs.forbes.com. We talked a little bit about our marketing strategy. We’ve increased our outbound marketing budget by 50% going from $1 million to $1.5 million, that’s primarily going to be based in national television with a small amount of digital. I’ll talk about the SB Authority Index, the SP Authority market sentiment survey, looking at our market focus we are clearly getting more of our business, which you see on Slide 29, coming from the direct channel, we think this is important. We had a 13.6% increase year-over-year from the prior quarter, we look forward to that continuing to grow. As we do grow our business, obviously Internet web based search is going to be extremely important to us, particularly with our newly designed website and all the content that we’ve out there, as well as the digital campaign. We believe that we are going to continue to be increased and recognized as being an authority on small and intermediate size business issues. As many of you are aware, you can see some of our videos on our website, go to public relations and videos. We’re fairly regularly on Fox Business news and Fox News. We do anticipate being on CNN, probably this week. There was a taping this week and I’m not exactly sure when they are going to air that show. But we will tweet that out when we know the show is going to be on the air. Last two items from me, before I turn the presentation over to Jenny. Slide 32, I would say this is my favorite slide, a great nice upward sloping trend in our earnings, with $7.5 million forecast from pretax earnings and when you take a look at our 2012 segment guidance as we’ve mentioned before, we’re forecasting a range of $0.10 to $0.14 in earnings per share for the year 2012, so far in the first 6 months we’ve recorded $0.07 a share. And you could see we have our businesses segmented out. The payment processing segment, Managed Technology Solutions, I would suggest for those of you looking for valuation and market comparison, those are 2 decent businesses to combine and look at the comparison to UBPS as a market comp. With that, I’d like to turn the presentation over to Jenny Eddelson, to do the financial review.

Thank you, Barry. For the quarter ended June 30, 2012, the company has consolidated pretax income of $1.9 million and after-tax income of $1.2 million, both significant improvements from the second quarter of 2011. Each of our segments reported improvements in current quarter earnings compared with the year ago period and EPS also improved from the loss $0.01 per diluted share at June 30, 2011, the income of $0.03 per share at June 30, 2012. Please turn to Slide 36 for a summary of revenue, pretax income/loss and modified EBITDA by segment for the second quarter of 2012. Electronic payment processing segment revenue increased by $656,000 with 3% period-over-period to $21.4 million, predominantly due to a combination of growth and processing volume, selective fee increases and additions to services provided through our merchants. Pretax income increased by $560,000 or 42% to $1.9 million for the second quarter of 2012, compared to $1.3 million recorded in the same period last year. The increase is due primarily to a $436,000 improvement in dollar margins of operating revenues less electronic payment procession cost resulting from the introduction of new higher margin products and services during 2011, as well as the impact on revenues on EPP costs resulting from debit card pricing and interchange cost deduction. In addition depreciation and amortization decreased by $211,000 carried over period due to intangible assets becoming fully amortized. Manage Technology Solutions segment revenue totaled $4.6 million for the second quarter of 2012, a decrease of $197,000 compared with the year ago period. The decrease was due to our reduction in the total number of web hosting plans totaled as well as the decrease in web design revenue for the period, which was offset in part by improved revenue per plan. The increase in the average revenue per plan reflects the growth in average call incentives, which nearly doubled quarter-over-quarter. And customer purchasing higher cost plans including additional options in services. Pretax income for the quarter was $1.1 million, a 12% increase over the second quarter of 2011. The increase in quarterly earnings period-over-period was impacted by a one-time expense of $190,000 dollars recorded in the prior quarter. The Small Business Finance segment has $6 million in total revenues for the second quarter of 2012 versus $6.3 million in the second quarter of 2011. Servicing income increased by 170% or $1.2 million carried over period as a result of significant additions to both third party servicing as well as to our own loan portfolio. The segment originated $21 million of SBA loans from the second quarter of 2012, a decrease of approximately 9% of the second quarter of last year and purchased $22 million of receivables compared to $18 million during the second quarter of 2011. A decrease in total finite revenue is related to the recognition of $1.7 million in premium income associated with loans that achieved sale status as a result of the warranty period expiring in the year ago quarter. But the corresponding results saw a fair value adjustment of SBA loans transferred, subject to premium recourse. When taking this $1.7 million adjustment into consideration, total revenues for the segment increased by 30% or $1.4 million period-over-period. Premiums averaged $1.14 for the second quarter of 2012, versus an average of $1.11 for the same 3-months period in 2011. Total expenses for the lending segment increased $1.2 million period-over-period, and it’s partially attributable to $518,000 increase in interest expense, a majority of which was related to the Summit financing transaction. In addition, salaries and benefits, as well as other G&A, increased by combined $564,000, both of which are attributable to increases in the amounts of loan service and year-to-date loan origination. And some the segment had pretax income of $1.5 million for the second quarter of 2012, a 43% improvement over the same quarter last year. Year-over-year segment pretax loss decreased by $104,000 or 30% quarter-over-quarter. The improvement was due primarily to both increase insurance commissions earned on fourth place insurance policies, as well as revenue growth from our payroll services subsidiary. In the corporate segment, the pretax loss decreased to $1.9 million, a 20% improvement compared to the year ago period. The improvement was in large part due to increases in salaries and benefits as a result of reductions in head count period-over-period, as well as a $276,000, seven factorial recorded in the prior quarter. Additional reductions in professional fees and rent and related expenses added to the improvement for the quarter and are reflective of the company’s continued cost cutting measures. The pretax loss in the cash flow segment also decreased in the current quarter. This segment had $87,000 improvement over the year ago period and primarily reflects reductions and related party management fee expense, which is expected to decline as the Capcos mature and utilize that cash. 537 requests for previously issued guidance for full year 2012, we are reaffirming our consolidated midpoint pretax income of $7.5 million as well as midpoint modified EBITDA of $15.3 million. I would now like to turn the call back to Barry.

