Bgc Group Inc (BGC) 2007 Q4 法說會逐字稿

Good day, ladies and gentlemen, welcome to the quarter four 2007 eSpeed Incorporated Earnings conference call. My name is Nikita and I will be your coordinator for today. At this time all participants are in listen-only mode. We will be facilitating a question-and-answer session towards the end of this conference. (OPERATOR INSTRUCTIONS) As a reminder this conference is being recorded for replay purposes. I would now like the turn the presentation over to your host for todays call, Mr. Jason McGruder, head of Investor Relations. Please proceed sir.

Good morning. Before we begin, I want to make sure that you know that our fourth quarter earnings release was issued last night and that a definitive special merger proxy was filed and with the SEC on February 11th. If you do not have a copy of these documents, you may obtain them by going to the investor info section at eSpeed.com. I also refer you to the disclaimer language titled, Discussion of forward-Looking Statements, contained in our earnings release. I remind you that the information in the release and on this call, contain forward-looking statements. Within the meaning of section 27A of the Securities Act of 1933, as amended, and section 21E of the Securities and Exchange Commission Act of 1934, as amended. Such statements are based on current expectations and involve risks and uncertainties. Any statements contained here and that are not statements of a historical fact may be deemed to be forward-looking statements. The actual results of eSpeed, BGC or the combined company in the merger, defined by terms such as we, our, or the combined company. And the outcome and timing of certain events may differ significantly from the expectations discussed in the forward-looking statements based on a number of factors set forth in the release. We believe that all forward-looking statements are based upon a reasonable assumptions when made. However, we caution that it is impossible to predict actual results or outcomes of effects of risks and uncertainties and other factors on anticipated results or outcomes and that accordingly you should not place undue reliance on these statements. Forward-looking statements speak only as of the date when made and we undertake no obligation to update these statements in light of subsequent events or development. Please refer to the complete disclaimer with respect to forward-looking statements set forth in yesterday's earnings release and the risk factors set fourth in our public filing. I would now like the turn the call over to our host, Howard Lutnick, Chairman, President and CEO of sSpeed Inc., and who will be the combined company's Chairman and co-CEO.

Good morning. And thank you for joining us on our fourth quarter 2007 conference call. With me today is Lee Amaitis, Chairman and Chief Executive Officer of BGC and the Vice Chairman of eSpeed. Lee will become our co-Chief Executive Officer upon the closing of the merger with BGC. Also with me this morning is eSpeed's Chief Accounting Officer, Frank Saracino, who will report on eSpeed's financial performance. After that Bob West, will who is BGC's Chief Financial Officer and who will become the CFO of the combined company, will discuss BGC's 2007 results and provide pro forma combined company first quarter outlook.

First I would like to comment on the combined company's strong results, the soon to be closed merger and the new futures exchange in which we are a key participant. The combined company generated pro forma revenues of approximately $1.12 billion for the full year of 2007 which was up 31% compared to $853 million in 2006. We expect the combined company's pro forma pretax profits for the first quarter 2008 to increase by over 80% compared to the first quarter of 2007. We also expect the combined company's first quarter 2008 pro forma earnings per share, to be approximately 4.5 times eSpeed's stand alone, non-GAAP net operating income per share for the first quarter of 2007. BGC's continuing strong results clearly demonstrate the overwhelmingly positive and transformative effect that the BGC merger will have for our shareholders. Regarding the merger itself we filed our definitive merger proxy on February 11 and announce that the special meeting for the shareholders vote on the merger will be held March 14. According to the current proxy vote a large majority of the voting power of eSpeed's shares, have already voted their shares in favor of the merger. Therefore, we expect the merger to close before the end of March. Upon the closing, BGC partners Inc. will replace eSpeed's current ticker symbol, with a new symbol BGCP.

