BGC Group, Inc. Q4 FY2020 Earnings Call

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 speakers’ presentation, there will be a Question-and-Answer session. Please be advised that today’s conference is being recorded. I would now like to hand the conference over to Jason Chryssicas, 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.bgcpartners.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 2020 with the year-earlier period. We will be referring to our results on this call only on an adjusted earnings basis unless otherwise stated. We may also refer to adjusted EBITDA. We may refer to our liquidity, which we define as cash and cash equivalents plus marketable securities that have not been financed, reverse repurchase agreements and securities owned, less securities loaned and repurchase agreements. We define total capital as redeemable partnership interest, total stockholder’s equity and non-controlling interest in subsidiaries. Please see today’s Press Release for results under Generally Accepted Accounting Principles or GAAP. Please also see the relevant section in 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 why and when 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.bgcpartners.com and in our Investor Relations Presentation. We refer to the company’s electronic businesses as Fenics. Fenics offerings include our fully electronic brokerage, Fenics integrated brokerage, our market data, software and post-trade services. We expect to achieve a pretax adjusted earnings margin of at least 25%. I also remind you that the information regarding our businesses on today’s call that are not historical are Forward-Looking Statements. These include statements about the effects of the COVID-19 pandemic on the company’s businesses, results, financial position, liquidity and outlook. Any forward-looking statements involve risks and uncertainties; except as required by law, BGC undertakes no obligation to update any forward-looking statements. Any outlook and targets discussed on this call assume no material acquisitions, buybacks, ordinary 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 in 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 in these filings and any updates with 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. With that, 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 for our fourth quarter and full-year 2020 Conference Call. Joining me for today’s call are BGC’s Chief Operating Officer, Sean Windeatt; and our Chief Financial Officer, Steve Bisgay. I’m incredibly proud of our people. Our employees showed incredible resolve and determination to overcome the challenges that 2020 presented. Through ingenuity and commitment to client service, BGC performed its critical role providing transaction infrastructure and liquidity to the global capital markets in the most difficult of circumstances. Fenics and Corant, our newly branded insurance brokerage business, each generated record revenue. Fenics generated quarterly and annual net revenue records, led by a 41% improvement in Fenics brokerage revenues. Additionally, revenue growth from Fenics standalone businesses, including Fenics UST, Fenics GO and Lucera continued to significantly update our overall business and industry positioning. Corant also achieved record quarterly and annual brokerage revenue of $49 million and $183 million, respectively, driving the business to profitability in the fourth quarter. We continue to see increasing productivity from recently hired insurance brokers and newly launched business lines, underpinned by hardening pricing trends within the insurance market. Turning to BGC overall. Last quarter, we said we expected to 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. The outperformance of profitability came despite the continued COVID-related dislocations faced by our clients and the impact on our revenues. As we move into 2021, 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 will turn the call over to Sean.

