GAIN Capital's CEO Discusses Q1 2013 Results - Earnings Call Transcript

May. 7.13 | About: GAIN Capital (GCAP)

GAIN Capital Holdings, Inc (NYSE:GCAP)

Q1 2013 Earnings Call

May 7, 2013 5:00 pm ET

Executives

Glenn Stevens – President & Chief Executive Officer

Daryl Carlough – Interim Chief Financial Officer

Analysts

Michael Adams – Sandler O’Neill

Patrick O’Shaughnessy – Raymond James

Operator

Good day ladies and gentlemen and thank you for standing by. Welcome to the Q1 2013 GAIN Capital Earnings Conference Call. My name is Lemaire and I will be your coordinator today. During the presentation, all participants will be on a listen-only mode. After the speakers’ remarks, you would be invited to participate in a question-and-answer session. As a reminder, this conference is being recorded.

Before I begin, the company has asked me to read the following statement. In addition to historical information, this call contains forward-looking statements that reflect management’s expectations for the future. The forward-looking statements contained in this presentation include, without limitation, statements relating to GAIN Capital’s expectations regarding the opportunities and strengths of the combined company created by the proposed business combination of GAIN and GFT, anticipated cost and revenue synergies as well as expected growth in financial and operating metrics, the strategic rationale for the proposed business combination, including expectations regarding product offerings, growth opportunities, value creation, and financial strength, and the timing of the closing.

A variety of important factors could cause results to differ materially from such statements. These factors are noted throughout GAIN Capital’s Annual Report on Form 10-K, as filed with the Securities and Exchange Commission on March 18, 2013, and include, but are not limited to, the actions of both current and potential new competitors, fluctuations in market trading volumes, financial market volatility, evolving industry regulations, including changes in regulation of the futures companies, errors or malfunctions in our systems or technology, rapid changes in technology, effects of inflation, customer trading patterns, the success of our products and service offerings, our ability to continue to innovate and meet the demands of our customers for new or enhanced products, our ability to successfully integrate assets and companies we have acquired, including the successful integration of Open E Cry and Global Forex & Futures, Ltd., our ability to effectively compete in futures industry, changes in tax policy or accounting rules, fluctuations in foreign exchange rates and commodity prices, adverse changes or volatility in interest rates, as well as general economic business, credit and financial markets conditions, internationally or nationally and our ability to continue paying quarterly dividend in light of future financial performances and financing needs. The forward-looking statements included herein represent GAIN Capital’s views as of the date of this call. GAIN Capital undertakes no obligation to revise or update publicly any forward-looking statements for any reason unless required by law.

I would now like to hand the call over to the host for today’s call, Mr. Glenn Stevens, Chief Executive Officer.

Glenn Stevens

Thanks, operator. Hello and thanks for joining our first quarter 2013 call for reviewing financial and operating results. I’d like to first go through some highlights for the quarter. On a positive note, there is a fair amount of positive takeaway and I want to see if I can cover as many as I can in the call today, and for those who don’t, we will take some questions after this presentation. On the highlights page, you can see that we ended up with very strong growth particularly organic growth with revenue up 50% and EBITDA up dramatically over first quarter of 2012. We continue to see our efforts still progress on revenue diversification front. We have a current run rate of over 20% of our revenue coming from commission or fee-based activities that’s versus less than 10% last year at this same time.

Our institutional volume and revenue was up 90% and 65%, respectively. Also, April metrics continue to point towards positive momentum continuing to gain and we can see our competitive positioning continue to improve together at a point further solid 2013 as well.

Finally, as we released last month, we’ve committed to complete the transformational acquisition of GFT to accelerate growth across the board, some highlights there will be a combined 2013 run rate of $329 million in revenue, 2013 run rate pro forma EBITDA of $77 million, representing north of a 20% margin.

Pro forma client assets of $650 million and pro forma funded accounts of over 140,000 accounts. As we get into some detail on the first quarter results, an overview shows that our business help is very strong. On the operating metric side, you can see that total trading volume was up 55% to $1.3 trillion. Funded accounts were up 36% to over 100,000. Client assets were up 40% to $457 million as of the end of the quarter.

Net new accounts were 15,000 for the quarter. Over the same period last year, you can see that, our net revenue increased to $49.8 million compared to $33.2, our EBITDA of $7.5 million, compared to $1.3 million and the commensurate numbers on net income and EPS of a $0.11 for the quarter.

