JMP Group LLC
Q1 2018 Earnings Call Transcript

Published: 6 May 2018

[Operator:]

Welcome to the JMP Group's First Quarter 2018 Earnings Conference Call. Please note that today's call is being recorded. [Operator Instructions] I will now turn the call over to Andrew Palmer, the Company's Head of Investor Relations.

[Andrew Palmer:]

Good morning. On the line with me today are Joe Jolson, JMP Group's Chairman and Chief Executive Officer; and Ray Jackson, the Company's Chief Financial Officer. We are joined by Carter Mack, President of JMP Group, Mark Lehmann; President of JMP Securities and Tom Wright; our Director of Equities. Before we begin, please note that some of this morning's comments may contain forward-looking statements about future events that are out of our JMP’s control. Actual results may differ materially from those indicated or implied. For a discussion of the uncertainties that could affect the Company's future performance, please review the risk factors detailed in our most recent 10-K. With said I'll turn things over to JMP's Chairman and CEO, Joe Jolson.

[Joe Jolson:]

Thanks Andrew. We had a disappointing first quarter as a result of some unusual expenses as well as a net loss of our invested capital. Nonetheless, JMP securities continued its strong performance, contributing $0.08 a share in the quarter and $0.38 per share on a trailing four quarters basis. As equity capital markets fees were stable and strategic advisory revenues rebounded strongly from year ago levels. We are optimistic about the remainder of the year, despite increased volatility in the recent selloff in the stock market. Although higher short-term interest rates could hurt more cyclical sectors of the US economy, putting downward pressure on P/E multiples, we do anticipate that there will continue to be windows of opportunity for growth companies to raise equity capital as 2018 progresses. During the second quarter respect to fully redeploy the excess cash that is caused such a drag on our operating earnings in the past five or six quarter, by adding to our loan warehouse credit facility which will position us to execute on our CLO in the next three to six months. For the first quarter JMP group produced an operating net loss of $0.07 per share operating platform EPS, which combines the earnings of JMP securities in our asset management businesses, was $0.05 up from $0.02 a share for the first quarter of 2017. Unusual expenses in the quarter included $0.04 a share of our related to the failed IPO of workspace property trust. This was our equity account for this. So, this was our percentage of the debt deal cost and $0.02 a share related to the previously disclosed issues and harvest capital credit [indiscernible] traded VDC. We’re also facing challenges on the investment side suffering a net loss of $0.03 a share on the capital that we had invested in our hedge funds and booking a specific loan loss provision of $0.04 a share related to one broadly syndicated credit. Consequently, our corporate segment loss $0.12 a share on an operating basis in the quarter which was similar to a year ago period where we also had a difficult first quarter on the investment side. JMP Securities had a solid quarter producing 20.7 million of investment banking revenues and 4.7 million of brokerage revenues as a result of changes to GAAP accounting this year, managed deal expenses are no longer netted against investment banking revenues but in strata recorded among expenses and expense reimbursement from clients is now a revenue item while before was the contra expense. These changes make historical comparisons difficult and served to lower our comp ratio and operating margin while also increasing our non-comp ratio. We managed 21 equity and debt offerings in the quarter and completed seven strategic advisory assignments with advisory of revenues amounting to totaling 8.8 million versus 3.1 million a year earlier, our trailing four quarter advisory revenues are now similar to the record year we experienced in 2016. Our average fees per underwriting transaction increase modestly year-over-year lower average M&A fee increase roughly $200,000, which is very positive than as a result of our ongoing efforts to drive up our fees size through disciplined selection of investment banking opportunities with more significant potential economics. While we feel good about prospects for M&A business we’re are also focused on our record backlog of ECM business and believe that high quality growth companies will continue to have access to the market this year, we completed five IPOs during the first quarter versus four year ago and underwrote 12 follow o book running one, compared to nine year ago. Our brokerage revenues were down 12% year-over-year, which was a similar decline to last year. While we do expect some benefit from increased volatility emerge this year and potential market share improvement as we have over the last few years, US equities commissions pool is under pressure