Newtek Business Services Corp. Reports Full Year 2018 Financial Results
Full Year 2018 Financial Highlights
- Total investment income of
$49.5 millionfor the year ended December 31, 2018; an increase of 27.2% over total investment income of $38.9 millionfor the year ended December 31, 2017.
- Net asset value (“NAV”) on
December 31, 2018of $287.4 million, or $15.19per share; compared to NAV of $15.08per share at December 31, 2017.
- Net investment loss of
$(7.5) million, or $(0.40)per share, for the year ended December 31, 2018, an improvement of 11.1% on a per share basis, over a net investment loss of $(7.9) million, or $(0.45)per share, for the year ended December 31, 2017.
- Adjusted net investment income (“ANII”)1 of
$36.4 million, or $1.94per share, for the year ended December 31, 2018; an increase of 9.6% on a per share basis, compared to ANII of $30.8 million, or $1.77per share, for the year ended December 31, 2017.
- Debt-to-equity ratio of 117.4% at
December 31, 2018.
December 31, 2018, proforma debt-to-equity ratio was 105.3% as a result of the settlement of government-guaranteed portions of SBA 7(a) loans sold prior to December 31, 2018, settling subsequent to the balance sheet date.
- Total investment portfolio increased by 18.5% to
$541.1 millionat December 31, 2018, from $456.7 millionat December 31, 2017.
Additional Full Year 2018 Highlights
- The Company closed its ninth and largest small business loan securitization with the offering of
$108,551,000of Unguaranteed SBA 7(a) Loan-Backed Notes, Series 2018-1, consisting of $82,876,000of Class A Notes and $25,675,000Class B Notes (collectively, the “Notes”), rated “A” and “BBB-”, respectively, by Standard and Poor’s Financial Services LLC. Premier Payments LLCand Newtek Merchant Solutions, two of the Company’s wholly owned payment processing portfolio companies, closed a $35 millionterm loan and a $15 millionrevolving line of credit arranged by Webster Bank, which reduced its interest spread over LIBOR by 350 basis points compared to the interest rate on the term loan with their previous lender.
- The Company entered into an investment joint venture (the “JV”) with
Conventional Lending TCP Holdings LLC, a wholly-owned affiliate of BlackRock TCP Capital Corp.(“BlackRock TCP”), to equally invest up to $100 millionin the funding of non-conforming conventional commercial and industrial (“C&I”) loans.
- The JV is working towards closing a
$100 millionsenior-secured revolving credit facility with an investment bank, with a $100 millionaccordion feature, allowing the JV to increase the borrowing available under the JV’s credit facility to $200 million, which will be used to finance and securitize non-conforming conventional loans.
SBA Loan Highlights
Newtek Small Business Finance, LLC(“NSBF”) funded $469.2 millionof SBA 7(a) loans during the year ended December 31, 2018; an increase of 21.6% compared to $385.9 millionof SBA 7(a) loans funded for the year ended December 31, 2017.
- NSBF forecasts full year 2019 SBA 7(a) loan fundings of between
$580 million and $620 million, which would represent a 27.9% increase, at the midpoint of the range, over SBA 7(a) loan fundings for the year ended December 31, 2018.
- During the year ended
December 31, 2018, Newtek Business Credit (“NBC”) and Newtek Business Lending (“NBL”), wholly owned portfolio companies, funded $36.3 millionof SBA 504 and non-conforming conventional loans, and NBSC funded a $5.7 millionnon-conforming conventional loan for a total of $42.0 millionof SBA 504 loans and conventional loans.
2018 Dividend Payments & 2019 Dividend Payments and Forecast
- The Company paid cash dividends totaling
$1.80per share during 2018, an increase of 9.8% over 2017 cash dividends of $1.64per share.
- The Company forecasts paying an annual cash dividend of
$1.842 per share in 2019, a 2.2% increase over the 2018 cash dividend of $1.80per share. February 15, 2019: Newtek’s Board of Directors declared a first quarter 2019 cash dividend of $0.40per share, payable on March 29, 2019to shareholders of record as of March 15, 2019.
