Q4 2020 BGC Partners Inc Earnings Call

Pardon me. This is the conference operator today's conference call will begin momentarily and we ask that you. Please continue to hold on until the call begins again today's call will begin momentarily. We ask that you. Please continue to hold and thank you.

[music].

Welcome to the BGC Partners, Inc, fourth quarter and full year earnings conference call.

At this time all participants are in a listen only mode.

After the speaker presentation, there will be a question and answer session.

Please be advised that today's conference is being recorded.

I'd now like to hand, the conference over to Jason for Seacoast head of Investor Relations. Please go ahead.

Good morning today, we issued Bgc's fourth quarter and full year 2020 financial results press release and the presentation. Summarizing. These results you can find these at IR day at BGC partners Dot com.

Please note you can find additional details on our quarterly and full year results in today's press release and Investor presentation.

Unless otherwise stated the results provided on today's call compare only the fourth quarter of 2000 and 'twenty, what the year earlier period.

We will be referring to our results on this call only on an adjusted earnings basis and.

Otherwise stated.

We may also refer to adjusted EBITA.

You may refer to our liquidity, which we define as cash and cash equivalents plus marketable securities.

And financed reverse repurchase agreements and securities owned less.

Securities loaned and repurchase agreements.

We define total capital as redeemable partnership interest total stockholders' equity and Noncontrolling interest and subsidiaries. Please.

Please see today's press release for results under generally accepted accounting principles or GAAP. Please also see the relevant sections on the back of today's press release for the complete and updated definitions of any non-GAAP terms reconciliations of these items to the corresponding GAAP results and how and when and why management uses such terms.

Additional information with respect to our GAAP and non-GAAP results mentioned on today's call is available on our website at IR Dot BGC partners Dot com and in our Investor presentation.

We refer to the company's electronic businesses as Phenix Phenix offerings include our fully electronic brokerage and the next integrated brokerage and our market data software and post trade services.

That's per category is categorized in Phoenix, and a great if they utilize sufficient levels of technology.

Such that significant on the transactions can be or are executed without broker dimension and had expected pretax adjusted adjusted earnings margins of at least 25 per cent.

I also remind you that the information regarding our business on today's call.

Historical are forward looking statements. These include statements about the effects of the COVID-19 pandemic on the company's business results financial position liquidity and outlook.

Any forward looking statements involve risks and uncertainties, except as required by law.

She undertakes no obligation to update any forward looking statements and the outlook and targets discussed on this call us and no material acquisitions buybacks extraordinary transactions or meaningful changes to the company's stock price.

For a discussion of additional risks and uncertainties, which could cause actual results to differ from those contained and the forward looking statements see bgc's SEC filings, including but not limited to the risk factors and special note on forward looking information set forth and these filings and any updates to such risk factors and special note on forward looking information contained in the subsequent reports on form 10-K.

Form 10-Q and form 8-K.

And I'm now happy to turn the call over to Howard Lutnick, Chairman and CEO of BGC partners.

Thank you Jason Good morning, and thank you for joining us for our fourth quarter and full year, 'twenty and 'twenty conference call join.

Joining me for today's call are Bgc's, Chief operating officer short window.

And our Chief Financial Officer, Steve This guy.

I'm incredibly proud of our people and employees showed incredible resolve and determination to overcome the challenges that 2020 presented.

And the ingenuity and commitment to client service BGC performed its critical role providing transaction infrastructure and liquidity to the global capital markets and the most difficult circumstances.

Phoenix and Koreans global our newly branded.

Our insurance brokerage business each generated record revenue.

<unk> generated quarter quarterly and annual net revenue records led by a 41% improvement and Phenix brokerage revenue. Additionally, revenue growth from fenech, Standalone businesses, including Phoenix U S T and exco and loose era continued to significantly outpace our overall business and industry.

Core and also achieved record quarterly and annual brokerage revenue of $49 million and $183 million, respectively, driving the business to profitability and the fourth quarter.

