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NewtekOne, Inc. (NASDAQ:NEWT), a financial holding company, announced today the sale of its subsidiary Newtek Technology Solutions, Inc. to Paltalk, Inc. (NASDAQ: PALT) in a transaction including a $4 million cash payment and 4 million shares of Paltalk's newly created preferred stock.
The divestiture comes as NewtekOne transitions to a financial holding company, following its acquisition of Newtek Bank. The Federal Reserve Board had previously required NewtekOne to divest or terminate Newtek Technology Solutions, which provides IT services to approximately 17,000 customers.
In addition to the initial consideration, NewtekOne may receive up to $5 million in earn-out payments, contingent on future Adjusted EBITDA performance.
The preferred stock issued to NewtekOne will convert to common stock upon specific transfers, ensuring NewtekOne's equity interest in Paltalk does not exceed one third, as per the Bank Holding Company Act.
The agreement also grants NewtekOne a seat on Paltalk's board of directors post-sale. The sale is expected to close between the fourth quarter of 2024 and the first quarter of 2025, subject to shareholder and regulatory approvals, as well as the divestiture of certain Paltalk assets.
Barry Sloane, CEO of NewtekOne, emphasized the importance of finding the right home for Newtek Technology Solutions, highlighting the retention of its management team and the potential economic benefits of a non-voting interest in Paltalk. NewtekOne will retain its intellectual property and patented technology.
Paltalk's CEO, Jason Katz, sees the acquisition as a strategic expansion into cloud infrastructure and cybersecurity, projecting an immediate revenue boost and future growth opportunities.
InvestingPro Insights
As NewtekOne, Inc. (NASDAQ:NEWT) streamlines its business focus, the company's financial metrics and analyst insights from InvestingPro provide a clearer picture of its current market position. NewtekOne boasts a significant dividend yield, which stands at 6.22%, reflecting the company's commitment to returning value to shareholders. This aligns with the InvestingPro Tip that notes NewtekOne has maintained dividend payments for 10 consecutive years, underscoring its financial stability and reliability for dividend-seeking investors.
The company's market capitalization is currently $315.46 million, and it trades at a low P/E ratio of 7.31, suggesting that NewtekOne's stock might be undervalued relative to its near-term earnings growth potential, as highlighted by another InvestingPro Tip. This could be an attractive point for value investors considering the company's solid financial performance, with a gross profit margin of 83.07% over the last twelve months as of Q2 2024.
Investors should also note that while NewtekOne is transitioning to a financial holding company, analysts have revised their earnings expectations downwards for the upcoming period. This is an important consideration for those tracking the company's performance post-divestiture. For more in-depth analysis and additional InvestingPro Tips, interested parties can explore the full range of insights available at https://www.investing.com/pro/NEWT, which includes a total of 8 tips for a comprehensive investment evaluation.
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