from the implementation of method two, which we anticipate, will cause further declines until the negative impact is fully reflected in industry wide revenues, we’re fortunate that our 35 to 40 basis points current share of the commission pool is defined by [indiscernible] is substantially smaller than a 1% share of a much larger ECM fee, pool, meaning that we could be less vulnerable to the effects than most of our competitors. Our asset management businesses, harvest capital strategies, JMP asset management, JMP credit advisors and cap advisers reported adjusted revenues combined 6.3 million for the quarter of 7% year-over-year and up 47% sequentially, primarily reflecting an increase in hedge fund incentive fees. As previously discussed, we did absorb some unusual costs in the quarter in our asset management platforms, totaling $0.02 we also experienced a modest operating loss of roughly a penny a share some of which is due to the timing of the compensation accruals as the year progresses, we are hopeful for a return to more consistent profitability in these businesses in the second half of 2018, driven primarily by the successful execution of CLO five and return to regular incentive fees for each cap advisors. From a principal investment standpoint, we took a loss on the capital we invested in our hedge funds in the quarter, which decreased 3.4% compared to an expected return normally of 1.5% to 2%. We also had a lumpy loan loss provision related to one specific loan held in our CLOs. the way we book these we take the hit immediately without assuming any benefit from our pro rata share of the equity that will receive when these borrowers come out of bankruptcy, which should be in the next six months or so. as we previously mentioned, we suffered a net loss on our workspace investment in the quarter, whether due to the yield cost flow in a normal environment. This investment would've earned us $0.01 to $0.02 a share in the quarter. On a more positive note, we continue to make progress with recycling our capital back into our CLO strategy and improving the return on that capital going forward. In late February we successfully closed the reset of CLO III which extended the reinvestment period for another two years and lowered the weighted average cost of funds by 55 basis points. The reset did trigger an early debt retirement charge of 1.2 million net of minority interest but in the long run should improve our return on our capital invested in this transaction by more than 400 basis points. In addition, we continue to increase the volume of loans and our forward commitments to purchase loans in the warehouse for CLO V which stood at 141 million and 76 million respectively at March 31 compared to 78 million and 70 million respectively at year end. Subject to market conditions we hope to execute on a $400 million CLO in the next three to six months which would increase our AUM at JMP Credit Advisors to more than 1.2 billion and complete the redeployment of our capital back into the business. Thereafter we would look to grow the business opportunistically by attracting third party capital. Assuming that the SEC does not appeal the reaching, judgment eliminating the risk retention rules for the CLOs up to the Supreme Court, the deadline for that is on May 10th which is next week, so we will know soon. If it doesn’t happen, we may consider alternatives to also deconsolidate the business which would greatly simplify our story and our financial statements thereafter. Finally, we continue to evaluate whether to change our tax status and convert back into a C corp given; first, the deferral reduction in federal corporate income tax as compared to those paid by individuals. And second, the limit on interest expense deductibility at 30% of EBITDA for non-investment purposes. We still haven’t made a decision but put simply the question is to consider is whether a conversion would result in a nut of a higher P/E multiple that could more than make up for the lower after-tax earnings and cash distribution that we would have that we convert it back to a C corp and ultimately lead to a higher value for the overall company. In conclusion, as always, I want to thank our employees and our independent directors for their continued contribution to our long-term success. I look forward to reporting on our progress during the next conference call in later July. And with that, operator, we would be happy to take any questions.

[Operator:]

[Operator Instructions]. Your first question comes from Ann Dai from KBW. Your line is open.

[Ann Dai:]

So, first question is on the brokerage business and maybe for Joe. Your commentary mentioned that you anticipate the pressure from [this influence] will cause further decline in that business. I guess I am just wondering when you say that, are you referring to something worse than the trends that we are seeing maybe in first quarter or is it just now to the fact that we are seeing those trends already and they should continue?