Mr. Sloane continued, “Throughout 2018, our business model continued to support our growth, demonstrating that our business model is supported by multiple sources of revenue. As previously reported and discussed, during the third and fourth quarters of 2018, we experienced pressure on the pricing of the sale of guaranteed portions of our SBA 7(a) loans with weighted average net pricing of 109.28 and 109.97, respectively. However, even with this pricing pressure, we were still able to grow our earnings and dividend in 2018, testament to the resilience and diversified nature of our business model. Newtek’s business model enabled us to offset our impact to earnings through our growth in loan originations as well as continued growth in dividends generated by our portfolio companies. We ended 2018 with a weighted average net price of 110.52. We are pleased to report that during the first quarter of 2019, we have experienced improvement in the pricing of the sale of the guaranteed portions of our SBA 7(a) loans.”
Mr. Sloane concluded, “In 2018 we made material strides towards the continued growth of our non-conforming conventional loan program. Specifically, in
Investor Conference Call and Webcast
A conference call to discuss full year 2018 results will be hosted by
In addition, a live audio webcast of the call with the corresponding presentation will be available in the ‘Events & Presentations’ section of the Investor Relations portion of Newtek’s website at http://investor.newtekbusinessservices.com/events-and-presentations. A replay of the webcast with the corresponding presentation will be available on Newtek’s website shortly following the live presentation and will remain available for 90 days following the live presentation.
1Use of Non-GAAP Financial Measures -
In evaluating its business, Newtek considers and uses ANII as a measure of its operating performance. ANII includes short-term capital gains from the sale of the guaranteed portions of SBA 7(a) loans and conventional loans, and beginning in 2016, capital gain distributions from controlled portfolio companies, which are reoccurring events. The Company defines ANII as Net investment income (loss) plus Net realized gains recognized from the sale of guaranteed portions of SBA 7(a) loan investments, less realized losses on non-affiliate investments, plus or minus loss on lease adjustment, plus the net realized gains on controlled investments, plus or minus the change in fair value of contingent consideration liabilities, plus loss on extinguishment of debt.
The term ANII is not defined under U.S. generally accepted accounting principles, or U.S. GAAP, and is not a measure of operating income, operating performance or liquidity presented in accordance with U.S. GAAP. ANII has limitations as an analytical tool and, when assessing the Company’s operating performance, investors should not consider ANII in isolation, or as a substitute for net investment income, or other consolidated income statement data prepared in accordance with U.S. GAAP. Among other things, ANII does not reflect the Company’s actual cash expenditures. Other companies may calculate similar measures differently than Newtek, limiting their usefulness as comparative tools. The Company compensates for these limitations by relying primarily on its GAAP results supplemented by ANII.
2Note Regarding Dividend Payments
Amount and timing of dividends, if any, remain subject to the discretion of the Company’s Board of Directors. The Company's Board of Directors expects to maintain a dividend policy with the objective of making quarterly distributions in an amount that approximates 90 - 100% of the Company's annual taxable income. The determination of the tax attributes of the Company's distributions is made annually as of the end of the Company's fiscal year based upon its taxable income for the full year and distributions paid for the full year.
3Analyst Consensus Estimates
Newtek’s and its portfolio companies’ products and services include: Business Lending, SBA Lending Solutions, Electronic Payment Processing,
Note Regarding Forward Looking Statements
This press release contains certain forward-looking statements. Words such as “believes,” “intends,” “expects,” “projects,” “anticipates,” “forecasts,” “goal” and “future” or similar expressions are intended to identify forward-looking statements. 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 impact 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
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|NEWTEK BUSINESS SERVICES CORP. AND SUBSIDIARIES|
|CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES|
|(In Thousands, except for Per Share Data)|
|Investments, at fair value|
