Newtek Business Services, Inc (NASDAQ:NEWT)
Q2 2014 Earnings Conference Call
August 14, 2014 04:15 PM ET
Barry Sloane - CEO
Jenny Eddelson - EVP and CAO
Marc Silk - Silk Investment
Frank DiLorenzo - Singular Research
Good day, ladies and gentlemen, and welcome to Newtek Business Services Inc Second Quarter 2014 Earnings Conference Call. At this time, all participants are in a listen-only mode (Operator Instructions). As a reminder, today’s program is being recorded.
I’d now like to introduce to you to your host for today’s program Barry Sloane, Chief Executive Officer. Please go ahead.
Good afternoon everybody and welcome to the Newtek Business Services’ second quarter 2014 financial results conference call. I have here today with me Jenny Eddelson, who will help to present the financial results and financial information. And for those of you that are interested in following the online presentation, I suggest you to go our Web site at thesba.com in the investor relations section of the Web site there will be the PowerPoint that is available for all of you to view as we go through the presentation today.
Jenny would you like to read the Safe Harbor Statement.
Sure. The statements in this slide presentation including statements regarding anticipated future financial performance, Newtek’s beliefs, expectations, intentions or strategies for the future maybe 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 statements.
Such risks and uncertainties include among others, intensified competition, operating problems and their impacts on revenues and profit margins, anticipated future business strategies and financial performance, anticipated future number of customers, business prospects, legislative developments, and similar matters. Risk factors, cautionary statements and other conditions, which could cause Newtek’s actual results to differ from management's current expectations, are contained in Newtek’s filings with the SEC and available through HTTP www.sec.gov.
Thank you. I’d like to begin our discussion today with page three of the presentation. The title of this slide is Business Development Company. The Company expects to present to its shareholders a proposal to convert to a Business Development Company also known as BDC once we’re cleared to do so by the SEC. We filed preliminary materials with the Securities and Exchange Commission for public offering of up to $50 million. The conversion will take place at the holding company level from Newtek Business Services Inc to Newtek Business Services Corp. And as we have said in prior calls, we’re unable to offer any further information or take any questions regarding this proposed conversion or offering at this time based upon obviously SEC restrictions.
I will tell you that as I do take many calls throughout the quarter, I’ve been asked questions such as could you please present with the company was localized as a BDC because there are many investors that want to understand potentially if we do become a BDC what the company looks like in a BDC format you’re interested in dividend projections, you’re interested in NAV projections. This has really kind of put a hold on things for the time being. It has slowed things down particularly with respect to investor participation in the start. For those that are interested in learning more about the BEC, I would suggest you go to the public filings that the SEC has provided. There is a lot of information in there. I think that will help you with your investment decisions and I believe it will particularly as we go forward reduce this concept of deal fatigue that we are currently dealing with. As we move forward in the presentation, in this particular quarter we have made a change to how we are going to present earnings. We have presented earnings for this quarter on an adjusted earnings basis.
GAAP financial results for the three and six months ended June 30, include a one-time non-cash charge of $1.9 million, relating to the extinguishment of mezzanine capital that we have with Summit Partners Credit Advisors. Therefore, pretax income or net income attributable to Newtek Business Services are reported on an adjusted basis to reflect the reversal of one-time non-cash charge this quarter of $1.9 million. We believe that this charge primarily represents the amount of unamortized debt discount and other financing cost attributed to the mezz debt. For those of you that in prior calls have talked about our interest in putting that on which we did approximately two years ago, the company’s pretax income accounted for about $2 million to $9 million to $11 million to this year we anticipate about $13.5 million.
So, obviously taking all of that expense that we believe was a worthwhile there. We have now paid that debt off and that’s going to lead us to lower interest expense in the future. The 2014 consolidated guidance that we are going to be giving for adjusted pretax and adjusted EPS also reflects reversal of that charge.