We continue to see increasing productivity from recently hired insurance brokers and newly launched business lines underpinning underpinned by a hardening pricing trends within the insurance market.

Turning to BGC overall.

Last quarter, we said, we expect match last year's fourth quarter earnings I'm pleased to say, we exceeded it by growing post tax adjusted earnings by 18% and setting a new fourth quarter profitability record.

Yeah and performance and profitability came despite the continued COVID-19 related dislocations faced by our clients and the impact on our revenues as we move into 'twenty and 'twenty, one revenue growth and improving margins remain a top priority of the firm.

The company is well positioned for growth, which we will create a more profitable and technology driven business with that I'll turn the call over to Sean.

Thank you Howard and good day everyone.

As Howard mentioned, both on Phoenix, and current businesses generated strong revenue growth.

Phoenix net revenue grew 33%, while color and brokerage revenue grew 13% each setting new quarterly records. These.

These are businesses that we've invested in over the past few years as we aim to digitalize and diversify our more than 2 billion dollar revenue base.

We then on voice hybrid business, we had strong growth across European governments, and credit bonds Asian bonds U S and European inflation products, as well as and U S and European equities.

The group's fixed income agency brokerage business, which says a broader client set also outperformed.

This growth was offset by low revenues across European listed rates and emerging market credit and FX products.

BGC is uniquely positioned to capitalize on accelerating electronic execution trends.

Compared to other platforms, we have a significantly higher revenue base with digitalization.

Compared to other wholesale brokers and we have a substantial head start and digitizing parts and the OTC markets, including through our newly built standalone electronic platforms.

And then ex U S Treasury and Phenix go to have on new a fully electronic offerings achieved record volumes during both the fourth quarter and full year 2020.

Ben and she was treasuries ended 2020 with 16% club market share and grew volumes by 66% against the backdrop, where primary dealer U S. Treasury volumes increased by only one 6%.

Phoenix U S. Treasury is the clear and number two U S Treasury club.

We view recent consolidation in this space are proof of just high successful and imports and our platform has become.

As an example over 70% of all Phenix U S. Treasury trades in the fourth quarter were executed at tighter price levels only offered on the Phenix U S Treasury platform.

T bills launch on the Phoenix U S T platform and the end of the fourth quarter and we plan to launch U S. Repo is by the end of the first quarter of this year.

Going into 2021, we have optimized our Phoenix U S Treasury commercial agreements, which will drive revenue growth.

And he's go trading volumes increased by over 600 per cent from a year ago, driven by strong performance and its euro Stoxx 50, and Nick I to twenty-five index options offerings as well as recent launches of additional European and Asian index option products.

And he's guy who's the only anonymous multilateral and electronic platform for block size listed equity options, which delivers a unique advantage providing trade as best execution.

And as well as benefits to compliance offices, who need to validate these requirements.

Our data software and post trade businesses, which are predominantly comprised of recurring revenue grew by nearly 15%.

Collecting strong performance across several of our businesses as well as the acquisition of alchemy.

Phoenix market data had solid growth and both the fourth quarter and full year 2020, selling a record number of new multiyear contracts throughout the year.

Blue Sara one key new clients and crosses connect and Lee markets offerings, driving revenue and 45% higher in 2020.

Advancing on this success Lucerne expanded its lead offering to rates products with the potential to scale to other asset classes and the future.

Capitalized and the matching business can continue to increase its market share throughout the year growing revenue by 27 per cent for the full year.

The state of the art technology and trading protocols underpinning all Standalone phenix platforms were designed to scale across multiple products and asset classes.

For example, we launched electronic Asian, and yet this quarter, which Leverages <unk> technology.

We also plan to launch repos, this quarter and utilizing the Phenix U S Treasury platform.

With European government bonds to follow.

And then he goes technology is scalable across all listed options fixed income and commodities products.

As we continue to digitalize, the existing businesses and grow on a standalone and Phoenix platforms on profitability and margin profile are expected to continually improve.

With that I'm now happy to turn the call over to Steve.

Thank you Shaun and Hello, everyone.