Next page is a diagram showing the market conditions. And it’s important to see here that volatility did entire in Q1, but it’s still well below the averages over the three years in 2008 through 2011. And I believe this provides an opportunity for continued positive trading environment and there is indication that maybe the FX market is finally awakening from its multiyear slumber. So overall progress there we’ve started to see some indications of some increased volatility, and as I said it’s extending through April as well since Q2.

The breakdown of these businesses on the retail side on the next slide, you can see a significant growth in all key operating metrics reflects the company’s strong position to take advantage of improved market condition.

It’s important to note that, we added approximately 15,000 new accounts in Q1. That includes acquisition, but also includes 8,000 new accounts coming from our organic growth efforts. We saw a record high in terms of our assets. We saw the highest quarterly trading volume nearly two years, and we continue to leave the market in consolidation with our FX Solution’s customer acquisition in February and our GFT U.S. customer acquisition in December of 2012 both completed successfully and very smoothly.

It’s important to see on the next page about our commission-based business. It’s part of our revenue diversification effort and making sure that we have a broad-based opportunity for growing top line and bottom line. We’re on track to contribution more than 20% of our total revenue this year on our non-traditional retail FX trading revenues.

The breakdown there comes from our GTX institutional ECN platform. We continue to see significant volume growth. Since its inspection in Q1 of 2011, we’re averaging 30% per quarter growth institutional volume.

We also see an opportunity to strengthen our pipeline of additional customers while each quarter getting new participants and significant participants, including Money Center Banks and other very active participants in the institutional space. There is an opportunity to leverage our GTX in connection with GFT’s institutional business, and we’re looking forward to that combination to leverage the growth even more or so.

On the futures business, our OEC business that we acquired, announced the acquisition in July of last year has seen customer assets increased 21% since our acquisition. That business continues to help diversify our revenue and the whole business metrics from activity, assets, and new customers, including the innovation on technology side that appears to be hitting on all cylinders and we’re happy to continue to integrate that business.

The other part of our growth through M&A, obviously the primary driver there is our GFT acquisition. We previously announced this on April 25, but to give out a little bit more detail there; GFT will bring us to north of 140,000 funded accounts and as I mentioned north of $650 million client assets. It’s important to reiterate few of these highlights of this opportunity, because it will give us the opportunity to grab operating expense synergies between $35 million and $45 million.

We’re making excellent head way on the progress towards closing that deal next quarter. We are expecting this transaction to be accretive in the first full quarter following the close, and most importantly, it demonstrates our position as a trusted partner for both asset transfers and whole acquisitions like this one. And ultimately, moving forward and taking advantage of what we expect to be an increasingly beneficial trading environment, this is the right deal at the right time for us and we’re very excited about it.

And some additional information on the GFT acquisition, next sheet, in terms of strategic rationale, it’s pretty obvious to see that operating leverage and margin expansion clearly follows the achievement of scale. And this combination enhances the scale and positions us even more robustly in the global OTC market.

With the combined run rate revenue and the combined pro forma client assets and pro forma volume of Fortune $500 trillion. You can see the potential here to realize value from synergy, realize value from additional operating capital synergy, expense synergy, and also revenue scale and margin expansion.

If diversified by GAIN’s revenue streams from a partner perspective, from a product perspective that helps our indirect distribution network with GFTs experience on that side and ultimately, we’re bringing new longstanding partner relationship that we can leverage.

If you look at the next slide, it’s just a pictorial example of some of the progress that will be made here, appoint you to the contribution from volume and see that it give us a pretty balance mix between direct and indirect. And ultimately, on that front, we have the best brand in the business with FOREX.com is our URL, and with GFTs indirect experience and success there.

If you put the two together and you end up with a very complimentary mix in terms of our direct business already showing its organic growth strength and the indirect business, our steady stream of partner business that ultimately we want, because it gives us the opportunity to tap into customer segment products and geographies unless or otherwise might be cost prohibited. So in markets where we can have our own brand drive, we want to leverage that and markets where it make sense to have strong value added partnerships, we leverage that. So you see the movement from left to right with GAIN alone, GFT alone, and then the pro forma combination that makes for a very healthy balance, also stacking up the trading volume and also stacking up the revenue contribution and the client assets four points to increasing scale zero points to the opportunity to take advantage of a increasingly beneficial trading environment.