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

[Operator Instructions] Our first question comes from the line of Mark Silte [ph] with Sidoti Investment Advisors.

Let’s see, first of all, you talked about the direct channel referrals. Is that internal business referrals or is that -- I guess my question really is, is your SBA authority like Index in market sentiment, are you getting business because of that and can you kind of judge it as far as how it’s progressing?

Yes, the direct channel numbers that we talked about today are basically customers that have gone directly to the website, have not come through our alliance partner, and that is a function of search, it’s a function of the amount of content that we have through the index through our blog or through tweeting, through our newsletter, we put out 65,000 newsletters every month to customers. We also have an MSP Authority magazine, like when I certainly consented to you, it’s about 35, 40 color pages. We’ve got all the content with all articles about business. We haven’t done any digital dollars at any significant way. When I say that, maybe a $1000 a month, nothing significant, but we’re going to be buying key words, key phrases, we’re also going to be putting banners up that will wind up searching for people that come to our site or other types of sites to really take advantage of that, so. The 13% that you’re seeing is from the direct channel and we think that’s from our strategy of positioning ourself with an authoritative presence in business, as well as advertising PR, et cetera.

And also on like the SPA index market sentiments, you talked about eyeballs growing and maybe you don’t want to do this, but could advertising be in this model at some point down the line?

Yes, matter of fact what we talked about today, historically in the last 18 months, which ended in June, we had a radio campaign with WABC. That campaign has ended as of June 30. That was quite an early in the New York market. I think occasionally that would get up to sit on the channel. I have heard people say they are harder in New Hampshire, but anyway we will be launching national TV in September, you will see small business authority ads, the primary ads will be on business lending. We will probably have ads on healthcare, and health insurance, I should say. We think that health insurance is the number one need or question of business owners and they need participants like us to help them navigate through what their questions are with respect to health and benefits and whether they go to exchanges or not. So, we’re clearly going to use our national health insurance agency as legion, but you could see we are going to be out there with our e-commerce in the cloud and all these offerings and you will see these commercials on major cable channels or major networks.

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

I would say to go to the more macro category, about 80% to 85% of our loans have a real estate lien on it. I would venture to guess with in the last 6 months, because the world does change, but within the last 6 months, of all loans with a mortgage lien, I would say 70% and this is a guess, probably a band of 60% to 80% have a lien on piece of commercial property, the rest are residential from the guarantor.

Okay. So, the clients that are coming to you on the leading, especially getting anecdotes, so are the banks as willing to lend these people, some of these people are just quite often rejected by banks, or what have you kind of seen besides obviously the normal channel you get?

