MCG Capital Management Discusses Q3 2010 Results – Earnings Call Transcript

Nov. 2.10 | About: MCG Capital (MCGC)

MCG Capital Corp. (NASDAQ:MCGC)

Q3 2010 Earnings Call

November 2, 2010; 11:00 am ET

Executives

Steven Tunney - President, Chief Executive Officer, Director

Steve Bacica - Chief Financial Officer & Executive Vice President

Tod Reichert - Senior Vice President & Chief Compliance Officer, Corporate Secretary

Analysts

Greg Mason - Stifel Nicolaus

Vernon Plack – BB&T Capital Markets

Steven Fox - Keefe, Bruyette & Woods

Mike Turner - Compass Point

Rick Fearon – Accretive Capital

Operator

Good day, ladies and gentlemen, and welcome to your MCG Capital Q3 2010 Earnings Investor Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session, and instructions will follow at that time. (Operator instructions) As a reminder, today’s conference call is being recorded.

I would now like to introduce Co-Founder, President and Chief Executive Officer, Steven Tunney; and Steve Bacica, Chief Financial Officer. You may begin.

Steve Tunney

Good morning, everyone. Before we get started, I would like to have Tod Reichert, our Chief Compliance Officer to provide the necessary Safe Harbor disclosure. Tod.

Tod Reichert

Good morning, everyone. Before we begin, we would like to remind you that various statements that we may make during this morning's call will include forward-looking statements as defined under applicable securities laws.

Management's assumptions, expectations, and opinions reflected in those statements are subject to risks and uncertainties that may cause actual results and/or performance to differ materially from any future results, performance or achievements discussed in or implied by such forward-looking statements and the company can give no assurance that they will prove to be correct. Those risks and uncertainties are described in the company's earnings release and in its filings with the Securities and Exchange Commission.

Also during this call, management will be referring to a non-GAAP financial measure, DNOI. This measure is not prepared in accordance with U.S. accepted Generally Accepted Accounting Principles. You can find a reconciliation of this non-GAAP financial measure to the most directly comparable GAAP measures and the other related information in MCG's third quarter 2010 earnings release and in the Investor Relations section of our website at www.mcgcapital.com under the heading Financial Information, Non-GAAP Financial Measures.

With that, I'll turn the call over to our President and CEO, Steve Tunney.

Steve Tunney

Thank you, Tod. And again, welcome, everyone. Hopefully by now, you’ve had a chance to review our third quarter earnings release, which was issued today. Overall, we are pleased that our third quarter net operating income and distributable net operating income results were inline with our expectations, and as a result, we will be paying a dividend of $0.14 per share for the quarter.

During the quarter, we remained disciplined and focused on our articulated strategy of originating new investments, monetizing low yielding assets and reducing our leverage. In that regard, we originated new investments totaling $69 million during the quarter. We also successfully monetized our equity and debt investment in JetBroadband Holdings, LLC resulting in expected cash proceeds to MCG in connection with the exit of this investment of approximately $50 million after transaction expenses.

We also successfully monetized our equity investment in MCI Holdings, LLC resulting in cash proceeds to MCG of $12.5 million. We also reduced outstanding borrowings by $25 million and we increased our asset coverage ratio to 233% as of September 30th, 2010.

As I mentioned on our last call, we’ve increased the pace of our origination activity and we expect this level of origination volume to continue in the near-term. We plan to deploy principally uni-tranched and junior capital investments into our SBIC and senior debt assets in our CLO facility. So far, during 2010, originations and advances have totaled in an aggregate of $160.2 million, with $114.1 million in senior loans, $41.6 million in sub-debt loans, and $4.5 million in equity investments. During the quarter, our portfolio decrease from $997.6 million to $924.3 million as our originations were offset by $133.2 of monetizations, paydowns and portfolio company sales and $9.8 million of net valuation adjustments.

Given the unusually large volume of payoffs during the third quarter, we except that growth in our DNOI and NOI per share will flatten somewhat in the fourth quarter before resuming growth in the first quarter 2011. We do anticipate that our go forward paydowns will be more inline with historical levels than those we experienced in the third quarter.