On Slide number 5 we reported the Q2 adjusted financial highlights. Adjusted EPS of $0.07 that’s a 40% increase over the prior year and quarter. For the six months ended June 30, 2014 adjusted EPS of $0.10 that’s an 11.1% increase over the prior six months. Adjusted pretax income of $4.2 million, an increase of 45%, adjusted EBITDA $7.1 million, an increase of 37%. So, going forward we have given 2014 consolidated adjusted guidance, it is similar to the previous guidance that we have given on a non-adjusted basis, we will go over what those changes are but we are still looking forward to double-digit top and bottom-line growth in 2014.
And also we like to remind and mention to investors on the call today over past three years when you take a look at the bottom-line performance of our company, approximately 60% of the total full year learning happened in the second half of the year. From an EPS standpoint, previous guidance of $0.20 to $0.26, we are now $0.21 to $0.25 adjusted and last year we came in at $0.20.
Looking at the Q2, 2014 GAAP results that’s without the adjustment. Operating revenues of 38.1 million, an increase of 3%. GAAP diluted EPS of $0.04 that will be a decline of 20%. Pretax income of $2.3 million, a decline of 20.5% and the small business finance segment which was not affected by the reduction of the Summit Capital Partners debt. Pretax income $3.9 million year-over-year, an increase of 90.8% and revenue of $7.2 million for the quarter year-over-year increase of 22%.
Looking at what happened in the second quarter from an operational and financial perspective, obviously we talked about $20 million credit facility Capital One, of top of the company, 10 million of that is term debt to refinance Summit, the other is drawn facility of which at the current time minimal amounts of that money has been drawn. We have also announced recently and received approval from Capital One to increase our loan to Newtek Small Business finance which is a revolving facility of $27 million up to $50 million, that’s $23 million increase. Standard & Poor’s reaffirmed ratings on two of our recent securitization trust even though Standard & Poor’s increase the strict arrangement methodology of which many, many issues in the market were downgraded, our ratings were reaffirmed. Standard & Poor’s also recently reaffirmed our service rating.
We have also throughout the quarter, we should talk as when we get into the segments, a significant upgrades to senior and middle level management. We are excited about the new management team which we believe will lead us to revenue and bottom-line growth. One of the important things about our company as we sit here today with an anticipated $165 million revenue projection for 2014, is a need to grow. Small businesses like ourselves are particularly in regulated environment, need to be significantly larger to be able to outgrow the extensive amount of infrastructure, technology, fixed cost of compliance and overheads. The fact that we have been able to raise debt financing at lower cost albeit looking at Capital One recent increase where we had $27 million of total financing available that is now up to $70 million of which $10 million is drawn, approximately $15 million or so in drawn on the learning facility.
We have plenty of capacity to grow, provided by a client base financing facility. We are very excited about the relationship that we have historically had with Capital One and they have made us, more capital available to us to be able to grow the business. We are excited by the opportunity to reduce our cost of equity capital obviously if we go with the rule of the BDC typically the cost of your equity capital is based upon the cost to provide the dividend to the shareholders to tax advantage takes from BDC. We are excited about that as long as you can basically return that type of market dividend to customers, the market will be open to you and that will enable us to grow the Company significantly. So as you think about our ability to raise lower cost of equity financing, lower cost of debt financing, and to get some additional operating leverage out of the business we think will improve very nicely to shareholders.
Looking at our 2014 adjusted consolidated guidance on Slide 9, our revenue midpoint $161 million, pretax income $13.5 million, adjusted EPS $0.23, we maintained that, tightening the range up from 21 to 25 from a prior 20 to 26, and adjusted EBITDA midpoint of 26 million. One of the comments I would like to make about EBITDA, I’ve had investors talk to me about if EBITDA the appropriate measure, we try to use many different measures to show to investors value in comparative financial results as of the Company. The one that we want to point out obviously in our current secure (Ph) format, we’re tax-paying and we do actually pay interest. So those are important issues for those of you who’re analyst you can probably reconfigure those numbers and look the business differently.
If we do wind up in a BDC structure obviously we’ll be able to raise equity, we may not have quite as much as leverage on the books, and we’ll pay taxes. So we’ve explained what this is, we’ve made an investment this quarter making an adjusted EPS. We certainly didn’t want to take recent comments on adjusted EBITDA at this point in time. There is enough moving part to consider. For those of you they have been following us, we think you understand where we are and we believe we’re fully transparent.
