Q2 2019 Earnings Call
First incorporated second quarter 2019 earnings call.
My name is Sonia and I'll be your operator for today's call.
At this time all participants are no listen only mode. Later, we will conduct a question and answer session.
During the question and answer session. If you have a question. Please press Star then one on your trash trucks. So.
Please note that this call is being recorded.
I will now turn the call over to you Dorsey Wright Vice President of Investor Relations you use all the T. Rowe you may begin.
Good morning, we should be seeing second quarter 2019 financial results press release and presentation summarizing. These this morning, you can find the the IR Dot BGC partners dotcom.
BGC spun up all of the shares up its former subsidiary Newmark held by BG seat to the start of the BDC on November Thirtyth 2080, because BG two did not owning shares of Newmark as of year end 2000 Yankee Numerex results are presented as discontinued operations within Bdcs consolidated results for all periods through the November Thirtyth 28 in spin up. The numerous is also not included in Bdcs consolidated results present, just after the spin off.
Unless otherwise stated all financial results and outlook discussed on todays call reflect only continuing operations a BDC and therefore was not matched the results and tables in the company's press release for the second quarter of 2018 dated August seconds 2018.
Unless otherwise stated the results provided on todays call compare only the second quarter of 2019 with the yard <unk> period, we will be referring to our results on this call. It only on an adjusted earnings basis. On this otherwise stated we may also refer to adjusted EBITDA, we refer to as liquidity, which we define as cash and cash equivalents marketable securities.
Not being financed reverse repurchase agreements and securities don't let securities loans and repurchase agreements redefined until the capital is removed partnership interest total stockholders equity and non controlling interests himself juries. All non-GAAP results discussed here in the comparable two and reconciled with the most directly comparable GAAP figures from Bdcs concerning operations.
Please see todays press report results under generally accepted accounting principles. Our gap do you also see relevant sections in the back of today's press release for the complete an updated definitions of any non-GAAP items reconciliations of these items to the corresponding GAAP results and how when and why management uses these such terms.
Additional information with respect to our GAAP and non-GAAP results mentioned on today's call. It is available on our website at IR don't BDC Barton Dot com and in our Investor presentation.
We refer to the company's fully electronic business is that fair.
These offerings and good are fully electronic brokerage products as well as the sale of market data software solution and post trade services. I also remind you that information regarding our business on todays call that are not historical are forward looking statements within the meaning of section 20 Sevena of scaling back at 933 as amended and section 20 Onee of Securities Exchange Act of my 34 as amended.
Such statements involve risks and uncertainties, except as required by law PTC undertakes no obligation to update any forward looking statements for a discussion of additional risks and uncertainties, which could cause actual results to differ from contained in the forward looking statements see bdcs and SEC filings, including but not limited to the risk factors and special note on forward looking statements set forth in our most recent 10-K and updates contained in subsequent Form 10-Q , our form.
Good fun I'm not happy to turn the call over to Howard not Nick Chairman and CEO OPGC partners.
Thank you Michelle good morning.
Thank you for joining us for a second quarter 2019 conference call with me today are Bdcs President short land, our Chief operating Officer interim Chief Financial Officer, sharpened, yet and our Chief Accounting Officer, Sean Calvin.
Our revenues improved 12% year on year, despite challenging market conditions for many of our clients and the 9 billion dollar foreign exchange headwind to our public filings related to the strengthening your style.
I'm pleased to report that the company's board of directors have declared a qualified dividend 14 cents per share. This translates to between 9.7% dividend yield based on yesterday's closing stock price.
We continue to study simplifying PG she's organizational structure and are considering restructured about partnership into a corporation.
We intend to provide an update on this analysis before the end of the year.
Lastly, we are actively searching for chief financial officer for PGC and to add talent to our Pfenex finance team.
With that I'll turn the call over to Charlotte.
Thank you Howard and good morning, everyone.
Energy and commodities.
Good by 30%.
Organic growth and acquisitions approach and thinking that franchise.
Partially offset upscale CSC I'm sad to see too much.
