Q2 2020 BGC Partners Inc Earnings Call
[music].
Welcome.
You can see partners.
Second quarter earnings Conference call.
Hi, all participants are in the listen only mode. After [laughter] go presentations they'll be a question and answer session. Please be advised that todays conference is being recorded I would now like to have the conference over to your speaker today, Sean Wendy.
Please go ahead.
It's actually sorry, it takes Mcgregor.
Good morning, we issued.
Today said second quarter 2025 to results press release the presentation summarizes results. Early this morning, you can find these AD agency partners dotcom unless otherwise stated the result for bite on todays call. Her only the second quarter 2020 year over a period.
We'll get French results on this call only on a Jos a bank's basis, unless otherwise stated when they also refer to adjusted EBITDA, We may refer to liquidity, which we defined as cash cash equivalents, that's marketable securities.
I have not been financed a reverse repurchase agreements and security southwest securities want to repurchase agreements redefined Toyota capitals redeemable partnership interest total stockholders' equity controlling interests upstairs. Please see todays press release results under generally accepted accounting principles or gap. Please also see the relevant sections and today in the back today's press release politically.
Up to the definitions of any non-GAAP terms reconciliation of these items to the corresponding GAAP results and how when and why that would get such terms additional information with respect to our GAAP and non-GAAP results much on today's call is available on our website at <unk> Agency partners Dot com and in our Investor presentation refer to the company's going electronic businesses expects. These offerings include.
Only electronic brokerage products as well so mark data software solutions and post trade services I also remind you that information regarding our business on todays call that are not historical facts are forward looking statements within the meaning of section 20, Sevena security Straitjacket by June 30, Threea, London and security section 21, Im just curious train Jackie.
He told me.
34 as amended these include statements about the effects of coconut team and the company's business results financial position liquidity outlook any forward looking statements involve risks and uncertainties, except as required by law <unk> undertakes no obligation to update any forward looking statements any outlook and targets. It's got some it's costing no material acquisitions buybacks extraordinary.
Transactions are meaningful change to the company soccer.
For discussion additional risks uncertainties, which could cause actual results could differ no contained in the forward looking statements Gbdcs assets, you filings, including but not limited to risk factors, especially more important information set forth in these filings any update to such risk factors and especially important information you can subsequent.
Form 10 kids or form 10-Q's warm it case, not turn call over how about the chairman and CEO BDC partners.
Good morning, Thank you for joining us for a second quarter 2020 conference call joining me virtually today for today's call a big She's President Trump plan, our Chief operating officer, Sean when do you, yet and our Chief financial officer steep discount.
We have accomplished quite a bit since the beginning of the year and the out sort of Coca 19, we have effectively refinanced care 2021 debt strengthened our balance sheet, driven or fenix brokerage revenues to double digit growth dramatically expanded success with our fenech standalone products positioned our insurance business to generate profit.
The fourth quarter and reduced our expenses and improved our efficiency.
However, our results were adversely impacted by the continued dislocation faced by did you see in our clients to to cope with my team and lower industry volumes and rates and foreign exchange, which reflected the massive quantitative easing undertaken by several major central banks and uniformly lower global interest rates, which have result.
It into earnings being two cents lower than last year.
Our revenues would have been over 7 million higher but for the relative strengthening of the U.S. dollar overtime, we expect a significant increases in global debt issuance to overcome the effects of quantitative easing and see a long term tailwind for rates credit business.
At the end of our prepared remarks, we will provide our quarterly outlook. In addition, we will discuss our full year expectations and I will discuss why we believe BG she should be valued significantly higher than it is today and provide an update.
On our capital return policy, so with that I'll turn the call over to Charlotte.
Thank you Howard and good day everyone.
A standalone fenix technology platforms, maintaining a strong momentum this quarter.
Sample fenix U.S.T. generates substantial growth year over year notional volumes up more than 70% in the second quarter compared to 10% increase in promising data treasury volumes.