[Joe Jolson:]

I actually have Tom Wright here, so I will try to answer that and if he disagrees he can interrupt me, interject. But the decline in the first quarter was similar to what we have experienced in our absolute business there over the last few years so I mean arguably at least in the numbers you didn’t really see an impact from it but it’s really a combination of couple of different things for us. One is and for everyone, while its been really low as, over a long period of time, and while we’re not in the execution part of the business it does benefit us a little bit if there is more trading activities, lot of [by] side firms have cut back on the trading desk, so when they have a lot more orders to execute, we tend to get a larger amount of those, as does everyone in the industry, so that benefits us a little bit. And as I mentioned, we have been gaining a little market share every year and that benefits us a little bit if we continue to do that over time. And then there's the negative trend for the new [method] adoption and I think that that some of the firms out there have already fully figure that out, and then some of them are still in the process of figuring that out. So, I think it's probably take another quarter or two to see where that plays out. I mean for us, we get a very detailed bottoms up analysis account by account through meetings and everything else and we will see what happens, we will extract whatever happens to the industry it will impact us less, in our business. I don’t know Tom if you…

[Tom Wright:]

I would agree with all that, that bottoms up analysis resulted in an overall estimate that there could be a 10% to 15% negative impact from [method], I think that story will play out with our clients over the course of -- you can take the better part of the whole year really to get a sense for how that’s going to balance out. we were down 12% in the first quarter, obviously there is lot of other variables in that equation, but to answer you’re the original question, no I don’t think that we think that the method will provide it will create additional downward pressure beyond that 12% but kind of more similar to that 12%.

[Ann Dai:]

Appreciate the color, next maybe moving on to the advisory side of the business, so obviously it was a good quarter for advisory and understanding that revenue can lumpy as deals close and there is timing involve with that. Just based on early conversations you’re having on that side of the business should we be expecting some meaningful growth obviously then a big focus for you guys is growing the revenues in that business.

[Joe Jolson:]

Obviously, we had a good quarter, on a trailing four quarters basis, we are slightly below 30 million now on advisory revenues which is I think the record four quarters happen to coincide with 2016 and it was 31 million. So were inching back up to maybe getting to a record level this year. I think if you look at that, we compete in the under 1 billion enterprise value part of the market as opposed to these very large announced mergers that can move kind of the gross numbers that you guys as analysts would be monitoring. Our part of market is a little less volatility and spin driven by big appetizers negative mergers. But I think that the growth in our business is been calendar over the last three years to apply the M&A fees of the under 1 billion, which has been kind of down modestly over that period of time. So, we are pretty pleased obviously with getting our fair share of the market. So, going forward what’s going to drive that for us is increasing our average [E size] on M&A deals and some of that is being more selective in the assignments and we have been doing that and some of it is competing more effectively for larger transactions and often that involves publicly traded companies within our industry groups. So last year we represented Forestar in its sale of most of its business to [indiscernible] and was a record fee for us certainly on the M&A side. And last week we actually had a positive announcement that hasn’t closed yet but has been agreed to -- so it’s public information in representing Two Harbors in an acquisition as well on the buy side. If we can -- that business is -- the more of these kinds of transactions that we successfully complete for clients the more we are likely to get higher. So, I think that that’s the organic kind of drive to that growth overtime. The other thing we are obviously trying to do is to compete the higher M&A bankers and they’re kind of bankers that we want to hire are high valued at the place that they currently are. So that’s an expansive proposition for a small company like us because we typically have to cover them with some income level for the first 12 months or so because they are walking away from a pipeline. So, we continue to actively try to hire M&A bankers and if we are successful at that as the year along and the bad news is that will probably result in some strategic expense to grow the platform that will reduce near term earnings but increase -- accelerate the growth of our M&A business and the overall earnings of the firm. So maybe we will have some positive things hopefully to report there as the year goes along. But that’s the other long-term strategy is to add to the banker level there.