Revenues from equities insurance and other asset classes.
Increased by 19% due largely to the acquisition of it broke.
Turning now to settings.
Thanks revenues from out high marching tighter software and post trade business were up by 22% the culture and 20% in the fast huh.
Compared with the right.
Penix net and total revenues improved by five and 10% respectively.
We expect to benefit in a secular trend towards more electronic trade increased onto market. Thanks.
And the need for increased automation and post trade services.
We continue to onboard new clients as opportunities created by electronic an algorithmic trading continues to transform an industry.
Thanks is the future of BGC.
You know what does it help you better understand how we are building towards that future.
Sean will quantify the financial impact of our investments in new findings offerings later in the call.
Here are some of the many succeeds youve recently rolled out we expect to launch in the near future.
I finished ethics and transparency.
Including our expanding me thanks offering.
Spots.
Over its options and mdx.
Penni spoken auctions or finding Scott.
And you electronic trading.
The arrangement and execution exchange listed futures and options.
We share up.
We sat software defined network offering the trading community direct connect to see to each other.
I can't answer that post trade business, which office compression services.
Designed to bring greater capital and operational efficiency, the global derivatives market interest rate and equity options interest rate swaps Mdx and in addition initial margin optimization.
And with me client solutions initially for U.S treasuries and that's it.
Which helps I catch trade electronically across Oh and other platforms.
And I think she was trisha.
Which continue to gain market share during the quarter.
Hi, some Greenwich data clinics U.S. treasury share essentially the board of trade off on the non U.S treasuries has grown from zero to 5.2% in June 2019 can pay for the year.
Quote unquote finished she was treasury volumes up nearly 90%.
We have the scale and breadth of technology, the connectivity to what was trading cards and the ability to add new products.
The opportunity presented to the company has never been better.
We are excited about the prospects of our investment businesses and the traction they have already got.
Over the next few quarters, we anticipate providing additional detail I fully electronic products assets.
We plan to host.
Phenix Analyst day shortly after full year 2019, not was not released.
Please stay tuned for more information regarding this.
Which will be my colleagues.
With that I'm now habits in the club channel media.
Thank you Shawn and Tonight, we want.
Our quarterly revenues increased by 12.2% $551.2 million.
Asia Pacific revenues improved by 32.5%.
Europe Middle East Africa was up by 10.7%.
While the Americas were up by 5.7%.
Overall revenues would have been approximately $9 billion higher.
The relative strengthening of us dollar.
This currency headwind was approximately $2 billion greater than we guided on our last call.
We currently anticipate a $4 million to $5 million currency headwind in the third quarter.
With respect to expenses compensation increased by 15% largely as a result of higher revenues.
Our quarterly compensation ratio was 52.4%, which is approximately 120 basis points higher than a year earlier.
As we've said previously our revenue peppered you set a compensation ratio metrics can be impacted during periods of rapid head count growth.
This is because both new companies and broker sales people can take time to achieve their full potential in terms of productivity.
Number of produces cross breed BGC increased by 14% year on year.
As of quarter end, driven by by acquisitions and hiring.
[noise] Bdcs noncompensation expenses increased by 15.6% to $162.2 million.
Our overall expenses were up by 15.2% to $451.2 million in the quarter.
The increase in total expenses year on year was primarily driven by.
The impact of higher revenues on variable compensation.
The impact of recent hires in acquisitions.
An increased interest expense, primarily with respect to the $450 million senior notes due 2023 and borrowings on our revolving credit facility as well as the impact of increased discretionary investment with respect to the new fence businesses, some of which should refer too.
Cool.
In order for you to better understand the Fenix business, we think that its helpful. If we break it down into two categories.
Our established fenix electronic offerings, and our investments in new platforms and services some of which short listed earlier.
Our investment products, all by definition, not yet fully up to scale or not yet generating significant revenues.
We expect our net loss relating to our fenix investments to be approximately $50 million in 2019.
Which of course is included in both our results and guidance.
