Bgc Group Inc

NASDAQ:BGC

Earnings Call Transcript 2019-Q2

[Operator]

Welcome to the BGC Partners, Inc. Second Quarter 2019 Earnings Call. My name is Sonia, and I'll be your operator for today's call. [Operator Instructions] Please note that this call is being recorded.

I will now turn the call over to Ujjal Basu Roy, Vice President of Investor Relations. Ujjal Basu Roy, you may begin.

[Ujjal Roy, executive]

Good morning. We issued BGC's second quarter 2019 financial results press release and the presentation summarizing these this morning. You can find these at ir.bgcpartners.com. BGC spun-off all of the shares of its former subsidiary Newmark held by BGC to the stockholders of BGC on November 30, 2018. Because BGC did not own any shares of Newmark as of year-end 2018, Newmark's results are presented as discontinued operations within BGC's consolidated results for all periods through the November 30, 2018, spin-off date.

Newmark's results are not included in BGC's consolidated results presented after the spinoff. Unless otherwise stated, all financial results and outlook discussed on today's call reflect only continuing operations of BGC and therefore will not match the results and tables in the company's press release for the second quarter of 2018 dated August 2, 2018.

Unless otherwise stated, the results provided on today's call compare only the second quarter of 2019 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 stockholders' equity and noncontrolling interest in subsidiaries. All non-GAAP results discussed herein are comparable to and reconciled with the most directly comparable GAAP figures from BGC's continuing operations.

Please see today's press release for results under Generally Accepted Accounting Principles or GAAP. Please also see relevant sections in the back of today's press release for the complete and 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 is available on our website at ir.bgcpartners.com and in our investor presentation. We refer to the company's fully electronic businesses as Fenics. These offerings include our fully electronic brokerage products as well as the sale of market data, software solutions and post-trade services. I also remind you that the information regarding our business on today's call that are not historical are forward-looking statements within the meaning of Section 27A of Securities Act of 1933 as amended and Section 21E of the Securities Exchange Act of 1934 as amended. Such statements involve risks and uncertainties. Except as required by law, BGC 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 those contained in the forward-looking statements, see BGC's SEC filings, including, but not limited to, the Risk Factors and special noted forward-looking statements set forth in our most recent 10-K and updates contained in subsequent Form 10-Q or Form 8-K filings.

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

[Howard W. Lutnick, executive]

Thank you, Ujjal. Good morning, and thank you for joining us for our second quarter 2019 conference call. With me today are BGC's President Shaun Lynn; our Chief Operating Officer and Interim Chief Financial Officer, Sean Windeatt; and our Chief Accounting Officer, Sean Galvin.

Our revenues improved 12% year-on-year despite challenging market conditions for many of our clients and a $9 million foreign exchange headwind to our top line related to the strengthening U.S. dollar. I'm pleased to report that the company's Board of Directors has declared a qualified dividend of $0.14 per share. This translates into a 9.7% dividend yield based on yesterday's closing stock price. We continue to study simplifying BGC's organization structure and are considering restructuring our 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 BGC and to add talent to our Fenics finance team.

With that, I'll turn the call over to Shaun Lynn.

[Shaun Lynn, executive]

Thank you, Howard, and good morning, everyone. Our energy and commodities business grew by 30%, led by organic growth and acquisitions of Poten and Ginga Petroleum, partially offset by the scale of CSC -- by the sale of CSC Commodities. Revenues from equities, insurance and other asset classes increased by 19% due largely to the acquisition of Ed Broking.

Turning now to Fenics. Fenics revenues from a high margin data, software and post-trade business were up by 22% for the quarter and 20% in the first half, both compared with the year-earlier. Fenics net and total revenues improved by 5% and 10% respectively for the quarter. We expect to benefit from the secular trend towards more electronic trading, increased demand for market data and the need for increased automation and post-trade services. We continue to onboard new clients as opportunities created by electronic and algorithmic trading continue to transform our industry. Fenics is the future of BGC.

In order to help you better understand how we are building towards that future, Sean will quantify the financial impacts of our investments in new Fenics offerings later in the call. Here are some of the many services we have recently rolled out or expect to launch in the near future. Our Fenics FX electronic businesses include our expanded mid FX offering, stocks, cohorts, options and NDX. Fenics Global Options or Fenics GO, our new electronic trading platform for the arrangement and execution of exchange listed equity features and options.

