StoneX Group Inc (SNEX) 2019 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the INTL FcStone Q4 Fiscal Year '19 Earnings Call.

(Operator Instructions) Please be advised that today's conference is being recorded.

(Operator Instructions) I would now like to hand the call over to Bill Dunaway.

Please go ahead.

Good morning.

My name is Bill Dunaway.

Welcome to our earnings conference call for the fiscal fourth quarter ended September 30, 2019.

After the market closed yesterday, we issued a press release reporting our earnings for the fourth fiscal quarter of 2019.

This release is available on our website at www.intlfcstone.com as well as a slide presentation, which we will refer to on this call and our discussion of our quarterly and year-to-date results.

You will need to sign onto the live webcast in order to view the presentation.

The presentation and an archive of the webcast will also be available on our website after the call's conclusion.

Before getting underway, we are required to advise you, and all participants should note, that the following discussion should be taken in conjunction with the most recent financial statements and notes thereto as well as the Form 10-K filed with the SEC.

This discussion may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.

These forward-looking statements involve known and unknown risks and uncertainties, which are detailed in our filings with the SEC.

Although the company believes that its forward-looking statements are based upon reasonable assumptions regarding its business and future market conditions, there can be no assurances that the company's actual results will not differ materially from any results expressed or implied by the company's forward-looking statements.

The company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Readers are cautioned that any forward-looking statements are not guarantees of future performance.

With that, I'll now turn the call over to Sean O'Connor, the company's CEO.

Thanks, Bill.

Good morning, everyone, and thanks for joining our fiscal 2019 year-end earnings call.

Market conditions were modestly favorable in certain areas, such as grains, due to weather events in the U.S. and fixed income, particularly for our mortgage business, but was subdued in other areas.

In addition, we saw a more accommodative stance from the Fed with 3 interest rate cuts, 2 of which happened during the quarter under review and 1 shortly after.

Interest rates, obviously, affect the return we get on our customer floats, but it's important to note that growth in the underlying customer assets tempers the impact of the lower interest rates.

Bill will highlight this later in his section.

We had a record Q4 by almost every measure, from operating earnings through to EPS, although net earnings were boosted by a bad debt insurance recovery on the 2017 coal matter.

Our operating revenues were up 18% versus a year ago and up slightly sequentially versus the immediately prior Q3.

Net income was up 73% versus a year ago, and diluted EPS was $1.40, also up 73%, resulting in a quarterly ROE of 18.7%.

During the fiscal 2019, we had several one-off items, and when netted out, had a positive impact of $7.6 million on our pretax quarterly earnings.

Segment net income was up a strong 43% from a year ago and up 27% if the insurance recovery is excluded.

All of our segments showed strong growth with the exception of Global Payments, which was down slightly due to a reduced number of larger corporate cross-border payments related to M&A activity due to global uncertainty as well as the impact of the acquisition of PayCommerce, our SWIFT service hosting business.

Our largest segment, Commercial Hedging, showed strong growth of 20% in segment income due to a strong increase in both futures and OTC revenues as a result of the weather events I mentioned.

Securities segment income was up 70% from a year ago off the back of record results for our fixed-income business.

A record result from precious metals drove the physical commodities to 140% increase in segment income, again, excluding insurance recovery item.

In our Clearing & Execution segment, we saw strong results from our FX prime brokerage business offset by modest declines in our futures activities as a result of de-risking this business earlier in the year.

On an annual basis, we had strong performance on almost every financial metric, and nearly every one of our underlying businesses achieved record results as well.

During the year, we had several discrete items, which affected our operating results.

These items include a bargain purchase gain on the GMP acquisition, operating losses and restructuring charges related to acquisitions we have made as well as new initiatives we have started as well as the recovery on the physical coal matter.

The net effect on pretax income of the acquisitions made, including either restructuring charges or losses assumed, net of the bargain purchase as well as the cost of new initiatives, was a negative $4.8 million in fiscal 2019.

Over the fiscal year, these items, when offset against the $12.4 million recovery on physical coal, net off to a positive impact overall of $7.6 million for the year on our pretax earnings.

We think shareholders should look at the business the way management does and consider this net impact when evaluating the true underlying performance of our business.