Our primary focus is on the enhancement of long-term stockholder value, which we believe can be best accomplished by closing the gap between our stock price and our net asset value and through increasing our operating income to support the growth of dividends. Since, reinstating our dividend in April of 2010 we have grown our dividend from $0.11 for the first quarter of 2010 to $0.14 for the third quarter of 2010. We firmly believe that we can continue to increase our operating income without accessing new sources of incremental equity or debt capital by deploying our restricted cash balances and accessing incremental debt capacity in our CLO and our SBIC.

As of September 30th, 2010, we had over $200 million of origination capacity, to fund new investment opportunities. We also expect to generate additional capacity, through the continued strategic monetization of equity investments and expansion of debt capital available to us through our SBIC subsidiary. With respect to our portfolio, we had net investment losses of $9.8 million or 1.1% of our fair value. The $11.2 million mark, we incurred on Active Brand and the $8.6 million mark on Jet Plastica this quarter were related to continued core operating performance at these companies and a reduction in valuation multiples.

These marks were offset by increases in value at several other portfolio investments, which had improving operating performance. Although, recent economic data has largely shown that we are experiencing modest growth. We believe the overall economy will remain weak for sometime with consumer spending at a stagnant level, stimulus efforts drying up and state and local governments cutting their spending initiatives. In spite of this, we hope to see improved operating performance and valuation multiples that will enable our portfolio values to increase.

That being said, we will not be immune to certain additional marks as we expect the recovery to affect some of our portfolio companies at a different rate than the economy as a whole. We continue to see an improvement in top line revenue of our portfolio companies. Although in the aggregate, they are still down 3.1% on a TTM basis versus a 4.6% decline of TTM revenue last quarter. Additionally, our portfolio companies have been able to produce EBITDA growth of 5.5% on a TTM basis compared to 9.1% TTM growth last quarter.

The EBITDA growth rate was impacted by the addition of new portfolio names, which had slower growth than our existing portfolio and the fact that our Q3 payoffs, had higher growth rates than the residual portfolio. The EBITDA growth rate for portfolio companies, which were owned by us in both, the second quarter and the third quarter, produced EBITDA growth of 8% on a TTM basis, compared to 8.9% TTM growth last quarter. As we continued forward, our decisions regarding stockholder distributions will be based on quarterly assessments at the statutorily required level of distributions, gains and losses recognized for tax purposes, portfolio transaction events, our liquidity, cash earnings and our asset coverage ratio.

For the third quarter, our distributable net operating income was $0.16 per share. Our net operating income was $0.15 per share. And our taxable income was $0.20 per share. Our unrestricted cash balance at quarter end was $17.7 million and our asset coverage ratio was 233%. We also had PIK and dividend collections of $0.18 per share during the third quarter. After considering all of these factors, our Board decided to set our distribution for the third quarter at $0.14 per share.

Going forward we remained focused on executing on those initiatives that will enable us to close the valuation gap between our net asset value and our share price and generate earnings that will allow us to make and grow distributions to our stockholders. With that I will turn call over to Steve Bacica, our Chief Financial Officer for our financial overview of the quarter, following Steve’s presentation the two of us will be available to address any questions you may have about our performance. Steve?

Steve Bacica

Thanks Steve. Good morning everyone. For those who would like to follow along with the webcast, we have posted slides that you can refer to as I give the financial update. Starting with slide three quarterly update, our net operating income during the three months ended September 30th, 2010 was $11.4 million or $0.15 per diluted share, compared to $8.7 million or $0.11 per diluted share during the three months ended in the prior year.

DNOI for Q3 was $12.4 million or $0.16 per share, which was $0.02 greater than the prior year period. The increase in net operating income during the three months ended, September 30th, 2010, compared to the three months ended September 30th, 2009, was attributable primarily to the benefit of decreased interest expense from lower borrowing balances and lower cost of capital, decreased compensation expense and decreased G&A.

During the three months ended September 30th, 2010, we reported a net loss of $529,000 or $0.01 per diluted share compared to net income of $4.2 million or $0.06 per diluted share during the three months ended September 30th, 2009.

The net loss reported for the three months ended September 30th, 2010, resulted primarily from net operating income of $11.4 million offset by net investment losses of $9.8 million and an income tax expense of $1.7 million associated with the monetization of JetBroadband.

