Bgc Group Inc (BGC) 2015 Q4 法說會逐字稿

Welcome to the fourth-quarter 2015 BGC Partners, Inc. earnings conference call. My name is Christine and I will be the operator for today's call.

(Operator Instructions)

I will now turn the call over to Mr. Jason McGruder, Head of Investor Relations. You may begin.

Good morning. Our fourth-quarter 2015 financial results press release and a presentation summarizing these results were issued this morning. These can be found at ir.bgcpartners.com.

The final results and other metrics for GFI Group, Inc. are consolidated with those of BGC from February 27, 2015, onward throughout this call. Whenever we refer to results of, quote, the Company, end quote, we mean the consolidated results for BGC Partners, Inc. Throughout today's call we will be referring to our results on a distributable earnings basis unless otherwise stated.

Please see today's press release for our results under US generally accepted accounting principles, or GAAP. Please also see the section in today's press release entitled distributable earnings, distributable earnings results compared with GAAP results, reconciliation of revenues under GAAP and distributable earnings for definition of these terms and how, when, and why management uses them.

Unless otherwise stated, whenever we refer to income statement items, we are doing so only on a distributable earnings basis and the resulted provided on this call compare the fourth-quarter of 2015 with the year earlier period. For the purposes of today's call, all the Company's fully electronic businesses are referred to as FENICS or e-businesses.

These businesses include the financial services segment, fully electronic brokerage products, as well as offerings in market data, software solutions and post trade services across both BGC and GFI. FENICS results do not include the results of Trayport, which are broken out separately in today's press release and presentation. Also, Newmark Grubb Knight Frank is synonymous with NGKF or our real estate services segment.

I also remind you that the information on today's call regarding our business that are not historical facts, 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 release any revisions of forward-looking statements.

For discussion of additional risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements, see BGC's Security Exchange Commission filings, including, but not limited to the risk factors set forth in our public filings including our most recent form 10-K and any updates to such risk factors contained in subsequent form 10-Q or form 8-K filings.

I'm happy to turn the call over to our host, Howard Lutnick, Chairman and CEO, BGC.

Thank you for joining us for our fourth-quarter 2015 conference call. With me today are BGC's President, Shaun Lynn; our Chief Operating Officer, Sean Windeatt; and our Chief Financial Officer, Graham Sadler. I'm also pleased to introduce Barry Gosin joining us for the call.

Barry is the CEO of Newmark Grubb Knight Frank, our real estate services company. BGC post-tax earnings increased by 26.5% to $76.7 million, while our revenues were up 34.3% to $692 million. I'm happy to report that this was our sixth consecutive quarter of record post-tax profits despite a strong US dollar reducing our financial services revenues by approximately $18 million during the quarter.

Our strong performance was driven by the addition of GFI, the ongoing success of NGKF and the 112% year-over-year revenue increase generated by our high-margin, fully-electronic FENICS business. Last month we closed the back-end merger with GFI. The combination dramatically increased the scale and scope of the Company, and we expect the resulting improvement in BGC's economics to produce significant value for our shareholders.

The net consideration for all shares of GFI was approximately $750 million. In December, we sold Trayport, a business which was owned by GFI, to Intercontinental Exchange, Inc., or ICE, for approximately 2.5 million ICE shares, or $650 million purchase price. We have sold more than 80% of these shares to date, and the expected cash tax-rate related to the Trayport sale will be 10% or less. The proceeds from the Trayport sale contributed to our more than $1 billion of balance sheet liquidity as of the end of the year.

In addition to our strong current liquidity position, we expect to receive more than $730 million in additional NASDAQ stock over time, which is not yet reflected on our balance sheet. This means we have over $1.7 billion of dry powder available to us to drive substantial returns for our investors.

We expect to use our considerable financial resources to repay debt, profitably higher, make accretive acquisitions, pay dividends and repurchase shares and units of BGC all while maintaining or improving our investment grade rating. I'm happy to report that our Board declared a $0.14 qualified dividend for the fourth quarter, representing an increase of 16.7% compared to a year earlier. At yesterday's closing stock price this translates into a 6.6% annualized yield.