[Ann Dai:]

Last one from me, maybe just moving on to the capital rating side of things and your commentary around record backlog of ECM. So, are there any particular sectors driving that, any trends that you are seeing in -- from your play?

[Joe Jolson:]

I will give a comment, I see Mark is there, I don’t know if Carter has a good line or not from where he is but he might want to interject. But I mentioned we have a record backlog and obviously in our four industry sectors -- two of the four, real estate and financial services are hurt at part of the cycle by rising interest rates. And so, they are actually not experiencing as you would expect that they wouldn’t a lot of near term activity on the IPO side and didn’t in the first quarter. But our other two sectors where we have gained substantial market share, I think particularly the technology space since the last financing cycle is where that record backlog is coming from and Mark I don’t know if or Carter if you guys want to interject something.

[Mark Lehmann:]

Yes thanks, Joe. Joe alluded to the strength in the tech market. We were fortunate to be part of two of the larger deals year-to-date. We saw the Dropbox IPO price in the first quarter and trade up substantially just last month, we have a [indiscernible] IPO, which had similar dynamics. It was one of the larger IPOs of the year, priced well above the initial range and all traded up more than 30%, I think that’s a harbinger for good things for the tech backlog that we have which is a record as Joe described, there may not be as many of the big, big deals that we've read about the unicorn deals. Although having two of those. So far year to date is a good sign. But others in the SaaS and Internet and digital media world where we are getting more and more mandates and I think that shows I think the backlog that Joe described. Also, biotech, which is also been a big part of our practice, we have several many mandates that is a little choppier than an IPO market and I think that is deal specific silver line and great deal on insider participation, which is no differently than we saw in 2017, but I think anything coming of the markets and lowering the volatility probably show a record 2018 in terms of IPOs project JMP and hopefully they are getting, like I said that tech backdrop will continue, the lease activity by the buy side, is real.

[Joe Jolson:]

It’s been a while since we had an IPO cycle but just to give you a history for us as a company. Back in I think it was 2006, ‘7 we were about 4% to 5% as a manager at some level typically a co-manager of all the IPOs in our states, not just in our four sectors, which was obviously a lot higher market share than our market share of all the deals, so we were reasonably well present above, we went on an aggressive push to improve that. And in 2013, '14, we were in one out of every IPOs in the US which was a huge improvement over from cycle to cycle. So, we'll see what happens assuming that this take gets executed or the backlog gets executed, not just for us but for the industry but we are pretty excited, at least in terms of the percentage of mandates and our role in some of these things and so we think there is we build good momentum there, but obviously it on the ECM business is always subject how the market is receptive or not.

[Operator:]

Your question comes from the line of Alex Paris of Barrington Research. Your line is open.

[Alex Paris:]

I have a couple of follow-up questions, first with the accounting change in the investment banking business, booking gross revenue and then offsetting expense is there any rule of thumb for that, I just noticed this quarter, your expense was 7.6% of gross. How should I think about that going forward just for modeling purposes?

[Joe Jolson:]

I'm sorry the 7.6% was what?

[Alex Paris:]

It was the expense associated with the investment -- you have a new line item among your expenses. It was for 1.566.

[Joe Jolson:]

Alex it’s a little bit confusing because it’s a big change and without quite -- it is the new GAAP accounting and I think the previous GAAP accounting was maybe more conservative in how it was presented but we adjusted to the new accounting treatment. The -- you are looking at whatever the cost that we have now flow through the expense lines and is mostly in managed deal expenses but there is a little bit in some other expense lines. And in the quarter, it totaled a couple of million dollars, Ray id nodding his head, so I -- so that one line is like a 1.6 million but there was also -- there was some in professional fees, there was some in P&E expense and alike. So, I think we’ve put in the press release that it totaled a couple of million dollars. And then on revenues it shows up -- is it -- by the way this is almost all in the equity capital markets area for us. In terms of the way their accounting is. So -- and so it’s essentially before under fees -- the underwriting fees you netted out the -- your expenses of the deals, right, so now you don’t. So, it may take a quarter or two…

[Ray Jackson:]

It may take a quarter.