|SBA unguaranteed non-affiliate investments (cost of $355,589 and $287,690, respectively; includes $323,388 and $265,174, respectively, related to securitization trusts)||$||349,402||$||278,034|
|SBA guaranteed non-affiliate investments (cost of $17,217 and $22,841, respectively)||19,100||25,490|
|Controlled investments (cost of $74,279 and $57,085, respectively)||171,585||153,156|
|Non-control/affiliate investments (cost of $1,000 and $0, respectively)||1,000||—|
|Investments in money market funds (cost of $9 and $9, respectively)||9||9|
|Total investments at fair value||541,096||456,689|
|Due from related parties||3,232||2,255|
|Servicing assets, at fair value||21,360||19,359|
|LIABILITIES AND NET ASSETS|
|Bank notes payable||$||34,700||$||—|
|Notes due 2022||8,019||7,936|
|Notes due 2021||—||39,114|
|Notes due 2023||55,564||—|
|Notes payable - Securitization trusts||216,507||162,201|
|Notes payable - related parties||16,840||7,001|
|Due to related parties||4||—|
|Deferred tax liabilities||9,241||8,164|
|Accounts payable, accrued expenses and other liabilities||25,021||16,866|
|Commitments and contingencies|
|Preferred stock (par value $0.02 per share; authorized 1,000 shares, no shares issued and outstanding)||—||—|
|Common stock (par value $0.02 per share; authorized 200,000 shares, 18,919 and 18,457 issued and outstanding, respectively)||379||369|
|Additional paid-in capital||254,498||247,363|
|Accumulated undistributed earnings||32,568||30,597|
|Total net assets||287,445||278,329|
|Total liabilities and net assets||$||653,341||$||519,611|
|Net asset value per common share||$||15.19||$||15.08|
|NEWTEK BUSINESS SERVICES CORP. AND SUBSIDIARIES|
|CONSOLIDATED STATEMENTS OF OPERATIONS|
|(In Thousands, except for Per Share Data)|
|Year ended December 31,
|From non-affiliate investments:|
|Total investment income from non-affiliate investments||36,145||28,460||20,032|
|From Non-control/affiliate investments:|
|From controlled investments:|
|Total investment income from controlled investments||13,305||10,454||10,933|
|Total investment income||49,515||38,914||30,965|
|Salaries and benefits||21,082||19,292||15,234|
|Depreciation and amortization||484||402||296|
|Origination and servicing||8,362||5,871||6,046|
|Change in fair value of contingent consideration liabilities||(51||)||(455||)||—|
|Loss on extinguishment of debt||1,059||—||—|
|Other general and administrative costs||6,907||7,279||6,935|
|Net investment loss||(7,488||)||(7,881||)||(9,260||)|
|Net realized and unrealized gains (losses):|
|Net realized gain on non-affiliate investments||42,845||39,617||31,512|
|Net realized gain on non-affiliate investments - conventional loan||278||—||—|
|Net realized gain (loss) on controlled investments||52||(200||)||108|
|Net unrealized (depreciation) appreciation on SBA guaranteed non-affiliate investments||(766||)||1,398||1,035|
|Net unrealized appreciation (depreciation) on SBA unguaranteed non-affiliate investments||3,471||(1,342||)||18|
|Net unrealized appreciation on controlled investments||4,048||12,957||11,337|
|Change in deferred taxes||(1,077||)||(2,179||)||(5,128||)|
|Net unrealized depreciation on non-control/non-affiliate investments||—||—||(43||)|
|Net unrealized depreciation on servicing assets||(5,685||)||(3,394||)||(2,269||)|
|Net unrealized depreciation on credits in lieu of cash and notes payable in credits in lieu of cash||—||—||(5||)|
|Net realized and unrealized gains||43,166||46,857||36,565|
|Net increase in net assets resulting from operations||$||35,678||$||38,976||$||27,305|
|Net increase in net assets resulting from operations per share||$||1.91||$||2.25||$||1.88|
|Net investment loss per share||$||(0.40||)||$||(0.45||)||$||(0.64||)|
|Dividends and distributions declared per common share||$||1.80||$||1.64||$||1.53|
|Weighted average number of shares outstanding||18,714||17,327||14,541|
|NEWTEK BUSINESS SERVICES CORP. AND SUBSIDIARIES|
|NON-GAAP FINANCIAL MEASURES-|
|ADJUSTED NET INVESTMENT INCOME RECONCILIATION:|
(in thousands, except per share amounts)
|For the year
|Per share||For the year
|Net investment loss||$||(7,488||)||$||(0.40||)||$||(7,881||)||$||(0.45||)|
|Net realized gain on non-affiliate investments - SBA 7(a) loans||42,845||2.29||39,617||2.29|
|Net realized gain on non-affiliate investments - conventional loans||278||0.01||-||-|
|Net realized gain (loss) on controlled investments||52||0.00||(200||)||(0.01||)|
|Loss on lease||(307||)||(0.02||)||(326||)||(0.02||)|
|Change in fair value of contingent consideration liabilities||(51||)||(0.00||)||(455||)||(0.03||)|
|Loss on debt extinguishment||1,059||0.06||-||-|
|Adjusted Net investment income||$||36,388||$||1.94||$||30,755||$||1.77|
|Note: Per share amounts may not foot due to rounding|
Source: Newtek Business Services Corp.