Related to this, it's probably worth mentioning that we are always looking to invest in our business to either expand our financial platform by adding new products or capabilities or through the addition of new customers.

Our default position is to do this organically.

But we'll, of course, always look at tuck-in acquisitions that can achieve the desired result quicker and cheaper, or with less risk.

In all instances, we consider the payback period of the investment and the associated risk of achieving that outcome.

Paying a large multiple of book or earnings really doesn't seem to make good commercial sense to us, and most often, we end up acquiring these small bolt-on acquisitions at attractive values but assume some initial losses and restructuring charges as a result.

This has been our approach for many years and we believe that this has materially added to shareholder value as a result.

In all instances, we have seen these initiatives to make good strides towards eliminating the cash burn we acquired and believe that they will be accretive in due course.

For the fiscal year, we achieved record operating revenues of $1.1 billion, first time we've reached the $1 billion, up 13% from a year ago.

Total nonvariable expenses increased 9%, and if the total recoveries on the coal matter are excluded, are up 14% or $42 million.

Of this increase, $19 million, or just less than 50%, was related to the nonvariable costs picked up through these acquisitions and a large portion of the balance was due to increased IT-related costs, being both cybersecurity and infrastructure upgrades as well as the cost of digitizing our platform.

Our net earnings were $85.1 million or $4.39 in EPS, which represents a significant increase over the prior year.

Although last year did include the impact of the Tax Reform Act, the ROE was 15.5% for the 2019 year, just above our long-term target.

Most financial services companies use return on tangible equity as their primary measure of financial performance, and on this basis, we were 17.5%, which we believe is a best-in-class result.

In reviewing our record performance of 2019, I would like to take some time to recap and highlight some of the items of a more strategic nature, which we have mentioned in our earlier calls throughout the year.

Overall, 2019 was a busy year for us and one in which we significantly expanded and enhanced our financial platform by adding both capabilities and products as well as acquiring new client segments.

Adding capabilities and clients are both significant objectives in growing -- in continuing to grow our franchise and become more relevant in the markets.

In the first quarter, we closed the acquisition of Carl Kliem S.A., an independent interdealer broker based in Luxembourg, which provides foreign exchange, interest rate and fixed-income products to more than 400 active institutional accounts across Europe.

This acquisition expanded our client base in Europe and provided us with an effective way to deal with Brexit contingencies to house all of our European-based employees and clients within a fully EU-regulated business.

We are now well placed to pick up clients and opportunities from others who were not able to position themselves to serve EU-based clients in the same way post Brexit.

Early in the second quarter, we closed the acquisition of GMP securities, formerly known as Miller Tabak Roberts, which brought 50 professionals and more than 2,000 institutional client relationships to our platform as well as deep product knowledge in high-yield convertibles and emerging market debt.

This acquisition added more breadth and depth to our existing fixed-income product suite and enhances both our offering and relevance to institutional clients.

As part of our long-standing commitment to serve the precious metals markets, we acquired CoinInvest in March, a leading online provider of gold, silver, platinum and palladium products to private individuals, institutional investors and financial advisers, CoinInvest significantly expanded our offering by enabling our clients to purchase physical gold and other precious metals in multiple forms and in denominations of their choice to add to their investment portfolios.

By developing and investing in technologies to change how precious metals are traded, we continue to build a unique global franchise that delivers client solutions throughout every part of the precious metals life cycle, from mine site to the private investor.

Also in March, we announced the acquisition of the Singapore-based UOB's futures and options, brokerage and clearing business, with the deal closing shortly after year-end.

This required a significant upgrade of our Asia-Pacific presence, and we scale from basically a small sales office to a fully regulated FCM in Singapore, with an additional 50 staff and more than 300 institutional accounts.

This acquisition, which just closed in October, has given us critical mass in Asia-Pacific region, provide us with access to a solid and reputable client base and enhances our global product offering as a one-stop solution for all our client market access needs for listed derivatives globally.

In April, we launched a prime brokerage division to leverage the existing capabilities and securities clearing and custody that we currently offer to introducing broker-dealers.

