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Newtek Business Services' (NEWT) CEO Barry Sloane on Q4 2019 Results - Earnings Call Transcript

Mar. 05, 2020 2:06 PM ETNewtekOne Inc. (NEWT), NEWTI, NEWTL13 Comments
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Newtek Business Services Corp. (NASDAQ:NEWT) Q4 2019 Earnings Conference Call March 5, 2020 8:30 AM ET

Company Participants

Barry Sloane - President & CEO

Chris Towers - EVP & CAO

Conference Call Participants

Mickey Schleien - Ladenburg

Marc Silk - Silk Investment Advisors

Robert Dodd - Raymond James

Luke Wooten - KBW


Ladies and gentlemen, thank you for standing by, and welcome to the Newtek Business Services Corp. Full-Year 2019 Earnings Conference Call. At this time, all participants' lines are in listen-only mode. After the speakers presentation there will be a question-and-answer session. [Operator Instructions]. Please be advised that today's conference maybe recorded. [Operator Instructions].

I would now like to hand the conference over to you speaker today, Mr. Barry Sloane, President, and CEO of Newtek. Please go ahead, sir.

Barry Sloane

Good morning everyone and we certainly appreciate everybody attending our full-year 2019 financial results conference call.

I would like to call everyone's attention to the forward-looking statement note on Slide 1 of our presentation. For those of you that would like to follow along to our presentation; you can go to our website at newtekone that's newtekone.com and please go to the Investor Relations section the PowerPoint for this presentation being utilized has been hung there.

I would like to roll everybody forward to our Slide number 2 and we're proud to report our full-year 2019 financial highlights. Our total investment income for the year $59.3 million, up 19.8%. Net asset value on December 31, 2019, of $15.70 a share, up 3.4% from the year prior. Net investment loss continues to narrow an improvement of 27.5% for the calendar year over the prior-year. Adjusted net investment income which includes realized gains 20.1% increase from the year prior. Debt-to-equity ratio at the end of the year 1.36%. On a pro forma basis based upon SBA loans and receivables that sort of roll over

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Comments (13)

NEWT being internally managed imo is very shareholder friendly. They've been around a while and their business models seems to be folding out in a meaningful way. Does anyone think 1.5% of portfolio losses seem excessive? Tia.

Page 13

Luke Wooten

Okay, that that's helpful. And then I wanted to switch over kind of just on I mean kind of touched on it earlier, but just trends in the credit community and just kind of ongoing trends. It seems like the portfolio seasoning kind of moves a step back from last quarter it was 28.9 months, now it's 28.5 months and just kind of it sounded like the realized losses were a little bit higher this quarter and obviously a lot of these loans are priced for a lot of the estimated losses, but just kind of wanted to hear what your thoughts were on trends -- for trending credit overall?

Barry Sloane

Well, I think that and we said this when way back, when we're looking at 35 basis points of annual charge-off that's not where we're going to be. I think that will have charge-off numbers that more accurately reflect close to 1.5% of the portfolio. You can use that as a guide. You may want to use it as a guide. I don't know if that's helpful or not. But we've got the charge-offs all factored into our forecast. We feel very comfortable with the business model relative to what you're going to get from 7(a) and the other business segments....................

Page 14

"Luke Wooten

Okay, that's, that's helpful. And then the last thing I wanted to touch on was just the equity issuances from the ATM, the past couple of quarters. I mean, you talked about it a little bit earlier, it sounded like the 3Q and 4Q have definitely been higher than normal. And with the pricing that you're currently seeing in the market, maybe taking a step back on that, but just kind of want to get your thoughts on the uses of that that ATM. I mean, I think you still said you had about; I think it was just over a million in shares outstanding under the current issuance. But just wanted to hear what your thoughts were for the rest of 2020?

Barry Sloane

Yes, look, I think from an issuance standpoint and a management standpoint right now, look at the debt market. And we've done Baby Bonds with KBW. I don't know, but I would love to be able to look at our current 6.25. We don't have, in my opinion, much leverage at all. So we have plenty of room here. I think the important note is we don't need to push stock out. And I will tell you. I've had retail and some institutional investors that talk about Main Street strategy it's constantly issuing and it doesn't make any, I mean, it helps. But it doesn't make any sense to me. We don't issue shares; we don’t issue shares for the sake of issuing shares."
it's nav is 15.70 and trading at 18.26 not much of a premium for dividends that are more than covered by nii
The end of the world is here. Every single business will go under. Government won't be able to guarantee their loans. That's what this price action today was about. Pure panic selling. I'll happily take some shares from some sellers to build a position. Please keep dropping.
This looks interesting....Anyone buying?
surfgeezer profile picture
Me, no idea why market reacted so badly. Call sounded very good to me. added on several accounts, lowest @18.25 and sold some 17.5 Puts while rolling others at higher strikes to lock in prices for later.
what was the bid for the 17.25 puts?
bought 20 shares at 18.26, might have to go more when my budget allows
The Gov't bill is passing in the Senate. Good chunk of cash to back stop any CV19 problems which NEWT doesn't have any.

Most of this presentation is good, some parts very good.

Lower interest rates are very constructive for NEWT.

The CV fear is ignorance because people don't know anything about the absence of death from CV because we don't have widespread testing.
luckily NEWT has no energy exposure, energy debt performing terriblly, there is probably going to be rising defaults among fossil fuel producers, and credit downgrades across other industries are also likely:

Mohamed El-Erian, the chief economic adviser at Allianz earlier this week pointed to the “large amount of U.S. investment-grade corporate debt that hangs over the high-yield market like a Damocles sword...Much of it is now facing a considerably higher risk of downgrade, given the inevitable global economic slowdown caused by coronavirus"

as for NEWT ya maybe they are ok but if credit spreads do blow out, and swaths of US starts working from home etc etc , nonaccruals are going to rise, NEWT may not be able to issue securitizations at same terms, and the premium on their gain on sale of guaranteed part of SBA loans could get pressured

I'm sitting pat for now, waiting to see hoew the credit markets respond over coming months, could see rising headwinds for NEWT fundamentally
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