We love the lending opportunity and the lending space because we are seeing conventional credits in a government box and we say -- we’re seeing them government box, they’re basically capable to take a loan or a bar that’s been banking with the banker 3 years, 5 years, 15 years, 20 years. They’ve had a banking relationship that banks cannot hold that client on their books anymore because they are being forced to shrink, forced to de-lever. When banks are forced to shrink and forced to de-lever and they got to get their asset side sound, you know which credits go first?

The rich ones.

The best ones.

Yes, the best ones, all right.

Those are the only ones that can get financed away.

Right. If you don’t need money, there’s plenty out there.

You got it. So what typically happens when they have to shrink is they lose the stronger credits first. We’re getting those stronger credits. So we’re getting exceptionally strong credits, this is going to give us the fuel as we get out there and let people know with a real simple outreach that we’re here to provide money, 7- to 25-year amortization schedule, $50,000 to $5 million when a national lender come to us, we think we’re going to get a lot of opportunities from that. So we’re seeing good credits. We think we’ll grow our volumes without having to press the credit box. I will reiterate, we do not use brokers. We do not let sophisticated intermediaries to find what the loan looks like. We do that directly with our clients and there is nobody in that chain within our organization that assembles the loan or underwrites the loan or runs the leading position that has paid a commission or percentage of the profits, and that includes yours truly.

That was very diplomatic calling them -- I don’t know who’s held responsible, I forget the word you use. But anyway…

So you just look at what everybody else has messed up in the last 5 or 10 years. So we don’t want to make this big mistake as the market expands.

So now we’re heading to this fiscal cliff and the question is, will this make banks even more weary to lend in the short-term as there is more questions, which could be short-term opportunities to you guys?

I think the trend of banks providing balance sheet is downward sloping and I think if the fiscal cliff is -- it is what it is, obviously, we have an election coming up, some people think there won’t be one, if one guy gets in there will one, if another guy gets in, I don’t know. We are here no matter who is the president and whoever the president is, we will welcome him and embrace him and do the best job that we can. We think that in a market that -- we’re certainly for strong economic growth, but in a market that’s declining 1% or 2% GDP, let’s say, and a lot of people look at that as tax Armageddon, and it’s a disaster, even in that environment there are plenty of businesses that need financing and need cloud solutions and need to improve their technology. One of the things that we’re seeing right now, while there is not a lot of robust economic activity, the one place where businesses are spending their money is improving their operations and their efficiencies, and that’s where our cloud solutions, we think, are going to be very well suited to business organizations, they want real-time payment processing information, they want to get rid of their IT costs, both internal and external, and reduce it and be in the cloud. So we think good economy, bad economy we’re well positioned and we are not overly concerned about the lending space because we are avoiding clients and credits that are on the bubble.

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

Yes, I think the Visa, MasterCard situation really is irrelevant to us in terms of the settlement and the payment to retailers. I think we are uniquely positioned as I guess what the industry would refer to as an ISO, but I think from our perspective, business owners are going to need guidance, and that’s what we do. Our job and our function is to deal with business owners. And as business owners are going to be using virtual terminals and mobile payment processing solutions, they are going to want to do business with entities that can be transparent, show them their balance sheet and their income statement, show that their data is in SAS 70 Level for data facility, give them $100,000 insurance certificate in the events they get fined by Visa and Mastercard and, because we own our own gateways, be able to deliver real time payment processing data and information to the right phone in the right way.

Okay and lastly and I’ll turn the call over, as I haven’t gone on twitter up to this date so now you are killing me, so what’s your twitter address?

I’ll give the corporate one, which is the_sba, and I think mine is @sloanebarry. I’m not on Facebook, but I had to do the twitter thing.

Our next question comes from the line of Adam Norton [ph] with RBC.

Can you talk a little about the cloud services strategies that you’d mentioned that are rolling out this fall, maybe talk about the marketing strategy behind it, how it may comparative with some of the other guys in this space are doing, what opportunity do you see, where you see it going?