In the financial review section, we like the trends, we like the movement, revenue is up 50% over quarter-over-quarter same period, pretty obvious to see the direction on the net income and pretty obvious to see that we’re getting some stability in our revenue trading per million as well. It’s important to note that we’re doing all this in the context of managing our expenses very closely, coming into this transaction in the lien situation, let’s us really look at the synergistic opportunities from a cost perspective and also from a capital perspective and also from an operational perspective.

So it’s a great opportunity to take some of the successes we’ve built on in 2012, get some increased metrics into 2013, and then leverage all of that with a combination of GFT.

Daryl Carlough

Turning to slide 14, I’m pleased to announce that the Board of Directors have approved a $0.05 dividend with a record date of June 12, and payment date of June 21, and they’ve also approved an additional buyback of $15 million, which we use opportunistically to buyback our shares. Back to you, Glenn.

Glenn Stevens

On the monthly operating metrics, I think it’s important that we announced that starting next week with a follow-up release, we’ll be providing monthly metrics to provide some more insight into our business intra-quarter if you will. The metrics listed here will begin with a release next week and will be released monthly going forward. To summarize, the metrics that in the past,we have put out per month, but in arrears that’s becoming out every month, and it includes our trading volumes, both OTC and average daily volume, our active accounts, futures DARTs, funded accounts, customer assets.

On the institutional side, we’ll show trading volume and average daily volume again to help our shareholders and the market overall of better insight into gain business progress.

To some highlights for April, which haven’t been released yet, but April retail volume was $145.8 billion, that’s about 4% sequential growth or for March, and April institutional volume is $315.8 billion, up 17% sequential volume over March.

Again, these will be disseminated starting next week and following up from there every month. In terms of some closing remarks before we take some Q&A, again, I want to reiterate a very strong Q1 not just on the financials in terms of top line and bottom line, but also that the business metrics supporting that with client assets, with trading activity, with organic growth, and acquired growth on our funded accounts, all point towards increasing our competitive position in this marketplace, from market share, from new accounts, from brand recognition.

The underlying business metrics indicates that we’re positioned well, take advantage of the scaling opportunity with our GFT acquisition, and it also shows that the combination of keeping our business metric sharp combined with opportunistic M&A points to a strong 2013.

We are making steady progress towards closing the deal on GFT, but even an advance of that we continue to make steady progress towards 2013 and that’s pretty much stronger for us.

With that, I’ll turn it over to Q&A and any additional questions people might have.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) We already have two questions. The first one is from the line of Michael Adams of Sandler O’Neill. Please go ahead.

Michael Adams – Sandler O’Neill

Hi, Glenn. Hi, Daryl.

Glenn Stevens

Hi, Michael.

Michael Adams – Sandler O’Neill

So first question here on the capture – the retail capture in the first quarter, we saw a decent uptick, it was up about 7% from the fourth quarter. But I guess, looking at the CIVIX, we had maybe expected a little bit more of an uptick. Do you mind just digging a little bit there and maybe giving us some more color on the month-to-month trends intra-quarter that you saw and then maybe give us an update on what you’re seeing in April, I know the CIVIX is down again in April, would be curious to see how the cap share is holding up?

Daryl Carlough

Sure, Michael. I mean, as you’ve heard me say in the past, one of the thing about revenue per million is that, it’s an output not an input. If we could dial it in, I’d put 250 and then kind of just leave it alone there. But and that’s not to be a wise guy. What I’m saying is that more importantly you look at activity, customer, assets, new accounts coming in, new relationships established, and these are the things that drive our success and drive the financial success.

The graph I’d point you to in terms of almost of a sign curve that is oscillating around a fairly steady, I mean, I alluded to a fairly steady dollars per million of around 100. It doesn’t mean, you couldn’t have 20% on either side of that. We didn’t create any unprecedented numbers in Q1 on either side. One way to point to it is that, you can have certain months where there is high volume market activity, but not a lot of opportunity for a great market making environment, or you can have vice versa. So to give you an example, we’re tracking towards the year-to-date of above 90 now, was April being obviously stronger than March, which was – March was weaker than February, which was weaker than January.

So again in this kind of micro time slot of January through April, yeah, we’re going to see both sides of that curve, I point back to that graph as it obviously rounded. But net-net trend I think what’s helpful, but you didn’t see – we’re not seeing a kind of secular trend that’s obviously going from higher to lower. We are seeing a federal in here.

I’ve also mentioned that one of the reasons to build up some of the commission fee and fee-based is also diversified some of the reliance on quarter-to-quarter revenue per million. So if you look at the increasing metrics coming out of our futures business, coming out of our institutional business, those are still subject to CIVIX in your [Lexicon], because hey, things are moving around, people won’t trade, but they are less subject to kind of the waggery arbitrating condition.