[Joe Jolson:]

Yes. it may take a quarter or two for everyone to get their brain around new accounting and it does increase our revenues but our earnings and it increases our non-compos a lot and it does increase our comp though. So, we are still using the same comp model that we’ve had in the past so there’s no change in that. It just increases non-comp cost and revenues which results in a lower operating margin as well. So, we don’t control GAAP accounting changes. This one seems less conservative than what was reported in the past. But this is the new way everyone is going to have to do it.

[Alex Paris:]

And that would obviously exclude reimbursable cost, right, you are just taking the pro rata share of the cost at the road show, legal and printing and things like that.

[Joe Jolson:]

Yes, and that deal cost because we would hedge that deal cost anyway but it would have just been varied in the various line items as well, so now it’s broken out. But I think that once you get through a quarter looking at it this way you will probably -- it will probably -- I mean we’ve been staring at it for internal financial statements for three months now and everything. So, it takes a little while to take your brain around this change and what it means. But there was no change in our compensation because of it. So, it was all revenues are higher, and non-comp expenses are as well which -- because the revenues are higher it didn’t affect our net income that reduces your operating margin a little bit.

[Alex Paris:]

However, increases -- and it also reduces the comp ratio because of the higher revenue.

[Joe Jolson:]

Yes, the comp ratio looks a little better and what I am saying is that didn’t have any effect on the way we look at comp.

[Alex Paris:]

Got you. Then your comment with regard to methods, based on your account-by-account analysis, your bottoms up analysis, you’ve sort of concluded that JMP is going to have a lesser impact than most. Is that just because you have fewer international method required accounts than maybe a big warehouse, is that what you mean by that statement?

[Joe Jolson:]

Well, it's a combination of a couple things, one is that we have a much lower market share with top 50 commission payers than the industry does on average right and those tend to be the one that would have the more of international issues, in that type of things. And so, our businesses are a little bit more granular than maybe on average the industry pie is and then the other for us is that we tried mightily but have had difficulty in leveraging our research both into a much higher commission level through trading and I think that other companies have spent a lot of money on things to have to gross up revenues and then we haven't done that because we didn’t think that was a profitable business model. So, I think that we will see how that shakes out but we kind feel like we’re already getting paid, having getting paid for what we do in the research side for the most part, a few accounts here and there may be there is some -- we have some upside there, but generally it's been more what they're paying for research and at the heart of it if it is trying to isolate firms what they pay for research and break that out separately.

[Alex Paris:]

So, on that account by account basis the bottoms up analysis you’re going to be effective less than maybe the warehouse given your market share in those step-up accounts but just want to drill down one further level. Looking at your accounts that have [method] requirements this year versus last year do you expect those accounts in the aggregate to generate less revenue in '18 than '17 because of [method], I know that we don't know a lot at this point but what’s your initial thoughts there.

[Joe Jolson:]

I don’t really want to go into going through and have a discussion on a conference call by account by account but I would say that it varies widely. Generally speaking, some accounts have increased businesses because they see there is opportunity, competitive opportunity, they get a more share of mind with the Wall Street firms and analysts that they think are valuable. So where as others are maybe cutting their overall payments for research of revised by 30% to 50%. So, I think it's hard to generalized and it's going to be different for every company because of that, we did a very detailed account by account analysis and the impact on us is going to be different than every other firm that has different bottoms up, stop right. So, I think that time will tell whether what we think is going to happen for us, it's going to happen but I think what will clearly happen for the industry is what people are talking about, which is probably a 30% plus reduction in the overall pie all else being equal.