Thank you, Howard, and good day, everyone. As Howard mentioned, both our Fenics and Corant businesses generated strong revenue growth. Fenics’ net revenue grew 33%, while Corant brokerage revenue grew 13%, each setting new quarterly records. These are businesses that we have invested in over the past few years as we aim to digitalize and diversify our more than $2 billion revenue base. Within our voice hybrid business, we had strong growth across European government and credit bonds, Asian bonds, U.S. and European inflation products as well as in U.S. and European equities. The group’s fixed income agency brokerage business, which serves a broader client set, also outperformed. This growth was offset by lower 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 for digitization. Compared to other wholesale brokers, we have a substantial head start in digitalizing parts of the OTC markets, including through our newly built stand-alone electronic platforms. Fenics U.S. Treasury and Fenics GO, two of our newer fully electronic offerings, achieved record volumes during both the fourth quarter and full-year 2020. The Fenics U.S. 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 1.6%. Fenics U.S. Treasury is the clear number two U.S. Treasury Club. We view recent consolidation of this space as proof of just how successful and important our platform has become. As an example, over 70% of all Fenics U.S. Treasury trades in the fourth quarter were executed at tighter price levels only offered on the Fenics U.S. Treasury platform. T-bills launched on the Fenics UST platform at the end of the fourth quarter, and we plan to launch U.S. repos by the end of the first quarter of this year. Going into 2021, we have optimized our Fenics U.S. Treasury commercial agreements, which will drive revenue growth. Fenics GO trading volumes increased by over 600% from a year-ago, driven by strong performance in its Euro Stoxx 50 and Nikkei 225 index options offerings as well as recent launches of additional European and Asian index option products. Fenics GO is the only anonymous multilateral electronic platform for block-size listed equity options, which delivers a unique advantage, providing traders best execution, as well as benefits to compliance officers who need to validate these requirements. Our data, software and post-trade businesses, which are predominantly comprised of recurring revenue, grew by nearly 15%, reflecting strong performance across several of our businesses as well as the acquisition of Algomi. Fenics market data had solid growth in both the fourth quarter and full-year 2020, signing a record number of new multiyear contracts throughout the year. Lucera won key new clients across its connect and markets offerings, driving revenue 45% higher in 2020. Advancing on this success, Lucera expanded its lead offering to rates products with the potential to scale to other asset classes in the future. Capital Lab’s NDF matching business continued to increase its market share throughout the year, growing revenue by 27% for the full-year. The state-of-the-art technology and trading protocols underpinning our stand-alone Fenics platforms were designed to scale across multiple products and asset classes. For example, we launched electronic Asian NDF this quarter, which leverages Lucera technology. We also plan to launch repos this quarter utilizing the Fenics U.S. Treasury platform with European government bonds to follow. Fenics GO’s technology is scalable across all listed options, fixed income and commodities products. As we continue to digitalize existing businesses and grow our stand-alone Fenics platforms, our profitability and margin profile are expected to continually improve. With that, I’m now happy to turn the call over to Steve.