Looking at the balance sheet on Slide 10, we are excited about the increase in total equity in the Company from $77 million to $80 million with total assets of the Company growing marginally. You could see that we don’t need leverage to make money in the business from increasing leverage. Looking at our small business finance segment, our Q2 2014 pretax income increased by 90% to $3.9 million and SBF revenue increased by 22%, so obviously we’re getting tremendous amount of leverage in the business, we’ve talked about the expansion of our Capital One line.
We will talk a little bit further about the growth and depth of senior management with the addition of Harold Gartner and Susan Streich. In the six months, ended June 30, loan origination increased by 13%. To be honest with you, we had anticipated that being a bigger number, we’re very happy with our financial performance, some of that increased and we anticipate it will be stronger in the second half of the year. Number one from a seasonal perspective and also the additional funding that recently came in from Capital One Holding company level as well as the increase lines which will kick in the second half of the year.
We do expect that dividend strong loan organization volume in the second half versus the first half. We have also with us new referral partners in the pipeline such as Union Bank of Switzerland, Randolph-Brooks Credit Union, Schools Federal Credit Union and several others.
Slide number 12 and 13 are slides that we’ve shown historically, we like to put that in there for new investors to give them a feel for what 7(a) loan organization looks like particularly income that comes off of $1 million loan as well as the generation of cash due to the ability of finance, the government charity fees as well as uninsured loan participation that are created through securitization.
On Slide 14, I think this is a very important slide that shows the comparative quality of the loan portfolio from December 31, 2010 to June 30, 2014. I think this is extremely important when you have higher quality loans and more collateral behind the loans doing less loans to start up and more loans to existing businesses when there are more first leans then you had I think the commercial real estate, when you weighted average borrower of course higher, when you got lower concentrations with some of the other loans of the portfolio that might have been of lesser quality or burned off what is that mean, the major loans are worth more.
In the current environment, our loans are worth more. Not only loans that are sitting in the portfolio the others that are loan participations, but our ability to create new loans in the marketplace we’re the largest nonbank 7(a) lender as of December 30, 2013, and six largest [indiscernible]. People are recognizing us as the go-to-place and do their business. We are getting conventional credits that we’re able to wind up putting into the SBA files. When I say that mind you, these are credits that cannot be financed conventionally. However, they have some of those characteristics particularly the heavier concentration in commercial real estate. We typically will advance more than a bank loan. We’ll particularly give them greater terms based on the amortization schedule than a bank loan. So due to the SBA ranks, we’re actually able to make that loan under the guidelines.
But the important aspect of what we’re doing here is our loan over the course of the time will be sitting in the portfolio as on a weighted average basis as we’re originating go with forward are work more and more and get higher price for it but having lower loan losses, lower full rates and at a greater recovery. Servicing portfolio also is growing nicely on Slide number 15, if you take a look at the total servicing portfolio increased by 65%, our Newtek portfolio increased by 32%, servicing income is great, recurring income we have we think totally appropriate evaluations of our servicing portfolio on books. We think they’re conservative. We have these evaluations for over 11 years. We are very enthusiastic about the growth of our own servicing portfolio and third party servicing portfolio. The strength of Newtek as a company is based upon its senior executive team and its management team and its ability to execute on the strategy. We recently announced Susan Streich joined our company as a Chief Risk and Compliance Officer both for the holding company and the lender. Over 30 years of experiences financial services professional with particular expertise in SBA lending. Susan formally was a Director of Capital One Bank and President of Transamerica Small Business Capital and Transamerica Bank she was very much focused on their SBA business and quite a bit of business there location wise Susan is in the Maryland, Virginia area and that gives us tremendous proximity work with the SBA both in their London office as well as D.C. She’s been a tremendous addition in addition to watching over her risk she goes helping us improve our processes and efficiencies in lending business.