On slide four, selected balance sheet data, we have a well capitalized balance sheet with just over $1.1 billion in total assets and $606 million in total stockholder’s equity. Our debt-to-equity ratio was $0.84 to $1 at September 30th and we had $71 million in unrestricted cash as of September 30th. Also please note that our debt-to-equity ratio after adjusting for cash, restricted cash and securitization cash was $1.63 to $1 as of September 30th, 2010. Our NAV per share at quarter end is $7.92. Our BDC asset coverage ratio improved from 224% at the end of the second quarter to 233% as of September 30th.

Moving on to slide five, selected operating data, NOI and DNOI have improved compared to Q2. Looking at the sequential comparison of Q3 of 2010 versus Q2 of 2010, improvements in revenue and expense reductions drove results higher. We expect that salaries and benefits will continue to fluctuate over the coming quarters partially driven by our long-term incentive plan, which is tied to our share price performance. Also the proxy contest in connection with our 2010 annual meeting accounted for an additional $866,000 in expensive or about $0.01 per share of NOI in Q2.

Lastly we had a tax provision of $1.7 million in Q3 extending from the monetization of JetBroadband. SG&A is approximately 3.3% of average investment assets on the current run rate basis. And we expect that level to continue in the near-term, decrease over the longer-term.

Moving on to gross originations and paydowns on slide six, as I mentioned earlier, you will see that we had gross originations of $69 million during the third quarter and $133 million in monetizations. The $69 million included about $49 million of investments in seven new portfolio companies, about $12 million of advances to existing customers and the remainder of $8 million were from PIK and dividend accruals. Of the $133 million of monetization, about $46 million was related to the monetization of JetBroadband, $45 million was related to the sale of MCI and $35 million was due to the sale of Quantum Medical Holdings. Other reductions and paydowns were spread across the portfolio.

Moving on to slide seven, we are positioned to grow income and dividends. We continued to execute on our multi-year strategic plan to put MCG into a position to continue to grow operating income, which we expect will support current and future dividends. As we remained focused on investing in current yielding debt securities we plan to make sure of our origination capacity to fund new debt investments. As we monetize equity investments, we expect to redeploy proceeds into new yield generating investments.

Moving on to gains and losses on slide eight, our net investment loss for Q3 was $9.8 million. The most significant valuation changes for the third quarter included a negative $11.2 million mark for Active Brands and a negative $8.6 million mark on Jet Plastica. Active Brands has been impacted by a challenging retail environment and Jet Plastica continues to experience operational challenges and valuation multiple contraction. Conversely, we had positive changes to valuation with a positive write up of $4.8 million for RadioPharmacy and a $3.9 million markup for Garden State Dental driven by improvements in operational performance and valuation multiples.

From an operational perspective, we will continue to be very proactive with our portfolio companies regarding all operational and business objectives and performance in the current economic environment.

Going to slide nine, which is a Debt Obligation summary, we have outlined our current debt structure as of September 30th. We paid down $25 million of debt in the third quarter on a net basis. Our access to the cash included in our 2006-1 facility and its undrawn $50 million revolver create very attractively priced debt capital as we move forward with our origination activities.

The five year reinvestment period for the CLO runs to mid July 2011. Across the Board we intend in the coming quarters to put the potential debt capacity we have available to us to work, as well as proceeds for monetizations. We have no scheduled debt due until October 2011, which is reduced on an on going basis by payments we make to our private placement note-holders as we monetize assets.

Slide 10 shows our portfolio distribution by asset class. Looking at our investment portfolio, as we move forward with origination activities, we expect you will continue to see us focused principally on new debt investments rather than significant new equity positions. Our debt investments in senior secured loans, increased from 42% of the fair value of our portfolio at Q2 to 47% in Q3.

On slide 11, we expect to focus on improving diversification with new originations, and we do not intend to materially increase our weighting in telecom. Overall our portfolio remains well diversified, from industry concentration although our highest concentration is still our CLEC components of telecom at 17.1% primarily driven by our investment in Broadview.

