Newtekone, Inc. · NASDAQ:NEWT

Newtekone — Newtek Business Services — Q3 2015 Earnings Presentation

42 slides from Newtekone's earnings presentation, Nov 4, 2015

  1. Slide 1: Third Quarter 2015 Financial Results Conference Call

    Strictly Confidentialwww.thesba.com Newtek Business Services Corp. “The Small Business Authority®” NASDAQ: NEWT Hosted by: Barry Sloane, President & CEO Jennifer Eddelson, EVP & CAO Investor Relations Public Relations Newtek Investor Relations Newtek Public Relations Jayne Cavuoto Director of Invest

  2. Slide 2: Note Regarding Forward Looking Statements

    www.thesba.com 1 Note Regarding Forward Looking Statements This presentation contains certain forward-looking statements. Words such as “plan,” “believes,” “expects,” “plans,” “anticipates,” “forecasts” and “future” or similar expressions are intended to identify forward-looking statements. All forw

  3. Slide 3: Third Quarter & Other Financial Highlights

    www.thesba.com 2 Third Quarter & Other Financial Highlights  Net asset value (“NAV”) equaled $174.7 million, or $16.88 per share, at September 30, 2015, compared with NAV of $166.4 million, or $16.31 per share, at December 31, 2014; an increase of approximately 5%  On October 1, 2015, the Board ad

  4. Slide 4: Newtek Small Business Finance Highlights

    www.thesba.com 3 Newtek Small Business Finance Highlights  Funded $64.2 million of SBA 7(a) loans in the third quarter of 2015; an increase of 32.0% over the third quarter of 2014  Fourth quarter has historically been the strongest quarter of the year, comprising approximately one-third of the ann

  5. Slide 5: Dividend Distributions

    www.thesba.com 4 Dividend Distributions  November 3, 2015 paid third quarterly cash dividend of $0.50 per share  Paid a total of $1.36 in cash dividends to date in 2015, which represents approximately 91% of the adjusted net investment income of $1.50 per share for the nine months ended September

  6. Slide 6: Senior Note Offering – Continued Ability to Access Capital Markets

    www.thesba.com 5 Senior Note Offering – Continued Ability to Access Capital Markets  September 16, 2015: completed public offering of $8.3 million of 7.5% Notes due 2022 – Interest rate of 7.5% to be paid quarterly beginning December 31, 2015  May be redeemed all or in part beginning in three year

  7. Slide 7: Third Quarter Securitization

    www.thesba.com 6 Third Quarter Securitization  Completed largest securitization to date of $40.8 million S&P AA rated Unguaranteed SBA 7(a) Loan- Backed Notes, which was accomplished as an amendment and supplement to the 2010-1 securitization  The Notes were priced and sold to investors at a yield

  8. Slide 8: Equity Offering – Continued Ability to Access Capital Markets

    www.thesba.com 7 Equity Offering – Continued Ability to Access Capital Markets  October 15, 2015: closed an underwritten offering of 2.3 million shares of common stock at a public offering price of $16.50 – The 2.3 million shares included the underwriters' exercise of their option to purchase an ad

  9. Slide 9: Use of Proceeds

    www.thesba.com 8 Use of Proceeds  Plan to continue to invest in the SBA 7(a) loan business and continue to grow our loan origination volume – As of September 26, 2015 the SBA has approved $23.1 billion in gross SBA 7(a) loans, which gives Newtek significant potential for further penetration of this

  10. Slide 10: Acquisition Pipeline Target

    www.thesba.com 9 Acquisition Pipeline Target  Software development company – 10 years in business – Stable cash flow – Valued at 4-5x EBITDA – Synergy with Newtek Technology Services

  11. Slide 11: Comparable Company Statistics

    www.thesba.com 10 Comparable Company Statistics  Live Oak Bancshares, Inc. (NASDAQ: LOB) – Online platform for small business lending – $551 million market capitalization – Raised $81.6 million in IPO on 7/23/15 – Transaction priced at 4.8x tangible book value  On Deck Capital (NYSE: ONDK) – Opera