Fenix U.S.T. continued to gain market share and expanded its position as a clean number two among central limit order book trading platforms.
We are rolling out significant technological innovations to assist them this quarter, which we expect to result in increased volumes.
An expansion of our client base.
Fenix Bourbon options. All finished go nobody's volumes in the second quarter.
As a highlight yesterday the system excuse me, 12% of total volume Nikolai two to five options on the other I see and 20% or block trades in that product.
At data software and post trade business grew by over 7% driven by predictable recurring revenue stream.
We are focused.
So we are focused on investing in these businesses and expand into double digit growth.
Next year.
During the second quarter, we choose fenix integrated seamlessly integrates hybrid liquidity with customer electronic orders by graphical user interface and or application programming interface.
We believe that fenix integrated when house profit margins by far the incentivizing, the company's brokers and clients to automate execution.
We expect businesses that are part of panic integrating generated pre tax margins of at least 25% in Minnesota.
He said 35% overtime.
Well Beach. These overall brokerage revenues declined this quarter fenix brokerage revenues increased by 10%.
Kind of net revenues were up by 9%.
We expect clinics to continue to grow faster than the overall business and improving the overall profitability of the company over time.
And then nearly $119 million per year in technology has put us in a position to drive increased electronic trading and high margin.
While increasing the able bodied of the company.
Additionally, we believe that fenix integrating will create superior real time data, improving the robustness and body appendix market data, which will accelerate growth right.
We believe is only a matter of time before the marketplace realizes the body electronics businesses.
We continue to expect ethnic Standalone businesses, such as spending so finish U.S.T. fenix effects and Sarah it's connectivity breakeven next year.
We also expect have insurance brokerage business to become profitable in 2021.
We achieved these goals for both fenech Standalone and insurance brokerage big sees pretax earnings and adjusted EBITDA should improve but at least $50 million in 2021 from 2020 levels all else equal.
With that I'm not happy to turn the call him speak this guy.
Thank you Sean Hello, everyone.
You can find additional details on our quarterly results in today's press release and Investor presentation.
Starting with a revenues by geography.
Europe Middle East Africa revenues declined buzzard, when I understand.
The Americas were down 7.2%.
Asia Pacific revenues declined by 19.2%.
Our Asia Pacific revenues reflected a sharp decline in money market flows from mainland China This quarter, which we believe is mostly behind us.
Our non U.S. revenues were over $70 million lower due to that relative strengthening of U.S. dollar.
In terms of expenses.
We continue to reduce our compensation related cost base and streamline our operations, which resulted in 6.8 billion and $22.7 million GAAP charges recorded in the segment first quarters of 2020, respectively.
We expect our cost savings plan to reduce total GAAP expenses in 2020, but at least $35 million all else equal.
Overtime.
We anticipate our expenses to decline as a percentage of revenues Asterix and insurance brokerage business improved their top lines and we maintain our expense discipline.
You just use quarterly GAAP pretax earnings would've been approximately 17 million and $16 billion higher in the second quarters of 2000 22019, respectively, but for the impact of our continued investment in these businesses.
Moving onto our adjusted earnings our pretax income was $92.1 million compared with $102.3 million.
Our post tax earnings were $80.1 million or 15 cents per share compared with $89.8 million were 17 cents per share.
Turning to share counts are fully.
Doug alluded weighted average share count increased by 4.4% to 546.1 million under both GAAP and adjusted earnings in the second quarter of 2020.
As of June 32020, our spot share count <unk> 546.2 million.
We expect to use relatively more cash with respect to compensation overtime to minimize dilution.
Largely because of this we still expect or 2020, jaren fully diluted share count to increase by approximately 4% to around 550 million.
With respect your balance sheet as of June Thirtyth 2020, our liquidity was $522.5 million compared with $473.2 million as of year end 2019.
Notes payable another borrowings were $1.291 billion compared with 1 billion $142.7 million and total capital were $786 million compared with 700.
$67.4 million.
The quarter and balance sheet figures reflect paying down $75 million over revolving credit facility.