Harold Gartner joined our company recently as President and Chief Operating Officer of Newtek Business Credit another 30 years of experience in receivables finance asset securitization. Harold was at senior management positions in Morgan Stanley, Chase Manhattan Bank, Nomura, and other very well-known financial services companies. We’re excited that Harold not only will help us in the receivables business but also gives us tremendous expertise in consumer card business I am not going to get into business at this point in time however we’re seeing that there is a blending of opportunity in the electronic payment business, and the finance business because debit cards right now and credit cards and the issuance we believe the issuance side and the acceptance side are converging somewhat. And we think that Harold will be very helpful and useful to us as we go forward. The most importantly we’re excited that Harold’s efforts helping us grow Newtek business credit and our factoring and receivables business.
Our electronic payment processing business had a pretty big quarter, EPP revenue declined slightly by about 1% but we’re going to talk about the second half of the year. We’ve implemented some price changes in EPP which should give us real good revenue growth we’re going to talk about some new products that we’ve positioned and some management process. We have been very slow in enacting price increase. We’ve done a price increase that’s actually hit in July first increases had about three years so we’ve had some level of contracting margins in our portfolio. We’ve also implemented a new PCI compliance program which also kicked-in in July through the second half of the year. Because of these price increases and I will say to you entity was [indiscernible] our competitors, have had two price increases in the last two quarters.
So these price increases are not inconsistent with what other people are doing in the industry in hindsight maybe we’re a little bit slow to adjust our prices to market forces but these price increases we believe will add an additional $562,000 of pretax income in the second half alone and that does include a level of attrition. And I think we were very standard and certain in making sure that we may knew some customers with respect to these price increases we feel very good about this and we’re pretty excited about the second half financial, potential financial performance for our EPP business.
In new product development Eric Turille, who was formally the President of electronic payment process business has moved over as a Director of Business Development. He has relocated to Phoenix, Arizona where we have our three primary trusts going forward. Some of these products will benefit our Managed Tec business I think they will be significantly beneficial to our payments processing business. For those of you that recently gone into restaurants or into retail stores you might have come across waiters, waitresses and sales people that basically have a point of sale terminal POS as we call it on a capital. This is the future, mobile processing. We currently are offering certain software solutions on tablets we will also have our own Newtek white label solution. Eric is behind this particular effort not only creating the product but marketing materials the customer service issues and working very directly with Bruce Hawkins the President of the Payment Processing business. Tom Martens, Chief Operating Officer on the Payments Processing business and Rich Rebetti in Managed Technology Solutions. We think that tablet based POS will be a very important growth market within the industry and as well as for Newtek. As many of you are aware we do owner on Gateway the Gateway’s house and the subsidiary called secured private gateway because of tokenized gateway. We have approximately 2,000 customers on that gateway and our goal is to increase that gateway fit penetration exponentially so we have a tremendous focus on it.
In today’s market having clients user gateway reduces all level of attrition and also allows you to do a lot more of the higher tech payment processing business which is required in today’s competitive market. So the prime constituted at that POS that once your gateway integrated to POS. It stays out between in ecommerce on the west side they want the payment gateway into very midst of the shopping parts. So Eric’s repositioning in this particular area working with Rich Rebetti in our Managed Tech Solutions group, Craig Brunet, Chief Information Officer, Bruce Hawkins, Tom Harkins [indiscernible] and other new addition for EPP business will help grow our penetration, our gateway into ecommerce solutions, into POS systems in retail and restaurant establishments.
Lastly, Eric will be rolling out a cyber-scan product to give business owners a free cyber scan and free report. We are going to be able to scan business owners’ Web sites for free to be able to give them report which shows the security weaknesses and holes in their site. We think this is big deal. We also will be able to offer clients a protective shield if they have a WordPress site which I believe I think about 35% to 40% of the Web sites in the market today are WordPress sites which is a formal software technology. Shield product is exciting that will bring the revenue opportunity plus it enables to engage customers in conversations.
