BGC Group, Inc (BGC) Q2 2015 Earnings Report, Transcript and Summary

Welcome to the Second Quarter 2015 BGC Partners, Inc. Earnings Conference Call. My name is Sylvia and I’ll be your operator for today’s call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Please note that this conference is being recorded. I will now turn the call over to Jason McGruder. Jason McGruder, you may begin.

Good morning. I’m Head of Investor Relations. Our second quarter 2015 financial results press release and a presentation summarizing our results were issued this morning. These can be found at the ir.bgcpartners.com. The financial results and other metrics for BGC’s majority owned division GFI Group Inc. are consolidated with those of BGC from March 2nd, 2015 on throughout this call. Whenever we refer to the results of “the company” we mean the consolidated results of BGC Partners, Inc. Throughout today’s call, we will be referring to results on a distributable earnings basis, unless otherwise stated. Please see today’s press release for GAAP results. Please also see the section of today’s press release entitled distributable earnings, distributable earnings results compared to GAAP results, reconciliation of revenues under GAAP and distributable earnings and reconciliation of GAAP income to distributable earnings for a definition of these terms and how, when and why management uses them. Unless otherwise stated, whenever we refer to income item statements we are doing so only on a distributable earnings basis. Other than balance items, the results provided on this call compare to the second quarter of 2015 with the year earlier period. Newmark Grubb Knight Frank is synonymous with NGKF real estate services segment throughout this call. I also remind you that the information on today’s call regarding our business that are not historical factors are forward-looking statements within the meaning of section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such statements involve risks and uncertainties. Except as required by law, BGC Partners undertakes no obligation to release any revisions of forward-looking statements. For a discussion of additional risk and uncertainties which could cause actual results to differ from those contained in the forward-looking statements, see BGC’s Securities and Exchange Commission filings including, but not limited to, the risk factors set forth in our public filings including our most recent form 10-K and any updates to such risk factors contained in subsequent Forms 10-Q or 8-K filings. I’m happy to turn the call over to our host, Howard Lutnick, Chairman and CEO of BGC Partners.

Good morning everyone and thank you for joining us for our second quarter 2015 conference call. With me today are BGC’s President, Shaun Lynn; our Chief Operating Officer, Sean Windeatt; and our Chief Financial Officer, Graham Sadler. It’s been a very busy time at BGC over the past 12 months and all of the hard work of our partners and our employees has paid off with yet another record quarter for the company. BGC’s earnings increased by approximately 48.6% to $64.6 million. This was our fourth consecutive quarter of record profits and our third quarter in a row of best ever revenues. This significant improvement was driven by the addition of GFI, the ongoing success of our Real Estate Services company, Newmark Grubb Knight Frank, and the continued strong, triple-digit percentage growth of our high margin fully electronic businesses. These fully electronic businesses increased their revenues by approximately 182% and their pre-tax distributable earnings by over 120%. Our record results are especially noteworthy as they came despite a stronger US dollar reducing our Financial Services revenues by more than $27 million during the quarter. This is the first full quarter in which our results include those of GFI. We’ve had very little turnover in GFI’s front office and the integration is progressing well. We expect to complete the full merger of BGC and GFI no later than the first quarter of 2016. And Sean and Graham will have more to say about GFI later on in the call. We are in the midst of the sales process of Trayport and expect to complete the transaction before the end of 2015. Numerous serious parties are participating in the process at a valuation that reflects its continuing growth in the year following last year’s announced transaction, its high margins, leading technology, and strategic importance in the global energy and commodities markets. We expect to exclude the gain on the sale of Trayport from distributable earnings. Our adjusted EBITDA increased by over 70% year-on-year to $109 million during the second quarter. We also expect to receive more than $650 million in additional NASDAQ OMX stock over time, which is not reflected on our balance sheet. As these shares are paid and we complete the sale of Trayport, we expect to have one of the strongest balance sheets in our industry. We expect our earnings to continue to grow as we increase the profitability of GFI, add revenues from our highly profitable fully electronic products, and benefit from the strength of our Real Estate Services business. We anticipate having substantial resources with which to pay our dividends, repurchase shares and/or units of BGC, to profitably hire, and to make accretive acquisitions, all while maintaining or improving our investment grade rating. I am happy to report that our board declared a $0.14 qualified dividend for the second quarter, which represents an increase of 16.7% compared to last year. At yesterday’s closing price, this translates into a 6.4% annualized yield. And with that, I’ll turn the call over to Sean.

