Bgc Group Inc (BGC) 2012 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Quarter 1 2012 BGC Partners, Incorporated Earnings Conference Call. My name is Ian. I'll be your operator for today. (Operator Instructions)

I'd now like to hand the call over to Jason McGruder. He's the head of Investor Relations. Please proceed, sir.

Good morning. Our First Quarter 2012 Financial Results Press Release was issued this morning. This can be found either at the News Center or Investor Relations sections of our website at www.bgcpartners.com. During this call, we will also be referring to a presentation that summarizes our results and which includes other useful information. This too can be found in the Investor Relations section of our site.

Throughout today's call, we will be referring to our results only on a distributable earnings basis, unless otherwise noted. Please see today's press release for GAAP results. Please also see the section of today's press release entitled Distributable Earnings, Distributable Earnings Results Compared with GAAP Results, and Reconciliation of GAAP Income to Distributable Earnings for a definition of these terms, and how, when and why management uses them. Unless otherwise stated, whenever we refer to income statement items such as revenues, expenses, pretax earnings or post-tax earnings, we are doing so on a distributable earnings basis. Unless otherwise stated, all financial comparisons we will be making on today's call will contrast the first quarter of 2012 to the first quarter of 2011.

I also remind you that the information on this call contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 as amended, and Section 21E of the Securities and Exchange Act of 1934 as amended. Such forward-looking statements include statements about the outlook and prospects for BGC and for its industry, as well as statements about our future financial and operating performance. Such statements are based upon current expectations that involve risks and uncertainties. Actual results, performance or achievements could differ materially from those contemplated, expressed or implied because of a number of risks and uncertainties that include, but are not limited to, the risks and uncertainties identified in BGC's filings with the US Securities and Exchange Commission.

We believe that all forward-looking statements are based upon reasonable assumptions when made. However, we caution that it is impossible to predict actual results or outcomes or the effects of risks, uncertainties, other factors on anticipated results or outcomes; and that accordingly you should not place undue reliance on these statements. Forward-looking statements speak only as of the date when made, and we undertake no obligation to update these statements in light of subsequent events or developments. Please refer to the complete disclaimer with respect to forward-looking statements and risk factors set forth in our public filings on Form 8-K, 10-K and 10-Q which are incorporated today by reference.

I am very happy now to turn the call over to our host, Howard Lutnick, Chairman and CEO of BGC Partners.

Good morning, everyone, and thank you for joining us for our First Quarter Conference Call. With me today are BGC's President, Shaun Lynn; our Chief Operating Officer, Sean Windeatt; and our Chief Financial Officer, Graham Sadler.

BGC recorded double-digit percentage year-over-year growth in revenues for the quarter. Our recent expansion into real estate has been well-timed, as market conditions in US commercial real estate have been improving. This has offset some of the recent industry-wide declines across the financial markets. We remain confident, however, that volumes in financial products will rebound.

In our view, the opportunities to grow in both the financial and real estate markets are equally compelling because we hire and acquire accretively. While our recent transactions have been related to real estate, we continue to pursue opportunities in the financial markets. In fact, it's largely been a matter of timing, coupled with our previous limitation on acquisitions in Europe and the Middle East. We acquired the assets that make up Newmark Knight Frank and Grubb & Ellis for total consideration of approximately $150 million, which includes potential earn-outs. We think this is an excellent use of capital. Because in the second quarter of 2012 alone, Newmark Grubb Knight Frank should generate over $110 million in revenues. We expect real estate to be accretive within its first year.

The combination of Newmark Grubb Knight Frank and BGC's strong relationships with our broad customer base is already driving new business opportunities. Real estate is already profitable for us. And as we integrate these businesses over the next few quarters, we expect to expand our margins.

I am also pleased to report that BGC's dividend per common share will again be $0.17 for the first quarter. We expect the dividend will remain consistent for all four quarters of the year. In addition, we continue to expect a large portion of dividends paid per share in 2012 to be a nontaxable return of capital to common stockholders.

With that, I'd like to turn the call over to Shaun Lynn.

Thanks, Howard. And good morning to everyone. Unless otherwise stated, the comparisons I will discuss are for the first quarter 2012 versus a year earlier.