If one excludes these investments we believe that our established FENICS businesses will have margins generally comparable with trade webs recent non-GAAP results.
Moving onto our earnings.
Our pre tax earnings before non controlling interest in subsidiaries and taxes were $102.3 million compared with $101.5 million.
As we integrate our recent acquisitions and continue to increase revenues from Phoenix, we expect our profitability to improve over time.
Our adjusted tax rate.
Our tax rate for adjusted earnings for the quarter was 11.7%.
Taking our year to date right to 11.5%.
This was consistent with our full year outlook of between 11% to 12% slightly higher than the 11.1% we recorded in the second quarter of last year.
Our post tax earnings were $89.8 million or 17 cents per share compared with $87.5 million or 18 cents.
Our fully diluted weighted average share count.
523 million, both adjusted earnings and gap compared with $560.1 million in the first quarter 2019.
In the second quarter of 2018, our fully diluted weighted average share count was 491.5 million for adjusted earnings and 322.7 million on the gap.
Our fully diluted weighted average share count on the gap may be lower than that for adjusted earnings in certain periods in order to avoid dilution.
As of quarter end, our share count was 523.2 million.
We expect our year end fully diluted share count to drive by between 2.5%, 3.5% year over year in 2019.
She is 518.8 million as of December 31st 2018.
This outlook compared to the 3% to 4% increase we had previously expected.
With respect to our balance sheet as of June 32019, our liquidity was $460.9 million compared to $410.9 million as of year end 2018.
Notes payable other borrowings were 1 billion $62.2 million compared with $763.5 million.
Book value per common share was $2.23 versus $2.28.
Total capital was $876.4 million compared with $887.9 billion.
We believe we have a strong balance sheet as our debt net of liquidity was 1.2 times trailing 12 month adjusted EBITDA.
With that I'm happy to turn the call back over to Sean.
Thank you Sean.
Turning to our outlook.
Compared with last year.
We expect to generate revenues of between 490 $530 million.
Compared with $455.6 million.
We anticipate pre tax adjusted earnings spin the range of $80 million to $95 million.
She is $89.5 million.
We anticipate our adjusted earnings tax rate to be in the range of 11% to 12% for the full year 2019 as compared to 11.7%.
For full year 2008.
Our outlook assumes no material acquisitions buybacks, a meaningful changes to the company stock price, we expect update guidance towards the end of September .
With that operator, we would now like to turn the corner questions.
Thank you we will now begin the question and answer session. If you have a question. Please press Star then one on your touched on.
If he wants to be remaining from the queue. Please press the pound sign where the hash key if you are using a speakerphone you may need to pick up the handset before expressing that numbers. Once again, if you have a question. Please press Star then one on your Tushar.
Our first question comes from Rich Repetto of Sandler O'neill. Your line is now open.
Yes, Hi, Howard and Sean Sean.
I guess the first question is on the Pfenex revenues.
You had big increases in the data software and post trade revenue.
Revenues.
Also on the intercompany side as well so could you just talk about.
You know you mentioned a little bit in the prepared remarks, and also why the big jump intercompany as well.
Yes sure so.
Clearly.
He was a strong quarter for us on the one of our big areas of focus which is Oh, the data business such as you say.
And.
A strong focus on that and strong growth this quarter.
As you say.
20%.
And then with regards to with regards to the <unk> our intercompany growth.
Oh, we have a fixed business is providing a more technology solutions to a to a greater number of our desks.
And we roll a lot of that during Q2 of this year.
Okay.
All right.
No I guess question for Howard.
Well, you mentioned about up but looking at or considering restructuring their partnership.
Into a corporate corporation and I was just trying to see you know get more of the insight or the what you could say.
How might what how it might impact either capital structure or your unique comp structure or tax or just a little color on.
What you're evaluating and when what's the at least the initial impetus to do this.
A couple a couple of things so.
One simplification a would be a key objective for us.
We continue to hear from shareholders that they like.
The company to present itself in a more simplified form obviously, if we switch to corporation.
Just regular corporation it would be more simple.