So with that, I will turn the call over to Shaun.

Thanks, Howard. And good morning, everyone.

Our financial services revenues were up by 51.2% to $394.3 million. As Howard, mentioned these revenues would have been around $18 million higher had the US dollar not strengthened relative to other major currencies. The increase in revenues were driven by acquisitions of GFI and RP Martin, as well as by organic growth from our desks in energy and commodities, and from our market data and software solutions business.

Financial services increased pre-tax earnings by 24.8% to $65.9 million. Our pre-tax margin was impacted by the inclusion of GFI, which currently has lower profitability. Having owned GFI for almost a year, our integration has accelerated and we now estimate that we will increase our annualized cost synergies to $100 million, up from the $90 million we previously expected. FENICS revenues rose by 112.1% to $59.1 million, while its pre-tax earnings increased by 66% to $25.2 million.

FENICS has continued its impressive performance so far in the first quarter as revenues for these high-margin offerings more than doubled year-on-year for the first 24 trading days of 2016. Because of these pre-tax earnings for FENICS are now actually larger than the quarterly revenues of eSpeed, which we sold in 2013 for over $1.2 billion. The financial results and strong growth of FENICS also compares favorably to other high-valuable, financial technology platforms that are either publicly traded, or that have recently been sold in our sector, including our own sale of Trayport.

Looking at our overall financial services results by asset class, revenues from our rates products were up by 19.1% to $106.9 million. Our FX business increased by 24.3% to $71.6 million. BGC more than doubled revenues from fully-electronic credit desks, while our overall credit revenues grew by 33.2% to $63.9 million.

Our energy and commodities revenues were up by 275.2% to $59.2 million. And our revenues from equities and other asset classes increased by 53.2% to $47 million. While the overall trading environment has been challenging, we believe, based on our results, we have gained market share from our financial services competitors.

Now I would like to welcome Barry and turn the call over to him.

Thanks, Shawn.

NGKF once again had a very strong quarter. Pre-tax earnings were up by 23.9% to $47.4 million, while revenues increased by 16.5% to $288.3 million.

In terms of specifically line items, our revenues from leasing and other services improved by 10.2% to $163.2 million. Real estate capital markets increased by 35.2% to $73.1 million. And management services interest and other revenues were up by 15% to $52 million.

For the full year of 2015, we reached our goal of generating over a billion dollars in revenue. We achieved this while expanding our real estate services pre-tax margin by over 100 basis points to 13.9%. I am pleased that our full-year revenue and earnings growth in real estate out paced the results of our publicly traded peers and relevant industry metrics by wide margins.

This outperformance was driven by the acquisition of Apartment Realty Advisors, Cornish & Carey, Computerized Facility Integration and Excess Space. In addition, we generated strong organic growth as we added numerous high-profile and talented professionals and continued to win significant new business. We estimate that overall industry-wide brokerage revenues in the US across both sales and leasing will be flat to up 5% in 2016.

However, given our strong momentum, we expect approximately 20% top-line revenue growth for 2016, significantly outpacing the industry. Historically, newly hired brokers tend to reach full productivity in the second year with the Company.

Therefore, with our strong brokerage headcount growth in 2015, we expect our average revenue per broker to expand as we enter the second half of the year. Additionally, we anticipate making profitable hires and accretive acquisitions, which should further drive NGKF's out performance in 2016.

With that I would like to turn it over to Graham.

Thank you, Barry. And good morning, everyone.

This was the third full quarter in which our results include those of GFI. This had an impact on a number of income statements and balance sheet line items. BGC generated consolidated revenues of $692 million, up 34.3% compared with $515.5 million.

Our revenues from the Americas were up by over 22%. Revenues from Europe, Middle East, and Africa were up by 68%, while Asia-Pacific revenues increased by 46%. As Shaun mentioned, our non-US financial services results were negatively impacted during the quarter and the year by the stronger US dollar, mostly in our European offices.