Thanks, Howard and good morning, everyone. Our Financial Services revenues were up by more than 60% to $435 million. These revenues would have been more than $27 million higher had the US dollar not strengthening relative to other major currencies. Our Financial Services businesses increased its pre-tax earnings by 37.2% to $68.4 million, as pre-tax margin was impacted by the inclusion of GFI, which currently is much less profitable than BGC standalone. By the first quarter of 2017, we expect to have reduced the consolidated company’s annualized expenses by at least $90 million, excluding the impact of Trayport. This should substantially increase profitability of BGC’s overall Financial Services business. We also anticipate our fully electronic revenues continuing to grow faster than our overall Financial Services business, further expanding our profitability. Excluding Trayport, revenues from our e-businesses rose by 182.3% to $63.7 million, albeit pre-tax earnings increased by 120.4% to $27.2 million. This growth in e-broking revenue reflected both strong double-digit organic growth and the acquisition of GFI. As we announced earlier this morning, we plan to all electronic asset under one name FENICS. The well-known and proven technology of BGC and GFI coupled with their global footprint combines as a leading edge and highly respected technology company FENICS will create a financial technology powerhouse. Our e-businesses have continued to move from strength to strength so far in the third quarter, as revenues for these high margin offerings are up by more than 190% year-on-year for the first 17 trading days of July 2015. The current annualized run-rate for our fully electronic business is over $250 million in revenues and over $100 million in pre-tax distributable earnings. The revenues, profits and growth of these products are more than double those of eSpeed, which we sold in the second quarter of 2013 for over $1.2 billion. The financial results and strong momentum of our e-business also compare favorably to other highly valuable electronic trading platforms that are either publicly-traded or that have recently been sold by other companies. Take for example the recently reported purchase price [of 362] and the current equity market characterization of market expense. These businesses are valued at multiples of between 22 times and 28 times pre-tax earnings [indiscernible] and with values of between $795 million and $3.7 billion. Given these comparable valuations and the current run rate of over $250 million in revenues and over $100 million pre-tax profits for BGC’s e-businesses, we believe that there is tremendous value embedded inside our company. Moving to our overall Financial Services result by asset class, revenues from our fully electronic rates products were up by approximately 52%, while our overall rates revenues increased by 20.7% to $126.3 million. Our EFX revenues including both spot and derivatives were up by over 114%. Our overall FX business was up by 67.2% to $82.4 million. We generated more than 138% increase in revenues from our fully electronic credit desk, while overall credit revenues grew by 25.9% to $74.2 million. Our revenues from equities and other asset classes increased by 77.2% to $54 million. Our energy and commodities revenues grew by 316.7%. Moving on to our real estate services, NGKF continues to benefit from the low interest rate environment, easier availability of credit and steadily improving US economy, along with their limited new commercial construction. According to NGKF’s research team, the overall leasing market continued to improve, combined with weighted average vacancy rate for office, industrial, multi-family and retail properties declined from 8.4% to 8% year-over-year. This marks 19 quarters in a row of improving average vacancy rates. In real estate capital markets, second quarter US commercial sales volumes were up by 23% according to Real Capital Analytics. Financing activity was also robust. Combined US agency and non-agency CMBS issuance up by 30% for the trailing 12 months ended June 30, 2015, according to the Commercial Mortgage Alert. While helped by these positive agency trends, we believe that NGKF continues to gain market share. Our revenues from the leasing and other services improved by 47.6% to $131.5 million, while real estate capital markets increased by 193.2% to $61.2 million. Management services and other revenues were up by 20.2% to $47 million, while NGKF’s overall revenues improved by 60.8% to $239.7 million. Pre-tax earnings increased by 93.2% to $29.9 million in real estate services. NGKF’s strong outperformance was driven by the acquisitions of Cornish & Carey, ARA and Computerized Facility Integration. In addition, NGKF generated double-digit organic growth. We remain confident that we will achieve our goal of generating $1 billion in real estate services revenues for the full year of 2015, which would represent an increase of more than 35% over 2014. Given the multiples of our real estate services peers as well as the recent reported M&A multiples in the sector, we do not believe that the market [will depreciate] the tremendous value that NGKF contributes to BGC as a whole. Turning to headcount, we had 1308 real estate brokers and salespeople as of quarter end, up 49% compared with 879 a year earlier. Average revenue per real estate broker increased by 19% to $149,000. We finished June with 2543 Financial Services brokers and salespeople, up by 67% from 1519 a year earlier. Excluding trade, our average revenue per Financial Services broker salesperson was $157,000 compared with $172,000 a year earlier. A portion of this change was caused by the strengthening of the US dollar. Historically, our revenue per front office employee has generally fallen immediately after a large acquisition. As the integration of GFI continues and as more voice and hybrid revenue is converted to more profitable fully electronic trading, we expect Financial Services broker productivity to grow. Company-wide, our front office headcount was up by 61% to 3851 brokers and salespeople, while revenue per broker salesperson stayed the same at approximately $154,000. With that, I would now like to turn the call over to Graham.