Ordinary movements in working capital.
Cash pay with respect to annual employee bonuses taxes, and our continued investment in Standalone fenix products and our insurance brokerage businesses.
We continue to manage your business with a focus on its investment grade ratings.
On July 10th 2020.
You just see closed an offering of $300 million afford and threes senior notes due December 2020 fives.
With this financing the company has effectively prefunded or may 2021 debt maturity.
We continue to expect to strengthen our balance sheet and reduce it rolled that by year end and with that I'm happy to turn the call back over to Charlotte.
Thank you say.
Turning to our outlook for the third quarter 2020, compared with a year earlier.
Btds revenues decreased by approximately 10% year on year, if the fed 18 trading days this quarter.
Which reflects lower global industry volumes, thus far in the quota of cost right FX commodities and credit derivatives. However.
Fenix revenues the same period have increased by over 10%.
Looking forward, we expect to generate total revenues between 414 $490 million compared with $521.1 million.
We anticipate pretax adjusted earnings it's been the range $63 million to $83 million less is $87.7 million.
We anticipate a full year 2020 adjusted earnings tax rate to be in the range of 10% to 12%.
She is 11.4% the full year 2019.
We expect I'll take them out look towards the end of September.
I'd now like turn the call back over to Howard.
Thank you Sean.
As the largest shareholder I am I was disappointed as all of you can our stock price.
I understand that some might be skeptical of our strategy and plan sure I'd like to spend from time to go through it now.
First let's talk about fabrics.
Our standalone new businesses have been significant investments for the company.
These businesses are expected to reduce our pretax earnings by $40 million this year.
This is on top of the investments, we're making across the balance of our fenix business.
We've done this before.
We have built and grown elect electronic platforms that have created enormous value for this company.
We are confident that we have made and continue to make the right investments now.
We are in building mode across these platforms maximizing our market share and showing growth across these businesses.
Fenix revenues grew 10% in the second quarter, we expect fenix to deliver both revenues and earnings growth next year.
Fenix overall together with our newer Standalone electronic businesses are fenix. She was treasury Fenix go Phenix FX will share a plus others. We believe will deliver enormous value to our shareholders, we're adding clients and growing our market share. We're very confident that in 2021 as Sean said.
We will improve our bottom line $40 million from these businesses and their value will become much more clear.
Second, let's turn to our boys business. It has a strong and stable business that we expect to generate consistent cash flow for the long term.
We've spent this year, reducing costs and building efficiencies, including reducing underperforming brokers.
This reduced our revenues in the short term, but do we expect these moves to increase our profits through the sufficiency.
Yes, we have been challenged by the pandemic, but the massive issuance in the world will eventually be a tailwind driving our voice business for the long term we.
We expect issuance to produce growth and that is only a matter of time.
Third.
We've been building or insurance brokerage business, which created more than a $10 million drag on earnings the first half of this year.
We expect this business to turn profitable starting in the fourth quarter of this year.
We rebuilt BGC. After 911, we grew newmark before spinning it off two significant value for our shareholders. We do know how to build brokerage businesses.
So we believe the success of our growth strategy across these initiatives will become apparent towards the end of this year at the beginning of next but it is clearly yet to be appreciated by the marketplace.
To illustrate this.
Let me walk through our 2020 actual and expected results by quarter.
We earned a penny more than last year in the first quarter.
We are in two cents less.
In the second quarter at the midpoint of our third quarter guidance, our earnings would be three cents lower than last year.
And that and we expect at the midpoint of the range of our fourth quarter earnings to be flat to maybe down a penny as compared with last year.
So if I compare the 61 cents, we made in 2019 to the mid point to 55 to 56 cents, we expect to make this year or earnings would be down 10%.
We expect our earnings to rebound and to be virtually flat in the fourth quarter. Further we expect to generate EPS growth in 2021, driven by the improvements Sean and I, just outlined from Phenix and insurance, our solid boys franchise and the efficiencies that Steve was gay outlined.