We are studying how best to convert our partners and the retentive nature of the partnership into Corporation.
A restricted stock, but I think we are we are getting more and more comfortable with how we would do that and we are studying.
Exactly how that would impact or.
Each and every line item for us, but we're just studying it.
But.
You know we are our goal is to simplify a and I think our shareholders will appreciate simplification. So thats why we are doing the work on it and.
I.
I think we're learning and studying each and every line, but as I said last time, it's surely on the table and we just wanted to make sure you understood that we do a lot of work on it with the objective.
To present ourselves much more straightforward much more so.
Okay.
Last question for me would be on.
Pfenex and I'm not sure whether you'd mentioned this.
This call, but you certainly talked publicly about.
Hi, Rana CFO .
And I guess could you go through the timing of it.
Are we closer or do you have any potential candidates and.
Yeah, I guess the status there.
For CFO for Fedex.
So we are we are interviewing both for a CFO for DTC and in that process. We are also looking to strengthen our Fedex team.
CFO at more.
And more.
Finance.
Analytics with respect Fedex.
Our objective is like we did today, yet Sean went over the.
The economics that we are spending $50 million on investments in new business.
What that means that.
But for those investments or our earnings.
For the company and for Fedex, I wouldn't be $50 million, but they are not.
These are not part of investing and.
The operations of our FENICS businesses, our new businesses, new things to create new revenue opportunities.
For us so that's an example of a first step.
We're going to keep doing those kind of things with our objective being.
But after the fourth quarter numbers put out than we can.
I have an analyst day, where we will go at present pfenex completely be able to go into historical numbers back and historical that really do lay everything out for you and go through a real detail Jay both meeting businesses meeting that people see how we're doing.
Growing our business, but.
So that that is our objective and we will have.
Finance team in place by then ER and we will have a lot of work that weve seen good candidates. We just have to make sure we finish the process that we select correctly.
And.
We are excited about the prospects.
Okay. Thank you.
I'll get back in the queue.
Thank you and again, ladies and gentlemen, if you do have a question at this time. Please press Star then one on your touch on telephone. Our next question comes from Patrick O'shaughnessy of Raymond James Your line is now open.
Hey, good morning, guys.
I'm curious what you're hearing right now from your customers, obviously, a lot of news out there this past quarter from Deutsche Bank and.
Looking back I think most significantly on their equity sales and trading but also on their FICC business as well.
You kind of view that as maybe more unique event or do you think that major broker dealers are still continue to try to trim some of their their head count them their capital at the allocate to these businesses.
I think there are a few trends that we're seeing.
Number one we are adding new market, making clients algorithmic trading clients electronic trading clients on a on a consistent basis and that's what Sean pointed out there were onboarding new market, making clients.
That is going to crammed style competitively.
To some of the larger banks in the World right. There's just more competition in that space more clients, who are professional liquidity providers and professional traders entering the marketplace with technology. So I think.
Overall, I don't see that trend has been going for a while.
And I expect that trend to continue going forward.
You're seeing it in as an example in the credit markets right. Each yes in corporate bonds or you know algorithmic traders are now trading corporate bonds or electronically granted an odd lot size or do we expect that to move over to a route lots.
Sure. So you've got just kind of look at Fedex is good.
Right, our fenix global options.
Marketplace that we just announced look at our partners.
Right our partners, we've not seen names that are the wall Street journal or the Etsy would normally publish as biggest three in the world.
Those are the biggest three in the world.
Right you got the big three in the world, but they're not household names.
To the newspapers, they're household names to us.
We know we know who the large players in the world are but that's an example of how things are changing so I think you'll see.
Banks.
Change.
Number two.
When we meet with management of thanks.
They want to automate their business.
He wants to automate their business and they are investing in automating their business and that is good for Fedex and that is good for us. So that is a process. Some are doing it quicker than others. Some are spending more money than others, but they are all spending money.
And they are all.
Really examining how to their business more efficiently we're electronically in better I think they have 20 traders to him one set of products. They know with automation. They can do it with head over date, they know that they like to do that and that would be good for us. So I think both of those things are happening so head count decline across the traditional bank community is likely.