So ultimately, we want to get that mix as we’ve said in the past towards where you have drivers coming from fee-based, drivers coming from market make, making and they make for a nice round of revenue delivery. So I would just come to you to say, we’ve seen an improvement as we get into Q2 with April and we – but that said I don’t see – my bigger concern would be on business metrics. And I would say, oh, our capture was $10 higher in the first quarter, but our new accounts didn’t outshine our peers if our asset gathering business show success, if those kinds of things were lacking, but we had a higher revenue per million, I would say that in an heartily for the situation that we actually are in.

Michael Adams – Sandler O’Neill

Understood. And them I know it, you don’t really like to look at, these little micro period. But one thing we’ve heard in the last couple of calls is that, capture has improved from the prior quarter and when you look at the full quarter results in your report, we tend to see a softening in the back half after the earnings call. And I’m just curious like, is there any sort of seasonality or are there any events that are occurring – that occurred typically in the beginning of a calendar quarter that caused elevated capture rates to sort of occur, and then made soften into the back quarter, because it’s just something that we’ve seen a few times here?

Glenn Stevens

No, Michael. It really isn’t. I mean, it has absolutely no cyclicality or seasonality to it. It’s – I think again, I’m going to point back a few years and say, gee, is a trend there where we’ve had a – let’s even taken away revenue per million capture and look at kind of top line. And for about two-year run, we ended up with a weak Q1, strong 2 and 3, weak 4, followed by a weak Q1, strong 2 and 3, weak 4.

It would be okay for someone to say, hey, can we count on a strong 2 and 3, and weak 1 and 4, and my answer would still be no. It’s how it worked out over those eight quarters. Same thing here, when you say, gee, when we talk kind of a mid quarter as you’re reporting on a previous quarter, it seems that the first two months of the quarter seems stronger, yes, that’s exactly how it played out in January and February with March being weaker. But more importantly, the volume was there, the trading activity was there, it’s just that the market making opportunity wasn’t. And so, no, I wouldn’t draw any conclusions there, it’s purely coincidence at this point, and I think over a larger data set, you will see that there is not a puzzle of relationship there at all.

Michael Adams – Sandler O’Neill

Okay, got it. And shifting gears a bit here, looking at the institutional business, could you breakout the revenue between Open E Cry and GTX for the quarter, I don’t, I must have missed that, if you gave it to us.

Glenn Stevens

I don’t know if I broke that down entirely, but probably could, I can break it out to you, but ultimately you’re probably looking at about 6.5, as the ten box that came in, it’s probably two-third GTX one-third OEC.

Michael Adams – Sandler O’Neill

Okay. Just bare with me one second (inaudible), I’m just curious to see what happened with the institutional revenue capture, it looks like you thought pretty descent uptick there 16% linked quarter?

Glenn Stevens

Look, Mike, I think we mentioned that the volume was up 90% and revenue up 65%

Michael Adams – Sandler O’Neill

I apologize being going.

Glenn Stevens

No, that’s okay, I am just telling that that you are right, but there was that linkage where we didn’t see a spike in volume and not to raise up the revenue, we didn’t get dollar for dollar, but you definitely got a relationship.

Michael Adams – Sandler O’Neill

Sure, sure. And then the last question from me is, you know on the capital returns we saw that you had a – after the buyback you still got the quarterly dividend and I’m assuming after a pretty active couple quarters of your M&A, you are going to be down that back. So just trying to get a little bit of feel for how aggressive you are going to get with this buyback, when maybe we can assume you are going to get a little bit more active just around timing, any sort of granularity you can give, that would be appreciated.

Glenn Stevens

Active timing on the buyback?

Michael Adams – Sandler O’Neill

Yes.

Glenn Stevens

Oh, sure. Look, we feel that the market has not realized the potential and the true value of where GAIN is trading right now. And so I would say that it’s pretty safe to say where we see this market as an opportunity. And if you had to rank deployment of capital and we can continued to generate cash flow, yes, perhaps some debt to pay down, the reality is that once the deal closes, we’ll have some debt to pay down, but it scheduled out where it doesn’t create a burden. More importantly, trading at current levels, this is an opportunity for the company to take advantage of that. And so I guess to answer your question there, we want that authorization of a buyback to be opportunistic, and I think you did categorize present levels as an opportunistic.