Headed by a proven and experienced team based in Atlanta, this group offers multi-asset prime brokerage, execution, outsource trading, custody and both self-clearing and introducing -- introduced clearing services for hedge funds, mutual funds and family offices.

To accelerate the build-out of this offering, in September, we acquired Fillmore Advisors LLC, a leading provider of outsourced trading solutions and operational consulting to institutional asset management -- asset managers.

We also acquired an outsource IT development consulting firm in Bangalore, India.

This consulting firm was almost exclusively serving our company so there was no material financial impact.

Although, we are now able to leverage technology expertise in India to serve all of our business lines at a lower cost and with faster delivery.

This is especially relevant given our strategic priority to digitize the financial platform we have built.

We also established a wholly-owned subsidiary in Canada and became a member of the Investment Industry Regulatory Organization of Canada, commonly known as IIROC, allowing us to offer exchange-traded products declined throughout Canada.

This membership allows us to offer a broad array of risk-management tools to commercial and institutional organizations in Canada.

We amended our senior secured credit facility, extending the maturity through February 2022 and increased the size of the facility to $350 million, comprising $175 million in revolving credit facility and $175 million term loan facility.

Post year-end, this facility was increased by a further $43 million.

We believe that it is now a strategic imperative to digitize our financial platform to facilitate easier and more effective engagement from our growing client base and to accelerate adoption as well as to provide an efficient and scalable infrastructure where we can drive marginal transaction costs to 0. It is clear that in almost every business I know, that digital platform scaled exponentially compared to linear platforms.

We believe that a digital platform can effectively deliver the high-touch and superior service that has been our hallmark.

We have spent the better part of 3 years putting the foundational pieces in place to allow us to deliver on this promise and are now seeing a good cadence of delivery and use cases.

This has been difficult and time-consuming and has increased our IT costs meaningfully over the past 3 years.

Transforming any business is not easy and will take time and cost real money, but we believe we are an inflection point where this will increasingly become a reality for us.

Some examples of the components that we already have in place include: We have developed a significant internal market intelligence assets and now deliver all of this to our clients through a digital platform that allows us to showcase all of our research in one place, enables us to track usage and seek out patents and potential client needs as a result; additionally, we have just launched a real-time client trade reporting portal for our commercial clients, which combines all transactions clients do with us across asset classes and regulatory entities, delivering clients a comprehensive view of the activity with INTL, both on derivative exchanges and OTC products.

We also have a real-time client trading, reporting and workflow portal for our securities clearing business, which we've developed in-house, which has automated most functions for our introducing brokers.

We have a market-leading online precious metals trading platform for both financial and physical trading, which has seen both exponential adoption and volume growth, making it one of the leading precious metals trading platforms available globally.

We also have an online platform for constructing complex-structured OTC products with the ability to stress test them at the theoretical market scenarios and request real-time price indications.

We have just launched an algorithmic-based trading platform in foreign equities, integrating multiple market prices as well as foreign exchange rates to allow for best execution for our institutional clients in various markets.

We are close to launching a client portal for our LME market to provide clients there with a leading set of tools and workflows to manage positions and exposure in this market.

Internally, we have implemented sales force with all our salespeople, which allows them to see a more integrated view of the clients' relationship with us.

We are now introducing a more disciplined sales process, which should drive fast organic growth as well as better leveraging all of our capabilities and products through every client relationship.

And of course, we have our industry-leading Global Payments platform, which offers automated access to over 175 countries.

We are very excited with our progress thus far, but much work lies ahead before we have a comprehensive and meaningful solution for all of our various client segments.

So with that, I'd like to hand you over to Bill for a discussion of the financial results.

Bill?

Thank you, Sean.

I'll be referring to slides and the information we have been made available as part of the webcast.

Specifically, starting with Slide #3, which shows our performance over the last 5 fiscal quarters.

The chart depicts our net income, earnings per share and ROE over the last 5 quarters.

As shown, net income in the fourth quarter of 2019 was $27.2 million, which represents a $10.9 million increase over the immediately preceding quarter and an $11.5 million increase over the prior year.

Earnings per share were $1.40 in the fourth quarter as compared to $0.84 and $0.81 per share in the immediately preceding and prior year quarters, respectively.

Moving on to Slide #4, which represents a bridge between operating revenues for the fourth quarter of last year to the current period.