Thank you, Sean, and hello, everyone. As reported in today’s earnings release, total revenue for the fourth quarter was down 1.6%, reflecting lower FX and rates revenue as well as lower fees from related parties. This was partially offset by higher revenue from insurance broking, equity derivatives and cash equities as well as data, software and post-trade. Our revenue by geography saw higher Europe, Middle East and Africa revenues, which increased by 5.4%. The Americas were down by 13.4%, while Asia Pacific revenues declined by 2.2%. By asset class, energy and commodities, equity derivatives and cash equities and insurance increased by 0.3%, 7% and 12.8%, respectively, while rates, credit and FX were down by 3.9%, 2.2% and 8.9%, respectively. We continued our optimization of front office headcount across less profitable businesses, which lowered revenues in the short-term, but increased profitability during the quarter. This led to an 8.4% improvement in average productivity of our financial brokers and salespeople compared to the fourth quarter a year-ago. Additionally, pandemic related lockdowns and continued dislocations across the globe weighed on our overall revenue. Moving on to Fenics. This quarter, Fenics generated record quarterly net revenue of $83.3 million, an improvement of 33.4%. This was driven by record Fenics brokerage revenue of $62.4 million, an increase of 41% and data, software and post-trade growth of 14.9%. Fenics rates and FX were up 51.2% and 125.9%, respectively, driven by Fenics' platform. Fenics rates growth was driven by euro and U.S. rates products, including government bonds, interest rate derivatives and inflation products, while FX growth was primarily driven by FX options and spot FX. Corant, our insurance brokerage business, achieved record quarterly brokerage revenue, growing by 12.8% and turned profitable in the fourth quarter, driven by improved productivity from previously higher-performing brokers and hardening insurance pricing trends. Our aviation and aerospace business peaked and won key new clients, driving its highest ever quarterly revenue and laying 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 of lower commissionable revenues and lower headcount as well as cost reduction initiatives that were executed in 2020. Compensation expense under GAAP reflects $1.6 million of charges related to cost-saving initiatives for the fourth quarter. Our non-compensation expenses decreased primarily due to lower selling and promotion and lower professional and consulting fees. The decline in these expenses was due to a continued focus on tighter cost management as well as the impact of the COVID-19 pandemic. The decrease in these expenses was partially offset by an increase in interest expense, driven by the $300 million of 4.375% senior notes due 2025, less lower interest expense on our revolving credit facility, which was repaid in full during the third quarter of 2020. Moving on to our adjusted earnings. Our pretax income was $80.1 million, an increase of 9.4%. We achieved record fourth quarter post-tax adjusted earnings of $73.6 million, up 18% from 2019 and record fourth quarter adjusted EBITDA of $107.9 million, an improvement of 32.8%. 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. As of December 31, 2020, our spot share count was 553.2 million, 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. As of December 31, 2020, our liquidity was $652.6 million compared with $473.2 million as of year-end 2019, an 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. Notes payable and other borrowings were $1,315.9 million compared with $1,142.7 million, and total capital was $828.9 million compared with $748.6 million. The year-end balance sheet figures reflect the issuance of $300 million of 4.375% senior notes due 2025, the pay down of our revolving credit facility in full, $44 million of tendered 5.125% senior notes due May of 2021 and ordinary movements in working capital. The year-end balance sheet also reflects significant investment in new hires across our Corant businesses, capital expenditures in Fenics as well as costs associated with transitioning our workforce from office locations to virtual and remote work environments. It also reflects charges associated with our cost reduction program executed in 2020. During the fourth quarter, we identified theft of U.K. tax payment-related funds from the company. The theft, which occurred over several years ending September 2020, 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 seeking recovery of stolen amounts. The consolidated net loss under GAAP caused by the theft has been determined to be approximately $35.2 million. We expect to recover most or substantially all of the stolen 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 period, prior period GAAP financial information has been revised to reflect this loss as 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 2020. Neither the loss nor the revisions impacted non-GAAP pretax adjusted earnings in any period. 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 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 toward the end of the year. With respect to our potential quarterly conversion, we continue to assess insights on the new administration's U.S. federal tax policies. Turning to our outlook for the first quarter of 2021 compared with the year earlier, BGC’s revenues were approximately 1% higher year-on-year for the first 34 trailing days of the first quarter of 2021. These comparisons do not yet reflect the later part of the first quarter of 2020 and significant levels of market-wide volatility and trading volumes spiked in connection with the onset of the COVID-19 pandemic. During that period, which was at the end of the quarter last year, BGC’s revenue was approximately 25% higher versus that same period in 2019. Should global vaccination efforts prove successful in suppressing the virus, we expect our clients' return to the office to improve our performance. Looking forward for our first quarter guidance we expect to generate total revenue between $540 million and $590 million which compares to $603.2 million last year. We anticipate pretax adjusted earnings to be in the range of $102 million to $122 million versus $112.1 million last year. We anticipate our full-year 2021 adjusted earnings tax rate to be in the range of 10% and 12% which compares 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. And our first question comes from Rich Repetto of Piper Sandler. Please go ahead.

Good morning guys, Good morning Howard and Sean and Steve. Congrats on the strong revenue growth in Fenics brokerage. And I guess just zoning on the rates, in particular, strong, I think it was up 51%, I think, is what you said for Fenics rates. But you mentioned that consolidation sort of, what you call, legitimizes the value in the space. I was wondering could you comment on that? Having a competitor — maybe an improved competitor in the space, how that is going to impact. And then where do we stand on — are we getting margins in the Fenics overall category or segment?