Finally, I would like to comment on the new future's exchange that was announced in December. The 12 founding firms include the best electronic liquidity providers in the world, the world's biggest banks, and us. We expect the new exchange to enhance global liquidity and reduce trading costs in the treasury futures market. After that, the exchange will announce additional product offerings, and this is an exciting and potentially lucrative endeavor for us. We will own approximately 25% of the consortium. And since we expect that divesture will be come highly successful, we believe that it will have a meaningful impact on our company, our earnings and its valuation. However, we have not included any of these results from this exchange in our outlook. I would like to make a few comments about the exchange. First, our technology is broad in scalable enough to run such a large exchange. Second, our providing economy's a scale and scope to our product development efforts we expect that our participation in the consortium will have a positive impact on other areas of our business. For example, when additional BGC (inaudible) classes go fully electronic. Third, the new exchange will not compete with any of our existing anticipated businesses, therefore overall there is significant upside, and very limited financial down side from our participation in this new exchange. We are leveraging our technology in conjunction with 11 of the world's largest financial institutions. We think it is a win-win for us, our customers, our shareholders, and the financial markets overall. And now I would like the turn the call over to Lee.

Thank you, Howard. Good morning, everybody. There have been a number of exciting developments at BGC recently. And I would like to highlight a few of them. First, BGC has won Government approval as a platform for secondary market quoting and trading of Belgium Government bonds. This is a milestone in the European Capital Markets and the first time any EU market has been open for quotation and trading to electronic platforms other than MTS. It shows significant confidence in BGC's global platform and eSpeed's technology by the Belgium Government. BGC has also applied to the Dutch State Treasury agency for designated platform status. We are comfortable that we will fulfill the Dutch Government's criteria. And we are confident that we will be able to announce our formal acceptance soon. We intend to leverage this break through to further grow our European Government bond businesses. Next, BGC has signed a definitive agreement to acquire the assets of Singapore based broker Radics energy. This transaction is expected to close by the end of the first quarter. Radics was established in 2000 and has over 30 staff who will continue to be based in Singapore, serving clients throughout Asia. This transaction will mean that for the first time, we will be able to offer our global clients base -- our global client base voice and electronic brokerage of Radics products including crude oil, [napta], middle distillates, fuel oil and freight swap derivatives. We expect that this will be another accretive acquisition. We believe that BGC platform will improve the productivity of Radics brokers and allow BGC's world wide brokerage and sales force to offer new products to Radics clients. Currently BGC operates in 14 cities globally and offers primarily brokerage in interest rates, credit and foreign exchange. Our scalable platform gives us exceptional flexibility to seamlessly expand both our geographic reach and our product portfolio. Through significant hiring and accretive acquisitions we are actively pursuing new products and office locations particularly in energy, commodities and equities.

Finally, I would like to discuss the new product development. Ever since the merger announcement, eSpeed has been working on developing and deploying BGC trader, a highly customized hybrid as well as fully electronic trading platform. We are rolling out BGC trader to our foreign exchange option and CDS clients globally. It has already improved broker productivity and led to higher hybrid and fully electronic [volumes] for FX options and CBS products. We expect to extend BGC trader to additional asset classes. BGC has terrific momentum and continues to make progress in the marketplace. Everything we do reflects our top priority which is to grow profitability. I would now like the turn the call over to Frank to discuss eSpeed's results.

Thanks, Lee. And good morning. Since our press release provides detail on the fourth quarter and full-year 2007 results, I will cover just the highlights and then focus on items in the fourth quarter that had an impact on eSpeed's GAAP and non-GAAP results. For the fourth quarter of 2007, eSpeed reported both GAAP and non-GAAP operating revenues of $38.2 million, compared with GAAP revenues of $45 million and non-GAAP operating revenues of $41.9 million for the fourth quarter of 2006. Excluding Wagner related revenues, eSpeed's fourth quarter non-GAAP revenue actually increased by 7.8%. eSpeed reported a GAAP net loss of $21 million or $0.42 per diluted share for the fourth quarter of 2007 and a non-GAAP net operating loss of $2 million or $0.04 per diluted share. The difference between non-GAAP net operating loss and GAAP net loss, was due to a number of factors, mostly relating to go the impending merger. These include a $12.3 million charge related to severance and the accelerated vesting of options in RSU's, $3.5 million in patent litigation costs, $1.8 million in deal-related expenses, a $1 million charge for the impairment of fixed assets and capitalized software costs and $500,000 in the losses from Aqua. All of these differences were net of tax. In comparison, eSpeed reported GAAP net income of $3.4 million or $0.07 per diluted share for the fourth quarter of 2006 and non-GAAP net operating revenue of $3.1 million or $0.06 per diluted share. Fourth quarter 2006 GAAP net income also included $3.1 million from the Wagner patent. Also during the fourth quarter we had a sequential increase in costs and capital expenditures related to the the build out of our new northeast data center. This is an important new resource that provides additional capacity for the combined company and our expanding services as well as for the new futures exchange. As of December 31, 2007, eSpeed's cash and cash equivalent, secure-to-loan receivable and marketable security, total at $165.2 million. We anticipate the loan receivable will be repaid once the merger funds. I would now like the turn the call over to Bob West, who will give you an update on BGC's results and the outlook of the combined company.