Thank you, Sean, and good morning, everyone. As Howard mentioned, this was the first full quarter in which our results included those of GFI. This had an impact on a number of income statement and balance sheet line items. BGC generated consolidated revenues of $684.6 million, up 59.1% compared with $430.3 million. Our revenues from the Americas were up approximately 58%. Revenues from Europe, Middle East and Africa were up by around 61%, while Asia-Pacific revenues increased by 59%. As Sean mentioned, our non-US Financial Services results were negatively impacted during the quarter by the stronger US dollar, mostly in our European offices. Turning to expenses, compensation and employee benefits were up by 62.2% on an absolute basis, although our compensation ratio was up by only around 120 basis points to 62.3%. While non-compensation expenses increased in absolute terms by 57.9%, they were down slightly as a percentage of revenues to 26.4% compared with 26.6%. We still expect to reduce our expense run rate by at least $50 million a year by the first quarter of 2016 and at least $40 million in further annualized cost savings by the first quarter of 2017, for a total of at least $90 million in savings, all excluding Trayport. By guaranteeing GFI’s debt, we have substantially improved the credit rating of their bonds and lowered future interest payments. We have also been able to free up capital set aside for regulatory and clearing purposes, allowing us to use our balance sheet more efficiently. Moving on to earnings, our pre-tax earnings before non-controlling interest in subsidiaries and taxes were $77.5 million, up 46.3% when compared with $53 million. Our pre-tax margin this quarter was 11.3% compared with 12.3%. BGC’s effective tax rate for distributable earnings was unchanged at 15% and we expect it to remain around this level for the foreseeable future. Our post-tax earnings were up by 48.6% to $64.6 million, compared with $43.5 million. Our post-tax earnings margin was 9.4% compared with 10.1%, while our post-tax earnings per share were up by 38.5% to $0.18. BGC had a fully diluted weighted average share count of distributable earnings 386.5 million in the second quarter of 2015 or 366.8 million under GAAP. A year earlier, our fully diluted share count was 366.7 million for distributable earnings and 326.6 million under GAAP. The GAAP share counts were lower because they excluded certain share equivalents in order to avoid anti-dilution. The share count increased primarily due to issuances related to the acquisitions of Cornish & Carey, ARA, Computerized Facility Integration, and Remate Lince; equity-based employee compensation; and new front-office hires. This was partially offset by the redemption and/or repurchase of 11.9 million shares and units at a cost to BGC of $92.6 million, or an average cost of $7.77 per share or unit over the trailing 12 months ended June 30, 2015. As of the end of the second quarter of 2015, our fully diluted share count was 388.3 million, assuming conversion of the 4.5% convertible senior notes into 16.3 million shares. Moving onto the balance sheet, as of June 30, 2015, the company’s liquidity, which we define as cash and cash equivalents, marketable securities, and securities owned held for liquidity purposes, was $396.5 million; notes payable and collateralized borrowings were $841.2 million; book value per common share was $2.20; and total capital, which we define as redeemable partnership interest, redeemable non-controlling interest, non-controlling interest in subsidiaries, and total stockholders’ equity, was $1.1 billion. In comparison, as of year-end 2014, the company’s liquidity was $825.5 million; notes payable, collateralized borrowings, and notes payable to related parties were $706.7 million; book value per common share was $1.83; and total capital was $641.4 million. The changes in BGC’s liquidity since year-end 2014 were primarily related to cash used to purchase a controlling interest in GFI; as well to acquire ARA and Computerized Facility Integration. The change in cash was also due to the redemption and/or repurchase of 1.1 million shares and/or units in the first half of 2015 at a cost of $9 million or $8.11 per share or unit, and due to a previously disclosed legal settlement. With that, I’m happy to turn the call back over to Howard.