So number one, you have now merged — the number three player and the number four player in the space. To merge — so first point is they were both in business for way, way, way longer periods of time, and we have blown past them in terms of market share and volumes and, in our view, value. Step two, for them to bring that liquidity together will be a significant task, which I think they have said may take more than a year and potentially two years to integrate their technology. So I think while they are trying to do that, it is very difficult for them to dramatically improve either of the systems. So that gives us plenty of time to continue to build our market share and volume and value. And yes, are they a big competitor? Of course they are. But they have been a good competitor for years before we launched and for the last couple of years since we opened, 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 succeed in this structure where 70% of our trades were done at superior prices than alternative systems. So that defines our position and where we stand and why we are growing. So I think that is number one. Number two, we have said we have optimized our model, which means starting this year, virtually all of our market participants have entered into commercial agreements with us and are now going to be paying for their system. And so our revenues will start to grow and build. We are adding products; that is new, right. We are adding treasury bills at the end of the fourth quarter. We are adding repos this quarter. We are going to add European government bonds. We are going to take our system and march it across the rates environment around the world, and I think we are 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 in 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 are going to build tremendous asset value for our shareholders here. And I think that consolidation just proves the fact that Fenics is here to stay, and Fenics is a powerhouse in the rates club market.

And any comment on when we could expect margins for the overall Fenics segment?

Well, I think we have tried to articulate this in the past. Fenics Integrated's model requires the business to have 25% margins. For the electronic businesses, we have started to charge more as we commercialize, meaning our clients are beginning to pay market rates, which is offset by our continuing to grow new products and new areas of the business. For our stand-alone electronic businesses, when they are at full power we expect their margins to be commensurate with other fully electronic systems, basically in the 40% to 50% range. That is the business model. We are in a fast-growth phase and continuing to roll out new products. We will be able to describe precisely how that works and will put that together for you. As I said, we will do a Fenics Analyst Day in the coming months and really detail this point.

Okay. And one last thing. On the capital return policy, Howard, I guess, everybody has been waiting or investors have been waiting to after sort of the Newmark sort of restrictions to lift, but to get a more detailed or quantitative guidelines on the capital return or the buyback. And I think we already had the message that you would — I think that you would prioritize repurchases. But is there any way you can quantify the amount of repurchases or how much capital overall of, say, net income you expect, you used to talk about a dividend and 75% payout. So how can we get our arms around how much you are going to repurchase in a little bit more detail?

Okay. So what I think is the stock is undervalued. And so in my opinion, with the stock here undervalued, our actions are going to be: when we do acquisitions, we are just going to pay more cash. When we compensate our employees, we are just going to pay more cash. Both of those will reduce the issuance of the stock, and then we are going to buy back shares. So those three things together — acquisitions paid with cash, cash compensation, and share buybacks — will reduce dilution and be capital return. And we think the stock is undervalued. I did say we are going to favor that over dividends, although I did say we will perhaps raise the dividend towards the end of the year by about $0.01. But I think we are going to focus on growing our Fenics business and investing in our Fenics business. Beyond growing and investing in our Fenics business, we are going to be focused on anti-dilutive measures and buying back the shares, because we think they are undervalued. But I’m not really quantifying it, because I just don’t think that is what I’m supposed to do today other than to tell you that the company intends to do a capital return policy focused on reducing its share count and buying back shares. We are reducing issuance in other ways.

Okay. I mean your liquidity went up nicely, approximately $100 million quarter-over-quarter. So I guess, I don’t know when the restriction actually lifted. But I think investors are trying to get their arms around how much you would repurchase. How much is going to need to go towards employees to offset dilution and so forth, because it is just hard to model this out unless we have some guidelines, anyway.

Look, I hear the question. I don’t know if we are ready to model that out. I would tell you that we were constrained from buying back shares, both from the Newmark arrangement and then 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 window was closed. So starting tomorrow, the firm is capable of doing what it wishes to do. And then over the period of 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 compensation and reduce share issuance by doing acquisitions with cash. You have to put those three things together, coupled with whatever we are going to build in Fenics and what kind of CapEx we need for Fenics, which should be rather muted going forward as compared to this year. I wouldn’t think CapEx would materially grow, in my opinion. So therefore, I think we will have our earnings available to pay our dividend and distribution; by the way, distribution will be consistent. So when I say dividend, I’m also intellectually trying to match the concept for the partners and distributions as well.