Thank you, Frank. For the fourth quarter of 2007, BGC's stand alone revenues were approximately $253 million up 33% compared to the prior year fourth quarters $190 million. BGC reported stand alone profit -- pretax profits of approximately 20 million in the quarter compared to a pretax loss of $32 million in the fourth quarter of 2006. BGC's revenues and rates increased by approximately 10%, credit by 27% and foreign exchange by approximately 59%. All compared to the fourth quarter of 2006. Revenues from other asset classes were up 462% year over year in the fourth quarter of 2007. Primarily due to the November 2006 acquisition of [Orolavin]. For the fourth quarter of 2007, rates represented approximately 41% of BGC's revenue. Credit approximately 25%, foreign exchange approximately 13% and other asset classes 10%.

Turning to expenses, compensation and employee benefits (inaudible) represent approximately 53% of BGC's revenues in the fourth quarter of 2007 compared to approximately 65% in the year earlier period. For the full year of 2007, compensation and benefits expense was approximately 56% in line with our guidance in the 55% to 60% range and down from approximately 68% in 2006. As we have stated in the past, different (inaudible) in classes have differing compensation ratios. So, the figure will vary from time to time within our expected range simply due to mix. Our compensation ratio should remain lower than most of our publicly traded energy or broker peers because our partnership structure and stock based compensation are key factors in the recruiting and retention of employees. In addition we derive a higher percentage of our revenue from fully electronic trading market data and software than most other publicly traded energy (inaudible) brokers. BGC's substantial margin improvements resulted from an outstanding effort by our management and improved broker productivity, we anticipate continued margin expansion post-merger as revenues continue to rise and we control our fixed expense base. BGC's fourth quarter 2007 results included certain one-time expenses including merger related professional fees, implementation of Sarbanes Oxley, installation of the Oracle financial data base system and significant integration expenses.

Moving on to the combined company results and outlook, the combined company generated approximately $1.12 billion in pro forma revenue for the full year of 2007, which was approximately a 31% increase when compared to the $853 million we generated in 2006. Revenues for the combined company can be derived from the sum of BGC and eSpeed revenues of $1.19 billion reduced by the elimination of approximately $64 million of inner company revenues and from the elimination of revenues businesses that will be transferred out of the combined company post-merger. The combined company's pro forma non-GAAP pre-tax profits were approximately $97 million in 2007 compared to a loss of $86 million in 2006. We expect the combined company to generate revenues of approximately $315 million in the first quarter of 2008 up 15% from $273 million in the prior year period. We expect the combined company first quarter 2008 pre-tax income be in the range of $46 to $49 million, an increase of over 80% when compared to the year ago quarter. The substantial growth in earnings compared to the growth in revenue demonstrates that the combination of BGC's global, scalable platform with eSpeed's world class technology plus the contribution of BG Cancer market data, will provide the post-merger company with significant leverage. We expect to see upwards of 30% pre-tax incremental margins from this point forward. We will continue to give quarterly guidance post-merger. As far as the full year goes our practice will be consistent with the other publicly traded energy brokers and exchanges which do not provide revenue guidance for the full year. Assuming no major acquisitions or significant hiring, our businesses have historically generated around 52% of their revenues and 54% of pretax profit in the first half of the year and around 48% of revenues and 46% of pretax profit in the seasonally slower second half. For the full year 2008, we anticipate the combined company's compensation employee benefits will be between 55% and 60% of total revenue and non-compensation expenses will be in the range of 28% and 32% total revenue.