Turning to expenses, our compensation ratio is up slightly to 62%, driven mainly by the increased percentage of revenues from GFI and real estate services. While non-compensation expenses increased in absolute terms, by 37.7%, they are only up 70 basis points as a percentage of revenues at 24.8%.

We are happy to report that we've already met our target of reducing financial services annualized expenses by at least $50 million by the first quarter of 2016. In addition, we expected a minimum of $40 million in further annualized cost savings by the first quarter of 2017 for a total of at least $90 million in annual savings.

We now anticipate achieving a minimum of an additional $50 million in annual savings by the fourth quarter of 2016, bringing the total cost savings to at least $100 million and one quarter earlier. The improvement to our bottom line that we expect to achieve from these cost savings will replace more than double the entire profitability of Trayport, which we just sold for $650 million. We expect to benefit as we invest these proceeds and significantly grow our business and profitability.

Moving on to earnings, our pre-tax earnings before non-controlling interest in subsidiaries and taxes were $91.7 million, up 26.4% when compared with $72.6 million. Our pre-tax margin this quarter was 13.3%, compared with 14.1%, which largely reflects the lower margins at GFI prior to our cost synergies. However, we expect margins at GFI, and as company-wide, to improve as we continue to successfully take costs out of the business and increase the percentage of revenues from fully-electronic products.

During the quarter we recorded a gain under GAAP of approximately $407 million net of fees, primarily related to our sale of Trayport. Offsetting this gain were $187 million of GAAP expenses related to non-cash and/or non-diluted charges recorded during the quarter, aside from those that might have been expected as part of the Company's ordinary operating business.

This $220 million net gain was excluded from distributable earnings. Having excluded the $220 million net gain from distributable earnings, we are also excluding certain non-cash charges that had arisen prior to today's earnings announcement.

In addition, certain GFI Group net operating loss carry-forwards are expected to be utilized to reduce cash taxes. Taking all of these items together, we expect to pay effective cash taxes of no more than $64 million related to the Trayport sale, or an expected rate of less than 10%.

Moving on to our earnings, BGC's post-tax earnings were up by 26.5% to $76.7 million, compared with $60.6 million. Our post-tax earnings margin was 11.1%, compared with 11.8%, while our post-tax earnings per share were up by 11.1% to $0.20.

BGC had a fully diluted weighted average share count of 404.1 million for distributable earnings and 289.6 million under GAAP. A year earlier, our weighted average fully diluted share count was 374.3 million for distributable earnings and 221 million under GAAP.

The GAAP share counts were lower because they excluded certain share equivalents in order to avoid anti-dilution. The share counts increased primarily due to issuances related to our various real estate acquisitions, equity-based employee compensation, and new front office hires.

This was partially offset by the redemption and/or repurchase of 2.1 million shares and units at a cost to BGC of $18.1 million, or an average cost of $8.53 per share, or unit, for the full year. As of the end of the fourth quarter of 2015, our fully diluted share count was 404.6 million, assuming conversion of the 4.5% convertible senior notes and to 16.3 million shares, but not included in the 23.5 million shares issued subsequent to year-end in connection with the GFI back-end merger, which will be included next quarter.

Moving on to the balance sheet, as of December 31, 2015, the company's liquidity, which we define as cash and cash equivalents, marketable securities, securities owned, held for liquidity purposes, less securities loaned, was $1.03 billion. Those payable collateralized borrowings were $840.9 million, book value for common share was $2.56. In terms of capital, which we define as redeemable partnership interest, non controlling interest in subsidiaries and total stockholders' equity, was $1.3 billion.

In comparison, as of year end 2014, the company's liquidity was $825.5 million. Notes payable and collateralized borrowings and notes payable to related parties was $706.7 million. Book value per common share was $1.83, and total capital was $641.4 million.