As reported in today's earnings release total revenue for the fourth quarter was down one six per cent.

Reflecting lower FX and rates revenue as well as lower fees from related parties.

Partially offset by higher revenue from insurance broking and.

And the derivatives and cash equities as well as data software and post trade.

Our revenue by geography saw higher Europe.

And Africa revenues, which increased by five four per cent humira.

The Americas were down by $13 four per cent, Oh Asia Pacific revenues declined by two two per cent.

By asset class and energy and commodities equity derivatives and cash equities and insurance increased by 0.3 per cent seven per cent and 12, 8%, respectively, while rates credit and FX were down by three 9% to two per cent and eight 9% respectively.

We continued our optimization and front office head count and cross less profitable businesses, which lowered revenues and the short term and increase profitability during the quarter.

This led to an 8.4% improvement and average productivity of our financial brokers and salespeople compared to the fourth quarter a year ago and.

Additionally, pandemic related Lockdowns and can continue dislocations across the globe weighed on our overall revenue.

Moving on to Phoenix This quarter appendix generated record quarterly net revenue of $83 $3 million and improvement of $33 four per cent.

This was driven by record phenix brokerage revenue of $62 $4 million and increase of 41% and <unk>.

Data software and push weighted growth of 14 per cent.

Penetrates and FX were up 51, two per cent and 125, 9%, respectively, driven by Spanish and grid.

So that makes rates growth was driven by euro and U S rates products, including government bonds and interest rate derivatives and insulation products, what ethics growth was primarily driven by FX options and spot FX.

Core and our insurance brokerage business achieved record quarterly brokerage revenue growing by 12, 8% and term profitable on the fourth quarter driven by improved productivity from previously hired brokers and hardening insurance pricing trends.

And in aviation and aerospace business peak, one key new clients driving its highest ever quarterly revenue and believe foundations for strong growth going forward.

Moving on to expenses, our compensation and employee benefits expense on both GAAP and adjusted earnings decreased as a result, and lower commission more revenues and lower head count as well and cost reduction initiatives that were executed in 2020.

Compensation expense under GAAP, and flex $1.6 million of charges related to cost savings initiatives for the fourth quarter.

Yeah.

Our non compensation expenses decreased primarily due to lower selling and promotion and low professional and consulting fees.

The decline and these expenses was due to a continued focus on tighter cost management as well as the impact of the COVID-19 pandemic.

The decreases and these expenses was partially offset by an increase in interest expense driven by the $300 million of 4.37, and 5% senior notes due 2025.

Lower interest expense on a revolving credit facility, which was repaid in full during the third quarter of 2020.

Moving on to where adjusted earnings on a pretax income was $8 $1 million and increase of $9 four per cent.

We achieved record fourth quarter post tax adjusted earnings of $73 $6 million of 18 per cent from 2019 and record fourth quarter, adjusted EBITDA $107 $9 million and improvement of $32 eight per cent.

Turning to share count our fully diluted weighted average share count increased by 0.8% sequentially to $553 6 million under adjusted earnings in the fourth quarter of 2020.

Okay.

As of December 31, 2000, and 'twenty, our spot share count was $553 2 million and an increase of 0.9% sequentially.

We expect to use relatively more cash with respect to compensation and acquisitions to minimize dilution.

With respect to our balance sheet.

And as of December 31st 2000, and 'twenty, our liquidity was $652 $6 million compared with $473 $2 million as of year end 2019 and.

And the increase of $179 $3 million or 37, 9%.

Cash and cash equivalents were $593 $6 million versus $415 $4 million as of year end 2019.

It's payable and other borrowings were 1 billion $315 $9 million compared with 1 billion $142 7 million and total capital was $828 $9 million compared with $748 $6 million.

Yeah.

The euro and balance sheet figures reflect the issuance of $200 million of 4.3 75 per cent senior notes to 2025.

Hey down on our revolving credit facility and full.

$44 million of tendered and $5, one and two five per cent of senior notes due may of 2021 and.

And wasn't there and movements in working capital.