Lucera, which is our software-defined network offering the trading community direct connectivity to each other. Our capital at post-trade business, which offers compression services that are designed to bring greater capital and operational efficiency to the global derivative market in interest rate and equity options, interest-rate swaps, NDX and in addition, initial margin optimization.

Algorithmic clients solutions. Initially for U.S. treasuries and FX, which helps our clients to trade electronically across our and other platforms. And our Fenics U.S. treasury platform, which continued to gain market share during the quarter.

Based on Greenwich data, Fenics U.S. treasury share of central in the order book trading of On-the-Run U.S. treasuries has grown from 0% to 5.2% in June of 2019 compared with the year-earlier. Quarter-on-quarter, Fenics U.S. treasury volumes are up nearly 90%. We have the scale and breadth of technology, the connectivity to world's trading clients and the ability to write new products. The opportunity presented to the company has never been better. And we are excited about the prospects of our investment businesses and the traction they have already gained.

Over the next few quarters, we anticipate providing additional detail on our fully electronic products and services. We plan to host a Fenics Analyst Day shortly after full year 2019 numbers are released. Please stay tuned for more information regarding this investor event, which will be webcast.

With that, I'm now happy to turn the call over to Sean Windeatt.

[Sean Windeatt, executive]

Thank you, Shaun, and hello, everyone. Our quarterly revenues increased by 12.2%, $551.2 million. Asia Pacific revenues improved by 32.5%. Europe, Middle East and Africa was up by 10.7%, while the Americas were up by 5.7%. Our overall revenues would have been approximately $9 million higher but for the relative strengthening of the U.S. dollar. This currency headwind was approximately $2 million 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 per producer and compensation ratio metrics can be impacted during periods of rapid headcount growth. This is because both new companies and broker sales people can take time to achieve their full potential in terms of productivity. The number of producers across BGC increased by 14% year-on-year as of quarter end, driven by both acquisitions and hiring.

BGC's 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 and acquisitions, and increased interest expense primarily with respect to the $450 million senior note due 2023 and borrowings on our revolving credit facility as well as the impact of increased discretionary investment with respect to the new Fenics businesses some of which Shaun referred to earlier in the call.

In order for you to better understand our Fenics business, we think that it's helpful if we break it out into 2 categories. Our established Fenics electronic offerings and our investments in new platforms and services some of which Shaun listed earlier. Our investment products are by definition not yet fully up to scale or are not yet generating significant revenues. We expect our net loss relating to our Fenics investments to be approximately $50 million in 2019, which, of course, is included in both our results and guidance. If one excluded these investments, we believe that our established Fenics businesses will have margins generally comparable with Tradeweb's recent non-GAAP results.

Moving on to our earnings. Our pretax earnings before noncontrolling interest and subsidiaries and taxes were $102.3 million compared with a $101.5 million. As we integrate our recent acquisitions and continue to increase revenues from Fenics, we expect our profitability to improve over time. Our adjusted tax rate or our tax rate for adjusted earnings for the quarter was 11.7%, taking our year-to-date rate to 11.5%. This was consistent with our full year outlook of between 11% to 12%, but slightly higher than 11.1% we recorded in the second quarter of last year.

Our posttax earnings were $89.8 million or $0.17 per share compared with $87.5 million or $0.18. Our fully diluted weighted-average share count was $523 million for both adjusted earnings and GAAP compared with $516.1 million in the first quarter of 2019.

In the second quarter of 2018, our fully diluted weighted-average share count was $481.5 million for adjusted earnings and $322.7 million on the GAAP. Our fully diluted weighted-average share count on the GAAP may be lower than that for adjusted earnings in certain periods in order to avoid anti-dilution. As of quarter end, our share count was 523.2 million. We expect our year-end fully diluted share count to grow by between 2.5% and 3.5% year-over-year in 2019 versus 518.8 million as of December 31, 2018. This outlook compares the 3% to 4% increase we have previously expected.