Thank you, Graham. Our guidance for the third quarter 2015 is as follows: we expect to produce our fourth consecutive record quarter of distributable earnings revenue and our fifth quarter in a row of record pre-tax distributable earnings; we expect to generate distributable earnings revenues of between $680 million and $725 million, an increase of between 51% and 61% when compared with $449.8 million of last year. Our revenue guidance would be approximately $22 million higher, but for the continued strength of the US dollar. We anticipate generating pre-tax earnings of between $80 million to $95 million, which is an increase of between 22% and 44% and this compares to $65.8 million last year. We continue to expect, as Graham said, to have an effective tax rate to remain around 15%. And we anticipate updating our third quarter guidance towards the end of September. So with that, we’d be happy to answer questions from you all.

[Operator Instructions] And the first question comes from Rich Repetto from Sandler O’Neill.

I guess the first question is following up on the topic you brought up on fully electronic businesses and I just was trying to get a better understanding. So what electronic business does GFI bring? I know you did talk about FENICS, but are there others and can you give a little more color? And then it looks like the margin is less than what you used to run it, mid-50%, 50% to 55%, and so it looks like the margin, the incremental margin is much less. And so what’s the timeline for taking out costs there and can you get the overall margins in the fully electronic business back up over 50%?

So I’ll start and then go backwards. So the answer is yes, we expect overtime to be able to take expense out of the fully electronic business, that’s network integration, software integration, very technology-heavy integration. That’s really a fast event. So if you put in 18 months timeframe on it, we would expect to be able to get our margins back up to our 50% expected value. So that’s just profits that are going to come our way with integration and software work. So that’s number one. Number two, GFI had excellent software, not everywhere. The best way I would say it is that BGC builds its system to be able to do each and every product to a high level, right. And that meant it took us time to do it, but it was a scale based technology. GFI built great products, but they built them product-specific. They were great in product A, not so great in product B, super great in product C, kind of lousy in product D. And so the combination of those things is really going to make us an extraordinarily better company. They had very specific things that they built that we love and that we’re going to use. One of their products that we now are really going to embrace is that they were white-labeling their system to our clients, right. So our clients – remember, what we are great at is not what to buy, but how to buy. We’re a technologically savvy, analytics, about pricing, about valuation, about how to trade it, what to trade, trade it against each other, all those kind of things are key as the world changes for banks to give these products to their clients. And so that’s a business that we’re going to do very, very well and that’s a business that GFI had. That’s a business that we were looking at. And so under the FENICS brand, we’re going to start to do it awful lot of that using all of BGC’s analytics coupled with some of the exceptional things that GFI had and off we go. so I think the analytics business will do very well in the electronics, the software as a service, and selling that and then renting it to banks to put out to their clients. These are going to be excellent growth businesses for this company. Really, really great numbers you’ll see from us. So I think what you’ll see, it’s fully electronic trading which you used to seeing with us, continue to grow, as we convert our voice to electronic business, but you’re also going to see software services and analytics line jump every once in a while as we do software as a service and as that gains traction. But so far, it has received an excellent reception in the world out there. We have some big banks using it now and we expect more to come going forward.