Got it. Thank you I will get back in the queue.

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 employee loan grants and capital expenditures in 2021?

I would say they both should decline. I think our CapEx will be lower. The amount of employee loan balances that we granted last year would be lower in our expectation in 2021. So both things will be reduced. And therefore, we will have more cash available to buy back shares.

Okay. Got it. Can you give an update on the strategic plans for your insurance brokerage business Corant? Obviously, that was something you contemplated — does it make sense as part of BGC Partners, does it make sense under another owner, where does that discussion stand?

So as I have said, we are open-minded would be the right way to say it. We like the business a lot. We are brokerage experts, and this is a brokerage business, and we have made the investments in that business. It is now profitable. We have made great hires that we think will drive our profits going forward. But as I have said, since I think the stock is undervalued, if there is a transaction out there that would enable the company to gain a substantial amount of money and to buy back our shares in a material and substantial way, that sounds good to me, too. So I think the right way to say it is we are completely open-minded, and we act accordingly.

Got it. And then speaking of that business, I imagine you have a 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 top-line in 2021?

I don’t think we have discussed 2021 specifically. What we have said is that over a period of a couple of years, we expect the business to grow to $300 million in revenues and to reach industry standard margins, which would be 15%. So I think those are our expectations as a multiyear objective. That is not my expectation for 2021 specifically, but it is a multiyear objective. You can see the rate of growth that we have had at 12.8% to give you a sense of growth rate, but we expect to reach industry margins of 15%. And then we will exceed them thereafter, but we will get there, which would be $300 million gross and $45 million net.

Got it. With your new commercial agreements with Fenics UST that you have signed, can you quantify the magnitude of the expected incremental revenue from those new agreements?

Remember, what we have said in the past is that we had spent in 2020 about $40 million in new systems in these new platforms. And we expected that CapEx to drop materially, and that would be offset by revenue growth. Our expectation is that we would improve things by about $40 million. We will see how that plays out through the course of the year. That certainly was our expectation. And that, of course, was without rolling out all of these new systems. So we are going to be continuing to roll out systems. But we want you to understand that the underlying business is dramatically improving economically. We said that last year, and I think we expect those businesses to dramatically improve the bottom line of the company in 2021.

Okay. For the overall company, so this would be voice hybrid plus Fenics, kind of the outlier I’m looking at in 2020 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, such that you would expect a rebound or are there some structural things going on that create headwinds?

I think two things. Number one, a big piece of our FX offering is options, which has been cyclically weaker during 2019 and 2020. We are actually seeing that returning to more normal levels, so we feel good about that. Secondly, within our spot foreign exchange business, following the investments we have developed over the last few years, we expect that business to grow this year. So we expect a rebound in parts of the FX business as conditions normalize and as our investments continue to pay off.

Got it. Expense question for you guys. How are you thinking about the progression of non-comp expense over the course of 2021? I think particularly some pandemic related expenses may start to come online in the back half of the year.

Obviously, our numbers reflect the pandemic, as you would expect, but we are laser-focused on improving our margins. While we are focusing on the compensation side, we are certainly focusing on our non-compensation costs as well, line-by-line, making sure that we are doing everything possible to keep our belt as tight as possible and operate as efficiently as possible. So we are being very, very careful. I would expect that we will see some pickup of course in expenses as we get back to some level of normalcy, which will take a little bit more time, but we are certainly laser-focused at all levels throughout the organization to optimize our performance. That comes down to improving our margins, which is critical.

Got it. And then last one for me. The $35 million theft that you spoke to, what does it imply about your systems and controls that such a magnitude could persist for as long as it did?