With respect to our balance sheet, as of June 30, 2019, our liquidity was $460.9 million compared with $410.9 million as of year-end 2018. Notes payable other borrowings were $1.0622 billion compared with $763.5 million. Book value per common share was $2.23 versus $2.28, and total capital was $876.4 million compared with $887.9 million. We believe we have a strong balance sheet as our debt, net of liquidity was 1.2x trailing 12-month adjusted EBITDA.

With that, I'm happy to turn the call back over to Shaun Lynn.

[Shaun Lynn, executive]

Thank you, Sean. Turning to our outlook for the third quarter compared with last year. We expect to generate revenues of between $490 million and $530 million compared with $455.6 million. We anticipate pretax adjusted earnings to be in the range of $80 million to $95 million versus $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 the full year 2018. Our outlook assumes no material acquisitions, buybacks or meaningful changes to the company's stock price. We expect to update our guidance towards the end of September. With that, operator, we'd now like to turn the call open for questions.

[Operator]

[Operator Instructions] Our first question comes from Richard Repetto of Sandler O'Neill.

[Richard Repetto, analyst]

I guess the first question is on the Fenics revenues. You had big increases in the data software and post-trade revenues. Also, on the intercompany side as well. So could you just talk about that you mentioned a little bit in the prepared remarks and also why the big jump intercompany as well?

[Shaun Lynn, executive]

Yes. Sure. So clearly, it was a strong quarter for us on one of our big areas of focus, which is our data business as you say and strong focus on that and strong growth this quarter up, as you say, the 20% mark. And then with regards to our intercompany growth, we have our Fenics business is providing more technology solutions to a greater number of our desks and we rolled a lot of that act during Q2 of this year.

[Richard Repetto, analyst]

Okay. All right. And I guess question for Howard. You mentioned about looking at considering restructuring the partnership into a corporation. And I was just trying to see, get more of an insight or what you can think, how it might impact you on the capital structure or your unique comp structure or tax rate. Just a little color on what you are evaluating and what's the -- at least the initial impetus to do this?

[Howard W. Lutnick, executive]

A couple of things. So one, simplification would be a key objective for us. We continue to hear from shareholders that they'd like the company to present itself in a more simplified form. Obviously, if we switch to corporation, just a 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 with a restricted stock. But I think we are getting more and more comfortable with how we would do that and we are studying exactly how that would impact each and every line item for us. But we are just studying it. But we -- our goal is to simplify, and I think the shareholders will appreciate the simplification, so that's why we are doing the work on it. And I think we are 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 and much more simple.

[Richard Repetto, analyst]

Okay. The last question from me would be on Fenics, and I'm not sure whether you've mentioned this on this call, but you certainly have talked publicly about hiring a CFO. And I guess could you go through the timing of it? Are we closer, do you have any potential candidates? And yes, I guess the status there for CFO for Fenics?

[Howard W. Lutnick, executive]

So we are interviewing both for a CFO for BGC and in that process we're also looking to strengthen our Fenics team with a CFO and more finance analytics with respect to Fenics. Our objective is like we did today. Sean went over the economics that we are spending $50 million on investments in new business. What that means that for those investments, our earnings for the company and for Fenics would be $50 million higher. They are not -- these are not part of investing in the operations of our Fenics business. These are new businesses, new things to create new revenue opportunities for us.

So that's an example of our first step. We are going to keep doing those kind of things with our objective being -- after the fourth quarter numbers are put out, then we can have an Analyst Day where we will go and present Fenics completely and be able to go into historical numbers back in historical and really be able to lay everything out for you and go through a real detailed day, both meeting the businesses, meeting the people, seeing how we are doing, growing our business. So that is our objective, and we will have finance team in place by then, and we will have lots of work done. We have seen good candidates. We just have to make sure we finish the process and we select correctly. And we are excited about the prospects.

[Operator]

[Operator Instructions] Our next question comes from Patrick O'Shaughnessy of Raymond James.

[Patrick O'Shaughnessy, analyst]

I'm curious of what you're hearing right now from your customers? Obviously lot of news out there this past quarter from Deutsche Bank and hearing back, I think more significantly on the equity sales and trading, but also on their Fitch business as well. Are you going to view that as maybe more unique event? Or do you think that major broker dealers are still continuing to kind of trim some of their headcount in their capital that they allocate to these businesses?