  12. Slide 12: Newtek Small Business Finance

    www.thesba.com 11 Newtek Small Business Finance  Currently the largest non-bank institution licensed by the U.S. Small Business Administration (SBA) under the federal Section 7(a) loan program based on annual origination volume (national PLP status)  One of 14 Non-Bank SBA Government-Guaranteed Le

  13. Slide 13: Newtek Rated Best Performing BDC

    www.thesba.com 12 Newtek Rated Best Performing BDC*  Newtek stock price has outperformed all BDCs as well as the Russell 2000 and S&P 500 both year to date and over trailing 12 months as of October 12, 2015 *According to the BDC Valuation Report by Ladenburg Thalmann dated October 12, 2015 Year-to-

  14. Slide 14: Current SBA 7(a) Loan Pipeline; A Year-Over-Year Comparison

    www.thesba.com 13 Current SBA 7(a) Loan Pipeline; A Year-Over-Year Comparison  Loans in pipeline totaled approximately $368.6 million at September 30, 2015 compared to $342.2 million at September 30, 2014  Expect to fund between $230 million and $270 million of SBA 7 (a) loans in 2015, which repre

  15. Slide 15: SBA 7(a) Loan Sale Transaction

    www.thesba.com 14 SBA 7(a) Loan Sale Transaction (1) Premiums above 10% split 50/50 with SBA. This example assumes guaranteed balance is sold at 12.7%. The additional 2.7% (12.7% - 10%) is split with SBA. Newtek nets 11.4% (2) Assumes 11.4% of the Guaranteed balance (3) Assumes 71% advance rate in s

  16. Slide 16: SBA 7(a) Loan Sale Transaction

    www.thesba.com 15 SBA 7(a) Loan Sale Transaction (1) Premiums above 10% split 50/50 with SBA. This example assumes guaranteed balance is sold at 12.7%. The additional 2.7% (12.7% - 10%) is split with SBA. Newtek nets 11.4% (2) Assumes 11.4% of the Guaranteed balance (3) Value determined by GAAP serv

  17. Slide 17: Sale of Unguaranteed Portion of SBA 7(a) loans

    www.thesba.com 16 Sale of Unguaranteed Portion of SBA 7(a) loans  Currently Newtek retains on its balance sheet 25% of the unguaranteed balance of the SBA 7(a) loans it originates  Beginning in 2016, the Company expects to explore the option to sell a portion of the 25% unguaranteed balance in the

  18. Slide 18: Guaranteed Loan Pricing Comparison

    www.thesba.com 17 Guaranteed Loan Pricing* Comparison *The above prices are solely indicative of the SBA government-guaranteed participation certificates that have historically been bought and sold in the secondary market. Other factors include loan seasoning, loan size, weighted average maturity an

  19. Slide 19: Gain-on-Sale Premium Trend

    www.thesba.com 18 Gain-on-Sale Premium Trend Loan Sale Premium Income Trend $ in thousands 2010 2011 2012 2013 2014 9 Months Ended 9/30/2015 $2,428 $12,468 $12,367 $19,456 $19,493 $22,287* *Realized gains on non-affiliate investments. Prior to conversion to a BDC in November 2014, amounts were recor

  20. Slide 20: Comparative Loan Portfolio Data 12/31/2010 vs. 09/30/2015

    www.thesba.com 19 Comparative Loan Portfolio Data 12/31/2010 vs. 09/30/2015  Since 2010, the credit quality and diversification of the loan portfolio has steadily improved Loan Characteristic As of 12/31/10 As of 09/30/15 Business Type: Existing Business 53.9% 78.4% Business Acquisition 25.9% 15.9%