We've once again expanded our market share and foreign exchange, credit rates and equities, as our results for these products continue to outpace comparable industry metrics despite difficult market conditions.

Our overall brokerage revenues increased by 10.5%, driven primarily by the addition of real estate and growth from FX Broking. So far in 2012, volatility for many of the OTC and listed products we broker have been lower than historical averages. This has caused declines in market activity industry-wide. Global FX volumes declined largely because of central banks of Japan and Switzerland intervening to keep their currencies from appreciating. However, BGC's foreign exchange desks continue to outperform the industry.

Our overall FX revenues increased by 8.3%, while our fully electronic FX revenues were up by approximately 46%. In comparison, FX volumes were down by 12% in the quarter for the CME and by 9% for Reuters. Global volumes in rates have been muted due to the quantitative easing undertaken by the US Federal Reserve and other central banks. The Fed alone has over $2.2 trillion worth of long-dated treasuries and agencies on their balance sheet, which have not been traded or hedged. When the economy improves, these positions will eventually be unwound, which will provide us with a future tailwind.

BGC's rates revenues decreased by 3.9%, which compares favorably to volume declines ranging from 11% to 35% for Federal Reserve US Treasuries and for the interest rate products of Eurex, the CME and Euronext. We continue to believe that rates markets will become more active over time because high levels of government debt around the world will drive volumes in both our voice and electronic businesses.

BGC also gained market share in the credit markets during the quarter. Our overall credit revenues decreased by 3.2%, offset in part by nearly 20% growth from our e-brokered credit products. These figures compared favorably to the credit results reported by our competitors.

Revenues from equities and other asset classes declined by 9.8% primarily due to even larger declines in industry volumes of both cash and derivatives. For example, equity derivative volumes declined by 19% at Euronext and by 12% at Eurex; while total US cash equity volumes were down by 14%.

With respect to commercial real estate markets -- overall industry metrics look positive. Commercial real estate services firms benefit from improving economic and employment training. And as the US continues its recovery, this should provide a positive tailwind in Newmark Grubb Knight Frank.

In addition, during the first quarter, US office sales volumes were up by 32% year-over-year, while industrial sales were up by 29% according to Real Capital Analytics. On the leasing side -- vacancy rates and asking rents also improved year-over-year in most of our key markets according to CoStar. One of the key reasons for our being able to grow our market share across products despite the challenging trading environment is the strength of BGC's proprietary technology for hybrid and fully electronic trading.

To maintain our industry-leading platform, we have continued to add talented voice brokers, even as we expand fully electronic trading across different asset classes and geographies. BGC now offers e-broking on approximately 100 out of 220 desks, compared with approximately 75 of 200 a year ago.

Revenues related to fully electronic trading grew by 1.7% year-over-year, to $39.8 million, or 9.9%, of total revenues. Excluding real estate, our electronic revenues would've been 11.1% of revenues a year ago. These figures were $39.1 million and 10.7% of total revenues.

Our e-broking revenue increase was driven by strong growth from FX and credit on both cash and derivative side. This was partially offset by 5% decline from e-brokered rates products, mainly reflecting even larger declines in most comparable industry volumes. Fully electronic trading has been a main reason for the expansion of our profit margin over the past three years. And we remain committed to converting additional desks to fully electronic trading as fast as our customers require.

We increased our front office headcount by 26.3% to 2,170 brokers and salespeople, compared with 1,718 a year earlier. Average revenue per front office employee was down by 14.7% to approximately $180,000, compared to approximately $211,000 one year ago. Our average revenue per front office employee has historically declined year-over-year for the periods following significant headcount increases, as new brokers and salespeople generally achieve significantly higher productivity levels in their second year with the Company.

The reduction in front office productivity was also due in part to lower overall industry volumes in rates, credit and equities in the first quarter. In addition, real estate services firms typically generate less revenue per broker than do interdealer brokers, although their overall levels of profitability are generally similar. Furthermore, the first quarter is usually the lowest in terms of revenue per broker for real estate services, while the fourth quarter tends to be the most active, all else equal. This seasonality is reversed for interdealer brokers.