Moving on the to the next slide, slide 12, which outlines our outlines portfolio investment ratings, changes to IR ratings in Q3 included an increase in IR 2s due to new originations and a decrease in IR 1s due to monetizations in the quarter. One other point to note on this slide relates to our non-accrual loan percentages.

On a fair value basis, we have seen a decrease in non-accrual loans from 4.7% to 4.3% this quarter compared to Q2 2010, also on a cost basis our non-accrual percentage has increased to 18.3% in Q3 2010 from 15.1% in Q2 2010. The key driver of the change was Jet Plastica sub debt going on non-accrual status in Q3.

Moving to slide 13, in summary for the quarter, DNOI grew sequentially for the quarter at $0.16 per share versus last quarters $0.13. NOI grew sequentially for the quarter at $0.15 per share versus last quarter’s $0.12 per share. We have $69 million of originations and advances including $49 million in debt originations to seven new portfolio companies.

Asset coverage for the quarter ended September 30th, 2010 was 233% compared to 224% last quarter. We have over $200 million of capacity to deploy. We are focused on repositioning low-yielding equity assets, deploying cash and utilizing the debt capacity available in our facilities to increase earning assets, which we believe will drive growth in NOI and future distributions.

We are pleased to announce dividends of $0.14 per share, since reinstating our dividend in April 2010, we have grown our dividend from $0.11 for the first quarter of this year to $0.14 for the third quarter of 2010.

With that, I think we will open it up for questions.

Question-and-Answer Session

Operator

(Operator Instructions). Our first question comes from Greg Mason with Stifel Nicolaus.

Greg Mason - Stifel Nicolaus

Great, thank you. I’m interested in the CLO and putting that capacity to work, at first I want to make sure my numbers are correct, it looks like you have $115 million of cash in the securitization plus the $50 million undrawn revolvers, so you have got about $165 million of capacity, is that the right way to think about that, inside the CLO?

Steve Tunney

Yes, Greg, you got it.

Greg Mason - Stifel Nicolaus

And then, if it’s due, if you have to deploy that by July before that goes into it’s term out phase, how are you going to go about accomplishing that, given, you said you think originations are along the current lines, you’ve been seeing. Do you think you are going to be able to utilize all of that by July?

Steve Tunney

Yes, we do believe, we are going to be able to get it all deployed by July. A big impact on where we fit as of now, was tied to the fact that we had $133 million worth of payoffs in the third quarter. So we actually think, payoffs, should get back to more of our historically trend line, which is usually $10 million of amortization a quarter and account on another 10 to 20 of payoffs. So once we get back to that level and keeping with our current origination pacing, I think we’ll be able to get it done.

Greg Mason - Stifel Nicolaus

And a lot of people have been talking about a spike in origination activity going into the end of the year, it sound like from your comments you expect originations to kind of be steady. Are you seeing that spike in originations and what is your pipeline look like?

Steve Tunney

We think market conditions have remained pretty steady. A lot of people were talking last quarter that they expected to see huge spike after Labor Day and yes there was a large spike in volume. But we’re also seeing a large amount of fall out from that activity as well. So we think that the widely reported expectation of higher volumes prior to year end will be less than we hope for. We do think that funds that are flowing in that fixed income has resulted in improved terms for issuers, but we also do see activity with our investment bankers is running strong. So we think we’ll be more steady and we actually see the surge probably leaking into next year is supposed to seeing a huge spike in the fourth quarter.

Greg Mason - Stifel Nicolaus

And then finally thinking about your availability of liabilities to deploy you got the CLO, the SBIC is attractive as well as your SunTrust facility. How will you kind of rank those in terms of uses that you want to deploy your capital through?

Steve Tunney

They’re actually the liabilities depend on the underlying asset in the sense that senior assets, club deals and syndicated credits go into our CLO and then unique tranche and junior capital goes into our SBIC. So the priority is obviously CLO for senior SBIC for junior capital, the reason therefore is the CLO, we have a July timeline plus it’s the cheapest cost of capital by a factor of 200 basis points these are the SunTrust and the SBIC is very attractive fixed-term financing that sits out for 10 years for the junior capital.

Greg Mason - Stifel Nicolaus

Great, I’ll hop back in queue. Thanks guys.

Operator

Our next question comes from Vernon Plack with BB&T Capital Markets.