And I guess a follow-up question would be you mentioned the big banks and Blackrock has recently put out a whitepaper in talking about liquidity in the fixed income markets and what they were doing as buy-siders to handle changing liquidity, but they were saying that they were dealing with – they’ve begun to participate in a few inter-dealer venue, inter-dealer trading venues. And they go on to say it’s more open because it’s more all-to-all, trading is becoming more common. So I guess the question, Howard, then is any of your platforms now being opened up to the buy-side and all-to-all and if so, which ones? And how could this impact be in the industry?

As you know, the set structure regulatorily, and in Europe there is a regulatory structure that has an obligation to [make certainly] businesses and product categories open to all players. But I think we have talked about for quite some time because of that regulators are increasing the capital cost for certain product categories or banks, right. So if you think about it, the more illiquid the product, the more the banks are going to have to hold capital against it. You have Basel III, you have MiFID, you have a whole variety of structural regulatory changes that are dramatically increasing the capital cost by the banks to transact business with their clients and to hold those resources. So that means of the amount of capital that is in the world to be sell-side based, it’s being reduced practically, not physically, the number is not coming down, but the amount of – you can do against that number is being reduced because the amount of capital they have to hold against each of their positions is rising. That is our top of the stress that companies like Blackrock and all the other great money managers of the world are rising, their assets under management are growing just by their own positive performance [let alone as they] compete to collect resources. So the buy side getting bigger, the mathematics of the sell side is getting smaller and the structural stress that’s going to come is simply going to be those buy side firms are going to need to liquidity eventually. And what’s happening is you’re going to see individuals leaving banks, small teams of people leaving banks, going to find capital that back them. They will go to a hedge fund, they will go to money managers, they will go to other places to do the same business they did with banks, but they will do it now with other capital backing them. And that capital backing them, we know the traders. So those traders come to us because they don’t have – they have trading capacity, they have capital backing them, but they don’t have distribution and they don’t have access. And they are coming to us and asking us can we help them have access to the markets and these are clients of ours that we’ve always had. These are the traders of banks we’ve always had. And now, that capital is going to come into the market and that capital is trying to be a participant and that’s the additional capital. And so what we think is going to happen is over a period of time, the stress of the sell side being relatively smaller and the buy side being relatively bigger, will create the opportunity that eventually product by product, step by step parts of that sell side to buy side business will leak into our space. Whether that happens this quarter, next quarter, the fourth quarter, the seventh quarter, you’ve heard me say this before, the IDB business is an $8 billion to $9 billion industry and the institutional to sell side business is $160 billion industry, 20 times the size, so any leakage across, any leakage across will have extraordinary economic benefits to our company. And so, the acquisition of GFI just means we have bigger liquidity, bigger technology, bigger investment, right, our sale of Trayport gives us the fiscal capacity to invest more in technology, to meet the needs that are going to come, the concept of asking is it this quarter? No, I don’t think Blackrock’s business or within IDB, is going to be consequential this quarter. I just don’t find that to be credible. What I do find is it is a clear [indiscernible] that is coming. And you’ve heard me say it before and you got to hear me say it again, we’re a liquidity enterprise in fixed income, the largest business in the world and it’s coming. It is just coming. We can’t be more excited about that opportunity, it is massive, but it’s not today from an absolute terms. It’s just coming and we are building for it and we are in the right place. And we are very excited about who we are, what we are and what we’re building and eventually it will matter, it will be a leakage moment, right, it won’t come in big huge gulfs like that, it’s just coming little by little. But what you will see is eventually the IDB business, that will be $8 billion industry, will be a $10 billion industry. So the business will grow 25% and our stake in that business will be big and those numbers will come to our electronic business and you will see our FENICS business start to leap, right, with other numbers like we had this quarter and the profits for this company will just drive value in an impressive way and that is what we are investing in and that is what we are building for and that is where we are going.

I’m going to get one more question in. In the prepared remarks, I think Sean mentioned about the issue of – you feel like the real estate businesses, you’re not getting recognized for the value of the real estate business. And if you do look at comps that trade, I don’t know, mid to high teens, if you’re trading at 10 times the consensus earnings estimate, and also if you’re growing your inter-dealer broker contribution with the addition of GFI, so it’s even harder to see the real estate business, would you contemplate or entertain the idea of spinning off publicly the real estate business?