The increase in BGC's liquidities since year end 2014 was primarily related to the receipt of 2.5 million ICE shares. This is partially offset by cash used to purchase GFI, ARA, Cornish and Carey, Computerized Facility Integration and Excess Space.

Cash used for the redemption and/or repurchase of 2.1 million shares and/or units net at a cost to BGC of $18.1 million, as well as a previously disclosed legal settlement. It's important to note that our balance sheet does not reflect the expected receipt of over $730 million worth of additional NASDAQ stock, as these shares are contingent upon NASDAQ generating at least $25 million in gross revenues annually.

For context, NASDAQ has reported more than $1.5 billion in gross revenues for each of the last ten years and generated gross revenues of approximately $3.4 billion in 2015. As of February 1st, 2016, the Company has sold more than 80% of its ICE shares. The Company may, from time to time, enter into hedging arrangements with respect to its ICE NASDAQ shares.

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

Thank you, Graham.

Our outlook for the first quarter 2016 compared with a year earlier is as follows. We expect to generate distributable earnings revenues of between $635 million and $680 million, which is an increase of between 13% and 21% when compared with last year's $563.9 million. We anticipate generating pre-tax earnings of between $80 million and $95 million, which is an increase of between 6% and 26% compared to last year's $75.2 million. And additionally, we expect full-year 2016 revenues for real estate services to increase by approximately 20% to $1.2 billion as compared to $1 billion for the year 2015.

We continue to expect our effective tax rate to remain around 15% for 2016. Lastly, given our record performance and strong earnings and balance sheet, we currently expect to increase our dividend next quarter. We anticipate updating our outlook toward the end of March.

Now, operator, we would like to open the call for questions.

(Operator Instructions)

Our first question comes from Rich Repetto from Sandler O'Neill.

Good morning, Howard, and good morning team, I would call it. You upped the synergies and, you know the $10 million high and moved them earlier. And I guess how did that come about? What areas are you seeing increased savings, and what's the possibility of potential to even increase it further later on down the road?

We made our first estimate before we were really in control of the Company and had a deep insight into the business. And what's happening now is, we're just deep into details. We've been able to get it bigger and move it sooner, and I would not take off the table the possibility of that going higher.

It's not going to be big numbers now because we've already taken $100 million out, but there is room for us to continue the synergies and continue to grow that. But right now we're confident in moving it a quarter sooner and adding $10 million to the number, but way not say that is the end of the possibility.

Got it. Okay.

And then, I guess the other thing, or the big topic that I know investors are looking at is, from the last quarter with your commitment to unlock shareholder value. Any updates or progress or how you're looking at things, what alternatives may be looking like more of a possibility or more attractive to you than others?

Well, the first thing we look at is the real estate business. So our -- what we said on the call is that we expect the real estate business industry-wide to grow, to be between flat and plus 5% as an industry. But you heard Barry say that he expects our organic growth to start at 20% for the year and then with our strong balance sheet, if we make any additional accretive acquisitions, we would only grow from there.

So we've got a huge, strong cash position, lots of dry powder, and starting with 20% organic growth. So I think delivering on the power of our real estate franchise will demonstrate substantial value far -- with growth rates far above our peers. Some of our peers' stock has not particularly traded well in the current challenging market.

So I think we need to just differentiate our earnings from the rest of the industry, and then I think value will be able to be unlocked for our shareholders. So that's first place we're looking. And then the continued growth of FENICS.

As you heard Shaun say, we had more than doubled the number so far this quarter. So we had 112% growth last quarter and more than double so far this quarter. So we're feeling excellent with respect to our movements from our voice pipeline into electronics.

We think that is an important attribute of this company that we have size and scale of our pipeline, and we can drive those businesses electronic. We think that coordination is going to continue to drive our performance, and that will produce tremendous value for the company. So those two assets are things we talk about, we look at, but driving bottom line success in those businesses is the way our shareholders are going to be able to unlock value.

And so that's our objective, to drive it, and then to really talk to people about how to increase and get that value out. And we're doing it now. It's a challenging equity market world out there, but our numbers are strong, and I think we'll be able to unlock value for our shareholders.