There's clearly a disconnect between our stock price in our earnings.
Well, our 2020 earnings are only expected to be down, 10% beachy share prices down 50% year on year, and we are trading at half the multiple of our peers.
This deeply disturbs that's given our anticipated growth next year and the embedded value, we are building and the fenix business as well as insurance.
These are both businesses fenix and insurance that our peers just do not have.
Lastly, let's turn to our capital return.
The outbreak of coping 19, we reduced our dividend and focused on strengthening our balance sheet.
Early next year, we expect to announce or capital return policy.
Focused on increasing our dividend and detailing our share repurchase plan.
Obviously, we were deeply dividends centric going forward, we plan to deeply consider both potential outcomes share buybacks as well as dividend.
With that operator, I'd now like to turn the call open to questions.
We will now begin the question and answer that question to ask a question you May Press Star then one on your Touchtone phone.
If you use in a speakerphone please pick up your handset before passing the keys to withdraw your question. Please press Star then too.
Our first question is from Rick repeat though from Piper Sandler go ahead.
[noise] I Howard.
John and Steve.
I guess the first question is on benefits then ex integrated and the guidance on though the 25% margin and I think was 35% overtime could you talk about you know that 30% to 35% overtime or you know what death.
You you brought a you know into this pfenex integrated and I know, there's a footnote in the in the earnings but you know traditionally.
You know, we've thought about electronic businesses margins being pretty close to 50%.
You know overall and I know so.
It appears that you're still carrying a lot of by human.
What do you called it comp expense.
In this pfenex integrated I guess my question.
So.
So, let's let's sort of break it down which is.
Our standalone electronic businesses will we'll get to a we think overtime to those fully electronic 50% margins market data.
As well and lose Sarah.
As well.
So those businesses would be at the 50% margins.
Our.
Our integrated business will as you correctly point out I'll continue to have a significant leadership from from our human capital and.
And our product.
ER expertise you know our our key brokers will remain the key salespeople in that business and that means our long term expectation for those businesses will continue to have that capacity and those leaders to be part of that and therefore, we expect that margin to be a 30% to 35%.
So, yes, well those people mean that that business is not a reach those other margins, yes, but their their knowledge there strain from their capacity to be deeply deeply product centric and they add enormous value and knowledge to those businesses. We think it's part of our secret sauce.
And so we're not just going to have generalist salespeople for lower price, we will have best knowledgeable people in the world driving our marketplaces. So we think fenix integrated the ability to do business across the board electronically or by voice and and have those deeply integrated together granted that margin is 30 35.
5%, but we are tremendously proud that we think that is our business model for these businesses and we embrace that model and that is where we have go.
Okay. That's helpful Howard.
I guess my my follow up would be you read our <unk> issued new debt, but to retire that I think its march 2021 debt.
And you only reduced the revolver by another 75 million.
And I guess the question is you know if.
We thought our lease I thought that that debt refinancing. It was one all obstacle, but now it's complete or up next year is completely gone now I guess I'm trying to still understand when we've had reasonable you know.
Revenue and earnings in the first half.
But you still carrying 150 million of revolving debt in was that due to the.
Rating agencies increase requirement or I'm, just trying to see why we're still a.
Carry not.
My increase from revolving debt.
Sorry, sorry, so we've we've not been cleared so the 75 million was what we paid off previously upon upon issuing this.
This this these notes we did pay off currently being tire revolver. So currently there is no revolver outstanding we will when we when we figure out how to pay off the May 20 ones that will shift back in the earnings for the company will go back to just for reducing our revolver as we had previously.
Stated, but as of this second we took the cash from that that note and pay down the revolver.
I'm just that that quick clarifying.
And I guess.
You know the last question is if it let's just say market conditions are flat you know you're seeing an incremental 50 million in you know in revenue and earnings.
That would you if you hit the growth rates for Cogs come to Pfenex Nonprofitable businesses like you know to me that's.
You know 10 to 12 cents increase in S.. So should we expect you know if the market environment stayed the same.