With that, I would now like to turn the call over to Graham.

Thank you, Shaun, and good morning, everyone.

Unless otherwise stated, all the comparisons I am making compare the first quarter 2012 with the first quarter of 2011. BGC generated revenues of $403.9 million, up 10.5%; compared with $365.5 million. Brokerage revenues also increased by 10.5% to $378.7 million, compared with $342.8 million. Our revenues from the Americas were up 52.7% to $166 million. Europe, Middle East and Africa decreased by 9% to $181.1 million, and our Asia Pacific revenues decreased by 1.7% to $56.8 million.

Our European business was negatively impacted by lower activity industry-wide and by the strengthening of the dollar relative to the euro and pound. Our Americas revenues grew largely because of real estate brokerage, [but would have been] up by nearly 9% even without it. EMEA represented 44.8% of revenues, the Americas, 41.1%; and APAC, 14.1%. A year ago, EMEA represented 54.5% of revenues; the Americas, 29.7%; and APAC, 15.8%.

Excluding real estate, our global January 2012 revenues were down by approximately 5% to $116 million. February was up by approximately 7% to $120 million, while March was down by approximately 9% to $120 million. Real estate added another $47.9 million of revenue, of which $44.9 million is brokerage revenue and $3 million is primarily property management included in other revenues during the quarter.

Looking at revenues for our other brokerage products -- BGC's rates revenues were $146.9 million, credit revenues were $84.4 million, foreign exchange revenues were $58.7 million, and equities and other asset classes revenues were $43.8 million. In comparison, for the first quarter of 2011, rates revenues were $152.8 million, credit revenues were $87.2 million, foreign exchange revenues were $54.2 million, and equities and other asset classes revenues were $48.6 million.

In the first quarter of 2012, rates represented 36.4% of total revenues, credits, 20.9%; foreign exchange, 14.5%; real estate brokerage, 11.1%; and equities and other asset classes, 10.9%. A year earlier, rates represented 41.8% of total revenues, credits, 23.9%; foreign exchange, 14.8%; and equities and other asset classes, 13.3%.

Turning to expenses -- total expenses were $345.6 million, or 85.6% of revenues; versus $301.2 million, or 82.4% of revenues. Compensation and employee benefits were $224.7 million, or 55.6% of revenues. This compared with $197.7 million, or 54.1% of revenues. Our compensation ratio is expected to increase to approximately 60% in the second quarter due to the addition of Grubb & Ellis.

Non-compensation expenses were $120.9 million, or 29.9% of revenues. This compares with $103.5 million, or 28.3% of revenues. The increase in expenses, both in absolute terms and as a percentage of revenues, were due largely to the addition of real estate, which had fixed expenses in a number of line items but is seasonally slowest in the first quarter of any given year.

In addition, we incurred ongoing professional and consulting expenses related to BGC's ongoing FSA program and higher interest expense as a result of the July 2011 convertible senior notes offering. We anticipate FSA-related expenses to decline over the remainder of 2012. However, we expect higher expenses in a number of line items over the next two or three quarters relating to the integration of Grubb & Ellis.

Over time, we expect our non-compensation expense to decline as a percentage of revenues. We are working to drive our non-compensation expenses down to 25% of revenues.

BGC's pretax earnings declined by 9.5% to $58.2 million, compared with $64.3 million. Pretax earnings per fully diluted share were $0.21 versus $0.26. Our pretax distributable earnings margin was 14.4%, compared with 17.6%. Our effective tax rate for distributable earnings improved to 14.2% in the first quarter of 2012, compared with 15%. We expect it to remain around 14% for the rest of 2012.

BGC's post-tax distributable earnings were down by 7% to $50.9 million, compared with $54.8 million. Post-tax earnings per fully diluted share were $0.19 versus $0.22. Our post-tax earnings margin was 12.6%, compared with 15%. Our fully diluted weighted average share count was $302.9 million for the first quarter of 2012. This included a weighted average of 38.8 million shares associated with our convertible senior notes.

In the first quarter of 2011, our fully diluted weighted average share count was $258.9 million. At the end of the first quarter, our fully diluted share count was $306.4 million, assuming conversion of 39 million shares underlying the convertible senior notes.