[Alex Paris:]

Okay thank you and then two last quick ones, workspace you just took a charge for the failed IPO what are the thoughts about workspace going forward will they come back to the market. And then if not what you do with your position?

[Joe Jolson:]

Yeah, its good question. I mean it's unfortunate, but with rates going up in all of that REIT stocks have been under a severe pressure starting in fourth quarter and it got worse in the first quarter. So, we had unlucky timing there and for us even though we own a little less than 8% of it they had a -- it was a very large IPO, there’s a lot of work got done, property appraisals everything else. So, the expenses of the deal were very high. So even though we had a percentage, it wasn’t that high, it ended up on a per share basis for us costing us quite a bit. The company is doing great, the REIT stocks aren’t, so that’s the first thing to keep in mind. The company is hitting all of its numbers or exceeding its number that it put out starting in the middle of last year to underwriters. So, rents are going up, vacancies are going down and so the properties are doing well, they’re being very well managed. Right now, the company is looking at refinancing its existing debt to extend it and hopefully that will be completed in the next month or month and a half. Based on the appraisals that the lenders are using to do that deal, they correspond within the range of the original IPO filing in value of the business which is good because it’s a current market appraisal and the values and all that. So that’s all good. I think we will see what happens over the next year or two. I think we could come back to the IPO market but the idea that we rolled off those expenses meant that obviously they pulled the deal. So, I think there’s other alternatives for raising capital, we are looking at those. There’s a number of acquisition opportunities, we are looking at those. And maybe they create a capital raising opportunity with some acquisition. So, the company is doing well and the opportunity set is good. So -- and while we are still carrying it on a GAAP basis at almost nothing on our books right now, because of the depreciation expense that's run through our financials it’s a valuable investment and we think it’s worth a lot more than what we’ve put the money in that.

[Alex Paris:]

Last one is -- I appreciate your comments on tax structure in light of tax reform PPP or C corp conversion, any idea, do you have a timetable on when you might make that decision, is that a 2018 decision?

[Joe Jolson:]

Well there’s no set-in stone timetable. But we were a C corp. So, unlike some of these I mean KKR just announced that they’re converting to a C corp they went public as a PPP like some of these other companies, we were a C corp and we converted to a PPP because the valuation wasn’t great on our results as a C corp primarily and we thought it might be better as a PPP. And I think that -- so we have a little bit more experience in terms of what it was like as the microcap C crop, just to remind everyone. So, it is not an unknown for us. So, I don't know what we’re going to do, I think it really just comes down to is the lower earnings per share how confident we be that the higher potential investor base would value us at a higher valuation despite the lower earnings per share and since we haven't made an announcement that we are converting back maybe the judgment so far is maybe it's unclear. The lower tax rate does help us in terms of the two potentially if the tax rate was this, we chose to convert a couple years ago we might not have chosen to convert because if you go back and look at the time it was 25% to 30% accretive to earnings per share which was a big number. , back in 2014 to convert, and under the current tax code, maybe it would've only been 15% or something I think that it maybe that wouldn’t be enough, given all the all the other things to choose to convert the time but we did convert, and now is a question of that trade. So, we will continue to look at, I think we’re pretty much on top of the pros and cons and I think were open to everyone's input please call me or Ray or if you have a strong opinion on why you think that that's a good idea or bad idea. But I think that it's a pretty clear trade-off, I heard your earnings per share and then kind what is due to the valuation and ultimately what you're trying to get to is a higher stock price.

[Alex Paris:]

[Operator Instructions] Your next question comes from Robert Maltbie with Singular Research. Your line is now open.

[Robert Maltbie:]

So tough quarter, we had two or three rate hikes not so will in the magnitude of things, just wondering moving ahead there is an expectation of a couple more and ex the timing of the office space in fact, regarding your exposure to such, would you say that you actually have a similar impact moving ahead in the next quarter if that occurred?