Finally, I would like to draw your attention to certain advantages of our ownership structure which you may have missed in your copious reading of our 700 page proxy statement. When we closed the merger, the executive officers, founding partners, and other employees will collectively own or have rights to approximately 32% of the combined company. This equity holding represents a market value of over $700 million in the hands of our key revenue producers, employees and management. We believe that having our most valuable asset, our people being heavily invested in the company creates an unparalleled structure in our industry and will serve to enhance our shareholder value. The founding partners original capital invested is approximately $171 million, thus these key individuals will be holding $562 million in current appreciation for which only $112 million will be vested at the time of the merger closing. This significant retentive equity value provides us with the competitive advantage and will allow us to keep our compensation expense ratios at rates that is compare very favorably with our competitors. Also, as disclosed in the proxy, upon the closing of the merger we will incur one-time non-cash compensation charges, associated with certain of our executives officers redeeming a portion of their equity in order to eliminate their partnership related debt. The total non-cash one-time expense is estimated to be approximately $55 million and will be recorded upon the closing of the merger. The non-cash entry comes with an offsetting credit to additional paid in capital on the balance sheet, therefore there's no economic impact to the company. That is why this non-cash charge will not be a factor in our non-GAAP results. I would now like the turn the call back to Howard.

Thank you, Bob.

Our first quarter outlook reflects our business as of today. However, for the balance of this year, our management team will be actively pursuing accretive acquisitions, selective and profitable hiring and increasing the portion of revenues from fully electronic trading, [software] solutions and market data. As we execute in each of these areas, we expect to continue to grow faster than our overall industry. As we execute on our business plan and achieve our objectives, you should see a significant positive effect on our revenues and profit margins and going forward in each quarter we will update our guidance on each quarterly basis. This merger has delivered far better results for sSpeed's shareholders than we have initially anticipated. And I am proud of the way BGC and eSpeed have worked hard to bring this merger to its successful close. Operator, we are now ready to answer questions.

(OPERATOR INSTRUCTIONS) And your first question comes from the line of Daniel Harris of Goldman Sachs, please proceed, sir.

Morning, guys.

Morning.

I was wondering if you could just comment a little bit, Howard on the trajectory of some of the revenues in the fourth quarter at the BGC business, it looks like you seen a real nice pick up in (inaudible) and credit but rates was sluggish on you know, certainly sequential, and year-over-year, was probably the lowest growing thing. How would you character that business with what the feds doing and how we should think about that going forward in 2008?

This is Lee.

Hi, Lee.

Good morning. The rates business starts from a much higher basis. We have always been known that to be our primary business. That's where we built the companies -- the rebuild of BGC company worked on. So, to have the 10% increase is not something that we should be worried about in the sense that it is actually going up on a day-to-day basis. I think what we saw is that we were slow to start in credit and we have done significant changes in the foreign exchange markets in terms of technology which we have benefited on the growth.

Okay. But, I am -- just as I look at the trend on the year-over-year basis for the first couple of quarter into's the fourth, you were up you know, very, very nicely. And then I am just wondering is the fourth quarter seasonally slower in this business or is it something that,with the environment, that's sort of impacting that business?

No, the seasonally slower period especially, you see it in rates in August and December, it's simply, everybody goes on vacation. So, the business -- certainly our rates business is in a very strong position and doing very, very well. And we expect it to continue to grow faster than the industry average. So, each of our credit segments we expect to grow faster than the industry and you know the rates business -- we have a broad global rates business but as Lee discussed, breaking into the Belgium market across, what MTS had had exclusively for itself, that Belgium approval now gives us a leg up in order to grow that business. We also expect, you know, some of the same kind after approval from the Dutch Government as well. So, these are exciting things that will improve our growth rate in rates business compared to the industry as a whole.

The other thing that we should pay attention to is that in 2007, there was August. So, the seasonality of August -- so, the fourth quarter actually we saw the markets did slow down in terms of turnover in the fourth quarter as the seasonality for December kicked in. But because of the volatility in the marketplaces in August, the numbers that you will see will probably be balanced out over the course of going into 2008 because August was an exceptional -- exceptional month for (inaudible) dealer brokers.

No, I would agree. Just shifting focus a little bit, if we can move and talk a little bit about the new features exchange that you guys have talked about. You know, there's a couple of things that I was wondering fun clarify, Howard. Where do you stand on reaching an agreement on clearing, what does it take to get an exchange license from the CFDC from here and how should we think about timing on our side or I guess just in general for you as you think about launching this?