Okay. And then, very last question, everybody's got their -- well, all the segments, but FENICS, the fully electronic segment. Any more color?

Like I know, we know that FX, your FX platform is a significant contributor. But any more color on sort of the contribution that makes up the roughly $250 million annually of FENICS revenue?

Sorry, Rich, with regard to how it splits up? Is that what you're asking?

Yes. What are the different products? Any color that gives you more insight into FENICS revenue.

With regards to FENICS FX, we have many different FX platforms within the company.

So other than FENICS -- Other than FX, I think he's interested. He knows FX is big. So like credit.

Okay. We've just announced Capitalab, a compression service, which has just come out. I think we announced it in the tail of the fourth quarter. And that is already starting on great guns and growing very well. We add the traditional off-the-run treasuries.

Well, we have a big credit. We actually have a big credit business. (Multiple Speakers)

Credit industries. It's everything within our traditional business that we've done, we've converted over time, which is now within the FENICS brand. And then combining that synergies with GFI and creating the super-highway of combined companies now, where it's all come under the FENICS group and using the one technology, and the synergies that have come out of that and the strength of the knowledge of GFI and the knowledge of BGC.

Which we then, not only call that an amazing platform that's cutting edge and leading edge, but it's also, with regards to cost effectiveness to the clients that we're dealing with, with one API, with one connectivity to us. So that's what we're going to continue to streamline, build, cut costs, but go deeper into our client base and from our perspective, make it more cost effective to the client, and for us to deliver that.

Rich, I think we'll make it easier for you. I think we'll go take your question under advisement, I think we'll break out the categories of FENICS so you can see them more clearly, so you can see the rates, business. We have a huge foreign exchange, we have a huge rates business, we have a huge credit business.

We'll break it out into those categories so you can see crystal clearly how it breaks down and compare it to our other businesses and it's pipeline. But does it break down in a very logical format and we will take that under advisement. I appreciate the question.

It seems like a good -- FENICS is so big now and strong, we're confident we'll just break it out for you and give you good visibility into it.

Okay. And then I'll try to squeeze one more question in. On the growth in real estate, the 20%, you say organic growth, but can you break that out a little bit more, or give us a little bit more detail, Howard, is that -- what actual -- you did acquisitions throughout the year, and what is the run rate right now? Is it $1.1 million or $1.2 million?

I'm just trying to see what is actually organic growth versus the impact of full-year contributions from companies that you acquired in the real estate sector, if you can -- if you have that numbers available.

What happened is we had significant headcount growth in the real-estate business, and as you know, in the real-estate business, the first six months to year when a new employee joins you there, they're still working on deals for the benefit of their prior employer. That's sort of the way the real estate business works, is that if they had a mandate from a prior employer, they work that through, and that goes for the benefit of the prior employer, not to us.

But as that calendar ticks off you start to see the huge headcount start to produce significant revenue. So we had a lower average revenue per head in the real estate business while we have hired only at the top of our list. And so what you are going to see, and what Barry said, is your going to see our average revenue-per-head dramatically grow because these producers will start to produce for us.

So therefore we think it's not really driven in the back end of 2015. It's not really driven by acquisitions. It's driven by enormous, spectacular, talented hires just coming on-line. So that's why it's organic growth.

So we would say it's literally pulling the calendar down and having the talented professionals start to execute and close new transactions that they've brought on since joining us. And so we expect 20% growth rate without consideration of new acquisitions. Anything we do new will propel that growth higher.

We're simply saying with the talented people that we have right now, as they just work through the year, assuming the year is 0% to 5% in the industry, we will grow 20%. Then whatever else we do going forward will just add to that. Obviously my point is, we hire new people, they don't really drive 2016. If we hire new people, they'll be drivers of 2017.

So it's not really acquiring talented people that will drive our numbers this year. That gets driven by what we've done in the past. Acquisitions will make it better, but that's why we consider it organic growth. It's the assets that we have, the people that we have.