While our fully diluted share count has increased over the past year, the purpose of this issuance was to create long-term value through acquisitions and hiring and retaining producers with long-term retentive equity and contracts. As our acquisitions' margins expand to their full potential, we expect our earnings growth over time to outpace our share count growth, therefore increasing earnings per share. In both the first quarter 2012 and 2011, our GAAP fully diluted weighted average share counts will [earn those] for distributable earnings, because certain share equivalents were dilutive for distributable earnings but not for GAAP.

We expect our second quarter 2012 calculation of post-tax distributable earnings per fully diluted share to include the shares related to the Company's convertible notes but exclude the associated interest expense net of tax because the impact would be dilutive. Therefore, we expect to add approximately $5.2 million to post-tax earnings and include the 39 million shares underlying the convertible notes when computing EPS.

Regarding the balance sheet -- we define our overall cash position as cash and cash equivalents plus unencumbered securities held for liquidity purposes -- mainly US Treasuries -- which are included in the securities owned line item. As of March 31, 2012, our cash position was $348.8 million. Notes payable collateralized and short-term borrowings were $398.3 million. Our book value per common share was $2.35.

Because a substantial proportion of the equity of the firm is made up of partnership interests as well as stockholders' equity, we define total capital to include redeemable partnership interest, non-controlling interest in subsidiaries, and total stockholders' equity. Accordingly, total capital was $505.2 million as of March 31, 2012.

In comparison, as of December 31, 2011, the Company's cash position was $385.7 million. Notes payable, collateralized and short-term borrowings were $345.5 million. Book value per common share was $2.40, and total capital was $501 million.

I'd also like to remind you of some of the accounting details of the Newmark Knight Frank acquisition and their impact on distributable earnings for the next year or so. These will apply for Grubb & Ellis as well.

Under GAAP acquisition accounting, certain receivables and associated compensation which ordinarily would be GAAP revenues and expenses, are deemed purchased assets and liabilities and are therefore not recognized as revenues and expenses. In order to provide a consistent view of our results, we include the collection of cash for these receivables and their associated compensation expenses under distributable earnings. These items would've been recognized for GAAP, other than for the effect of acquisition accounting.

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

Thank you, Graham.

Excluding real estate, our revenues for April 2012 were down approximately 7% year-over-year to $100 million. We expect to generate revenues of between $440 million and $470 million in the second quarter of 2012, an increase of approximately 21% to 29%; compared with $364.8 million in last year's second quarter. This revenue outlook includes at least $110 million from Newmark Grubb Knight Frank.

We expect pretax distributable earnings to be between $54 million and $62 million. This compares with $62.4 million last year. We expect the effective tax rate for distributable earnings to be around 14%, as Graham said, for the rest of the year, which compares to 15% last year.

We will be providing a more in-depth view of our business on our Analyst Day on May 30th. And in order to provide more information, we plan to continue our practice of updating our outlook near the end of the quarter.

So operator, we'd now like to open the call for questions, please.

(Operator Instructions) Patrick O'Shaughnessy, Raymond James.

My first question is on your compensation ratio guidance for the second quarter. Given that you're going to have such a strong quarter from the commercial real estate group, I was maybe expecting it to come in a little bit lower. So can you kind of walk me through -- what are the moving parts that are going to drive that up a little bit in the second quarter, please?

Sure. The addition of Grubb & Ellis and their compensation ratio will drive our total compensation ratio, as Graham said, to about 60%. We have both a large business and property management and facilities management. And those compensation costs tend to be higher than the brokerage business. And real estate brokers tend to have compensation ratios toward the high end of the ordinary, probably consistent with the interdealer broker people away from us, but obviously higher than our overall compensation ratio.

So basically, the growth of Newmark Grubb Knight Frank -- both from the Newmark side and the addition of the Grubb side -- will drive up our average. And as Graham said, we expect over time to drive down our non-compensation expense. And over time, we do expect using our partnership structure to be more successful in the compensation ratio side of the equation, as well as we expand our margins.

That's helpful.