Operating revenues were $286.9 million in the current period, up $43.7 million or 18% over the prior year.

This growth was led by our Securities segment, which added $31.7 million or 66% in operating revenues versus the prior year.

Within this segment, Equity Capital Markets added $12.4 million in operating revenues versus prior year primarily as a result of a $7.8 million increase in conduit securities lending revenues as well as a 13% increase in the dollar volume traded.

Debt capital markets also had a strong quarter, adding $17.9 million in operating revenues versus the prior year primarily driven by increased activity in our domestic fixed-income business, improved performance in Argentina and the acquisition of GMP Securities.

Operating revenues increased in our Commercial Hedging segment by $6.6 million versus the prior year to $75.6 million.

Exchange-traded volumes increased 9% driven by weather-related volatility in the domestic grain markets, while OCC volumes increased 11% as a result of the growth in both North and South American markets as well as global energy.

Interest income in this business increased 4% to $7.1 million driven by higher short-term rates, which was partially offset by a 4% decline in average client equity to $967.8 million.

Physical commodities increased operating revenues $9.1 million or 57% versus the prior year driven by a $9.2 million increase in Precious Metals operating revenues, which was partially offset by a $100,000 decline in Physical Ag & Energy.

The increase in precious metals' operating revenues is driven by a $2 million gain on the sale of inventory, carried at the lower of cost or net realizable value at the end of the preceding quarter as well as an 18% increase in the number of ounces traded driven by geopolitical tensions surrounding tariffs and global trends in the interest rate environment.

Our Global Payments segment added $1.6 million in operating revenues versus the prior year to $26.8 million as the number of payments made increased 17%.

As Sean mentioned earlier, this growth was tempered by a lower average revenue per payment driven by a lower number of M&A and capital transition payments from our international banking clients due to heightened levels of uncertainty in the global markets.

Finally, operating revenues in our Clearing & Execution Services segment declined $4.9 million or 6% as compared to the prior year.

Within this segment, exchange-traded futures and options operating revenues declined $9 million as volumes decreased by 3% and the average rate per contract declined 21%.

Somewhat offsetting this decline, our FX prime brokerage business had a strong quarter, adding $3.1 million in operating revenues.

The next slide, #5, represents a bridge from 2018 fourth quarter pretax income of $20.5 million to income -- pretax income of $34.1 million in the current period.

The largest change from the prior year came from our physical commodities segment, which added $16.7 million in segment income.

This is primarily driven by the insurance policy claim received as well as the organic growth in precious metals operating revenues.

Our Securities segment added $4.7 million in segment income versus the prior year.

This growth in segment income was driven by a $4.4 million increase in debt capital markets versus the prior year as well as a $1.2 million increase in profitability on our Asset Management business.

These gains were tempered by a $900,000 decline in Equity Capital Markets as the increase in operating revenues in that business were more than offset by higher interest expenses related to our Securities lending activities and the start-up costs associated with our prime brokerage initiative.

Commercial Hedging segment income increased $4.5 million as a result of the $6.6 million increase in operating revenues combined with a $700,000 decline in bad debt expense, which was partially offset by increases in variable and fixed compensation and benefits of $800,000 and $600,000, respectively.

CES segment income increased to $1.5 million versus the prior year driven by strong performance in our FX Prime Brokerage business.

Global Payments segment income declined $1 million in the segment income to $14.7 million as the increase in operating revenues were offset by a $2.1 million increase in nonvariable expenses as a result of the acquisition of PayCommerce and the addition of several new front-office employees.

Finally, the net cost in unallocated overhead increased $12.8 million versus the prior year, of which, $3.5 million was related to increase in variable compensation and benefits.

Nonvariable unallocated costs increased $8 million versus the prior year, of which, $1.3 million was associated with our recent acquisitions and initiatives.

The remaining increase was driven by increased headcount in several administrative departments as well as higher non-trading technology and support costs related to various IT, client engagement, accounting and human resource systems.

Slide #6 shows the interest in fee income on our investment of client funds in our Exchange-Traded Futures & Options businesses as well as client balances held in our correspondent Clearing and Independent Wealth Management businesses.