Well, with respect to the second point which is getting approval, eSpeed and (inaudible) Fitzgerald had been through this process before and had the system approved by the CFDC in the late 90s. So, I don't think from a technical standpoint that we will have any issues whatsoever. I think there will be just the work and process to go through the exchange approval mechanism but I don't think from a technical perspective there are any challenges that we see going forward. In terms of choosing a clearing company organization, this is an organization run by 11 extraordinary firms and they are going to consider all of the alternatives from using others and out sourcing that to bring in a partner to building it ourselves. Any of those are possible and it is those major financial institutions that will be making that decision as we go forward. So, I think those were the two questions. Is there anything else? Oh, and timing. Their timing will be left to them. The group is together working very hard. It has been an extraordinary experience for me. It has really been a great pleasure how hard and how closely the group has been working together and I think they will announce their opening plan and opening dates when they wish to. But we are an active participant and but we are just one of the participants in a big crowd of extraordinary companies.

Yeah, I know. I would agree there's a lot of big and a very solid STM's on there. I was just wondering, I guess lastly, as I think about the exchange because there's a lot of probably desperate requirements among the brokers, how you to guys think about putting someone in place there in the near term? We saw that the CEO appeared to leave somewhat unexpectedly. And you certainly are probably going to need a figure head there to sort of get all these guys on the same page. Is that something that we should be expecting in the next couple of weeks, couple of months or where do we stand on that.

Well, initially there was an interim CEO and the group is working towards hiring a permanent CEO. So, I guess the easiest way to say it is stay tuned for lots of exciting information from the exchange. I think you should just stay tuned. It's all coming.

Okay. So, nothing to report in the very near term though?

Well, certainly not by --

Okay.

Not by me today, (inaudible) at BGC's quarterly call but I think the exchange will choose for itself the dates when it wishes to make its announcements. And I can confidently tell you my earnings call is not the one that they have chosen to make these king of announcements.

Okay. Great, Howard. I will get back in the queue.

Your next question comes from the line of Chris Donet of Sandler O'Neill. Please proceed sir. Thanks.

Good morning, everyone.

Good morning.

I just wanted to explore a little more on the revenue side, you mentioned expanding revenues from three sources to fully electronic trading and software solutions and market data. Can you give us a little more color on all these and market data. Is that somehow tied to the shift of market data out of canner?

Well, I think, I described sort of the three [moments] were accretion acquisitions which we have been focused on and we've tried to make clear on these calls in the past that our view of acquisitions are not strategic but rather accretion. And we think adding accretive acquisitions to our platform will earn us very, very, very well. And then next is hiring. We have been very successful, last year and the year before, in hiring very profitably keeping our compensation base in check, adding them to our huge platform, the scale of our technology allows us to have very strong incremental margins. Obviously the incremental margins in the first quarter of '08 are extraordinary and as Bob -- as Bob West has said, we are expecting 30% incremental margins or better going forward so that shows our scalability. And then lastly we said that market data -- you now have market data from a whole host of products across the BGC platform that are possible to now go into the market data business. As that scale and scope of that market data gets combined with the market data business now that it 's all one roof, and all of the revenues go back into the same pile where all those brokers are owners of the company you will see a dramatic and I think a very exciting increase in the breadth of products available to be sold and therefore obviously, improving it's profitability and of course as we extend and scale out our software you will be able to see more profits in that regard. So, I think you know, those three rungs will add to where we are in the first quarter. So, the first quarter '08 is the business we have now, acquisitions, hiring and product extension are all thing that is will add to our growth rate and will improve our numbers going forward, but they -- because they can't be in our numbers today because we today, we are who we are today but we have lots of things to do all year long to make the rest of the year much better.

So, he key thing with market data is you're going to -- that you are going be able to sell products that is hadn't been out there before to existing customers who are currently consuming your market data?

The answer is yes and to new customers because as you expand product categories of course you increase the number of customers who would be interested in your products so both.

Okay. And then software solutions, again, existing customers, new customers, both?

Well, an example would be the new exchange.

Okay.