And your on balance sheet also reflects significant investment and new hires across our core businesses capital expenditures and Phoenix.

And as well as costs associated with transitioning our workforce from office locations to new virtual and remote work environments.

It also reflects charges associated with low cost reduction program executed in 2020.

During the fourth quarter, we identified a theft of U K tax payment related funds from the company.

Staff, which occurred over several years ending September 2000, and 'twenty was perpetrated by two individuals associated with the company and did not involve the operations or business of the company.

Litigation has commenced against the two individuals seek recovery of Stonehouse.

The consolidated net loss under GAAP caused by the theft has been determined to be approximately $35 $2 million.

We expect to recover most where substantially all of the storm funds through a combination of insurance and return of assets through litigation.

The amount of loss was not material to any prior period financial statements. However, given the cumulative adjustment to the current prior period current period prior period GAAP financial information has been revised to reflect this loss.

Well as any other previously unrecorded immaterial adjustments.

The financial information reflects this revision for 2019 and applicable quarterly and comparison periods.

As well as the first three quarters of 2000 and 'twenty.

Neither the loss northern divisions impacted non-GAAP pre tax adjusted earnings in any period.

And the impact of the theft on GAAP income before income taxes was $13 $3 million and $10 $8 million for the full year of 2020, and 2019, respectively and the balance was reflected in prior periods and.

And with that I'm happy to turn the call back over to Howard.

Thank you Steve.

Turning to our capital allocation plan, we will prioritize share and unit repurchases over dividends and distributions. However, we will look to increase our current dividend, perhaps one cent towards the end of the year.

With respect to our potential corporate conversion, we continue to await insight on the new administration's U S federal tax policies.

Turning to our outlook for the first quarter of 2021 compared with a year earlier.

<unk> revenues.

And were approximately 1% higher year on year for the first 34 trading days of the first quarter of 'twenty and 'twenty one.

This comparison does not yet reflect the latter part of the first quarter of 'twenty and 'twenty when significant levels of market wide volatility and trading volume Spike and connection with the onset of the COVID-19 pandemic during.

During this period, which was at the end of the quarter last year <unk> revenue was approximately 25% higher versus that same period in 2019.

Should global vaccination efforts prove successful and containing the virus and we expect our clients return to the office to improve our performance.

Looking forward for our first quarter guidance.

We expect to generate total revenues between 540 and $590 million. This compares to $603 $2 million last year.

We anticipate pretax adjusted earnings to be and the range of $102 million to $122 million versus 112 per $1 million last year.

We anticipate our full year 2021 adjusted earnings.

Earnings tax rate be and the range of 10.

And the 12% as compared to 11% for the full year of 2020.

And with that operator, we are available and open the call for questions.

We will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad.

If youre using a speakerphone please pick up your handset before pressing the keys.

To withdraw your question. Please press Star then two.

At this time, we will pause momentarily to assemble our roster.

Yeah.

Yeah.

Yeah.

And our first question comes from Rich Repetto of Piper Sandler. Please go ahead.

Yes.

Morning, guys and good morning, Howard and Sean and on Steve.

Congrats on the strong revenue growth and Phenix brokerage and I guess, you know just the zone and on the rates and particularly you know strong I think it was up 51% I think is what you said.

Phenix rates, but you mentioned that consolidation are sort of and.

And what do you call legitimize the value and the space.

I was wondering how you know could you comment on that you know having a competitor.

Maybe and improve competitor and.

And the space you know, how that's going to impact you and then where do we stand on ever getting margins are in the Phoenix overall.

So category or segment.

So.

Number one.

And you've now emerge.

And number three player and the number four player and the space.

To merge and so so first point day as we gone are they were bolt and business for <unk>.

Way way way and longer periods of time and we have.

Blown past them in terms of market share and volumes and and our view value.

Step two for them to bring that liquidity together will be a significant task, which I think day have said we.

And we'll take them more than a year and potentially two years to integrate their.