As noted on this slide, our earnings on these balances have increased $1.5 million versus the prior year to $16.9 million as our yield on these balances has increased 18 basis points to 2.18% in the current period.

As Sean noted earlier, the Fed recently dropped short-term rates.

However, our overall yield still increased versus the prior year as the 2 rate cuts in the current quarter offset rate hikes in September and December of last year and the effective rate hikes typically lag 1 quarter due to investment maturities.

In addition, our average client balances increased modestly versus the prior year.

Moving on to Slide #7, our quarterly financial dashboard.

I would just highlight a couple of items of note.

Variable expenses represented 61.9% of our total expenses for the quarter, well above our target of keeping more than 50% of our total variable -- of total expenses variable in nature.

Nonvariable expenses, which are made of both fixed and bad debt expenses, increased $3.5 million versus the prior year.

Excluding the recovery on the bad debt on physical coal, nonvariable expenses increased $13.5 million, of which, $5.9 million is related to the recent acquisition of GMP, PayCommerce Financial Solutions, Carl Kliem and CoinInvest as well as the launch of our securities prime brokerage and Canadian initiatives.

We reported net income of $27.2 million in the fourth quarter for an 18.7% return on equity, above our stated target of 15%.

Our total assets increased 27% versus the prior year primarily due to increased activity in our domestic fixed-income and securities lending activities.

Finally, in closing out the review of the quarterly results, our average revenue per employee was relatively flat with the prior year at $584,000 on an annualized basis, above our target of $500,000, and our book value per share increased $4.43 to close out the quarter at $31.15 per share.

Next, I'll move on to a discussion of the year-to-date results, and I'll refer to Slide #8.

Year-to-date operating revenues were up $130.3 million or 13% to $1.1 billion in the current fiscal year.

All segments of our business reported increases in operating revenues as compared to the prior year-to-date period, with the exception of the CES segment.

The largest increase was in our Securities segment, which added $99.1 million, including $56.1 million increase in interest income, driven by increased activity in our conduit SEC lending and fixed-income businesses.

In addition, the increase in operating revenues was the result of a 58% increase in the gross dollar volume traded in our Equity Capital Markets business.

Our Physical Commodities and Commercial Hedging segments added $16.9 million and $15.7 million respectively, while our Global Payments segment added $13.6 million versus the prior year-to-date.

CES operating revenues declined $6.3 million versus the prior year.

Finally, the decline in unallocated overhead operating revenues is primarily related to the net fluctuation in market value of economic hedges held against the Argentine peso as well as the increase in elimination entries to eliminate gross ups among our segments.

Moving on to Slide #9 for a discussion of the variance in pretax income by segment for the year-to-date period.

The largest variance was seen in our Physical Commodities segment, which added $21.4 million versus the prior year as a result of the $12.4 million recovery on the bad debt on physical coal as well as the strong performance in precious metals operating revenues.

Segment income in our Securities segment increased $6.6 million as a result of strong operating revenue growth noted earlier, which was tempered by higher interest expense in our institutional fixed income and securities lending activities as well as decline in performance in our municipal securities business.

Global Payments added $6.3 million in segment income versus the prior year as a result of 8% growth in the number of payments made as well as a 4% increase in the average revenue per payment.

In addition, the CES segment added $5.8 million in segment income driven by a $4.3 million increase in FX Prime Brokerage, including the $2.1 million Barclays last look net settlement received in the first quarter as well as improved performance in correspondent clearing and derivative voice brokerage.

Commercial Hedging segment income added $3.7 million as compared to the prior year period driven by the increase in operating revenues and $1.5 million decline in bad debt expense.

Finally, the $34.3 million increase in net costs and unallocated overhead were driven by the decline in operating revenues noted earlier, a $5.3 million increase in variable compensation, a $5.8 million increase in costs associated with our recent acquisitions and initiatives as well as increased headcount in several administrative departments and higher nontrading technology and support costs related to various IT and client-engagement systems.

Finally, I will touch on the year-to-date dashboard, which is Slide #10 in the presentation deck.

Variable expenses are above our internal target of exceeding 50% of total expenses, coming in at 60.3% of total expenses.