[Howard W. Lutnick, executive]

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 consistent basis, and that's what Shaun pointed out that we're on-boarding new market-making clients. That is going to crimp the style competitively to some of the larger banks in the world, right. This is more competition in that space, more clients who are perpetual liquidity providers and professional traders entering the marketplace with technology. So I think, overall, I don't -- 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? ETFs and corporate bonds, algorithmic traders are now trading corporate bonds, electronically granted an odd lot size, but do we expect that to move over to round lots? Sure. So you've got -- just take a look at Fenics GO, right? Our Fenics Global Options marketplace that we just announced, look at our partners, right? Our partners, we've not seen names that the Wall Street Journal or the FT would normally publish as the biggest 3 in the world. Those are the biggest 3 in the world, right? You got the biggest 3 in the world, but they are not household names to the newspapers. They are household names to us. We know who the largest players in the world are but that's an example of how things are changing. So I think you'll see banks changing.

Number 2, when we meet with the management of banks, they want to automate their business. They want to automate their business, and they are investing in automating their business, and that is good for Fenics 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 do their business more efficiently, more electronically and better. I think they have 20 traders doing 1 set of products. They know with automation they can do it with 10 or with 8. They know that and they would 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 will have any consequence. I just don't think one particular bank trading a little less will have anything to do with it and I guess Fenics Go is as good an example as you can have, right? Once upon a time, there were banks in that top 3. And banks still trade these products, lights out. But they're just not large volume for us.

[Patrick O'Shaughnessy, analyst]

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 would look like today? Like, has there been a material shift of your revenues towards these other newer liquidity providers?

[Howard W. Lutnick, executive]

Yes. That shift is a secular shift, meaning it's going, it's been going. I'll take a look at seeing if we can't. I don't have that off hand. We'll take a look at and we can give you some color on that in future calls. But that is occurring. The volume of liquidity providers, market makers electronic traders is growing as a comparative percentage versus banks. That is just a volume percentage, but we will take a harder look at it and we'll take that under advisement and come back there.

[Patrick O'Shaughnessy, analyst]

Got it. Yes, I would love to see that quantify a little bit if possible. And then I guess a follow-up on the second driver that you're talking about, just to push towards more electronification. Does that maybe introduce more competition into the space? So maybe as you think, look to electronify, are there maybe willing to look more some of all-to-all type platforms that might have historically not appealed to them, but does that become a source of liquidity for them? Or are they still really inclined to use the traditional kind of interdealer-type platforms that you guys will provide?

[Howard W. Lutnick, executive]

Well, the 2 roles. So the all-to-all model would include an opportunity that is vast. So institutional clients pay about $220 billion. Oliver Wyman did this analysis. $220 billion in fees annually in equities, fixed income and commodities. Out of that $220 billion, $120 billion would be in products that overlap to our company, right? So a $120 billion in fees is available. So all-to-all right, which we then touch that category is such a vast and endless sea, right? That whatever small piece of little beach Tradeweb has, whatever small piece of little beach that MarketAxess has, I mean, this is a vast and endless sea that everyone can swim in and be successful each of us. So all-to-all is such a big category and so expansive that I think that will trim the business that institutions do with banks. Which is well that $120 billion will just move around and that is a huge pie, any piece of which would be great. But that being said, we think as market participants go electronic, the scale and breadth are connectivity, right? We're spending anything about just -- we are spending $50 million, that's on top of our massive infrastructure and massive connectivity already installed, right? One of our businesses is Lucera. We're actually literally offering a software that connects traders to each other. So if an electronic market maker wants to trade with a bank, right, we can provide the data lines for them to do business with each other and not have 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 is really one of our great advantages.

[Patrick O'Shaughnessy, analyst]

Got it. And then the $50 million that you spoken about a handful of times, to what extent are those kind of one-time expense rates as you might bring in 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?

[Sean Windeatt, executive]

Well, I think that they are ongoing expenses. But of course, as I said in my prepared remarks, what you don't have with those, only to a small level, are revenues today. So by definition, as those -- as the revenue comes into those new businesses, that $50 million, of course, decreases and pull strength to bottom line.