And their technology, so I think while they're trying to do that it's very difficult for them to dramatically improve either of the systems. So that gives us plenty of time to continue to build on market share and volume and value and yes, well then.

Are they a big competitor of course, they are but they've been a good competitor for years before we announced from years before we open and for the last couple of years that we've been open and and that has not stopped us from going and dramatically growing our market share right past them. So I think we have validated our ability to compete and our ability to <unk>.

<unk> and the statistic, where 70% of our trades were done at superior pricing and alternative systems. So that defines our position and where we stand and how and why we're growing so.

So I think that that's number one number two.

We've said, we've optimized our model, which means starting this year, our all of our market participants from virtually all of our market participants are.

Entered into commercial agreements with us and on.

And now going to be paying for their system and so our revenues will start to grow and build.

We are adding products. However, that's new right, we are adding treasury bills at the end of the fourth quarter.

Adding repos this quarter, we're gonna add and European government bonds, where you're gonna take our system and March this system across the rates.

Environment around the world and I think we're going to add tremendous value to our clients and to our shareholders. So I think from a perspective of value. We have made a massive investment over many years.

And our and our rates technology and franchise and that is starting to pay off now we are going to continue to grow it and build it and I think we're going to build tremendous asset value.

And for our shareholders here and and I think that consolidation just proves the fact that Phoenix is here to stay and Fedex is a powerhouse and the rates club market.

And any comment on the you know when we could expect margins for the overall Fedex segment.

Well I think I think we've tried to articulate and the path. So phenix integrated is a.

The model from Fedex integrated as the business has to have 25% margins.

On the electronic businesses are remember they we have started to charge more when we say we've commercialized, meaning our clients are starting to pay market rates.

And that is just offset by our continuing to grow our new products and new and new areas on the business. So.

But our business and Phoenix for a standalone business as we expect when they are when they are fully are sort of at all.

How're, we expect their margins to be commence.

Commensurate with the other fully electronic systems out there basically and the and the 14th and 15th just like they are so I mean, that's the business model.

And and a sort of fast growth model and continuing to rollout new products, but you know that that we should be able to come up with and describe to precisely how that is and we are going to put that together for you and and we will do a Phoenix as I said, we will do a finished analyst day and the.

The coming months, and and really detailed and sport.

Okay, and and one last thing on the capital return policy, how would you know I guess.

Everybody has been waiting or investors have been waiting till after sort of a new mark sort of restrictions to lift but to get on a more and.

More detailed quantitative guidelines on the capital return or the buyback and.

You know I think we already had and the message that you'd prior I think you'd prioritize repurchases, but is there any way you can quantify the amount of repurchases on how much capital overall and say net income Ah you expect used to talk about a dividend and 75% payout so how can.

We get our arms around how much you're going to repurchase.

And a little bit more detail.

Okay. So look I think the stock is undervalued and so.

And my opinion the stock here is undervalued and therefore I think our actions are going to be when we do acquisitions, we're just going to pay more cash when we compensate our employees. We're just going to pay more cash both of those will be reduce the issuance of the stock and then we're going to buy back share.

So those three things together will will be you know as compared to our path will be a capital return of us using our earnings to buy back shares and we we think the stock is undervalued I did say and we're going to favor that over dividends, although I did say well well, perhaps raised the dividend and towards the end of the year.

Here are around the panel.

But I think we're going to we're going to focus on growing our Phoenix business and investing on our furniture business, but beyond a growing and investing on our Phoenix business, we are going to be focused on.

Anti dilutive measures.

And buying back shares because we think they're undervalued, but I'm not really quantifying it.

Because I just don't think that's sort of what I'm supposed to do today other than to tell you that I plan that the company.

<unk> intent is to do capital return policy focused on reducing its share count and buyback shares or reducing its issuance and otherwise.

Oh, Okay. I mean liquidity went up nicely you know approximately 100 million quarter over quarter.

And I guess.

And I don't know when the restrictions actually lifted but like.

You know I think investors do you know I'm trying to get their arms around how much you would repurchase you know how much he's got a need to go towards our two employees too.