And then, I guess, along those lines, can you talk about how many brokers actually came over from Grubb, and your level of success in basically attracting the talent that you wanted to retain?

I don't think we've said -- and we plan to say yet -- how many brokers, but it is hundreds and hundreds. The opportunity in the bankruptcy was to allow us to hire -- to make offers to those people that we wish to hire without the cost of severing the others. You know we care about average revenue per head, and we care about the productivity per broker.

So we have focused on the high end of their group, and we have -- so far, we feel very good about our success. And that's why you can see from our guidance that we expect next quarter to be at least $110 million in the real estate section. So obviously, we've managed to attract lots of the people that we hoped to.

That's helpful.

And then, one last question, if I could, on expenses -- I could probably back into it using your guidance. But Graham, can you kind of lay out what you think a good run rate for non-comp expenses is in the second quarter, kind of bringing in all the Grubb costs? And then, I presume that the run rate would probably decline a little bit from there?

Yes. I would expect, as I think I've guided -- while I'm expecting the run rate to come down over time, we're going to push hard to get it down to 25%. I think in the short term, I think it's probably going to be around the same kind of levels, or a little bit lower, than this quarter, as you bring in Grubb. But as I say, I'm expecting that to go down over time.

Okay. So you don't have --

There's just integration costs. There's integration costs, there's just a lot of work to get integrated. But as Graham said, once he's gotten the back end integrated, I think we can take out substantial points in this business. And if we can take 5 points out of the non-comp expenses, then what we can do is we can wring substantial profits out of the business that we have right now.

So irrespective of the growth of the financial markets, irrespective of a growth in the real estate markets, we think the business that we have right now, we can increase our margins by 5 points going forward. And that's what Graham and his team are going to work on. And because that's non-compensation expense, that is clearly in the world of expenses that we control.

Very helpful. Thank you.

Rich Repetto, Sandler O'Neill.

My question, Howard, I guess -- just backing into some of the numbers -- but if you back out real estate, the $110 million from your guidance, it looks like the midpoint is sequentially down. We'd get the midpoint at somewhere around [345]. And I guess the question -- we know what April is -- $100 million. So you are looking for some uptick, I guess, in May and June in the core business ex-real estate. Is that fair? Is that correct? Even though it would be sequentially down from the first quarter?

Yes.

And could you just give us a little color on the environment out there that's giving you that view for May and June?

Rich, it's Sean. Without a doubt, it's a reasonably tough environment. And what we've been doing is reorganizing our voice brokers in the traditional financial products and upgrading as we go along, which has caused some of the fluctuation. But we think that we're really well positioned with the [gos] technology and really well positioned with the gos from the brokers that we've managed to attract that are going to help us through this period. But we can't control the market. What we can say is we're best positioned, we feel, for the market as it is in its current state, with electronic and with the best voice brokers.

In addition, Rich, do remember the seasonality within the quarter. If you look on our earnings presentation, revenues for April of last year, at $107 million; and both May and June are busier months than April -- up at $129 last year. So there is seasonality within a quarter as well.

That's helpful. I see that now.

And then, doing sort of the same thing by backing out expenses, Graham, it looks like core expenses, when you strip out real estate, are flat, like -- if you factor in the midpoint is [397], you take about $55 million incremental off of this -- in 2Q, you're back to the [342] or so, where we were last quarter. Is that correct? Am I doing my math right?

Yes, I would say that's not an unreasonable view. Yes.

Okay.

And I guess the broker question has already been asked. But lastly, you might've gone through this I think -- I might've missed it -- but the tax rate looks like it's down a little bit. And I'm not sure -- I know you had a slide in here. But the lower tax rate -- could you go through --

Yes, it's actually consistent with what we had for the full rate last year. I think we have 14.3% last year.

Okay.

-- basically consistent --

Okay. I'm good, thank you.

Thanks, Richard.

Jillian Miller, BMO Capital Markets.

Thanks, guys.

I just wanted to quickly clarify something on Patrick's question. You said that the non-comp expenses next quarter are going to be similar to this quarter, or the non-comp ratio next quarter is going to be similar to this quarter?

The ratio.

That's what I thought. I just wanted to make sure.