Vernon Plack – BB&T Capital Markets

Yeah, I wanted to get some color on the new investments that you made for the quarter?

Steve Tunney

Yeah, sure principally, we’ve seen as we said it’s focused mainly on senior investments. We do have some junior capital for the year it’s focused on business services, education, leisure, health care, pretty decent leverage characteristics and loan-to-value characteristics, both for inside 3.5 times leverage, less than 50% loan-to-value, pretty good equity bids on the senior side in Q3, we do have a lot more syndicated credit that is going into the facility so it’s larger names with tighter yields, but it does work for us inside of our CLO given the underline four times leverage and [Inaudible] financing it gets our returns on equity on that type of activity up into mid to high teens.

Vernon Plack – BB&T Capital Markets

Yeah and what type of yields are you talking Steve on those launch?

Steve Tunney

Depends on the type of the syndicated credit spreads are 500 to 600 with LIBOR floors of 1.75 to 2, the stuff that’s coming into the SBIC is more spread has been between 7% and 11% with 2% to 3% floors.

Vernon Plack – BB&T Capital Markets

Okay, thanks. And Steve Bacica a question regarding migration in and out of the non-accrual loans, I think the net increase for the quarter, I think on a cost rate basis was around $26 million maybe $26 million, $27 million?

Steve Bacica

On a cost base well Jet Plastica sub debt A was really the primary driver of those changes Vernon and that was about $19 million of cost.

Vernon Plack – BB&T Capital Markets

Alright, so the senior is still not, senior is still growing for Jet Plastica.

Steve Bacica

Yes, it is.

Vernon Plack – BB&T Capital Markets

Okay and of course you had home interior come off I believe, which was 3.5.

Steve Bacica

That’s correct

Vernon Plack, -- BB&T Capital Markets

And what other changes occurred.

Steve Bacica

That’s it, the only other changes Vernon it was really minor movements, if cost basis of something that was already on non-accrual changes a little bit, that really made up the difference.

Vernon Plack – BB&T Capital Markets

Okay, so Jet Plastica was really the only new add and okay, okay, great. Thank you.

Operator

Our next question comes from Sanjay Sakhrani with Keefe, Bruyette & Woods

Steven Fox - Keefe, Bruyette & Woods

Hi, this is actually Steven Fox filling in for Sanjay. Thanks for taking my question. I just wanted to ask about the current environment, as I was wondering if has there been a increase in competition or how has the yields been doing, is there some increased pressure on the yields given any increased competition I guess? Thanks.

Steve Tunney

I think, it’s not so much the increased competition, but it’s just the flow of forms that are moving into bond and senior loan funds are very advantageous for issuers right now. So any deals that are good and upsize attract a lot of competition and as you look in the syndicated loan market as well, you see a lot of over subscriptions on deals because there is a lot of demand for fixed income out there, and it’s all driven by the reallocation of capital I think away from equity funds and the bond funds that has been creating some downward pressure.

Steven Fox - Keefe, Bruyette & Woods

Great, and I was wondering, could you provide an update on Broadview? Thanks.

Steve Tunney

Yeah. You will be able to see from our press release and our Q that was filed later today, the fair value for Broadview remains consistent with our second quarter fair value. Our value there is based upon M&A comps, private market transactions, public company comps, DCFs and independent third party valuations. We generally do get Broadview independently reviewed every quarter. And but as I’m sure, you’re going to appreciate given Broadview’s public reporting status in the constrains of Regulation FD. We can’t comment on Broadview’s current operating results. And so I would refer you to their fillings, which will be happening some time over the next couple of weeks.

Steven Fox - Keefe, Bruyette & Woods

Sure, and I guess in the second quarter you mentioned that there have been three market transactions in the collection space, and I was wondering has there been any additional activity there?

Steve Tunney

Actually, I would classify the market conditions is quite vibrant. There has been a lot of activity as you maybe aware, a couple of more transactions happened during the quarter, FiberNet, was sold to NTELOS FiberNet was the West Virginia, CLEC subsidiary of One Communications, Cavalier Communications transacted to PAETEC and then ITC DeltaCom has transacted, announced transaction with EarthLink.