[Patrick O'Shaughnessy, analyst]

Okay. Understood. Any thoughts on kind of the macro right now and how it impacts your business? I think in your -- if you do talk today about maybe a fresh stimulus package honestly, the rate outlook in U.S. has changed a lot over the last 6 months. Kind of any implications on what that might mean and I think in particular probably rates trading?

[Shaun Lynn, executive]

I think the landscape at the moment, especially in Europe is with Brexit, with a new prime minister in the U.K., it's making for huge volatile market in foreign exchange market and in the rates market of whether interest rates are going to come down and the general pressures within the European political scene. So we are enjoying in some respects that volatility and that liquidity is coming to the marketplace. There's, of course, the pressure that EU are putting onto the market -- with conversations around equivalence, what that means to the U.K., what that means to Australia, what that means to say Switzerland and that landscape.

So know that I'm not a market predictor, but I don't think this is going to side over the course of the next few weeks, months. It's going to play out for the next sort of 6 to 12 months. We're going to see that -- do we have a general election this year in the U.K., which is going to potentially throw everything up in the air. There are talks of it at the moment, and that's going to politically create mayhem with regards to Europe. So it is all happening. It is all happening, and so we are enjoying the liquidity, we are enjoying the market moving as aggressive as it does do sometimes with every single bit of news that comes out.

[Patrick O'Shaughnessy, analyst]

Great. And then maybe one last one from me. Can you guys provide an update on your build-out of your insurance brokerage business, kind of key steps that you might have taken during this past quarter? And kind of where you see that in terms of maybe what inning of the build-out you currently stand?

[Shaun Lynn, executive]

Well key steps, I believe, this quarter is we've moved into aviation, made some significant hires in the aviation space. We see that as a great opportunity with regards to some of the mergings that are going on in 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 over the past 3 months with regards to the aviation sector. That's been one of our main focuses as well as obviously integrating Ed into the Besso, into the original insurance acquisition we made which is Besso. I mean, if you look at the back office costs, they start to harmonize the back office and the support functions and start to integrate the business.

[Howard W. Lutnick, executive]

But the economics of the business are just different than the brokerage business and that when you hire a broker, they -- as we've said, they start slower and they ramp-up over time. But in insurance, they start at 0 for quite a while for almost a year and then they ramp-up rather swiftly thereafter as their clients move over to be with them. So I think it's just a slower process to ramp-up and 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 and insurance business in that year 1, lesser drag in year 2 and then basically should give you full profits out in year 3 and year 4. So it's a slower process, but one of talent and return, and we know that we are confident in our return, just a slow process.

[Operator]

And we have a follow-up question from Richard Repetto of Sandler O'Neill.

[Richard Repetto, analyst]

I guess the follow-up on the $50 million you talked about on Fenics. Can you -- the timeframe or what period are we looking at the spend -- on the spend?

[Sean Windeatt, executive]

Well, I think Rich, I think in my prepared notes, I said that $50 million was the net loss for 2019, for this year. And Shaun listed out in his prepared remarks a selection, if you like, of all of those new businesses that we are investing in. And following up with what Patrick said on his question is that one would expect -- of course, we expect those businesses to start to generate revenue, let's say, in 2020, every piece of revenue they generate, of course, therefore falls to the bottom line. That's not to say we won't continue doing -- investing in other new things, but in terms of that $50 million that I said is already included in our guidance. One would expect that in 2020, every piece of revenue in relation to those development businesses falls straight to the bottom line. And as Howard said, were it not for us doing those things, our earnings would be $50 million higher in 2019.

[Howard W. Lutnick, executive]

Right. So for an example, in U.S. treasuries, our objective is market share not revenue. So we will start to distribute our market data with respect to U.S. treasuries starting next month. So we haven't even been distributing it, let alone charging for it. So this is the idea and you saw in our prepared remarks, Greenwich put us at 5.2%. We did have a record market share day this week where we hit I think 8% market share. So we are getting better and better growth. This is material growth in a company that only started a year ago. So this is really going well. But we are not thinking to maximize revenue, we are not. We are thinking to maximize market share and we think revenue will come first with market data, right? And then we will go up the curve. But we are gaining market share and that's the idea. So each dollar of revenue when we start to sell market data from treasuries will fall to the bottom line. Fenics 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 a one-off, that is our net loss from a multitude of businesses.