Michael Adams – Sandler O’Neill

Got it. And just in terms of maybe the magnitude of the buyback, any sort of rules on maybe 100% of free cash flow after the dividend, is there a target pay out I guess that you have in mind?

Glenn Stevens

No, we authorized an additional $15 million to give us some flexibility on that, but no, I don’t think along the lines that you said there.

Michael Adams – Sandler O’Neill

Okay, that’s it. Thanks, Glenn.

Glenn Stevens

You bet.

Operator

Thank you for your question. Patrick O’Shaughnessy of Raymond James is next. Over to you, please.

Patrick O’Shaughnessy – Raymond James

Hey, Glenn, good afternoon.

Glenn Stevens

Hey, Patrick.

Patrick O’Shaughnessy - Raymond James

First of all, you guys did the operator bonus, I have to read that long disclosure statement upfront, it’s hard work.

Glenn Stevens

You know what, I’m glad that you said something, because I don’t want to be split it, but yes, inside the hour, we are also in lot of trouble and that might have to be to G&A next quarter.

Patrick O’Shaughnessy - Raymond James

Moving on to my questions, first one, your other revenue line was up sequentially from $1.6 million to $3.6 million, can you just refresh my memory what goes into that line?

Glenn Stevens

Sure. I mean, basically you’ve seen a couple of quarters where that moves around a little bit and that is the realized FX component of deposits or expenses, company funds held offshore.

Daryl Carlough

As well as some data fees that we get, but those again a smaller piece, there is really a lot in cable for [CUSR]?

Glenn Stevens

That’s true too. There is a piece of that that comes from good point – that comes from market data sales on our side. But the real driver there is going to be a realization of our holdings outside of U.S. Being a U.S. domicile company, we’re going to have some exposure. This one jumped out a little bit higher, but we have seen seven figure numbers in the past.

Patrick O’Shaughnessy – Raymond James

Okay, and that’s helpful, thanks. Your employee compensation was up quarter-over-quarter from $12 million I think in the fourth quarter to $13.3 million this quarter, is that just kind of higher bonus accrual given the revenue strength that you guys experienced?

Glenn Stevens

Exactly right. Particularly on the institutional business and in some others, we – there’s an OEC add to that to a full quarter of having that full staff on coupled with what you just said, getting some higher revenue numbers out of our institutional business, essentially it’s just keeping us shrewd up on the accrual side.

Patrick O’Shaughnessy – Raymond James

Okay, and then as far as expenses for the rest of the year, obviously, you have some OEC expenses that you’re bringing on board, but kind of, do you look at the first quarter as being a good rate run for the rest of the year and I think particularly, I am kind of curious what your marketing plans are?

Glenn Stevens

Yes, Patrick, I think that Q1 is a full, is a fairly full expense run rate to use your words the answer would be yes, I don’t, if anything I see an opportunity to save some money it’s certainly not a low ball, and it’s certainly not starting out on the low side. The reality is, is that it takes in pretty much our planned run rate for marketing, it takes in a lot of things that would be, that would be linked through our business metrics and so with increased business metrics over throughout the year, may be opportunity to reinvest but it’s nothing that was unloaded that is due to be loaded. So I’d say it’s pretty good indication. The one thing that I want to reiterate is that for the second half of the year you get into the Q4 particularly with GFT fully on board, we’re going to have the ability to actually add more without adding to the same commensurate expenses, which is the essence of cost synergy.

Patrick O’Shaughnessy – Raymond James

Yeah, understood that one. Can you talk about of the sequential increase that you saw in volume growth, how much of that would you attribute to the new accounts that you brought in the GFT U.S. accounts in December and the FX Solution accounts in February. So how much of your strength would you attribute to bringing new accounts on board versus your existing accounts are just trading a lot more?

Glenn Stevens

I think it’s a good guess to say that organic accounts are generally going to be more active than acquired accounts. Acquired accounts are aged, they are still active, they are funded, but I think if you show the activity levels of a newly engaged relationship that’s going to be at a higher level, because as you might expect over the lifetime of a customer relationship, you’re going to have generally higher levels of activity front loaded than back loaded.

So just by those two profiles, I’d say that the GFT acquisition and the FX Solution acquisition would be at lower levels of activity per volume per customer than our organic growth. So if that number was call it eight organic, 15,000 new accounts, eight organic, seven acquired. I don’t have this number in front of me, but I’m pretty confident that is eight and seven on volume, it would be ten and five.