I guess the best way to say it is, I think, we’ve proved in 2013 that we are focused on shareholder value. And right now, the financial strength of BGC, its strong balance sheet and huge cash flow allows us to build and grow the real estate business really without constraint. And that’s really important to us and very valuable. But eventually, market will either recognize that value within BGC or we will address how to get that value one way or the other. And so when we consider it, when that time comes, if I can’t convince the markets that having it to be part of our incredibly strong balance sheet enterprise and cash flow balance sheet which allows us to grow, we’ll get us the proper valuation [in here] and of course we are going to take care of our shareholders right way and figure out a way to get that value whatever the smartest way to do that is. So do I think that’s today, of course not, because the strength of our balance sheet allows our real estate business to transact business they way they want with a level of constraint that is unusual, right. They have just a huge cash flowing positive company with their partner, they can go forward, if you can find the right company, buy it, hire it, grow it, do it. And I just don’t think it’s time for us to put any constraints whatsoever in that business, we’ve got a great management team, they are executing beautifully. I think the answer is feed them, allow them to grow and then eventually make sure the market understands it or would we talk about it another type of transaction, eventually of course.

Our next question comes from Patrick O’Shaughnessy from Raymond James. Patrick O’Shaughnessy: So first, I guess to follow-up on commercial real estate, obviously a lot of progress both organically and inorganically. And as you think about the organic growth going forward, what could be the threats to that? Is it just the recession that would hurt some of the underlying metrics, are rising interest rates potentially a threat to that business or as you think about that for the next year or two, what would maybe make you concerned that this growth rate would slow down?

The next year or two is an unfair question, because I don’t see it. You know I have said publicly for quite some time I think interest rates will remain low and constrained. Yes, a dramatic increase in interest rates, but a dramatic increase in interest rates has nothing to do with the way the world talks now. The way the world talks now, the Fed goes from 0 to a 0.25%, that’s not an interest rate, basically you take 0.25% and you take your interest on $10 million and then you go to Starbucks for your meeting with the money. That’s what you get with the 0.25%. I’m talking about interest rates like 5%, 6%, 7%. I mean, that’s probably a decade away. So I think we have a really, really attractive run rate in the real estate industry over the next couple of years. I think the places where we have opportunity is you could see it this quarter, and you could see it in the financial services business, you remember Sean talking about for a year saying when we get energy, we’re going to wait till we get it right and when we get it right, we will get it right. But we are not going to raise and overspend and not do it correctly, now this quarter we’re up at 300% plus in energy and all of a sudden we have an extraordinary position in the US energy business and the global energy business, right, all of a sudden, bang, we’re great at it. So I think capital markets in real estate is a place where we have really substantial opportunity to grow. So really, Patrick, I don’t see a threat structurally and industry-wide to the business. We’ve got great staff, we’re committed to the places and partners. I don’t really see issues overall for the next couple of years from our real estate business and I think the opportunity for us to grow our capital markets business much the same way we did the energy business, just the opportunity that we are under-sizing capital markets and we are going to grow dramatically there. It’s very attractive for us going forward. Patrick O’Shaughnessy: And then moving to the financial services brokerage side of things, I heard the commentary that you’re providing about where you see the industry moving long-term and how people are going to have to source liquidity. But again more shorter term view for that, I always look at the puts and the takes, so a little bit higher market volatility might be a tailwind for you, but I think we are seeing some European banks continue to cut back on a lot of their [big] activities. So where do you see the financial services brokerage business moving over the next few quarters?