And then, I saw that you rolled out the electronic trading functionality to your number of new desks this quarter. And that's encouraging. And I just wanted to get your thoughts on how many more desks are kind of targeted for rollout in 2012. And longer term, kind of when you look at your products in your existing desks, how many do you think are really capable of using fully electronic rating capabilities?

To be honest, we've obviously taken by the hand by the marketplace, and when the market's ready for it. All of that hybrid technology that we put onto the broker desk, which is -- the majority of our desks that we have have the capability of going fully electronic. So I don't want to be blase about a number. But I would say that the majority of the businesses that we have with inside BGC on the financial products side has the capability of going fully electronic.

But it is down to customer demand. We, of course, are always trying to push that forward. Because it's more money to the bottom line. It's better market control. It's easier access to the customer base. And it's a differentiating factor that we have compared to most of our competitors. And we own the technology, we've invested in it, and we continue to drive it across all of the products wherever we can. But I think you're going to continue to see us, throughout this year, continue to push it as hard as we can.

So I can't give you an exact number. But rest assured we're going to be pushing it.

Okay.

And then, you said for awhile now that you're kind of looking to acquire some brokers in the commodities and energy and asset classes. Just wanted to get an update on kind of what you're seeing on that front in terms of opportunities. Do you feel like prices have rationalized in the assets you're looking to acquire? And overall, do you expect to see more M&A activity in addition to these real estate transactions in 2012?

There are opportunities out there. You can always pay the wrong price for anything. What we always try to do is -- we're looking for accretive acquisitions that make perfect sense for our company, and acquisitions that accept our model, which is every employee broker is a shareholder in our company, believes in our company, and believes in our model. And we have an earn-out with targets attached to that company. So we know, when we buy a company, we get the right company, and they believe in our company. Shareholding is a very key factor for us.

So yes, there's opportunities out there. We're continuing to look at everything that's out there. And I think you should stay tuned.

Okay.

And then, just one final one for me -- and this is kind of a numbers question, but on the non-controlling interest and subsidiaries line, I think that reflects a business related to Newmark Knight Frank. And I guess the profit there must've turned to a loss during the period. Maybe you could just give us a little detail on what's going on there and what we should be expecting for that line item going forward.

Well, you're right, that is -- it's actually made up of two parts. It's the Newmark minority, but also the part of one of our service companies is owned by Cantor's. So it's actually got two pieces to it. And it just reflects the results of those companies for that particular quarter. I think you can obviously -- I don't think that line item is going to move very significantly. It's going to be either moderately positive or moderately negative.

Okay. Thanks.

Niamh Alexander, KBW.

Can [I talk a little on] the balance sheet? I see you've increased the short-term debt. I know first quarter, you had huge cash inflows during the quarter. Because we were talking about the big dividend hike. But here I see you've kind of raised the short-term debt a bit, and the cash balance has gone down as well as that. So what was driving that? Was [that] the payouts or retention bonuses? Was that kind of cash out re Grubb & Ellis, or was it comp-related? And should we look at maybe more leverage ahead?

Well, obviously, we invested money in Grubb & Ellis and [extra] in the quarter. We also had -- we used our cash to facilitate a security settlement, which we do from time to time, to facilitate where we have a failed trade -- that was around $40 million -- which comes back as a temporary use of cash. Okay?

That failed trade wasn't -- you expect that to come back to you? That's not a cost to you?

Yes, it does. It has, it has. It has come back. But it's [like] overnight.

Okay.

So --

We do it just because it's economically beneficial for us to do at that particular point in time.

So we shouldn't look for the leverage to creep up or anything like that over time?

No.

Fair enough, thanks.

I guess, to take a step back -- the real estate business is really nicely diversified away from -- in addition to the interdealer broker. But looking at the guidance for this quarter, it's impressive to deliver revenue growth in the environment that we're in. But you're guiding to -- at the high end, it could be 30% year-on-year revenue growth. But we're still looking at distributable earnings down almost 10%, given the rest of that. And I know it's a different business mix, and it's more expensive. But it's also the share count increasing quite a lot. Can you help me understand -- is kind of most of that comp related to the deals, like the increase in share count more recently? And what's a good run rate to think about, and the pace of share increase? Is it, going forward, just going to be more related to deals? Or is there kind of a good comp run rate that we should be building in?