  21. Slide 21: SBA Loans: A New Focus for Newtek's Portfolio Company

    www.thesba.com 20 SBA 504 Loans: A New Focus for Newtek’s Portfolio Company  Portfolio company expected to fund first SBA 504 loan in November 2015  Provide financing for major fixed assets such as equipment or real estate  Loans cannot be used for working capital or purchasing inventory (allowed

  22. Slide 22: Sample SBA Loan Structure

    www.thesba.com 21 Sample SBA 504 Loan Structure  An example of a typical SBA 504 loan structure is detailed below Real Estate Acquisition Loan $ Amount $ Amount Percent of Total Purchase Price $800,000 1st Mortgage Originated by Newtek $500,000 50% Renovations $150,000 Bridge Loan Originally Funded

  23. Slide 23: Loan Sale Transaction - SBA 504 Loan

    www.thesba.com 22 Loan Sale Transaction- SBA 504 Loan Net Cash Created in SBA 504 Loan Sale Transaction – An Example Key Variables in Loan Sale Transaction Total Projected Financing $2,682,274 Senior Loan Balance $1,342,274 Junior Bridge Loan Balance(1) $1,040,000 Borrower Equity $300,000 Premium(2)

  24. Slide 24: Acquisition of Portfolio Company – Premier Payments LLC

    www.thesba.com 23 Acquisition of Portfolio Company – Premier Payments LLC *Includes processing volume from both Newtek Merchant Solutions and Premier Payments LLC **Year-over-year revenue and EBITDA growth are unaudited pro forma estimations  Acquired Premier Payments LLC on July 23, 2015  Total p

  25. Slide 25: Portfolio Company – Newtek Merchant Solutions

    www.thesba.com 24 Portfolio Company – Newtek Merchant Solutions (1) Estimates via Bloomberg *See page 38 for definition of Adjusted EBITDA. Publicly Traded Comparable Companies Name (Symbol) Enterprise Value / 2015E EBITDA (1)  Heartland Payment Systems (HPY) 9.10x  Vantiv, Inc. (VNTV) 10.24x Ente

  26. Slide 26: Opportunities in Payment Processing

    www.thesba.com 25 Opportunities in Payment Processing  Additional alliance partners  American Express OptBlue  Tablet and mobile-based cloud computing  Europay, MasterCard and Visa (“EMV”) compliance solutions

  27. Slide 27: Portfolio Company - Newtek Technology Services

    www.thesba.com 26 Portfolio Company - Newtek Technology Services (1) Estimates via Bloomberg. *See page 38 for definition of Adjusted EBITDA.  Managed technology & cloud computing business, which we have wholly owned and managed for 10+ years  Host and manage SMBs computer hardware, software and t

  28. Slide 28: Opportunities in Cloud Computing

    www.thesba.com 27 Opportunities in Cloud Computing  Dedicated server migration to the Cloud  24-7 outsourced managed service solutions  Hot back-up and live redundancy globally  HIPAA-compliant solutions under the Affordable Healthcare Act

  29. Slide 29: Forecasted Full Year 2015 Adjusted EBITDA Breakdown

    www.thesba.com 28 Forecasted Full Year 2015 Adjusted EBITDA Breakdown*  36% of forecasted 2015 EBITDA emanates from business service portfolio companies  64% of forecasted 2015 EBITDA emanates from the lending business $9.1 $3.6 $2.8$28.0 Forecasted 2015 Adjusted EBITDA Breakdown Newtek Merchant S

  30. Slide 30: Internally Managed vs. Externally Managed BDCs

    www.thesba.com 29 Internally Managed vs. Externally Managed BDCs  Newtek is an internally managed BDC, and is currently trading at 0.99x* the NAV as of September 30, 20151  The following Internally managed BDC public comparables currently trade at a median price to NAV of approximately 1.08x** – H

  31. Slide 31: New Location: Lake Success, NY

    www.thesba.com 30 New Location: Lake Success, NY  Newtek Small Business Finance, LLC, signed a lease for approximately 34,000 square feet of office space in Lake Success, New York (Long Island), which will commence in early 2016  Signifies the anticipated further expansion of lending business, gro