Patrick O’Shaughnessy – Raymond James

Got you. Okay, I understood. Your tax rate was a little bit lower this quarter, maybe this is a question for Daryl.

Daryl Carlough

Yes.

Patrick O’Shaughnessy – Raymond James

Is 30% still kind of the rate, the number to use going forward and what was kind of playing into that low tax rate this quarter?

Daryl Carlough

It’s just kind of the mix. So we had more revenues been allocated to UK, so it deals some of our transfer pricing. So we’re projecting for the full year, which pulling our change after we get GFT on board, it’s fully going to be in the – maybe in the 20s range, but again, we’re still evaluating, some of our transfer pricing strategy that we would be implementing?

Glenn Stevens

So I would say, you are using your model probably little heavy.

Patrick O’Shaughnessy – Raymond James

Okay, that’s helpful. And let’s see, I think one more from me, can you just talk about the M&A environment. I think for the past couple of years the discussions have all been around, because volumes have been so poor, some of the smaller companies don’t have the scale, they’re really struggling. And now that we see volumes bouncing back a little bit, is it going to be tougher to convince people to sell everything that the seller is going to be more optimistic about their business and put a higher potential valuation on it.

Glenn Stevens

Okay. So in the nutshell or in a vacuum what you said would be true. The difference is that some structural changes have occurred in terms of cost of doing business, regulatory capital required, marketing muscles, these are all hurdles I think that are higher now than they were in the last three years let’s say. So on the one hand, you’re right, it creates a little bit of then doing sellers and says, wait a second this isn’t hard as I doldrums basis I thought. And so I want to negotiate a little bit more of it separately.

However what hasn’t gone away is higher capital requirements in different geographies, and as I said share of voice in the marketing side where it doesn’t matter, if you are spending well, if you are not up to a certain level, you’re kind of not on peoples cautious. And then the third piece is the leverage with scale. Even if you are doing a little bit better, if you have to hire technologists and finance and everything else, this business cries out for scale, I’m not the only person shouting this, and I think we’re benefiting from a strong business environment. But more importantly as we build the scale going forward, you get that operating leverage and you get that ramp up there.

So I think in general here what has changed from the potential from on a top or smaller operator from three to five years ago is that – is there higher hurdles now. So even though, yes, they are off the mat in terms of where we were last year. That structural change is here to stay where it just really does lean itself towards the larger global players.

Patrick O’Shaughnessy – Raymond James

All right. Great, thanks for answering all my questions.

Glenn Stevens

My pleasure, Patrick, thanks.

Operator

Thank you for your question. (Operator Instructions) We have another question from the line of Michael Adams of Sandler O’Neill. Please go ahead.

Michael Adams – Sandler O’Neill

Hey, guys, just one follow-up, it’s been a couple of weeks since you announced the GFT acquisition. And I know at the time you did a call and you talked about some of the potential synergies, the regulatory capital synergies, have you had a – have you been able to nail down the exact number or what could potentially be freed up in this deal?

Glenn Stevens

No, not an exact number, because most importantly, a lot of the regulatory capital, particularly outside of the U.S. is driven by customer activity, active customer assets, and their level of engagement with the company. So what I mean there is that, if you were in a certain jurisdiction where you could just take to required base amount and combine and that would fall out. But in this case, with GFT’s emphasis outside of the U.S., it’s really a business metric driver instead of a reg cap driver.

So as we get in and may continue to make headway here, we’re looking at holding businesses together and we fully expect to participate in some capital synergies. But more importantly, it participate in building the scale of the business, and saying, hey, good, look at the working capital, look at the opportunity to deploy that, and return cash flow to our shareholders unless about oh, there’s a capital, regulatory capital synergy, because if that one pops out, great, but we’re starting with the business drivers first, regulatory capital second.

Michael Adams – Sandler O’Neill

Understood. Thanks, Glenn.

Glenn Stevens

Okay.

Operator

Thank you for your questions (Operator Instructions)

Glenn Stevens

Operator, looks like questions are done at this point. So I think we can take the opportunity to close up the call.

Operator

We have no further questions and with that, I’ll hand back to Mr. Stevens for a closing remark.

Glenn Stevens

Thanks operator and thanks again for joining this call, and I look forward to communicating with you further as we continue to progress. Have a good evening.

Operator

Thank you, Mr. Stevens. And just to remind that concludes your conference call for today. You may now disconnect. Thank you very much for joining.

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