We just drive that business forward. We expect to grow at least our top line 20%.

Got it. Thanks for all the info. Thank you.

(Operator Instructions)

Our next question comes there Patrick O'Shaughnessy from Raymond James. Please go ahead.

Good morning, guys.

Good morning.

So I want to start out on the financial services brokerage side of things. Certainly we've seen volatility pick up to start this year, but your guidance for the first quarter I think was relatively conservative, I think in our view. So just how are you seeing that volatility translate into trading volumes?

I guess on a related note, we continue to see signs of pressure at some of the big banks, particularly the big European banks. How is that impacting your outlook?

Patrick, you've seen the marketplace. It's very difficult at the moment. The banks are certainly struggling. There's a massive headwind with regulation, with the balance sheets of most of their customers, their traditional customers are being constrained. And the volatility that's there is, some would say, the wrong type of volatility.

What we tried to do is navigate our waters through -- navigate these choppy waters with continuing to invest in the correct technology, investing in the right people and positioning ourselves in the right market. So far we've been very successful in doing that. Of course, we're in line with the rest of the market.

I think we perform better than most of our peers, and we think we're going to continue to do that throughout the whole of 2016. But we have to be continually vigilant, making sure we are reducing our costs, upgrading our staff and positioning ourselves correctly.

Got it. Thank you. And then on a related note, we've seen the industry basically consolidate from five global players down to three. And we see these revenue headwinds.

Now if I look at your broker productivity and financial services, it has kind of been on a long-term decline. So to what extent do you think that there is the need for further front office headcount reductions or maybe compensation payouts need to change, given the competitive dynamics and given the market outlook to basically kind of right-size your cost structure for just how the environment currently is?

I think you have seen us over time reduce the payout to the brokers and reduce their costs. We've now just taken off a huge chunk by the name of GFI, and their comp payout was much higher than BGC. So what we're going to do is distill those businesses down. We've already started to do it.

We're going to lower our costs. That's basically the model for us is that we'll bring the revenue in, we'll bring the good business in, we'll distill them down, we'll turn more markets electronic, and we'll lower our payouts. And that will make more money to the bottom line for the Company and for the shareholder.

Yes, revenue could be an overall -- revenue could be affected by that, if it's in line with the marketplace. But we think we'll make more money to the bottom line and distill that down. And we'll pay our brokers less, basically, over time.

But if you think about it, sometimes you just to have give things time, right? The announced transaction that reduces the --to three has not occurred. As and if that occurs and goes to three, then the ability to constrain costs will improve. But that has not yet occurred, but that is something that you should expect to occur prospectively.

So in the world a year forward, I would expect your view to be a correct one, which is that the business will become more stable with only three, and the relative cost of employing people will decline over time, and our profitability will rise, and our average revenue per broker will rise as that settles down. So I think the industry itself, because of consolidation, will be a benefit to us. We benefited with consolidation to GFI, and other consolidation will be a benefit to the Company.

Got it. Appreciate that. And last one on the financial services side of things. Howard, what will your lawyers let you say, if anything, about that FX options spoof investigation that was reported, I believe, in November?

I'm sorry, they haven't said anything to me about anything. (Laughter) So I guess the easiest thing to say, I guess I have no comment, because no one has really been talking to me about it in any way, shape or form.

Okay, fair enough. Quick question here on the commercial real estate side. I think if you look at the publicly traded comps out there, they're down pretty substantially year-to-date in terms of their share price. I think the expectation is that slowing global economic growth is going to pressure commercial real estate leasing and capital markets activity.

If Barry is still on the line I would curious to get his view on the macro-outlook. I know he said flat to 5% for the industry, but just a little bit more color on the macro-outlook and how NGKF can outperform in that environment.

I'll start with it. Barry is at another location, so I'm not sure how easy it is for him to get back on the line. So number one, low interest rate environment is good for real estate. The current view of things as it extends out, you know, fed growing, raising rates another 0.25% or another 0.5% will not impact the overall real estate market. So we think fundamentals of the real estate business are good.

