Bgc Group Inc (BGC) 2013 Q1 法說會逐字稿

Good day ladies and gentlemen welcome to the first quarter 2013 BGC Partners, Inc. Earnings Conference Call. My name if [Rachel] and I will be your operator for today. At this time all participants are in a listen-only mode. We will conduct a question-and-answer session towards the end of this conference.

(Operator's Instructions)

As a reminder this call is being recorded for replay purposes. I would like to turn the call over to Jason McGruder, head of Investor Relations. Please proceed, sir.

Good morning, our first quarter 2013 finance press release was issued this morning. This can be found at either the News Center or the Investor Relations section of our website at www.BGCPartners.com. During this call we will also be referring to our presentation that summarizes our results which includes other useful information. This too, can be found on the Investor Relations section of our website.

Throughout today's call we will be referring to results only on a distributable earnings basis. Please see today's press release for GAAP results. Please also see a section of today's press release entitled Distributable Earnings -- Distributable Earnings Results compared with GAAP results, Reconciliation of Revenues under GAAP Distributable Earnings and Reconciliation of GAAP Income Distributable Earnings.

For definition of these terms and how, when, and why management uses them. Unless otherwise stated never refer to the income statement items such as revenue, expenses, pretax earnings, or post tax earnings, we're doing so only on a distributable earnings basis. Unless otherwise stated all the financial comparisons we'll be making on today's call will contrast to first quarter of 2013 to the first quarter of 2012.

I also remind you that the information on today's call contains forward-looking statements within the section -- with the meaning of section 27a of the Securities Act of 1933 as amended, section 21e of the Securities Exchange Act of 1934 as amended.

Such forward-looking statements about the outlooks, and prospects for BGC, and for its industry as well as statements about our future and financial operating performance.

Such statements are based upon current expectations and involve risks and uncertainties. Actual results performance or achievements could differ materially from those contemplated, expressed, or implied because of a number of risks or uncertainties that may include but are not limited to the risks or uncertainties identified in BGC's filings with the US Securities Exchange Commission.

We believe that all forward-looking statements are based upon reasonable assumptions when made. Similarly to the extent that today's call contains references to potential value of certain assets and portions of our business. No representation is made as to the accuracy of these assumptions or evaluations, models or multiples used. Any evaluations are based upon assumptions about profit margin, business conditions, and no -- and actual or pro forma results of BGC.

No representation is made that such values or multiples could be achieved upon disposal of business or assets. Or that any such valuation of models or multiples will be adopted by others.

Other risks to our results include those related to possibility that the proposed NASDAQ OMX transaction does not close in a timely manner or at all. The possibilities that conditions to completion of transaction including receipt of required regulatory approvals are not satisfied, the possibility that any of the anticipating benefits of the proposed transaction will not be materialized, the effect of the announcement of the transaction of BGC's business relationships, operating results of business generally, generally competitive economic political market conditions, fluctuations, and actions taken or conditions imposed by regulatory authorities.

We caution that it is impossible to predict actual results or outcomes or the effects of risks or uncertainties or other factors on disputed results or outcomes. And accordingly you should not place underlines on these statements. Forward-looking statements speak only as of the date they are made and we undertake the obligation to update these statements in light of subsequent events or developments. Please refer to the disclaimer with respects to forward-looking statements and risk factors that (inaudible) the most recent public filings on 8k, 10k, and 10q which incorporate today by reference.

I would now like to turn the call over to your host, Howard Lutnick, Chairman and CEO of BGC Partners.

Good morning everybody, and well done Jason. Thank you for joining us on our first quarter 2013 conference call. With me today in London are BGC's President Shaun Lynn, our Chief Operating Officer Sean Windeatt, and our Chief Financial Officer Graham Sadler.

We recently agreed to sell our electronic Benchmark, On-The-Run US Treasury platform to NASDAQ OMX for $1.234 billion. This includes $750 million in cash upon closing and another $484 million of stock to be paid ratably over 15 years provided that NASDAQ OMX taken as a whole produces more than $25 million in gross revenue each year.

Due to the ease of this annual hurdle, we expect to receive the entire share earning out and we are currently exploring options to hedge the NASDAQ shares.

With respect of use of proceeds our objective is to increase both shareholder and bondholder value. Following the closing we are likely to make accretive acquisitions and invest in organic growth in both of our segments, repurchase units and common shares. And to our repaid debt we do not expect to pay one-time special dividend but we do expect to maintain a regular $0.12 common dividend for the foreseeable future.

As such I am happy to report that our Board declared a $0.12 dividend for the quarter. We are confident in the sustainability of our current dividend and that yesterday's closing stock price, the dividend yield on BGC is nearly 9%.