The most interesting things that I pulled from all this in addition to the fact that now you have a five CLEC transactions over the last year effectively, what’s really interesting is that the breadth of new market participants that have come in and purchased CLECs.

Last fall, you had a cable company Comcast by CIMCO NTELOS is a fibreless, fiber and wireless communications company buying at CLEC. You have Windstream, which is in RLEC buying NuVox, you have a CLEC PAETEC buying another CLEC and now you have an ISP and EarthLink buying ITC DeltaCom.

So it’s obviously a very vibrant market activity, which I think hopefully pretends good avenues for exit for us as we look to monetize that asset sometime over the next 18 months consistent with our strategic plan to monetize low yielding equity investments and turning it into cash and reinvest into debt. So we think it’s a pretty good market environment.

Steven Fox - Keefe, Bruyette & Woods

Great. Thanks for taking my question.

Steve Tunney

Thank you, Steve.

Operator

Our next question comes from Mike Turner with Compass Point.

Mike Turner - Compass Point

Hi good morning, I just wanted to get your thoughts, it looks like you have, what is it, about $26 million or so outstanding on the private placement notes and about $70 million on encumbered cash. Is there anything to prevent you from paying those off and going out and getting I still remember there was restrictions on the notes and getting the working capital aligned, any thoughts around that?

Steve Tunney

Well the private placement notes totaled $25 million right now with $17 million of it due next October and $9 due of the following October. $17 million actually as we sort of analyze it. We are going to probably maintain the course which is, we will payoff the private placements as we continue to monetize asset we would expect that to occur, probably prior to that date, but we’re going to live to our contract terms there.

I think, the better use of capital for us with the unrestrictive cash is to drop it down into our SBIC to get.2 to 1 leverage and be able to get 10 year fixed price capital in the 3.5% range all in 3.9% all in that’s due in 10 years, and we’ll let the private placements get paid off in the due course as we monetize assets.

Mike Turner - Compass Point

Okay. That’s great. Good quarter, thanks.

Steve Tunney

Thanks.

Steve Bacica

Thanks, Mike.

Operator

Our next question comes from Rick Fearon with Accretive Capital.

Rick Fearon – Accretive Capital

Guys, nice quarter.

Steve Tunney

Thank you.

Rick Fearon – Accretive Capital

It looks like you’ve done a great job of de-levering the company and repositioning assets into the senior secured investments. Now if your asset coverage ratio around 230%, do you kind of expect this to flatten or will this continue to grow as you deploy the SBIC leverage?

Steve Tunney

I think we’ve met our objectives with respect to the asset coverage ratio. So it might spike up because of timing differences. But we’re really not looking to drive the asset coverage ratio as a matter of balance sheet strategy. So just slop around from here, I think, tied to the timing of monetizations and the timing of redeployment.

Rick Fearon – Accretive Capital

Okay. And the SBIC leverage does not count against that?

Steve Tunney

Correct. So that provides us cushion so to speak.

Rick Fearon – Accretive Capital

Okay, got it. Regarding the two larger markdowns, at this point is Active Brands basically carried at no value?

Steve Tunney

It’s got a residual value of that $2.8 million.

Rick Fearon – Accretive Capital

Okay.

Steve Tunney

So obviously we are very disappointed in what’s going on there, but we have very little remaining exposure.

Rick Fearon – Accretive Capital

Right. Okay. And you had mentioned 18 months for the possible sale of Broadview, given the vibrant M&A activity you discussed earlier amongst CLEC is a higher probability for 2011 or, are there some things that are kind of slowing that process down?

Steve Tunney

I think, I’ll give my standard can answer is that any time from next Tuesday to 18 months, obviously we’re looking on all actions, I think it’s a very vibrant and we obviously understand how key it is for our strategic initiatives to get it monetized. So consistent with that policy making sure that we’re making the right trade-offs between valuation, realization, expectations and getting the cash and being able to redeploy it. We’re obviously aware of what’s going on in the market and we think it’s a pretty good environment.

Rick Fearon – Accretive Capital

Do you think there is a reasonable probability that there is upside in there or is it hard to say at this point?