Are you happy with the market position of your site? We can help with that. Do you need your site remediated away from the shield? We can help with that. Where is your site hosted? We can help with that. Who’s your payments gateways, is it tokenized, who you processing with? We can help with that. So, I am very excited about the legion of the free cyber scan product will offer us and Eric is leading that charge working with division heads. In the Payment Processing segment, we mentioned Bruce Hopkins who has been recently a President of Newtek Merchant Solutions. Bruce is an experienced professional, over 25 years of experience in financial institutional and payments business, formerly GM of Debit and Credit Solutions at Fiserv, former SVP of Merchant Solutions FIS which acquired Metavante of which Bruce was the former Division President at the Acquiring Solutions Group.
We have also very recently hired David Karcher, David is an important hire for us. He is managing our business service group which holds all of our alliance partners that coming for the new tracker system, he is also responsible for sales. We are very excited that our new management additions are in Wisconsin both Bruce and David are Wisconsin residents. In the managed care group, our second quarter revenue declined by 8.8% and obviously that’s repositioning strategies and cost reductions talk about there for better financial performance in the second half of the year.
First thing I would like to talk about is cost reduction measures. As we have talked about previously we have had a tremendous history of a Microsoft only web hosting company and that has unfortunately caused the company to suffer as less and less people are using Microsoft software to develop site and people who have them existing are switching over to open architecture.
So we have taken a look at headcount, we have taken a look at being able get the licensing fees, we have discontinued certain programs.
So, if you take a look at Slide number 22, we have estimated, actually this is not an estimate, this is monthly cost reoccurring reduction which took effect, some of these because of effect previously but for the full effect in July, we estimated to be about $80,000 reduction or approximately $966,000 reduction of cost on an annualized basis. The key here is to get the business stabilized. We believe we have done. We are going to see some better bottom-line numbers in the third and fourth quarter going out and we have also got some new products that we are pushing out. We obviously talked about our POS product which when we price and label our own product, we plan on hosting that and creating hosting revenue.
So when I talk about hosting that these tablet-based POS is refrained but at the end of the day small business are going need to be able to get customer service, have questions, have training. We plan on doing that and being an important phone leader in giving smaller businesses the ability to use state-of-the-art technologies and to be able to answer their calls 24x7. We believe the cyber scanning product that we just talked about will be big particularly for designer and developers to protect their clients and thinking that the conversations is to why they should be using our level for datacenter and our security that historically has really performed very, very well. We have also rolled out what we call the Newtek Partners Program or the Part Program.
We are aggressively soliciting designers, developers and retailers, great new partnerships and to participate in all revenues streams, to participate in hosting revenue streams, payment processing revenue stream, gateway streams, payroll streams, insurance streams, lending streams, part program has been rolled out in full force and some of the personnel changes that we have made in the second half of 2014 will help in act that. First and foremost Rich Rebetti has been recently named President, Chief Operating Officer of Newtek Advanced Technology Solutions. Mark Denzin has been named Senior Vice President of Business Development, Mark moved over from Customer Service. Dave Wasenda has moved over and has been SVP of All Customer Operations, very client focus. We want to make sure our clients are happy and that their needs are being addressed.
Andrew LaClair (Ph) he reports directly to Dan Wasenda, he is VP of Customer Operations. The management team in MTS, high level of energy, high level of enthusiasm, tremendous leadership and most importantly I believe for the first time in many years the objective they have consistent with the objectives of Newtek Business Services. We are in alignment, one company, one mission, help our client, offer customers safety, security, efficiency in their product and technology running every day and cost reduction. As we look forward, we feel very strong about where we are in the space. We are looking at a lot of our publicly traded competitors, we think there is great value in what we are doing and we see entities like Lending Club, GoDaddy they are in our space with extremely higher valuations. We feel that we have a lot of hidden assets onto that publicly traded holding company and we’re excited about our future.
With that, I would like to move the presentation over to Jenny Eddelson.
Thank you, Barry. Our three and six months results included a one-time non-cash charge of $1.9 million related to the early repayment of the Company's mezzanine debt with Summit Partners. As Barry noted, we believe the adjusted amount provided more accurate depiction of the Company’s operating performance. On a consolidated as adjusted basis, we have free cash earnings of $4.2 million for the quarter, a 46% increase from the prior year and diluted EPS of $0.07 per share, 40% increase from the one ago.