We feel we acquired Newmark Grubb Knight Frank and the two companies that make it up -- Newmark Knight Frank and the assets from Grubb & Ellis through bankruptcy -- very effectively. And when you buy something like that very effectively and try to bring it together, it's not simple, and it's not inexpensive. And so we have high non-compensation costs. They're going to remain with us for awhile as we work through all the details of integrating the assets from Grubb & Ellis into Newmark Knight Frank, and doing it correctly.

However, we feel those revenues -- now that they are within our company -- give us the opportunity, as Graham said, to drive extension and expansion of our margins. And we expect to do just that. So we plan to drive our non-compensation expenses, as Graham said, down towards 25%, which should increase our margins of 5%. And 5% on that substantial revenue number will show that our acquisition of these real estate assets was very, very successful.

We can and will leverage our technology infrastructure and finance infrastructure and back office infrastructure over the business of real estate. It's a real estate brokerage business. And we are, if nothing else, excellent at the brokerage business. That's why we like this business. We have scale and scope in that business, and we will be able to drive margin from it.

Also, one of the key things about brokers is their agreement to become partners in our partnership and agree to our retentive model of business. And as those brokers come in, they become aligned with your interests and aligned with our long-term interests. They understand that they will make money from our shares, and they will make money from our distributions and dividends. And that aligned interest and retentive nature, as you've seen over time -- when we initially grew our brokerage headcount, our compensation ratio was higher, and we drove it down. Our non-compensation expenses were higher, and we drove them down.

And we think we are very excited. Because we think that opportunity is upon us again. We think we've bought those assets and those businesses correctly. And I think now it is simply work and time to drive those margins.

So we are showing you that we have great upside on revenue. And Graham has highlighted for you that we expect to have substantial profitability as we increase our margins.

With respect to our share count -- we have used that share count to have the money to buy these companies and to retain and hire staff. And we think we have -- when we look over our share issuance over the year 2011, and where it's brought us to today in the first quarter of 2012, we think we have very well issued those shares and spent that money, either in acquisitions or in hiring and retaining our key brokerage staff. And I think we feel very comfortable with where we are. And that's why Graham highlighted that he expects EPS share expansion going forward. We think we have it in our control, and now we are going to -- it's hard work -- no doubt it's hard work -- but we think we have the capacity to drive those margins higher. And we expect to do so over the coming quarters.

Fair enough. Thanks, Howard.

And then, secondly, on the interdealer brokerage business -- I think that it's gradually changing and becoming more of a wholesale broker model we're seeing at some others. Are some of your product areas the same? Are you starting to see a lot more flow from maybe the non big dealer clients? Which product areas should we think about there for that? Because maybe that's a bigger growth opportunity looking out.

Yes is the answer, very quick answer. We have seen an influx of hedge funds and so on. And the products mainly are coming from equities, ex-derivatives, listed products in general; credits, to a degree. And I think you're going to see that expansion throughout our businesses across the board on all products. As traders, they've moved in some respects from the current shops that they're at, and they've taken other opportunities elsewhere. And with that, they're growing and building new businesses. And we're seeing some high-frequency traders as some of our biggest customers now, and I think that's going to continue to happen. We welcome it, of course. And we see that expansion of our client base as a major positive thing, especially with regulation the way that's looming very closely. That's going to drive that even more with our technology as well. It gives us a greater reach.

So from a global perspective, we welcome these customers. And it works for us.

Okay, fair enough. Thanks, Shaun.

That's the end of our questions today. So I'd now like to turn the call back over to the BGC Chairman, Howard Lutnick. Please go ahead, sir.

Thank you all for joining us today. And we look forward to seeing many of you at our Analyst Day on May 30th and speaking to you again next quarter.

So everyone have a great day. We appreciate you joining us. Thanks. Enjoy yourself today.

Thank you, Howard.

Thank you for your participation in today's Conference, ladies and gentlemen. That concludes your presentation, and you may now disconnect.