That does not mean that volume across our business well have April .
Can I just don't think.
When particular bank trading a little less well have anything to do with it and I guess pfenex.
Go is as good an example, she can now.
Hi, once upon a time there with banks in that top three.
And banks still trade these products lights out.
And just not large spike.
Got it and maybe to follow up on that point Howard.
Can you guys quantify maybe what percent of your revenues or how your revenue split maybe a year ago between banks and alternative market makers versus what that will look like today like has there been a material shift of your revenues towards these other newer liquidity providers.
And that shift.
That is a secular shift I mean, it's it's going it's been going up I'll take a look at seeing if we can't I don't have that off hand, I will take a look we can give you some color on that.
And in future calls, but that is a current volume of.
Liquidity.
Liquidity providers market makers electronic traders.
Is growing as a comparative percentage versus banks.
That is just the volume percentage, but we will take a harder look at it.
And we'll take that under advisement.
Yeah, Yeah, we'd love to see that quantified a little bit if possible.
And then I guess the follow up on that the second driver that you were talking about just the push towards more electronification.
Is that maybe introduce more competition in that space. So maybe as we think to electronify.
Are they may be willing to look more at some of the.
All the all type platforms that might have historically.
Not appeal to them, but that become a source of liquidity for them or are they still really inclined to use the traditional kind of inter dealer type platforms that you guys would provide.
Well the the two world so that all to all market.
Would include.
An opportunity that is that so.
Institutional clients pay.
You know pay about 220 billion Oliver Wyman did this announced 220 billion rupees annually.
And in equities fixed income and commodities.
Oh 220 billion 120 billion would be products that overlap our company.
Right, So 120 billion rupees.
Is available so all to all.
Right, which would then touched that category is such a vast and analysts see.
Right that whatever small piece of little beach.
Train, but has whatever small piece of little beach at market access has I mean, this is a bastion able to see that everyone can swim in.
And be successful each of us so.
All to all is such a big category so expansive.
That I think that will trim the business that that institutions do with banks.
It just weld $120 billion, we'll just move around.
And that is a huge pie.
Any piece of which would be great.
But that but that being said we think as.
As market participants go electronic the scale and breadth are connected.
I will spend the thing about this we spend $50 million that's on top of our massive infrastructure and management connectivity already installed by one of our businesses is Sarah we're actually literally offering.
Our software that connects.
Traders to each other.
So it's an electronic market maker wants to trade with the bank.
Right, we can provide that the data lines for them to do business with each other and not anything to do with US just use our data lines on a subscription service.
So we have that infrastructure and on top of that we're spending $50 million you would think to actually provide a spectacular.
Structure for people to trade electronically.
I think it's.
Is is really one of our great investors.
Got it and then the $50 million that you've spoken about a handful of times.
To what extent are those kind of one time expenditures as you might bring in a consultants to help ramp up the technology or its marketing spend and to what extent are those going to be.
Ongoing expenses.
As those revenues start to come in.
Well I think that they are ongoing expenses, but but of course as I said in my prepared remarks.
You don't have with those or are you a small level our revenues today. So by definition as those as the revenue comes into those those new businesses.
That's 50 million of cost decreases on full straight to the bottom line.
Okay understood.
Any thoughts on kind of.
The macro right now and how it impacts your business I think.
In Europe that you could be with talking today about maybe a first stimulus package honestly.
Look in your life has changed a lot over the last six months.
Any implications on what that might mean, I think the particular probably rates trading.
I think the landscape at the moment, especially in Europe .
With Brexit, we use the new Prime minister in the UK, It's it's makings for huge volatile market in at foreign exchange market and in the right market of where interest rates are going to come down.
And the general pressures within the European.
Political scene, so we're enjoying in some respects.
That volatility and that liquidity, that's coming to the marketplace.
There's of course, the pressures that you are putting on to the market.
With these conversations and equivalence what it means to the UK Nice Australia, what it means to Switzerland.