Offset dilution and so forth because.

It's just hard to model.

Our model and shout, unless we have some guidelines and.

And so I think look I hear the question and I don't know if we're ready to to model that out I would I would tell you that.

And we.

We're constrained from buying back shares both from the Newmark model.

And then are.

The fact is we had after the quarter until today when we do our earnings we don't buy back shares because.

We just don't that's a window was closed so starting tomorrow and the firm is capable of doing what it wishes to do and then over the period over the next couple of quarters. We will try to help you understand our level and our scale of these things, but I have tried to be clear.

I think the stock is undervalued and we want to buy back shares reduce share issuance by and compensation and reduce share issuance by doing acquisitions and cash and you've got to put those three things together, coupled with whatever we're going to build and Fedex and what kind of what.

And what we need to build with respect to Phenix. If there is such a thing and capex.

Which should be rather muted I would think going forward.

And as compared to this year I wouldn't think it would materially grow and my opinion. So therefore, I think we will have our earnings available to.

And to pay our dividend distributions by the way will be.

Consistent.

So R R.

And when I say dividend I'm also intellectually trying to match the concept for our for the partners and distributions as well.

Got it thank you all and I'll get back in the queue.

Once again, if you would like to ask a question. Please press Star then one.

And our next question comes from Patrick O'shaughnessy of Raymond James. Please go ahead.

Good morning to follow up on your last response Howard can you give any quantification around your expected cash flow needs for forgivable loan grants and capital expenditures in 'twenty and 'twenty one.

I would say they both should decline.

And I think our capex will be lower and I think our.

The amount of employee loan balances are that that rate of the.

And the amount we gave last year will be lower and our expectation from 'twenty, one and so both things will be reduced and therefore, we will have more cash available.

On.

And to buy back shares.

Okay got it.

Can you give an update on the strategic plans for your insurance brokerage business, our core and.

Obviously that was I think something you kind of contemplated does it make sense as part of BGC partners doesn't makes sense under another owner where does that discussion stand.

So as I as I've said.

We.

We are open minded would be the right way to say it we like the business a lot. We are we our brokerage experts and this is a brokerage business and.

And we've made the investments and that business.

It is now profitable we've made great hires.

That we think will drive our profit going forward.

But as I've said, we were we were interested since I think the stock is undervalued.

If there's a transaction out there.

And that would.

Enable the company that to gain a substantial amount of money and to buyback our shares at a material and substantial way that that sounds good to me too. So I think we are the right way to say it is we are completely open minded and we act accordingly.

Got it and then speaking on that business.

Imagine you had pretty decent line of sight into increased productivity from recent hires do you have a preliminary expectation of how you expect that business to grow on the topline and 2021.

I don't think we discussed 2021, we have said I think is that we expect over a period of a couple of years, we expect that the the company to grow to $300 million and revenues and.

And to reach industry standard margins, which would be 15%.

So I think those are our expectations are.

That is not my expectation for 'twenty and 'twenty one.

But it is a and is a multiyear objective.

Objective you can see the rate of growth that we've had at 12, 8%. So it gives you a sense of the growth rate, but we expect to reach industry margins of 15% and.

And then we will exceed them thereafter, but.

And we will get to that which would be 300 million growth from 45 million net.

Got it.

With your new commercial agreements with Fedex U S. T that you signed can you quantify the magnitude and the expected incremental revenue from those new agreements.

Well remember what we've said in the past was that we had spent and 2020, but $40 million and.

And new systems, right and these new platforms.

And we expected that number.

On to drop materially and that would be.

From revenue, obviously from revenues it could be from I guess technically it could have been from a reduction and cost as well, but our expectation and as you've heard is that when you go on to continue to roll out systems, and so we had the expectation and.

And our revenues.

We feel really really good about the way things are playing out so I think our expectations were.

And we would improve things about $40 million.

And we'll see how that plays out through the course of the year that certainly with our expectations and that that of course was without rolling out all of these new systems. So we're going to be continuing to rollout systems, but we want you to understand that the underlying business as dramatic as dramatically improving economically.