Well, we’re thrilled about what I would call the cloud trend and the big issue about the cloud trend is in -- I watched a boat load of TV and media, IBN, AT&T, Verizon, it’s in our market. It’s constantly advertising the cloud. We also know that Amazon. There was a cloud product in Google, et cetera. Those enterprises are typically positioning cloud services to large corporations or larger size businesses. We offer a cloud solution to small businesses. And it’s the small, independent businesses that can least afford to have an internal employee for IT or can least afford to have the local break-fix guy or girl company, who charge them $3,000, $4,000, $5,000, $6,000 a month, whether they use the service or not. So the benefit of cloud, it is pay for what you use, you don’t buy the server, you don’t buy the software, in fact you’re going to rent it. And all your data is in a military strength proof facility if you use our cloud, where we are positioning ourselves on to that new tech, small business authority monition is what we call for the cloud authority. And we are going to be able to deliver our business service solutions in the cloud. So our payroll will be in the cloud. Look at yourself as an insurance user, you’d like to be able to access every one of our deck pages of polices on your iPhone or iPad, you’d also likely to notice you -- 120 days out when your policy is about to expire, and then 90 days out, and then 60 days out, you may also want me to send you a bill, which gives you the ability to put your credit card in there, so you can pay. I mean these are all things that we’re going to be able to deliver to business owners because of who we are and how we’re positioned. Because we have our own data center, because we’re used to dealing with technological solutions and applications for business, we think we’re very well positioned to get this out in the market. Now, what’s our marketing strategy? We clearly plan on embracing designers, developers and technology providers, we’re going to be doing a lot of blogging, a lot of posting, we’re going to be using a digital campaign to attract those intermediaries, and give them discounts to recommend us to their customer base, and we’re also going to be positioning ourselves on national TV as an authority in the cloud. So we think there’s going to be a big opportunity for us, and we also view the payment processing space as -- we’re historically -- we make a technology application that a company like ours is well positioned and suited for. The days of selling payment processing by knocking on a store’s door and saying, “Can I see your statement? I can beat the price,” we think, are behind us.

Thank you. Our next question comes from the line of Keith Sidror [ph] with National Securities.

I guess the question is with how well that the company is doing, now is it time to really try to focus more and trying to get the stock price going? The stock, it may seem to move up a little bit, but still seems like its grossly undervalued, and I guess, now is it time to look to spent more money, even more money on IR, trying to get the word out get more exposure for the stock, do you spend more money trying to get companies to do more research on your stock, and do you look at the possibility of paying another dividend to shareholders. Seems that gets more attention for the stock or at least reward the shareholders with the dividend, or do we, now is it time to even explore the option of, do you hire a firm to see about trying to sell the whole company and if it’s the company is grossly undervalued, is it possible that somebody out there could find a value for that. I guess the question is, how do we get the stock price going and, with what I’m mentioning of these things that are on the table or that you’re looking into?

Okay, for the 5 questions, the first 3 are easy, yes, yes and yes. And I'll go back in detail on each one, question 4 on the dividend and question 5, sell the company, let’s go to 4 and 5 first. Regarding a dividend, we always look at dividend strategy and buyback, it’s something I discussed in most board meetings. Most board meetings would discuss and we always take a look at it, we have limitations on our ability to do that based upon our lender arrangements. And you could certainly feel free to look at those documents at the sec.com. So we clearly have got limitations in that particular area and at one, our vested interest and I’m always interested in seeing a higher stock price. Regarding the concept of selling the company, if that was something that we had an intention of doing and had a mandate to do, it would be annexed. So with that said, we believe that our strategy is jelling, coming together and it’s to be noticed. And it’s now to be highlighted sort of on a bigger platform and bigger theater. So I think that the concept of evaluation is always left up to you in the market. And my belief is that if investors think that stock is undervalued and we’ve pointed out other companies in market comparables you need to take a look at. We do believe we are finally going to get there because it’s really -- part of it is the function of being big enough to be discovered, it would be found. So I think we are small enough, sophisticated enough, have got an intelligent enough board and our great management team, with the wind at our back finally, and a lot of the distractions relating to kept going other things, away from us but we’ll be able to reap the fruits of our labors and shareholders, like yourself, that have been a shareholder for a long time, will be able to do so as well. Regarding how to get there, we did hire Investor Relations firm, if you take a look at the press release, there is another investor relations professional’s name on there, Jayne Cavuto, who was working for our company as internal IR, has re-joined our firm. We hired her, we will be actively involved with her in September, and we’ll be aggressively marketing our story to some of those companies that you see in our PowerPoint presentation where investors have had a stake in them, and they think they should take a look at our organization. We are also speaking at a variety of different investment banking firms. We recently spoke at the Sidoti Conference. There are some upcoming conferences that we do have an interest in attending, please stay tuned. We find those conferences to be worthwhile. And we’re fortunate enough to get picked up by TheStreet.com with an independent research this year. To be frank if you haven’t looked in the last month or two, if you see they’ve updated their report, it will be interesting to see what they do with this piece of data, and this piece of information. I guess if you look at our earnings and our EBITDA number and our stock price, pretty much trading at low multiples. So if we continue to grow and execute on our plan, I think -- in the past, we’ve always had a good story, but we didn’t necessarily generate EPS, we are now generating EPS. I think the market will take a look at that, and really be very much driven by the number. From my own standpoint, I should tell you, honestly, that I will allocate a bigger portion of my time to investor relations, and that I’m confident that the shareholders will get a better return on it than necessarily what I have done in the past. So I’m pretty disruptive on where things are going, good economy, bad economy. And I think we’re in a good spot.