The industry overall, I don’t see anything really fundamentally changing. I think a little volatility goes a long way for us. We have the greatest fixed income platform in the world. You’ve heard me say this before, it’s like, we have the biggest board in the world with the biggest sales and [indiscernible] right, you have quantitative easing which is sort of a bomb blanket on volatility, right. If the governments buy bonds and don’t hedge them, put them away, take them out of the market, volatility falls, so it becomes [indiscernible] effect. Now we have the US stopping, great, and you have Europe starting, right. The way it works is we’re going to stay in a range with volatility kicking up and giving us a gift every now and again. But basically from a structural perspective, I just don’t see things changing near-term quarter to quarter in the IDB, overall volume stays. But that’s what we have. For us, we can cut costs, right, we can leverage our business and we can move electronic. So as rates rise in the US, obviously that’s going to help. So we are rooting for Ms. Yellen to do something with the rates and when she does, that just helps us. So every little bit helps [indiscernible] a little breeze with the big sale, does lovely things for your business. But generally, little volatility coming, a little interest rate rise in the US will definitely help us, ability to move our voice to electronic drives huge profitability, cost-cutting will drive nice profitability. We are in a nice spot and then we have the long-term or medium-term move to the buy side. The dollar headwind is behind us. We are where we are. The move has been made. I think you will see us – we are in a solid position, but I don’t think we’re getting any gifts from the market in financial services anytime soon. Patrick O’Shaughnessy: And then the follow-up on a point you touched on. Between the GFI cost cutting and between the push to fully electronic, which is higher margin, what do you think is the pre-tax margin upside for the Financial Services business? So if you’re looking at that three years from now, five years from now, could that be a 30% plus pre-tax margin business?

Look, as with electronics, it’s 50%, right. In voice, sort of around or at about 15%. It’s a great business. It’s just a great business. It takes time, it takes scale, it takes effort. We have time, we have scale, we have the capacity of the money to do it. I think if you merge those things together and sort of look at it from an overall perspective, yes. Patrick O’Shaughnessy: And last one from me, the earnings release talked about a $13.2 million impairment charge in the quarter. Can you tell us what that was?

Reorganization and just looking at the value of our assets and [indiscernible].

GFI as an example, GFI has software that is better than ours. So we moved the system onto GFI’s software. We take out and it goes into the impairment category or vice-versa. Same bottle, either way.

And the next question comes from Robert Krayn from MidOcean Partners.

I was just curious on what kind of – what is the use of proceeds from the sale of Trayport and then any possibility now that you reduced the interest rate on GFI’s debt, but becomes a little bit more attractive?

The use of proceeds, I think we will be entirely consistent to the way we did eSpeed, which is we had a very strong position. We were able to acquire companies; we were able to build and grow the company; and then we were, of course, opportunistic when the GFI came along, you either had the financial wherewithal to do the transaction, we did not. And then we had the capacity to do it. And so I think we’ll be consistent with that. We’re always going to look at what the most positive economic use of our money is. I just don’t see long term of us buying back the bonds outstanding which currently yields in the threes as being our best use of our money. We have a cost of capital view, meaning we don’t want to spend our money unless we’re going to get strong double digit returns. And so unless we can figure out a way to make strong double digit returns, we’ll wait with our money until we can. And GFI investment was an excellent example of that. So I think we’re going to be judicious how to spend our money and I think opportunities in the real estate and financial services business will come our way as they have. If you would have asked me a year ago, what I’ve invested the kind of money we’ve invested in the financial services business, I would say I doubt it. But now the GFI transaction came along and it was extraordinary. I mean, the return that we will get for our shareholders on the GFI transaction will be breathtaking. So I think we’re going to stick to them, but I doubt a big buyback on bonds would be on the cards, but I just don’t see that as being a big enough return for our shareholders and our capital.

And then have you guys bought any of the GFI bonds back from the last quarter? You guys said you have authorized $50 million or something to buy back stock and possibly bonds. Have you used any of that up for bonds in the last quarter?

Usually I don’t talk about that, but the answer is no.

And we have no further questions. I will turn the call back over to our hosts.

Thank you all for joining us. The company really is in an excellent position. We will keep you posted as to the Trayport sales process. And things are just in excellent shape. I’m personally tremendously proud of my management team. I think they’ve done an outstanding job so far. I want to congratulate Shaun Lynn and Sean Windeatt for really doing a superb job on GFI and really I just think things feel excellent for the company. So we look forward to speaking to you next quarter. And thanks for spending time with us today. Have a good day everyone.

Thank you, ladies and gentlemen. This concludes today’s conference. Thank you for participating. You may now disconnect.