Our capital markets business -- So, number one, the spreads and the credit of the world and the CMBS business spreads widening will have an impact on the capital markets business, although a comparatively small one. CMBS is not the biggest part of the business. It's a small part of the business.

Cap rates may drift up a bit, but the net effect will be a slight decrease in capital markets turnover, but not a fundamental one. That being said, our ability to grow in capital markets is undeterred because of both our size, meaning the scale by which we can grow, and the momentum that we have and the way we are growing.

So we have the capacity to grow our capital markets business dramatically. It may be the law of comparative small numbers, but we have a long, long way to go and a long, long way to grow. And we expect to dramatically outperform the industry.

So we have calculated in that the industry may only grow 0% to 5%. That is a significant decline from the past. But we do not think that will deter our growth from being 20% or more. So I think we feel like we're in an excellent position. The fundamentals though, of low interest rates, will continue to keep this business from declining. We're in a low growth world of US growth at 2%. We are a US company.

We don't have many of our peers, our publicly traded peers, have huge exposure to Asia which is dramatically difficult for them. They have huge exposure to emerging markets which is dramatically difficult for them. I mean, we are a US real estate company. The United States is growing its economy at about 2%, which means there's new jobs. Right? We have unemployment below 5%. Those jobs mean that companies are continuing to grow.

They're not growing rapidly, but they're growing at a nice, slow, steady pace. And if you were going to bet on anyone, you would bet on US real estate with low interest rates, and that's why you're seeing us outperform generally.

Got you. Quick follow-up on that point. To the extent that we've seen some of the public traded valuations come down, do you think that would have any impact on the purchase price of entities that you might be looking to buy over the course of 2016?

Yes. It's lovely. (Laughter)

Having the balance sheet and having the cash, right, when times get tough, it's a beautiful thing. I think we will have opportunities to do transactions at prices that are just more attractive to our shareholders, period. Both segments.

Got it. And then last one from me. Graham, we saw an uptick in your GAAP other expense line item during the quarter, and it wasn't immediately clear to me what was responsible for the uptick based off of your adjustments. Can you provide a little bit of color on what that noise was in the quarter?

We mentioned -- we took a combined GAAP charge of $187 million as part of the gains Trayport sale of $407 million, which we -- so the net $220 million we backed out of distributable earnings, including in that was a reserve relating to the commitment for charitable contributions with respect to our annual charity day. That's what's in that line.

All right, got it. Thank you very much, guys.

Thank you. Our next question comes from Brandon Dobell from William Blair. Please go ahead.

Thanks. I want to focus on the commercial real estate side for a second, just to make sure I got the statistics right. Headcount growth in 2015 and your expectations for headcount growth in 2016, and then within that construct, how successful have you been, I guess, keeping the comp ratio, the commission splits where you would like them?

Okay, so we expect to continue to grow our headcount, but we did have dramatic growth --

13%.

-- last year of 13%. So I think it will be probably less going forward, but we still expect to hire and add at significant numbers. So I don't think it would be as high as 13% and that excludes any acquisitions. Obviously, if we have the right acquisition, that could add substantially to our number. So I think growth of headcount, yes, but probably without taking -- setting aside acquisitions probably less than the 13%.

With respect to splits, we are not experiencing modification of split level. But that is just not -- we do not see pressure in that regard. It's really an institutional place. Many of the other peers, they compete with each other. They're so, so big and they have so many people that they don't work as collaboratively as we do.

The key to our business is we're a collaborative company. We try to bring in on every pitch the most talented people who bring in the most value and share the commission across a broader spectrum of people rather than being very fiefdom-like and trying to hold the business.

That is the difference that's been winning us business across NGKF, is that we bring in as many talented people as we can to each pitch. We just have a huge broad bench working together in a more collaborative fashion. And so we share more money across the platform, bring more people into more business deals, but it's not driving our splits higher.