[Operator Instructions] Our next question comes from the line of Harold Elish [ph] with UBS Financial Services.

I want to follow up on a couple of things, Mark earlier was asking about the way in which you measure how the marketing efforts are going on. I am wondering if you could comment a bit on what you see the payoff thus far for the alliance with WABC?

Good question, we have to say we are -- from what I understand, I think we’re reasonably sophisticated in terms of how we measure, how our clients come to us and a lot of that’s based upon our technological platforms, new track assistance that we built. We pretty much can capture where clients are coming to us from, what they are asking for, with full information and note taking. As well as our business has a web host, so we look at the information daily, to be frank with you, and track web traffic in referrals and closed rates and things of that nature. When we embark on a WABC campaign, we have a goal in mind and the goal was, we want to learn, we want to learn about the market and we want to do it sort of in our home base. We put out a lot of different messages, we did a lot of branding, I’m actually currently looking right now at the poster that was hung behind Bernard McGirk on the Imus in the morning show, which is now in my office. I guess when you stop paying them, they give you the backdrop. So the small business authority studio, radio studio, is now in my office. I think that I went in a meeting today with a top 20 insurance company and the first thing that gentlemen said to me was, “Hey, that was a great picture in the post last week,” and then he said, “And you are all over the radio.” So, I mean the fact that we’ve been off for a month doesn’t make a difference, but if your WABC was, now he heard it and that provides a lot of value. I think we got much more branding value out of what we did on WABC radio and direct response. I think what you are going to see in the TV ads, in particular as we roll them out, because we are extremely focused and determined to offer our products in a more direct response mode. Now mind you Harry, I wish we were offering the MyPillow because, you are laughing, I mean that guy he is selling a $80, $90 pillow, he is hotter than a pistol. And consumers react that way. It’s a lot more difficult to market and brand a B2B product, which is what we have. Now here is the however, when you are offering business loans in a market where there really isn’t a lot of funding out there and if you are a business owner and you are sitting on the couch and someone says hey do you need a business loan, you are going to jump off the couch. If you are one of 27 million businesses out there that have been affected by the affordable healthcare act and you’re really not sure of what you did last year and the year before it’s going to work going forward. And you’ve got somebody that sounds interesting and is going to offer you an opportunity to look at what you have to make sure it’s right, you may be attracted to that. So, what we are trying to do is, pick the things that are -- so is state-of-the-art hotter than a pistol? I think cloud is hot, I think mobile payments are hot. I think business owners are going to react, particularly in an economy no matter who gets in or what happens, you are not going to have an economy with a lot of growth and the one thing I know is one of the bigger items and demand or technology staffing, and that’s primarily because every company whether they are small independent business or a large company, they try to improve their technologies and improve their efficiencies, because it’s frankly the most sensible and easiest way to improve your bottom line versus try to grow the revenues. So we think that, we’re optimistic that our marketing and advertising strategy going forward will be rewarding and obviously, we’ll be tracking it. We think that what we did with WABC worked well, it was a great learning experience, if we were to go back on radio, I am not saying we won’t, I think we may. I think we would do things a little bit differently, and we learned a lot and I think we are well-positioned for the fall.

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

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

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