Net income was $85.1 million for the current fiscal year compared to $55.5 million in the prior year, with the prior year including a $20.1 million charge related to tax reform.

The return on equity for the year-to-date period is 15.5%, which exceeds our internal target of 15%.

With that, I would like to turn it back to Sean to wrap up.

Thanks, Bill.

As most of our shareholders know, our financial north star has been to compound our shareholder capital to become a bigger and more valuable business.

This is why we have set ROE as our primary financial target, which has also been embedded in our executive compensation plan as well as compensation for senior management generally.

This approach enables us to create our own capital runway to support our growing franchise, and as a result, we are less dependent on the capital markets and can thus be flexible and opportunistic in approaching them.

In short, we'll only take on capital when it is available and priced right from our perspective.

We also believe that by this ROE metric, we have handily outperformed our peer group companies and most of the bulge bracket banks, which is validation empirically of our strategy and approach.

Our book value now stands at $31.15 versus $24, 2 years ago, an increase of 30%, the result of us achieving our 15% target over the last 2 years.

Our business model offers vertically integrated execution and clearing in all major asset classes and markets for our clients.

This is a unique and increasingly valuable platform in the mid-market space because it allows clients to efficiently access many markets and asset classes through 1 provider, which is generally only available with the bulge bracket banks.

This has drawn clients to our platform and as consolidation continues and it will enable us to create sticky client relationships and increased clearing and execution revenues, while also growing our client balances.

Management's priority is to remain intently focused on our goal of becoming best-in-class financial franchise by relentlessly pursuing the following objectives: Increasing the value of our financial platform by adding new products, capabilities, end markets and liquidity venues for our clients.

This can be done either organically or through disciplined acquisition to make us the financial franchise-of-choice for commercial and institutional clients looking to access markets with efficient execution as well as post-trade clearing, settlement and custody services; second, expanding into client segments and geographies where we are underrepresented by acquiring suitable talent through recruitment or disciplined acquisition of teams.

This requires that we build efficient on-ramps onto our financial platform that are both cost-effective for us as well as compelling from a client-engagement perspective; three, more tightly integrating our offerings, platforms, marketing strategy and customer experience in order to make the relationship more meaningful for the customer, stickier for our company and more valuable to us both.

Next, increasing digitization of our platform by investing in client-facing technology through an efficient mix of proprietary and industry standard platforms to better leverage our intellectual capital in driving revenue growth and providing customers with easier, more efficient access to our products and services; create a scalable execution and clearing infrastructure where costs per transaction are decreasing in absolute terms and hopefully get to 0 on incremental basis; maintaining a robust environment to dynamically allocate capital and resources to create maximum long-term value for our shareholders; and lastly, multi-layered risk management to ensure that we achieve the best risk-adjusted return for our business.

One of our biggest challenges, and perhaps our greatest opportunity, is to accelerate growth and fundamentally differentiate our business by digitizing our financial platform and provide more seamless, effective and efficient connections for our clients for the global markets and the liquidity sources they want to access.

I outlined some of our recent wins in this regard earlier, and we have already seen strong adoption in revenue generation from each of these initiatives individually.

We remain convinced that building a more comprehensive and integrated digital offering will provide an exponential growth opportunity and cement our reputation as a leading financial platform, connecting clients to the global markets.

This success here will not come quickly or easily but it can eventually propel us to what -- to our objective of being a leading global financial franchise.

This is one of the more exciting times we've had in the company's history.

With that, I would like to turn back to the operator and open the question-and-answer session.

Operator?

(Operator Instructions) Our first question comes from Bill Dezellem of Tieton Capital.

That's a Tieton Capital.

Couple of questions.

First of all, relative to your variable expense target of 50% and that you've been running for some time closer to 60%, is it time to change your target?

Or over time, would you expect that 50% to really be a better number?

Bill, it's Sean.

Thanks for joining.

So part of variable cost is exchange fees because when we execute trades, we have to pay some fee to the exchanges and that's obviously variable.

So to a certain extent, that percentage and that target is influenced by our business mix, how many of our transactions go to exchanges and also is related to the increase in those fees and also the margin on the underlying transactions.

So this is kind of a complex interplay.

Fees are becoming an increasingly larger proportion of what we trade.