That you know the guidance would be you know would include next year. Another 12 cents any P.S. <unk> $50 million to the bottom line right. So so depending on our share counts and and our our share buyback and and dividend policy, yes, but 50 million is $50 million.
We expect that the combination of our newer standalone electronic platforms, plus insurance will increase the bottomline $50 million next year, all else equal exactly right.
Okay. Thank you I'll, let a I'll get back in the queue. Thank you.
Our next question is from Patrick O'shaughnessy from Raymond James Go ahead.
Hey, good morning. So there were some stories this past quarter that you guys had hired a third party bank to conduct a strategic review of your insurance brokerage business. What can you say about that process in kind of how youre viewing that business currently.
Okay. So I wouldn't view into business is that the business is growing a as you've seen this quarter and we expected to be profitable in the in the fourth quarter.
As to a strategic review as I've said on prior calls or we are deeply examining.
The right answers for this company, we we like the insurance business and it's growing and it is turning profitable and and and we discussed that but we did say that we would.
Leave nothing on the table and we are examining everything so that that's the first I'm going to go on that topic other than to say to agree that we are examining.
And we don't seem to be open minded about it.
Hi in your prepared comments Howard you did note that you expect early next year to announce your new capital return plan.
In the meantime, and I guess until that is announced what are the factors and inputs that the board is looking at that will help inform that decision.
Well, so we have a number of things right number one we are constrained as two a share buyback because of the new mark spin off and that will expire in December of this year should come December of this year that start to your country.
And is behind us.
Going forward, we will have our earnings which we as we just discussed the investment and built on new fenix platforms and insurance should dissipate so that should improve.
Our earnings $50 million, and then I think we're going to look at what our dividend policy should be and as I said in my remarks, we were very dividends centric and now I think we really need to examine or how what is the right balance between increasing our dividend.
And ER and having a capital return policy through share buybacks and I think that the board is just going to be free to balance those two.
And to examine what what is the maximizing move or for the company, but a you know with our investments.
Fading behind us because the these investments will be turning a profitable or breakeven you know I think the board ER and the management will feel very strong about a position going forward and we're very excited about a 2021 you know we did we did reduce our dividend because we we felt going into the pandemic.
Didn't know what the outcomes would be if you were certain to tell if these were going to be the outcomes with we'd have felt much better right, but but that with people be on certain I think we have made the move constraints on ourselves so that as we enter a 2021.
We will be in the best position to both increased our dividend and to buy back stock.
Something else that you guys touched on a in the press release, you kind of talked about the corporate structure and I think you noted that you know depending on the outcome of the U.S. election November that could influence your your decision for your corporate structure. So.
Is it fair to conclude that you know the Democrats, one election and indicated at the corporate income tax rate would be moving higher you guys would likely stay with their current partnership structure.
I think the answer is we are we're studying it carefully.
I think we're coming up you know watching what everybody is saying studying it carefully you know are you. The U.S. is only a certain percentage of our earnings and we will take that into the mix. So I think our point we were trying to make it is we will be ready.
At the ended the year, we will be ready and you know if something changes well, we will study it and and move accordingly, but.
As of now we are moving a piece to be ready.
By the end of the year in and we're just being playing that if the election is if the outcomes or the taxes or some other things that are said I make us rethink things that I guess, what we think them as of right now we're moving a pace.
Can you speak to the similarities or differences between the global financial crisis, and the current cobot driven reception on your rates franchise, and I guess I'm thinking both in terms of the near term impact or headwinds to our rates trading activity as well as the that's a lot.
Long term tailwind of kind of more raw product to be traded.
Well.
Yeah, I mean, you've seen it didn't see any numbers right. The extraordinary concept of vast issuance beyond.
What any of us could have imagined.
Which must eventually create.
That's trading volumes.
Issuance must come with vast trading volumes, if there's only a matter of time, but.
Also the significant scale of the quantitative easing a that is going on by the central banks. It was also unprecedent. So you have those two things sort of fighting desperately with each other but this is only the you know the first any so I think we've seen a decrease in volumes in the in the rate space.