As a classic example -- so it's the use of our technology to assist others or to be partners with others. That would be the simplest example I can give you of an extraordinary use of our technology which we think will become very profitable to us in the future.

Okay. And then, just thinking about your, your rates and FX and credit businesses, is it safe to say that -- the operating margins in the rates business are lower than credit and FX or is that not a safe assumption?

No, no. I think you would say it rather simply which is, our compensation expense varies between -- for voice brokerage business, business done by brokers, varies between the 55% and 60%, as Bob discuss canned. And that's consistent across all of our product categories. Therefore, our incremental margins are you know, the balance versus how much we increase our fixed expense base. So, we have a huge technology infrastructure. That huge technology infrastructure, if you said that entire technology infrastructure was in our rates business then what you would be saying is, "wow, you have the world's best credit and foreign exchange business because you have no expenses." So, that's of course silly. So, we are rolling out for instance our FX options business, technology which Lee mentioned. We are rolling out our CDS system. All of that leverages our, you know, vast technology infrastructure and that's why we are able to deliver these margins. So, I would say the rates business, the credit business, the foreign exchange business, as we move into the equities business and commodities business, we perceive no reduction in our ability to drive incremental marginal pretax profits. We think we paid brokers between 55% and 60%. We have our fixed expense base which is very large already and has a huge investment in it and therefore we think we can drive huge margin to the bottom line and get tremendous gearing and leverage off our incremental revenue growth.

Okay. And just, just to be clear here, there's -- in terms of other variable expenses, there really are no clearing or settlement expenses on your part?

Certainly none that we would expect to have a material difference that you would even notice in this model. So, we have a huge infrastructure to clear and settle equities, whatever foreign exchange, fixed income. So, any of these products, because, you know, when your -- for most companies who don't have this vast infrastructure, when they go into these kind of businesses, you can see their expenses but for us, we have already built this vast infrastructure. For us to go into equities just doesn't cost us very much money. We're already have the technology. We've already built the technology and now you get to see the benefits of it because we can clear any of these products around the world and you really -- we don't see them factoring in our numbers going forward.

Okay. Thanks, Howard.

(OPERATOR INSTRUCTIONS) Your next question comes from the line of Jeff Rosenbaum of Day Shaw. Please proceed, sir.

Good morning. Just a question for you regarding the, the IDB space in general and the volumes that you are seeing. Obviously your outlook as well as your competitors is pretty bright for the near term this quarter -- next quarter. What happens in the back half of the year, when you start (inaudible) the increased volatility that you saw which probably began in July or August of '07?

I think for us, the new products continue to grow at a rapid pace and we continue to add new products so I think product expansion has kept our industry growing, you know at sort of the high single digit for a long, long time, number one. And number two, we have the commodity and energy space and the equity space are two examples where we have the infrastructure but we've yet to have the business associated with that infrastructure. As we add that which the Radics acquisition, while small, is the first step. You will see as we add in energy and in equities we have just huge macro growth available to us which may not be the same for everyone in our industry because the others sort of have a more widespread business and we have great opportunity to leverage on to our technology base in places where we can grow where others can't simply because you know our rates business is bigger but our, you know, and this example in energy and equities, we just have all opportunity and currently small businesses. So, I think our, we expect our rate of growth to exceed the industry because of our current position, our technology, our opportunity and the retentive and accretive nature of our structure which allows, you know, deep equity ownership by our key brokers and that has become so successful that I don't think there are very many people in our industry don't understand how exciting it is to be a part of the BGC business.

Right. I understand that from a company's specific perspective and being able to increase the new product areas and gain share but from an industry perspective would you expect that volumes have to be overall flat or down once you've lapsed the increase volatility. That's what I am struggling with.

Well, I think there's only, you know, August and the third quarter was special this year. So, I guess its unlikely that there will -- the third quarter --- the next August won't be August. So, I guess for certain comparative purposes the growth rate might seem slower but we do not see currently a change to the long-term industry growth rate, the -- generally industry growth rates of that sort of 9% to 10% range. We do however think that we should exceed the industry growth rate for the, you know, going forward.

Great. Thanks.

And of course the first quarter obviously, you know, things are still good and next quarter they seem good and I don't think there's many people on this phone call, you know, when you say the word crisis or turmoil, you know, thats good for our business and I think if you ask anyone on this phone, I don't think people think the credit crisis is going away any time soon. So, I guess, I just don't see the first quarter and second quarter being the end of the credit crisis and therefore, I think the volatility in the markets will stay with us for quite some time.