Via reference, Slide 36 reflects the reconciliation for adjusted pretax income for the three and six month periods as well as adjusted diluted EPS. On a consolidated GAAP basis, our second quarter results were as follow. We had operating revenue of $38.1 million, a 3% increase over the second quarter of 2013. Pretax income was $2.3 million, a 21% decrease compared with the year ago quarter, net income decreased by 24%, $1.4 million and our diluted EPS is $0.04 per share, down a penny from $0.05 as reported in the second quarter of 2013.
Slide 31 presents the summary of our second quarter 2014 revenue and pretax income net loss and adjusted EBITDA by segment and compared with the year ago period. Electronic Payment Processing segment revenue decreased by 1%, $23.2 million from $23.4 million, processing revenue versus process cost or margin also decreased from 16.3% in Q2 2013 to 15.5% in the current quarter due in part to price compression particularly for larger processing volume version.
Total expenses remain flat between periods resulting in a 12% decrease and net income before taxes to $2.2 million from $2.5 million a year ago. Small Business Finance segment had a 22% improvement in total revenue, increasing by $1.9 million to $10.2 million for the second quarter of 2014. The majority of this increase was in servicing fee income, which increased to $2.7 million for our combined portfolio. Our aggregate servicing portfolio grew to approximately $1.1 billion and increased by $419 million or by 65% quarter-over-quarter. Interest income also increased by 35% to $1.6 million as the average outstanding performing loan portfolio increased from $67.9 million to $102 million year-over-year.
Total expense to lending segment increased by $905,000, the majority of the increase and expense was in salaries and benefits due to the addition of staff in all departments. Additionally, interest expense increased due to an increase in outstanding balance on our lines of credit as well as interest expense related to our 2013 securitization transaction. Overall the lending segment had pretax income of $3.9 million and 91% improvement over the second quarter of 2013.
Managed Technology Solutions segment revenue totaled $4.2 million for the second of the 2014, a decrease of 9% compared with the year ago quarter. All Other segment realized an increase in the average monthly revenue per plan, the total number of webhosting plan continues decline during the second quarter of 2014. Total expenses also decreased primarily in G&A cost resulting in a $286,000 reduction in total expenses compared to the year ago quarter. Pretax income was $921,000 down 12% from the second quarter of 2013.
The All Other segments which primarily represent results from our insurance and payroll subsidiaries had a pretax loss of $301,000 in 2014, a $138,000 improvement over the year ago quarter. Our current quarter revenue decreased by $27,000 most related to our insurance division. Total expenses decreased by $165,000 and included reduction in salaries and benefits, insurance broker commission as well as reduction in other G&A cost in the current quarter.
The pretax loss for our Corporate segment increased by $2.2 million in the current quarter due primarily to the $1.9 million onetime non-cash charge to operations to the deferred financing cost and debt discount remaining on the Summit note at the time of refinancing to Capital One.
The pretax loss on our CAPCO segment improved by $104,000 in the current quarter, decreasing to a pretax loss of $189,000.
And finally Slide 32 reflects our adjusted full year consolidated guidance for 2014 as well as guidance by segment for revenues, adjusted pretax income or loss and adjusted EBITDA.
I would now like to turn the call back to Barry.
Thanks, Jenny. Operator, we will take questions now.
(Operator Instructions) Our first question comes from the line of Marc Silk from Silk Investment. Your question please.
Marc Silk - Silk Investment
Hey, Barry even though it’s not reflected in your stock price this year. I want to congratulate you on continuously creating value for Newtek. So I guess my first question is with the money coming in from Capital One, let’s say you have it right now and let’s say the $50 million rate you have right now. Could you put that money to work right now and if not because it’s a lot more money than you’ve ever dealt with what are your plans as far as are you going to kind of increase your advertising or get the word out? I am just curious on that regard first.
I think the ability to use the leverage point is there for the same point that the advanced on a government thesis (Ph) is 90% and we’re currently in a run rate where particularly in the second half of the year we anticipate doing 50 plus million a quarter easily. So, the additional leverage point we do so it will enable us to hold loans, get a little bit of cost to carry before we sell them. So, having a more liquidity from a financial perspective in both cases they’re revolvers. So when you look at the $70 million, the $10 million of term of which we pay down, we are advertising, the rest of this is revolver. And part of the revolver you put a government in it you sell it you get a premium, you take a line down, and the uninsured piece is so we have it up through a securitization that goes into a securitization facility on a 65% to 70% of equity.