And that landscape so.
No that is a market for data, but I don't think this is going to side of the course of the next few weeks months he is going to play out.
For the next six to 12 months, we're going to see that nor do we have a general election. This year in the UK.
Which is going to potentially so.
So everything up India.
I'll talk a bit at the moment, that's going to be politically creates Ah yes.
They had with regards to Europe . So.
And there's a lot happening.
I think in some way, but we're enjoying the liquidity, we're enjoying the market moving as aggressively as he does do sometimes every single piece of news that comes out.
Great and then maybe one last one for me can you guys provide an update on your build out of your insurance brokerage business kind of.
He Keith stuff that you might have taken during this past quarter and kind of.
Where you see that in terms of maybe what you need on the Bill that you currently stand.
Well keep it we've done this quarter is where are you.
We moved into aviation made some significant hires in the aviation space.
We see that as a.
Great opportunity.
With regards to some of the.
Just regarding on the marketplace, which is dislodging some of the traditional.
Key players in the market and we have been able to.
Acquire and hire some amazing talent.
The cost of the past three months with regards to the aviation sector. That's been one of our main focus is as well as obviously integrating Ed.
The best so in the original insurance acquisition made which is best So eventually look at the back office cost and start to.
So to harmonize the back office and support functions and start to.
It's a great business.
But the economics of the business.
Or just.
Different than the brokerage business in that.
When you hire a broker.
The state has as we've said before they start slower than they ramp up over time, but in insurance.
He started zero.
For quite a while for almost a year and then they ramp up rather swiftly thereafter as the clients move over time to be with them. So I think it's just a.
A slower process to ramp up takes a longer period of time for it to hit full profits. So when we go into the aviation business that will have a drag on earnings in the insurance business that you won a lesser tracking your too and then basically should give you for profits out three or four so it's a slower process with one.
Talent and return it we know that we are confident our return just a a surplus.
All right great. Thank you very much.
Thanks, Yeah, I mean do you have a follow up question from rich Repetto with Sandler O'neill. Your line is now open.
Yes, Hi, I guess the follow up on the 50 million you talk about on Fedex can you talk about the timeframe Oh.
What period or are we looking at the spin.
On the spend.
Well I think rich I think in my prepared notes I said, the 50 million was the <unk>.
The net.
Net.
Net loss for 2019, but well this year.
And I'm sure listed in his prepared remarks.
A selection if you like of all of those new businesses that we were investigating and following up with what Patrick said on his question.
Is that.
One would expect of course, we expect those those businesses to starts to generate revenues that say in into in 2020 and every piece of revenue they generate goals that all falls falls to the bottom line, but that's not to say we want to continue doing.
Investing in other new things, but in terms of that $50 million. I said is already included in our guidance.
What we would expect that in 2020.
Every piece of revenue in relation to those days development business is full straight to the bottom line and as Howard said, yes, where it's not for US doing those things our earnings would be $50 million higher in 2019 right. So for example, if the U.S. treasuries.
Our our objective as market share.
Not revenue. So we will we will start to distribute our market data with respect to us treasuries.
Starting next month.
So we haven't even been distributing it.
Let alone charging for it. So this is.
You know the idea and you saw in our prepared remarks, we bring its put us at a 5.2% we did have a record market share day. This week.
Where we hit I think 8%.
Market share so.
We're getting better and better growth.
This is material growth in a in a company that only started here. So this is really going well.
But we are not seeking to maximize revenue. We are not we are seeking to maximize market share and we think revenue will come first with market Dave.
Right and then we will go up the curve, but.
But we are gaining market share and that's the idea. So each dollar of revenue when we start so market data from treasuries will fall to the bottom line.
Fenix go we just announced we spent all the money to build it.
As that starts producing revenue that will fall to the bottom line. So the $50 million is not equal that is our net loss for from a multitude of businesses.
Thank you Sarah we're side, we have signed an Mou is with I think at least a half a dozen but the largest institutions in the world and some of them. It actually started to use the service and started building we had one of the largest institutions in the world is already on other people saw that now is considering putting 10 business. So I think.