You're going to see.
You're going to see that but eventually that must break.
Now when that is I don't know and but it must break and it may not break across the curve, meaning they may decide you might see the that they stop worrying about the 30 year, where they stop worrying about the tenure and the quantitative easing does not go out that far and all the sudden those volumes just explode.
The way that people have not ever contemplated and that at some point. The just the scale of this issuance will mean, they won't be able to defend the five year any longer and that will explode. So they maybe that you may see the federal governments, depending into two and a three year you know the short term, but when they lose the capacity to can troll and to be continued.
As buyers of the very long term, you're gonna see those things break over and the scale and volume of growth and that tailwind will be just.
Ratable. So this is are trying to invest and build because that is coming what day. It is coming I don't know, but it is coming for sure.
And then looking at your your equity in other revenue line. It was down I think 6% year over year in the second quarter that was a bit surprising to me just given some of the exchange traded volumes in equities in equity options and in other equity index products can you talk about what you guys were seen in equities business right now and maybe why some of those.
Exchange traded lines that I was looking at didn't translates to your results.
Sure.
Yeah, Yeah, sure say, you're absolutely right in a it within a within our equity business, we have a significant amount of equity options business and you'll notice that the volumes on the on on the on the options platforms are across the board where actually lower.
We saw that that that same decline I think that.
Part of the start of the the third quarter. Those declines have have started so they come back a little bit die or what we saw in the second quarter, a when I started to see levels of improvements in Q3, and that's probably lie with what you're seeing within the rest the marketplace.
I think just wanted to really positive things that we've seen Tony's is obviously the fenix go platform actually option platform. It's continued to grow at a at a pace.
Taking more of a market share from the traditional traditional broke has a place that's a that's actually a in the market. So on your stocks and on Nikolai.
We continue to grow into that space or would that with a different offering.
Okay.
And then lastly from me and thanks for handling all my questions. Here. You know you guys have continued to mention operational disruption at clients and Bdcs still serving as a headwind for the business to what extent is this persisting into third quarter versus maybe some headwinds that you're facing have more shifted to rate volatility.
Other macro economic factors.
[laughter] MACRA fast enough.
Sure you want to answer that trend you can't knowledge can say they still it's been a factor for the macro perspective, you know across the globe you know you're seeing different countries.
Yeah impose different restrictions a then loosen them and then restrict them again, we've had this in Singapore and actually last week, we see any spine you know where we are hearing that we're going to have more strict pricing in Paris, we have many different regional offices, which were receiving right.
Fortunate to have where we can whereas.
Professionals can operate from and and give the service to the appliance eat away from home for my main overseas or from a regional offices, but the technologies me driving that so.
Well, you don't have that crystal ball to turn to say that he's come into it and as we've seen we will read the news that she's just kind of ebbing and flowing we continue to invest in our technology and investing that telephone system to had the most flexibility possible to whether this despite difficult situation.
So my view is the macro or you know rates and credit.
You know those macros are surely the bigger driving factor, but would showing pointed out is that these are not ordinary times that were impacting those driving factors and and these are ebbing and flowing globally with respect to our staff we have abhi.
Finally, we have the capacity to operate.
From home, but it is not as efficient as when are they were in an office as Sean said, we have these regional offices, which has which have worked very well for us, but it's just not as efficient.
So that that matters, but obviously you're correct the bigger macros are turning now.
To the broader to the broader points for the world an industry volumes.
Great. Thank you.
Again, if you have a question. Please press Star then one our next question is from Rich Repetto.
Pipettes Sandler go ahead.
I love the way she'd been asked my name.
Uh huh.
My my follow up questions would be a first is phenix integrated the remedies fenix integrated would they be just then are they the pfenex revenue that we see the 58.4 or.
They the same in <unk> in one we're talking about.
That pauses 50 April that is correct there in the 50 April.
So fenix integrates pfenex integrated inside of that 58 for them.