Right. Yes, but, but going back to that, if the volatility stays where it is, that's one thing, but I guess my question is does it actually have to increase versus last year to see an increase in underlying industry volumes in the back half? Right, if you pegged it to the vicks I guess, which is the simplest way to measure volatility, and say the vicks was in the low 20's for the average for the back half of '07, do you need to see something in excess of that to actually see growth?

We -- for our company certainly we do not. The opportunity and the way we look at things, you know, we should be able to deliver these kind of growth rates because the opportunities are so broad for us, you know, the example of 14 cities as we open in different cities and open different product categories in those cities. You know, you have energy all over world. So, we do energy in Singapore. That's just an example there are so many opportunities for us to grow by hiring, by acquiring and by extending, I don't think we really -- that we don't talk about here sort of the macro constraints of what possibly could happen to the industry. The industry is growing which very nice, but we would be growing irrespective of that.

Okay. Great. Thanks.

And your final question comes from the line of Daniel Harris of Goldman Sachs, please proceed, sir.

Yes, hello, I just have one two follow ups. Can you help they think about how when you guys go out and make new hires with your brokers, in the industry it seems like you bring on new brokers you have a big up front pay out. Do you pay most of that out in stock at this point or do you have to make cash payments and if it is stock, how is that expensed?

It's a combination of both cash and equity, and with the -- for long term commitment from both us and them in the sense that most revenue, or significantly higher revenue producing people, are on at least three to five year contracts with us and then they, the slug of equity that they get when they first join, also combined with the equity that they receive as they're going forward in terms of compensation, brings us in a, in sort of a balanced pay out to our brokers so we can stay in that 55% to 60% range that Bob and Howard pointed out.

And so, when you grant stock --

That's that over to contract term.

I'm sorry. I missed that. What was that? We expense all of that over the contract term. Okay. So, if the up front payment is say $1 million for a five year contract it would be $200,000 a year.

Correct. If it was cash. If it was cash and then of course equity sort of has a longer life to it because there's always new equity replenishing. And so, it is roughly exactly those numbers.

Right. So, we expense it over the vesting schedule and that would all fall within the 55% -- 50% comp ratio. So, obviously as we've said, if we gave someone $1 million in cash for a five year contract, that's just giving them $200,000 a year for five years. It may retain them but the fact is it's just compensation and goes in our comp line if our 55% to 60% number. It's just compensation whether it is equity or we give them cash, it is just comp.

And if you had to average, and I don't know if you disclose this, what's the tenure of your average contract?

They're in the three to five year range.

Okay. So, then if it's, say a four on average then, is the,sort of like -- you guys made a lot of hires in '05 and '06. It's sort of like the hump year where you are going have a lot of these contracts coming up in like the 2009 period?

No -- we, you know, we consistently rolled these out, renegotiate terms and change them. So, there's not any -- there's no particular bubble for us. I mean certainly over 2009 and 2010. What happened is, these brokers have vast equity in the company which is unvested. So, that keeps our, you know, that keeps our cost of retention much lower and as Bob said you have over $400 million in unvested retention equity and as our stock rises that number will go up. So, that keeps our costs lower. It is one of the many reasons why our compensation ratios are going to be below our industry average and our peers is because when our contracts come due, those employees have significant unvested money that keeps them in check and reasonable. So, it's the goals and the goals (inaudible), you know, everybody is winning so it makes the numbers to the bottom line better.

And when does the majority of that equity vest? I mean does it vest at the end of the contract?

No. No. It is actually unvested and basically as and when they sell -- as and when they're allowed to convert and sale, then it vests. So, they don't have a particular vesting schedule. It's simply when they sell, so every once in a while when the firm decides that the group of partners can sell some of it then they will be able to sell. But it is totally and completely up to the company.

Okay. So you guys control the vesting schedule. Got it. All right. Thank you.

It appears there is are no further questions. I will now turn the call over to Howard Lutnick for closing remarks.

Thank you everybody for joining me this morning, and I very much appreciate you spending the time with us. Have a great day today.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a great day.