  32. Slide 32: Expanding Portfolio Company Senior Management Team

    www.thesba.com 31 Expanding Portfolio Company Senior Management Team John C. Traynor President & Chief Operating Officer, Newtek Merchant Solutions  Mr. Traynor has over 35 years of extensive experience in leading and building global and regional transaction banking businesses  Brings a broad rang

  33. Slide 33: Expanding Portfolio Company Senior Management Team

    www.thesba.com 32 Expanding Portfolio Company Senior Management Team John Raven President & Chief Operating Officer, Newtek Technology Services  Over 20 years of experience in information technology space  Brings a broad array of expertise in areas of cloud technology, information technology and,

  34. Slide 34: Investment Summary

    www.thesba.com 33 Investment Summary  NAV of $16.88 per share at September 30, 2015; an approximate 5% increase over NAV per share at December 31, 2014*  Believe Company is better suited for investors as a BDC vs. an operating company  Forecasted dividends – Expect to pay an annual cash dividend

  35. Slide 35: Financial Review – Jennifer C. Eddelson, Chief Accounting Officer

    www.thesba.com Financial Review – Jennifer C. Eddelson, Chief Accounting Officer

  36. Slide 36: Consolidated Statement of Operations

    www.thesba.com 35 Consolidated Statement of Operations Newtek Business Services Corp. and Subsidiaries Three Months Ended September 30, 2015 Investment income: From non-affil iate investments: Interest income 2,153$ Servicing income 1,262 Other income 472 Total investment income from non-affil iate

  37. Slide 37: Change in Net Asset Value

    www.thesba.com 36 Change in Net Asset Value (1) Adjusted Net investment income is defined as Net investment income plus Net realized gains. * Amounts may not foot due to rounding. ** Based on 10.3 million shares outstanding on October 1, 2015. (in thousands, except per share data) NAV NAV/Share* NAV

  38. Slide 38: Adjusted Net Investment Income Reconciliation

    www.thesba.com 37 In thousands, except per share data Adjusted Net Investment Income Reconciliation For the three months ended September 30, 2015 Per share For the nine months ended September 30, 2015 Per share Net investment loss (1,491)$ (0.14)$ (6,262)$ (0.61)$ Net realized gain on non-affiliate

  39. Slide 39: Non-GAAP Financial Measures

    www.thesba.com 38 Non-GAAP Financial Measures In evaluating its business, Newtek considers and uses adjusted net investment income as a measure of its operating performance. Adjusted net investment income includes short-term capital gains from the sale of the guaranteed portions of SBA 7(a) loans, w

  40. Slide 40: Adjusted EBITDA Reconciliation – Newtek Merchant Solutions

    www.thesba.com 39 Adjusted EBITDA Reconciliation – Newtek Merchant Solutions (in millions) Nine months ended September 30, 2015 Nine months ended September 30, 2014 Pretax income 5.52$ 6.09$ Interest expense, net (0.05) - Depreciation and amortization 0.27 0.20 Stock compensation expense - 0.10 Corp

  41. Slide 41: Adjusted EBITDA Reconciliation – Newtek Technology Services

    www.thesba.com 40 Adjusted EBITDA Reconciliation – Newtek Technology Services (in millions) Three months ended September 30, 2015 Three months ended September 30, 2014 Pretax income 0.47$ 0.80$ Interest expense, net 0.01 0.01 Depreciation and amortization 0.33 0.34 Stock compensation expense - - Cor

  42. Slide 42: Forecasted Full Year 2015 Adjusted EBITDA Reconciliation

    www.thesba.com 41 Forecasted Full Year 2015 Adjusted EBITDA Reconciliation Newtek Merchant Solutions Newtek Technology Services Premier Payments Newtek Small Business Finance (in millions) Pretax income 7.81$ 1.64$ 1.29$ 12.86$ Interest expense, net 0.26 0.13 - 7.77 Depreciation and amortization 0.4

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