I mean Lucera -- we assigned NDAs with I think at least a half a dozen of the largest institutions in the world and some of them have actually started to use the service and started building it. We had one of largest institutions in the world who has already put one of their businesses on it and now is considering putting 10 businesses on it. So I think, these are businesses that we are excited about and we think will make us material amounts of money going forward. We are not investing. These are run rates with salespeople. This is not just technology, these are salespeople, marketing people, business development analysts, executives running businesses that are out there to build these businesses to make a 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, we will add more businesses. 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 winning.

[Richard Repetto, analyst]

Got it. And just another follow-up here. The $50 million now, which you call the net loss that doesn't encompass all Fenics businesses, just certain ones that you're investing in?

[Howard W. Lutnick, executive]

Correct. That is literally if we consider it a discretionary spend. Meaning that if we chose to not do those businesses, the $50 million would go away and it would have no impact on our established Fenics businesses.

[Richard Repetto, analyst]

Okay. And then the last question is in the prepared remarks you talked about potential margins, I believe, of Fenics. And you said that they would be similar to Tradeweb on an adjusted basis. And I guess my question, Howard, why do you choose to comp against Tradeweb by -- the margin, let's just say, pretax of 35% to 40% and -- but a business that they have significant voice brokers, that have significant revenues from what you call just processing. Whereas other electronic businesses, as you know, your target for Fenics back a while was 50%, I believe, that they are more in that sort of range?

[Howard W. Lutnick, executive]

Well, as we convert voice to electronic, there is a glide path up to fully electronic. The businesses that we're investing in, those businesses come with massive margins once in our view, meaning, 50% of north and 50% when they get to their full success, if we achieve the full success that we hope to. But as we are converting our voice businesses to electronics, there is a glide path on the way. And so what we said was if you took out these investments, and you look at the established businesses, you would have margins that would be comparable to that particular company. That's all. It's just -- it's the math of the mid-30s. It's a good reason, if we can do it for any other reason. We weren't talking about the future, we were simply saying if you do our established businesses and went forward today and you took out the $50 million, you'd see margins that were generally comparable going forward next year. We weren't talking about the long-term this or that.

That's all we were telling. We were just trying to show you that there is substantial value that is being underappreciated in Fenics today and the reason you aren't seeing the margin is because we are building new businesses. That $50 million loss at 10x is a drag on our earnings, and we think it is an extraordinary asset, not a drag. We think our treasury business, our Lucera business, our Fenics FX business or Capitalab, these are things that are what we think substantial benefit and positive. But our job is to show you that by bringing revenues. Obviously, Sean said, revenues dropped to the bottom line, obviously we're going to build new things, we're going to grow things, we're going to add to this -- new launch to that, but of course, your marginal profit on every dollar of revenue from where we are now is huge.

[Operator]

And this does conclude our question-and-answer session. I would now like to turn the call back over to Shaun Lynn for closing remarks.

[Sean Windeatt, executive]

Operator, we have one more. Can you take that one last question and then close it.

[Operator]

We do have a follow-up question from Patrick O'Shaughnessy of Raymond James.

[Patrick O'Shaughnessy, analyst]

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 your capital structure at this point? Or is it more just to help smooth out your cash flow and some seasonality of that over the course of the year?

[Howard W. Lutnick, executive]

If we continue to make acquisitions then it would be part of our company capital structure, and we will do bonds to replace that. And if we choose to not do material acquisitions, then we think that cash flow coupons from our investments as they mature and become more established, we will increase our earnings and enable us to take down that over time. So I think that's really the balance what we're looking at if we plan to do other acquisitions in space, then we'll just replace that with more permanent capital because that will be sort of part of who we are.

[Operator]

Thank you. And I would now like to turn the call over to Shaun Lynn for closing remarks.

[Shaun Lynn, executive]

Thank you for joining us today, and we look forward to speaking to you again next quarter.

[Operator]

Ladies and gentlemen, this concludes today's conference. Thank you for participating. You may now disconnect.