You know these are.
These are businesses that we are excited about and we think will make us.
Material amounts of money going forward, we're not investing.
These are.
Run rates with sales people.
Not just technology. These are sales people marketing people.
Business development analysts executives running businesses that are out there to build these businesses to make substantial amount of money. So this is not a one off these are businesses that we expect to make money and if we add more businesses will add more business, but this is the greatest opportunity. This company has ever seen and.
I think treasuries is just one example, we're highlighting where this company is really moving.
Very successfully very rapidly leveraging our position.
But when.
Got it and just another follow up here.
The 50 million now we would call the net loss that doesn't encompass all FENICS businesses, just certain ones that you're investing in.
Correct that is literally if we.
We consider the discretionary spend in that if we chose not to those businesses. The 50 million would go away any would have no impact on our established fenix parts.
Okay and then the last question is.
In the prepared remarks, you talked about potential margins I believe a fedex and.
You said that they would be similar to trade web on a trade web on an adjusted basis.
And I guess I guess my question Howard why do you choose to.
Comp against trade web Mike.
The margin is lets just say pre tax of 35% to 40%.
And but a business that.
You know they have significant voice brokers the significant revenues from.
What do you call.
Just processing.
Whereas other quick turn businesses.
As you know your target for Fedex back a while was 50% I believe that they are more in that.
Sort of range.
Well as as we convert voice to electronic appear as a glide path.
To fully electronic.
The businesses that were investing in those businesses covered.
Massive margin once it in our view, meaning 50% of north of 50%.
When they get to their full success.
If we achieve the full success than hoped but as we're converting our voice businesses to electronics as a glide path on the way and so.
What we said was if you took out.
These investments.
And you looked at the established businesses you have margins that would be.
Comparable to that particular company. That's all it's just it's the math of the mid Thirtys.
The reason [laughter], we didn't do it for any other reason we were talking about the future recently, saying you know you can turn our established businesses and went forward that you took out the 50 you'd see margins that were generally comparable going forward next year, we were talking about their long term this or that.
That's what we were too we were just trying to show you.
That there is substantial value that is being underappreciated in Fedex today.
And the reason you weren't seeing the margin because we are building new businesses.
Got 50 million loss at 10 times. It is a drag on our earnings and we think it is an extraordinary asset not a terrific. We think our treasury business our own Sarah business, our Phenix FX business you know our capital apps. These are things that are worth we think substantial benefit and positive.
But our job is to show you that.
By bringing revenue its obviously Sean said.
Revenues drop to the bottom line, obviously, we are going to build and things were going to grow things were going to add to that is yes, nuance to that but of course.
You know your marginal profit on every dollar of revenue from where we are now it's huge.
Got it thank you very much.
Thank you and this does conclude our question and answer session I would now like to turn the call back over to Shawn Lynch for closing remarks.
Okay. Operator, we have one mark can you just picked up one last question and then Ben.
We do have a follow up question from Patrick O'shaughnessy of Raymond James Your line is now open.
Hey, guys. Thanks. So the draws you guys have taken against your term loan facility in the last couple of quarters do you view that as a semi permanent part of the capital structure at this point or is it more just to help smooth out your cash flow and some of the seasonality of that over the course of the year.
I think we.
Well.
If we continue to make acquisitions that it would be part of our permit.
Capital structure, we will we will go bonds.
To replace the.
That.
And then.
And if we choose to.
Not too material acquisitions that we think pick cash flow improvements from our investments have the acetate.
The tour and become more established will.
We'll increase our earnings.
And enable us to pay down that over time, so I think thats really the balance we're looking at.
We plan to do other acquisitions in the space and well just replace that a more permanent capital that will be sort of part of who we are.
Great. Thank you.
Thank you and I would now turn the call over to Shawn Lynch for closing remarks.
Thank you all for joining us today, and we look forward to speaking to you again next quarter.
Ladies and gentlemen. This concludes today's conference. Thank you for participating you may now disconnect.