So that's why I think the number is higher.

I don't think we need to change it because I suspect we will see some of those metrics going the other way at some points.

But I think that's the reason we have been above that percentage.

Bill, would you agree with that or?

No, I agree.

And I think that we established those targets, right?

And I think improved historically that if we hit those targets that we've set that we reach our ultimate target, which is a 15% ROE, and product mix will provide some variability in a few of those targets over time.

But I think the long-term performance shows that if we hit those targets, we're successful.

(Operator Instructions) There are no further questions.

I'd like to turn the call -- actually, we do have a question from Erick Sönne of Private Capital Management.

I have a quick question with regards to the incremental capital invested in new initiatives this year or maybe in the last 24 months.

I mean, have you ever -- have you guys quantified in terms of how much incremental capital, have you guys deployed both on the new initiative in terms of, like, organically generating new business and also investing and buying new platforms?

Well, let me try answer the question generically and Bill will correct me if my numbers are wrong, how about that?

So I would say, during the last year, our estimate is that the discrete initiatives we've mentioned on this call have cost us, in terms of P&L, over $10 million.

So we've invested $10 million of our earnings in new initiatives.

Some of these have been -- we've acquired initiatives that are loss-making, and we've got a -- we've got to bear some losses and take on some retention costs to turn them around.

And that's net of, kind of, the bargain purchase gains that we got.

So in an aggregate, the losses were more like $15 million and offset by a $5 million gain.

That's the amount of P&L impact.

In terms of underlying capital that is committed to those businesses, almost all of those activities are very light capital users.

So we've been able to absorb those activities without any meaningful addition to capital to support them.

Most of them have been straight execution businesses.

The capital to support those is really kind of show capital, which we have.

So those have -- when we turn those businesses around and they're all on track to turn around, those businesses should be very accretive to ROE as a result.

But we have to, kind of, bear the cost of the sort of $10 million.

The one exception to that, which is yet to be reported, is the acquisition of UOB, which we've sort of spoken about for a while.

That business actually closed just after year-end, I think it was the October 5, the actual close date.

That was a meaningful build of expenses.

Now we will get the offset of revenues, which is why that deal was so interesting to us.

And it is a fairly material commitment of capital.

We think that it's a pretty significant transaction for us because it has given us critical mass out in Asia, but it is a fully regulated FCM in Asia.

And a lot of clients in Asia want to leave their money in the Asian time zone with a locally regulated entity so it sort of opens up all of that for us.

But that business is probably going to require somewhere between $20 million and $30 million of core equity dedicated to it, sort of, permanently, right?

So that is our biggest capital user in terms of acquisitions we've spoken about.

The rest have been pretty modest.

The good news with UOB is, under the sort of transaction terms, we're probably not going to bear any cash burn on that business of any magnitude.

We're getting enough revenue to offset the pretty material costs of building a fully regulated entity and we can grow from there.

So there was a trade-off there where we maybe didn't take on so much of the cash burn or retrenchment costs, but we have to put capital into that business to support it.

So I don't know if that answers your question, Erick.

And if it does, Bill, am I sort of right in all my numbers on that?

Sure, I think so.

Yes.

Yes, it does answer the question.

I mean, I guess, you suspect that I'm going basically towards understanding the incremental, I guess, earnings over the next few years from these initiatives basically.

But okay, I guess I can actually derive a conclusion out of what you said.

Yes.

Yes.

Okay.

Good.

Any other questions, operator?

(Operator Instructions) There are no questions.

I'd like to turn the call back over to Sean O'Connor for any closing remarks.

Okay.

Well, thank you all.

Let me finish up by thanking all of our 2,000-plus professionals around the world for their unwavering commitment and hard work over the years.

I'd also like to thank my exceptional management team who, I think, are the best in the business for their dedication, hard work and relentless execution.

This is really an exciting time for us at the beginning of, I guess, a new decade.

We've got big plans for the future, and we think great things lie ahead.

So all that's left to say from me is happy holidays to everyone.

Enjoy the family time, and we will see you in 2020.

Thank you.

Ladies and gentlemen, this concludes today's conference call.

Thank you for participating.

You may now disconnect.

Everyone, have a great day.