And we said that last year on and I think we expect that business to those businesses to dramatically economically improve the bottom line of the company and 2021.

Okay.

For the.

Overall company. So this would be a voice hybrid plus phenix.

On the outlier if I'm looking at in 'twenty and 'twenty is the foreign exchange business revenues were down 15% in 2020 year over year that was on top of a 7% decline in 2019, what are the dynamics going on right now in foreign exchange and.

Is it cyclical and as such that you would expect a rebound or are there some structural things going on that create headwinds.

I think actually Patrick two things number one is as we've mentioned before our FX.

On our FX offering.

And it has a.

Big piece of it is and the option offering which has been a in a sort of a cyclical.

On a more of a decline over the last year or actually seeing now is our is is that returning to more normal levels. So we feel very good about that.

And secondly, within our within our.

Spot foreign exchange business I think pulling on from what Howard said, that's a business that we've developed and <unk>.

Vesting over the last few years and again, we expect that business to grow this year. So one of it one is sort of structurally and where our strengths where and in 19 and 20 and we expect that to not increase again in 'twenty one.

Got it.

Expense question for you guys.

How are you thinking about the progression of non comp expenses over the course of 'twenty 'twenty, one and I think particularly some pandemic related expenses may start to come online and the back half of the year.

Okay.

We obviously, we obviously benefited and one word, but our number and certainly reflect depend on that because you would expect but we.

Or are laser focused on.

And on improving our margins and while we're focusing on compensation, we're certainly focusing on our non compensation costs as well.

Line by line, and then making sure that we're doing everything possible to keep our belt as tight as possible and then and operated sufficient as possible. So we're being very very careful.

I would expect that we'll see some pick up of course on the expenses as you would expect is as we get back on some level of normalcy, we should take a little bit more time, but we are certainly leaves.

Laser focused on at all levels throughout the organization.

And to optimize our performance and really that comes down to improving our margin which is critical.

Got it and then last one from me.

On the $35 million of theft that you spoke to what does it imply about your systems and controls that are adapted that magnitude could persist for as long as it did.

I don't think there's anything else that we are prepared to.

And at this point and as I mentioned with Boston and all the steps involved beauty tax payments.

Certainly and unfortunate event.

And the loss was not material in any period.

We don't want to some just on just discuss.

And now, but I will repeat and definitely expect to recover most or substantially all of the wash through insurance and and the return of assets and litigation no question about that.

In addition to what we what we said today, what we had and the press release and what wasn't prepared remarks there'll be some additional information contained in our 10-K and.

And we filed that.

Okay. Thank you very much.

Thank you.

The next question is a follow up from rich Repetto of Piper Sandler. Please go ahead.

Yeah.

Hi, guys I just wanted to follow up on the FX, a little bit closer I see the year over year decrease, but when you look at the electronic panic side of the FX a that's one of your top performers you've seen a big.

Step up from Q2 of last year on and the electronic our Phoenix FX side. So can you just talk about what's the differences on low.

The Phoenix FX is doing so well versus overall FX numbers, you know on a much softer.

Yeah sure I think I think that plays nicely into how I tried to answer before which is which is in the on the Phoenix side on the electronics side, Yes, you're absolutely right and that's where we've invested part of our new businesses.

The new spot business and and the migration of some of our FX business to electronic Phenix and Phenix integrated.

But on the offset of that.

Two things number one is as I've mentioned, our folks are on one of our strength was in the FX option space, which was a cyclically weak during two days from 'twenty and some of 19 and and also you may remember that it was a a part of our business that are.

In in China that we spoke about back in Q3, So you would have noticed that.

That business and we were where we are facilitating banks in.

And in China on the to the onshore offshore market that business actually is now being done in house as we mentioned and in Q2.

So that that had an effect in 'twenty, but of course not will not have an effect in 'twenty one.

Got it that's helpful Sean.

And then another on the 10 X businesses are when you look at rates and credit are very interesting you know just approximately eyeball on it but you're you're about a quarter or on the panic from electronic rates and credit.