So the additional lines will enable us to increase the velocity of lending and I think we’re fairly comfortable that we’ll be able to use those facilities. And the lack of having those facilities in place really forces us to schedule closings which is not easier thing to do with moving this small business forward.
Marc Silk - Silk Investment
Okay, so now I am hearing that they’re starting to lend money more than in the past, the past years that is. So it will arrive a time just on Board’s meeting that now there is a public spend (Ph) okay the banks are lending let me also see what a small business association can offer as well?
I think I have to say this more we typically are not in the lending book, we’re typically not like a competitive situation with borrowers giving out multiple packages to shareholders and people so they’re lending three type jumbo (Ph). A lot of our leads come through the alliance relationships with the lead cracker (Ph) system, we’re working with the customer, we’re bringing them through the process, we do the assembly, it’s just not -- our model is different not really much growth and you cannot do it with CEO, he would have broken either CEO it takes time in different parts different people you are jumbo. We work with the business and we help them structure loans that works for outstanding (Ph) fleet from a credit standpoint and gives them the ability to borrow on reasonable terms but importantly gives us enough protection. So it’s not a broker. A brokered loan typically or packaged loan but third party provider may in fact have the worse available terms for the lending.
So we like the position and where the market we work with customers we help them realize the greatest proceeds but also give us enough comfort and cushion in the event that the business plans and projections don’t work out.
Marc Silk - Silk Investment
Okay, let’s say your engagement with customer and you do loan for you guys. Now you obviously have a lot more to offer these people some always different barriers to – from a variety of businesses. So when is the right time for your proceeds people to say hey guys we have the structural opportunity to help you. I mean you don’t want to do it beforehand and turn them off but is it when the deal closes that’s when you approach them or how do you work [indiscernible] a stable of potential future customers for other areas?
This is another way process I will tell you that we recently closed the loan and the client moved their payroll over to us 145 people and we’ll be working on their health insurance renewals as well as their P&C insurance. And the lending in this is important to us just the more the other units are important to our results cross selling and cross market. I have to say we treat our customers every customers case by case basis and our customers clearly aware of the fact that we’re halfway to the products available and they’re aware of the fact that for the loan generally and the committee will bring our comfort factor with those borrowers in the event that to using some of our services and the kind of chance to look at and the likelihood of getting approval they will like that being higher because we’re providing sort of system we’ve [indiscernible] present.
We don’t tie, we don’t force the people to do the business but I think that on an ongoing basis and you could see by the headcount we are hiring experienced staff people like David Carter (Ph) the changes we’ve made in Managed Technology Solutions the additions that we’ve made in the lending division to further push the culture of being able to help customers our payroll solutions fact of the matter is that’s just better than any piece of paychecks. They are less expensive, they have a dedicated person, they are saving money and on the payment space business owners have got [indiscernible] compliant terminal. They got to have tokenized gateways, they got to be PCI compliant. We can bring that to them. They go to a lender, lenders have no idea what these things mean. So when a business comes to us on a consultative basis, we are able to not only discuss that we can give them a great loan, structured in the right way that make us safe and it enables them to grow their business. We could also reduce their cost and give them state-of-the-art business solutions that helps make validated a business life better more cost effectively with better cash flows.
Marc Silk - Silk Investment
All right. You have been the biggest small business loan provider independently and you have a very attractive P/E ratio. Has anyone in the last six months approached you guys just because I know as a banking business specially they got to figure out ways to generate revenues.
Remember the Superman show, when Superman was sitting out in the ledge and Inspector Henderson was inside.
Marc Silk - Silk Investment
That’s okay, I understand. And then my last question is, and I understand you want to be the Wal-Mart with regards to small businesses offer all things for all people but if you didn’t have the business services class, web hosting business, would that have increased our earnings per share over the year?