Steve Tunney

I think we go through a very vigorous process to mark our portfolio to our estimate of fair value, each and every quarter, so we try to be reflective of what we think values are and we have a reasonably good track record in hosting that up as you look over the last couple of years, we have done a pretty good job clearing out assets at our estimate of fair value.

Rick Fearon – Accretive Capital

Okay. And Broadview made a just a great impression at the recent Channel Partners Conference in D.C. and their office suite voice over IP servicing is to be getting a lot of recognition, can you just share with us how many users they have right now or have they announced anything recently and when would you expect this to be a meaningful contributor to their operating income?

Steve Tunney

Well, it’s growing very fast and so we’re sort of, it’s the future of the company. I think they have publicly announced that we have 50,000 users. And the real important distinguishing characteristic of our VOIP product is we actually own the intellectual property behind our VOIP offering. So we actually are able to make modifications to it to meet the market conditions and demands of the market.

And by owning and controlling the IP, I think we have a very unique approach with respect to providing that product to the market whereas others often are just – reselling something developed by somebody else. So it’s a core critical asset of the company, it’s done well and it’s growing at a double-digit rate, but I don’t know that they’ve disclosed the actual rate.

Rick Fearon – Accretive Capital

How is an office suite really differentiate Broadview from the traditional CLEC space?

Steve Tunney

I think it’s a differentiator, the other differentiator is our back office and OFS systems that are, just world class developed in house and are eminently scalable and provide a key critical asset for us to be able to manage the business and then further the fact that we’re in the largest telecommunications market in the world, number one, CLEC I think in New York among the top in Philly and we serve the 20 markets in the Northeast, I think it’s a very unique asset.

Rick Fearon – Accretive Capital

And those differentiators really perhaps warranting even at higher premium than some other CLECs that have recently sold?

Steve Tunney

Well, I think in some of the other CLECs that are sold I think there is some interesting situations that are behind the stories and I think you do have and perhaps one and maybe another that’s on the market are much more of a distress company and whereas Broadview is not distressed, Broadview has the capital structure that allows us to continue to drive our business, our bonds are in due until the later part of 2012 and some other companies out there were faced with expiring and maturing credit facilities and they were not in compliance with those credit facilities. So I think that might have had some impact on how they transacted.

Rick Fearon – Accretive Capital

Okay, great. Well, thanks so much Steve and nice quarter.

Steve Tunney

Thanks.

Operator

Our next question comes from Vernon Plack with BB&T Capital Markets.

Vernon Plack – BB&T Capital Markets

Thank you so much. Just a follow-up on the G&A line, I know you mentioned that it was an unusual event in the previous quarter or non-recurring event in the previous quarter – in terms of what you reported in the – these most recent quarters, that would, is that the range that we should expect going forward around 2.7 I think?

Steve Bacica

Yeah, Vernon, just to give you a little flavor, we’ve been very focused on reducing our cost year-over-year, quarter-over-quarter. So we had some reductions in professional fees and other line items, I would say that you will see a little bit of that bouncing around in coming quarters, but I would say if you take the non-recurring proxy cost piece out, you are going to have a range, if you sort of take that out and you could few hundred thousand up or down a little bit would be a reasonable go forward range.

Vernon Plack – BB&T Capital Markets

Okay, great. That’s very helpful, thanks.

Steve Tunney

Sure.

Operator

Our next question comes from Greg Mason with Stifel Nicolaus.

Greg Mason - Stifel Nicolaus

Additional, follow-up question on the unrestricted cash, you said in the past that you needed to keep about $50 million for working capital, since you don’t have a working capital line, but you just mentioned about pushing some of that down to the SBIC, what’s your target of working cash that you think, you need right now?

Steve Tunney

I think we’re still in that $40 million to $50 million number that we’ve previously reported.

Greg Mason - Stifel Nicolaus

Great, thanks guys.

Steve Tunney

Yes, until we access some sort of revolving credit facility.

Greg Mason - Stifel Nicolaus

Great.

Operator

And I am not showing any further questions at this time.

Steve Tunney

Okay, well thank you very much for the opportunity to update you on our progress and looking forward to speaking with you next quarter. Thank you.

Operator

Ladies and gentlemen, does conclude today’s presentation. You may now disconnect.

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Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!