Okay. And you look at the network of affiliates and partner offices. How do you think about, I guess, the two-pronged strategy, one of opening up new affiliates or affiliates in new locations, but also the opportunity to buy in some of those affiliates that are in -- probably in geographies where you think you've got an opportunity to push the market share higher?

I think it's really each geography. So within the United States, we will seek to acquire our affiliates if we think the market is big enough for us to invest in that marketplace and dramatically grow the business. If we don't think the market is large enough, we don't think that we need to own all these stocks on the map if we're not going to make money.

We are fundamentally driven to the bottom line and to shareholder value as opposed to otherwise. So if the market is big enough, and we've made some acquisitions of late that are relatively small acquisitions because we plan to invest in those markets, because we think those markets can grow two- or three-times and have us make money. We have enormous opportunity outside the United States.

So we are a domestic-based company and we have the ability to grow as we did in our financial service business around the world. And so those are opportunities. We have a partnership with Knight Frank that works nicely together, but eventually we will grow our business in other places around the world because we have the capital to invest and the ability to grow our business. So that's simply a matter of time that we will either work out a different relationship with Knight Frank so that we have the opportunity to invest and grow our business globally.

Okay. And then final one from me. If you look out, maybe it's two or three years, how do we think about the mix of the service lines within real estate. Right now it's obviously skewed a little bit more towards capital markets and leasing.

Is there a goal to get the outsourcing or occupier services a little higher? Is that an acquisition-driven strategy, or do you think you've got a better chance to really push market share in the transaction businesses?

So we tend to do things with focus on step-by-step. Our current focus, which we discussed last year, was to dramatically increase our capital markets presence. We felt that our leasing business was really first class in every way, but that our capital markets business was undersized, and we said we expected to grow it.

We have been growing it dramatically and we expect to continue that growth rate. As that reaches more towards the steady state that we're happy with our size and scale in capital markets, we will turn towards the service side of the business. And you will then see us focus on the service side and would you expect to us grow that business and that may well -- that comes with capital markets.

So you'll see that growth rate start with capital markets on the service side of the business, but then eventually we will move to an acquisition strategy in the services business and dramatically grow that line item.

Okay. Perfect. Thanks a lot.

Thank you. We have a follow-up question from Rich Repetto from Sandler O'Neill. Please go ahead.

Yes, just one quick follow-up, Howard. With the shares that you issued for -- the appetite for share buyback is the question in the quarter.

So I think what happened last year is we were involved in the GFI transaction through most of the year. We had to make sure that -- and then when we sold -- when we finally sold Trayport, we did it for ICE shares. And as we said, it took us a little while to reduce our risk and to sell, obviously, a significant amount of those shares and turn them into cash, which Graham went through that we have done.

So we have the capacity now to do the things we wanted to do. And we were basically constrained prior to now simply by just sort of the fact pattern of how things played out. We will buy back shares. We have a $300 million share repurchase authorized by the board. And we are interested in acquiring our shares. I think that is something that will happen over the course of the year. We just did have the issuance.

We had the issuance of the GFI back-end merger, which issued 23.5 million shares just presently. And we do have the convert maturing this summer, which you should not expect us to react. So therefore that would cut our share count by 16.5 million shares this summer. That is something we have. That is our current expectation and you should carry that expectation forward.

Okay. In fact, that was sort of the -- I didn't communicate it, but the willingness to offset that dilution of the 23.5 million for GFI.

We would expect -- look, we would expect to do that, and a simple way to discuss it would be just in the convert which was -- that will be 16.5 million shares coming this summer, and you should have the expectation that we will not -- we would make that go away, and that would save 16.5 million shares, and then other share buybacks. We do expect to offset.

Got it. Okay. Thank you very much.

Thank you. I will now turn the call back over to Mr. Lutnick for closing remarks.

I want to thank you all for joining us this quarter. As we said, we will update you at the end of March, and we look forward to speaking to you again next quarter. Have a good day, everybody, and thanks for spending time with us.

Thank you. And thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.