It’s funny, I always come back to this, in 2009 someone asked me the same question about lending. So, we are real happy with all of our businesses and no, actually those businesses contributed to our earnings and they contributed very nicely, not maybe the higher growth rate but business is a market that cycle-in, cycle-out and I hope this isn’t a case but five years from now we might be talking about a different time of the lending cycle and we will be thankful that we have got these services businesses that are growing particularly ones that are positioned in cloud computing, merchant services that make our way from interchange VISA, MasterCard which I think were well positioned for.
Tablet-base POS systems, I mean the key is you got to stay on the cutting edge, if you are in the payments space and you are walking and knocking on doors of retail customers and asking them for their payments payment and tell them you could beat their price that’s dinosaur business. And we are positioned for different business and payments, different business for managing hardware and software for businesses remotely and a different way to acquire financing, talk about health insurance, future health insurance for small business in my opinion will be personal insurance. I think fewer businesses are going to provide health insurance for their businesses benefits.
We will be well positioned for that going forward we are working on that, so it’s all about state-of-the-art solutions for business and both the MTS and EBC contributed significantly to our earnings this year.
Marc Silk - Silk Investment
And finally more comment than a question, you did a great job and as a shareholder I do appreciate that you and some other entities have been stepping up even though you own a lot of stock, buying more with your own money because it drives me crazy when a CEO talks about how great their company is, all they do is give themselves options with putting their own money into this. So, you more or less have similar game than most and appreciate it and good luck going forward Barry.
Thank you. Our next question comes from the line of Frank DiLorenzo from Singular Research. Your question please.
Frank DiLorenzo - Singular Research
I have a question about Amazon’s move into mobile payments and your thoughts on how that might impact you going forward and also the overall space. Thanks.
Amazon always makes big splashes and they are probably a company that actually does more things than we do, so that basically answers the question. I think they are bringing cloud computing, selling books and providing payment processing and what those things have to do one another. So, I really appreciate the question. I took a look at their offering and I am going wow! this is kind of a non-event, the pricing is a non-event, their services are non-event. Now putting that aside, they have tons and tons of customers and they are trying to cover every side of the world, consumers, merchants but I think that business owners particularly retailers are not going to be thrilled with having Amazon in the pod, showing Amazon their customers.
So, if you are a retailer today, I think you would think Amazon is a competitor and launch to market to your customers every single day, every minute and I don’t think they are going to be thrilled by giving Amazon their sensitive customer data or sensitive customer information. So, that’s what I am not really concerned about and the Amazon product is kind of like a little bit of a swear a lookalike and I think those business models are real tough now. I think the business model for the future are the once that can figure out way to dis-intermediate, entertain to get the cost down and importantly provide superior result. So deep inside the payment they’re going to want to know they’re secured, they don’t have a piece of that compliance risk they’re going to want to know that costs are low, they’re going to want to know there is really good customer service and they constantly asking and get question’s answered quickly and I don’t want to be critical of that as I don’t know I don’t see them being a real major players in space.
Frank DiLorenzo - Singular Research
Okay also regarding electronic payment processing I think there may have been some weakness there in the first quarter due to the weather conditions we had around the country. Do you see any follow through on that into the second quarter?
We saw little bit of better number in the second quarter one of the things that I think we’ve seen and I do have some disagreements with both people internally and externally on this. But most processors make more money off on debit and credit. And as its economy gets better people are more willing to use their credit card and extend their purchases. And I think that would for us and others wasn’t necessarily the greatest trend. But we think the economy clearly was better in the second quarter than the first and we also from what we’ve seen in July, July appears to be better as well. So, I think the first quarter was an anomaly from an economic perspective, systemic perspective and the second quarter clearly was better.
(Operator Instructions) Thank you. And this does conclude the question-and-answer session of today’s program. I’d like to hand the program back for any further remarks.
Great. Thank you operator and I thank you all for attending the call today. We have great attendance and especially appreciate the questions of various people today. And we look forward to reporting our third and fourth quarters. Have a great day.
Thank you, ladies and gentlemen for your participation in today’s conference. This does conclude the program, and you may all disconnect. Good day.