[Joe Jolson:]

Well, generally speaking we are not negatively impacted by rate hikes. The one area a few years back that where we were benefiting from really low-interest rates was in the return on our capital on the CLO business and now it's because the loans all have LIBOR floors and LIBOR was 20 to 25 basis points in the floors average about 1%, but all the loans are variable rate. So, the negative impact on us from short rates going up is kind of in the rearview mirror now is LIBOR's over 200 a quarter and so its way through the floors in the loan market and so on that and since we have more assets and liabilities in that business rate hikes for us really over any period of time are probably a net -- slightly net positive. Short-term if they go up quickly, since a lot of companies allot one-month LIBOR to pay but our bond interest is tied to three-month LIBOR, so when rates go up quickly and that’s the expectation very short LIBOR curve is steep. But generally speaking there is no negative impact on us for any period of time on short rates going up. Now it does have an impact on the stock price is half of our coverage on the financial services side and on the real estate side. So, where you will see it for us primarily is in lower underwriting fees from those two sectors because our stock prices are depressed. So, it hits us -- hits overall industry but Wall Street that hits us because those are two of our whole sectors but actually that evident in the first quarter, it results. So that continues as you are pointing out there is unlikely to be a slew of REIT IPOs or financial services IPOs or secondaries. But rates are going up because the economy is good which benefits us in terms of the tech side primarily and our kind of mix of business.

[Robert Maltbie:]

What’s the percentage of your capital for Q1, what percentage was uninvested for that quarter?

[Joe Jolson:]

I don’t know the average for the quarter but at quarter end we had $0.62 of what we define as investable cash which was not quite what we are targeting to be longer term but like $0.00 to $0.25 which is where it used to be. We have a line of credit too. So, this is just -- certainly there is nothing wrong on our line. So, I think that if we are successful in executing on CLO V here, Robert we should be back at that kind of $0.00 to $0.25 level in the next three months. We will see. Fingers crossed there. But I think that we are close to the end of the 18-month recycling of that capital.

[Robert Maltbie:]

Terrific, two more. Your outlook for 2018 pipeline -- can you give us some color on that Joe?

[Joe Jolson:]

We said the pipeline was at record levels when the tech, it’s also -- it’s at record levels but it’s at high levels in the life sciences as well as Mark mentioned on a previous question that market for life sciences is a lot choppier. Those companies even though their business isn’t rate sensitive because they future value storage, for the most part their stocks tend to be a little rate sensitive short-term just because it’s a discounted future value kind of analysis for the value of the equities. But -- so I think stability of rates would be very good for that space or certainly the expectation is rates go up two or three more times this year as long as there's no negative surprise and they go up faster than that or higher than that I think it will settle down there.

[Robert Maltbie:]

Okay a follow-up question regarding the outlook for the balance of the year. Your plans for hiring, would you say that they are greater than last year, equal to last year. How would you think about this?

[Joe Jolson:]

Well we’re always looking to hire people that we think can be productive on our platform regardless of the environment that's part of being a smaller company and organically trying to build your business. So, I think nothing's change there, we were hiring some people two years ago when that business was not doing very well and we made a number of senior hires during that period. So, I mentioned in Dan's question that one area strategically that we've targeted that had senior people in the M&A side, and I think that we are actively engaged in a number of our recruiting conversations there. But as of today, there's nothing to report but we’re hopeful that as the year goes along there will be some successful hires there and I think that I mention that the bad news is that will cost us something if that occurs. But the good news is that will could if our decisions in hiring people proved to be correct prove a big driver for growth acceleration for us in that business, over the next three years. Anyway, that's our primary area was looking to hire property other than that I think were good, great people becoming available.

[Operator:]

There are no further questions over the phone line at this time. I turn the call back over to the presenters.

[Joe Jolson:]

Thanks everyone for your interest in our company, we will be back in late July, reporting on the second quarter results. Have a great day.

[Operator:]

This concludes today’s conference call. You may now disconnect.