I don’t think there is anything else that we are prepared to add at this point. As I mentioned, the theft involved U.K. tax payment funds. It was certainly an unfortunate event, but again, the loss was not material in period. We expect to recover most or substantially all of the loss through insurance and litigation and return of assets. In addition to what we said today, there will be additional information contained in our 10-K when we file that.

Okay. Thank you very much.

Thank you.

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

Yes. Hi guys. I just want to follow-up on FX a little bit closer. I see the year-over-year decrease. But when you look at the electronic Fenics side of FX, that is one of your top performers. You have seen a big step-up from Q2 of last year on the electronic Fenics FX side. So can you just talk about what are the differences on why Fenics FX is doing so well versus overall FX numbers being much softer?

Yes, sure. That plays nicely into how I tried to answer before. On the Fenics side, on the electronics side, you are absolutely right — that is where we have invested: the new spot business and the migration of some of our FX business to our electronic Fenics and Fenics integrated platforms. But the offset of that were two things. First, one of our strengths was in the FX option space, which was cyclically weaker during 2020 and some of 2019. Also, you may remember that there was a part of our business in China that we spoke about back in Q3. That business, where we were facilitating banks in China on the onshore/offshore market, is now being done in-house, as we mentioned in Q2. So that had an effect in 2020, but of course, that will not have an effect in 2021.

Got it. That is helpful, Sean. And then another — on the Fenics businesses, when you look at rates and credit, very interesting. But the one thing that I’m picking up is that on the credit side, it is almost the reverse of FX. The electronic Fenics credit revenue is down year-over-year. Could you talk a little bit about the progress you make on credit? Your overall Fenics revenues are up strongly, but credit looks like it was down year-over-year in Q4, and I believe it is down year-over-year overall for Fenics credit.

Yes, sure. To give a bit of color on that: during 2020, some of the fixed income agency brokerage business grew, and that was more on the voice hybrid side than on the electronic credit side. So that is just a mix effect. What I would focus on is our platforms and the capability that the platforms have. During 2020 our business was client-led in terms of client requirements for voice execution. As client activity returns to more normal levels, that is where the investments and the strength of our Fenics credit platform will come into play.

Additionally, Rich, in 2020 we made an investment in Algomi, which is a credit aggregator for the buy side. As we invest in that business, it enhances our ability to assist our clients — the big banks and market makers — to transact business directly with clients who are on Algomi. One of our key initiatives is to create this ecosystem of clients, banks and market makers who are already integrated and connected to our system and to bring on the buy side. We have a strong agency business in Europe, but now with Algomi, we will 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. You will see that as we invest in and grow that business. Our credit business, which is a focus of that effort, will be enhanced and we will be a stronger competitor for market access. That market is enormous, and we expect substantial returns for our shareholders as we execute.

Okay. And last question for me. The equity-based compensation — what was excluded between GAAP and adjusted? I noticed approximately $80 million of equity-based comp in Q4. I know overall share dilution wasn’t as big as in years past, but $80 million is excluded, and it was a big jump. I know it is year-end, but Steve, could we go into a little bit more detail on the driver of that big number in Q4?

Sure, Rich. That is mainly driven by exchangeability. Often you may see in Q4, and it was about $11 million more than last year’s level, but it is comparable to last year. Q4 is typically our biggest quarter with regard to exchangeability, and that is what drives the increase.

Remember, exchangeability is literally letting our employees exchange or sell old units that are already in the share count. So it is not really a share count issue. We get a tax deduction for it, and that is why our tax rate is where it is. While it is a compensation expense and it goes against our GAAP earnings, it doesn’t change the share count. It is really harvesting previously issued shares already in the share count and getting our tax deduction, which we consider at the end of the year to achieve our expected tax rate.

Understood. That is helpful. And that is all I have. Thanks.

Thanks Rich.

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. Thanks, everyone, and have a great day today.

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