Trade webs revenue in those categories as well.

But the one thing that I'm picking up is that on the credit side, it's almost the reverse of ex FX. The credit electronic Phenix revenue on that is down year over year and could you just talk a little bit about you know the progress you're making or is that again. Your overall Fedex revenues were up strongly but credit.

It looks like.

Was down year over year, and Q4 and I believe it's down.

Year over year overall.

Yeah, Thanks, Craig and I could give a bit yes sure.

I think to give a give a little bit of color on on that and Oh.

Sunny during 2020 on.

On the on the on the without finished credit revenues and I think I mentioned it in my in my prepared remarks, and some of our fixed income agency brokerage business, which obviously agree which is which is more.

And that's grown on the on the more voice hybrid side than on the on the credit side. So again, that's just a mix, but what I think I would focus on as is.

Our platforms and the capability that the platform is that that's very much June 2020 being client led.

In terms of in terms of that decline requirements of our of the voice aspect of all of the IDB and I think.

I think where again as part of my prepared remarks, where we feel incredibly confident is.

And where we've been able to provide those services from a voice perspective. During 2020 went on when when our clients have needed. It during June.

And the volatility caused by the pandemic.

But now I know that those same clients of course is a.

And as business somewhat returns to.

To more normality, and that's where the investments and the strength of our <unk>.

<unk> credit platforms will come into play.

Additionally, rich Additionally, rich we.

And in.

In 'twenty and 'twenty, we made an investment and Allegany, which was a credit aggregator for the buy side and and as we invest and that business. What that will do is that will enhance our ability to assist our clients the big banks and mark and makers.

And to transact business directly.

With our clients who are on alchemy, and that's one of our key initiatives is to create this.

And this ecosystem of our clients the banks and and market makers, who are already integrated and connected to our system to bring on buy side, which we have as we said and we have a nice agency business.

Pretty incredible agency business in Europe, but now with alchemy, and we're going to be installing that technology across the buy side and enabling our sell side clients and market makers to transact business directly with the buy side and.

Youre going to see as that as we invest and that business and as that business grows our credit business because thats a focus on that business is on credit our credit business will be enhanced and we will be really interesting intellectual competitor to market access.

And that's a gigantic market, it's an enormous enormous market and we will just be in that space and a better way and I.

I think we will we.

We will harvest substantial returns for our shareholders.

Okay.

Last question from me.

The equity based comp so what was excluded between GAAP and adjusted.

Approximately $80 million of equity based comp and.

For Q and I know overall share dilution wasn't as.

Big as in years past.

And it's still at 80 million and excluded and it was a big jump.

Jump and I know, what your euro, but Steve can we go into a little bit more of a detail of you know the driver on the.

And that big number and <unk>.

Sure sure rich that that is mainly driven by exchange ability.

And there is and <unk>.

They see and Q4 and it was about $11 million more and I believe and check the number exactly but it means it's about $11 million more from last year's level.

It's comparable to last year, but youll see coupons and typically our biggest quarter with regard to changeability.

And that's not true.

And.

So rich remember exchange ability is literally letting our employees sell old units that are already on the share count. So it's not really on a share count issue and then we get a tax deduction for it and that's why our tax rate is where it is so this is so wireless if you.

You are right of course, its compensation and then and it goes against our GAAP earnings since it doesn't change the share count, it's really harvesting of <unk>.

Previously issued shares that already and the share count and getting our tax deduction, which we focus on obviously at the end of the year to meet.

Yes.

So we have on our tax rate that we had expected.

On understood that's helpful and that's all I have thanks, thanks, guys.

Thanks.

This concludes our question and answer session I would like to turn the conference back over to Mr. Lutnick for any closing remarks.

Thank you all very much and we look forward to updating you again next quarter. Thank.

Thanks, everyone and have a great day to day.

The conference has now concluded. Thank you for attending today's presentation and you may now disconnect.

Yeah.

[music].

Yeah.

Yeah.

[music].

And then.

And.