Thats correct bigger.
Okay.
All right and then the next question would be as far as the 50 million of incremental revenue. It would it be the best you know sort of.
[laughter] long term Guy would just you expect that in the second half or is it more linear across the year, you know building, but to realize 50 million over the the whole year or how should we think about the growth that you know that.
The growth be a sort of the traction yet.
To the 50 million breaks a 40 in in the Fenix line and tenant in the insurance line.
ER and the both will be sort of linear growth through the ended the year right. So they will they will start slower and ramp up over the course of the year, but by the you'll see that growth all through the year and then by the end of year.
We'll have we'll have made the business in the fully electronic standalones, a breakeven and the insurance business.
We'll have eliminated in the.
You know any any comparative tailwind. So you have this year, we lost 10 million in insurance in the first half of the year as I mentioned and and and we expect those those two things to note. Each other right. We're going to we're going to lose some more money in the third quarter and turn profitable in fourth quarter and insurance. So those are pretty much that each other given.
Take a little bit.
Then pfenex.
Then on businesses down 40 million of investment this year and we expect over the course of the year that those revenues will grow and make that's here by the entity.
Got it.
Thanks. That's helpful. Last question is a holiday you in the past you paid you know.
I would say materially amount in equity based.
Stock based compensation.
So.
That's been excluded from adjusted earnings I guess, you know you talked about going [laughter] going to catch comp.
I know what helps the dilution, but how how should we think about our you know the incremental huh the compensation ratio lets say impact go as you go to you know a C Corp, and you reduce the stock based compensation dilution or what other.
Ramifications are there to the compress the cash comp ratio.
Well, you're right. If we if we use less or equity based compensation, which we which we've said we plan to do a that will that will increase our.
Reputation.
Our ordinary compensation right. If we don't give it an equity will be giving and other forms and those will go through our GAAP earnings pretty clearly.
But that's why we have built from when the out and Steve This guy.
Focused on our efficiencies and focused on our lesser performing brokers. So that we can offset that so our current expectation is our efficiencies should be able to offset that and ER and they shouldn't be a material impact a growing through but certainly that you want to say something.
Yes, I will say rich.
Not that is reflected in you can say in the share count does in the end of Q2, and where we say me at the end of our expectation is the end of Q4 that already includes the fact that lower levels of equity and therefore, that's included in a guidance. We gave a Q3 an expectation for Q4.
I would have the effect if we if we can at you know drive efficiency through our system, a and instead of having all right you know our our earnings grow from cost cuts whats happening is earnings are gonna Crow from from lack of share issuance. So that's sort of the balance Tonight and I think that that's our that's our focus is to.
Have those two net each other out.
Got it so just to clarify that cash comp I know, it's in GAAP earnings as well your stock based comp was in gap as well I believe had to be but on the adjusted basis that is just so yes, I pay more cash if we pay what cash instead, our adjusted earnings period Yeah.
I think it's right.
Correct. So we expect to offset it with efficiencies and for to be you know generally obviously, not specifically, but but generally they should offset each other and and and wish you just have less issuance.
And those efficiencies would be head count reductions or <unk> or just ballpark just well less example would be you during the last couple of quarters, we reduced our our head count of of less productive brokers.
You know in and that's just more efficient economics hiring better brokers or who are more productive and letting go the lesser productive brokers. It is just good math for the company plus we've been a consolidating systems driving our platform just focused on making our business you know our voice business more.
Deficient and therefore, earning more money, which allows us to offset the the change from issuing.
Share say showing less shares and more cash.
Got it.
That's all I have thank you. Thank you how continue.
[laughter].
This concludes our question and answer session I would now like to turn the conference back over to how what let Nick for closing remarks go ahead.
Thank you all for spending time with us this quarter I wish you all.
Safe save time, and ER and enjoy the rest of the summer and we look forward to speak into next quarter, but first thinking that <unk>.
[noise]. The conference has now concluded. Thank you for attending today's presentation you may now disconnect.