We believe that this high yield demonstrates that the market does not fully understand the value of the assets of BGC, Graham will discuss the value of the assets in greater detail later on in the call. With that I will turn the call over to Shaun Lynn.

Thanks Howard and good morning everyone. In our financial services segment, (inaudible) to remain below historical averages across most asset classes during the quarter, largely because of quantitative easing and other factors we have discussed at the last few earnings calls. This once again resulted in generating lower volumes industry wide. So far in the second quarter, key volatility measures across rates, credit, equities and foreign exchange remain below long term averages.

While market conditions were different, revenues for our financial segment declined by only 6% in the quarter. This performance was much better than the 11% to 25% decline reported so far by our inter dealer broker competitors and we believe we continue to gain market share.

Our overall financial services segment generated revenues of $323.8 million and $64.1 million of per-tax earnings. A year earlier this segment generated $344.6 million in revenues and $76.5 million in per-tax profits.

Looking at results by asset class BGC revenues from electronic rates products increased by approximately 5% in the quarter, driven by strong growth from certain desks in interest rate derivatives and European and Canadian government bonds. Past year offset by declining revenues from electronic US treasuries.

To give you an idea of how much we think quantitative easing is currently holding down benchmark treasury volumes while our overall fully electronic rates volumes declined by 1.6%, is one excludes US Treasuries, we were up by nearly 32%. Our credit revenues declined by 18.1% which is a better performance than the comparable results reported by our peers.

Our fully electronic FX volumes increased by approximately 37% and revenues increased by 25%. This growth exceeded the comparable volume figures reported by Reuters, EBS, and the CME.

Mobile Equity markets also continued to be different as equity markets are down 6% and 18% according to the OCC, DTCC, and Deutsche Borse. In comparison BGC's revenues from equities and other asset classes decreased by only 8.8%.

Financial Services segment revenues from electronic trading, market data and software were up by 1.3% to $46.3 million or 14.3% of segment revenues in the quarter compared with $45.7 million or 13.3% of segment revenues.

As Graham will be discussing in greater detail, if one were to take out the assets we are selling to NASDAQ OMX it would demonstrate our electronic trading business are growing at a significant pace. On this basis BGC's technologies based revenues in the segment increased by over 11% to $22.7 million. The growth of these newer products has exceeded most comparable industry volumes and we expect these higher margin businesses to continue to grow faster than our overall financial services segment. Overtime we expect to make up for the revenues and profits generated by the assets we are selling as we continue to invest in and grow our other fully businesses.

BGC now offers electronic trading on approximately half of our 210 financial services desks compared with approximately 100 desks a year ago, and less than 40 desks at the beginning of 2010. We believe that the proposed NASDAQ OMX transaction is a strong affirmation of our strategy to convert a significant portion of our pipeline of more than $1 billion per year in voice and hybrid financial brokerage revenues to high margin fully electronic trading.

This process creates substantial value and strong returns for our shareholders and employee partners. With respect to the cost reduction we selectively reduced financial services front office head count which lowered revenues in the short-term but will improve profitability. We ended March with 1,641 brokers and sales people in financial services, generating average revenues of approximately $190,000 per broker in the first quarter of 2013. A year earlier these figures were 1,761 brokers and sales people and approximately $195,000.

Turning to our Real Estate services segment, industry metrics continue to move in a positive direction in the first quarter, with respect to leasing, vacancy rates, asking rent, and net absorption rates improved year on year. Our NGKF Research team believes that these leasing market trends will continue as the year progresses.

According to Real Capital Analytics overall commercial US property sales volume grew by 35% year over year for the first quarter while CoStar says the commercial property prices were up by 5.1% as of the most recent data. The average capitalization rate or yield on commercial property versus 10 year US treasury rate continues to be very wide by historical standards, and NGKF Research team expects that this trend of sales volume increases will continue for an extended period of time.

Our Real Estate service segment generated $74.8 million in brokerage revenues and $39.4 million in management services and other revenues. Overall NGKF revenues were $114.2 million while per-tax earnings were $2.3 million. These results were substantial improvements compared with a year earlier.

Real Estate services generated 43.8 million in brokerage revenues and $4.1 million in management services and other revenues, overall revenues of $47.9 million and pre-tax earnings of $1.3 million. As are minder commercial real estate services firms tend to be the least profitable in the first quarter and the most profitable in the fourth quarter. We therefore expect margins for our real estate services segment to greatly expand from the first quarter levels the remainder of the year.

Because we purchase certain assets of Grubb & Ellis out of bankruptcy last year, NGKF collected $21.5 million during 2012 not related to the ongoing NGKF businesses. This increased revenues across the second, third, and fourth quarters of last year. In order to help you better analyze these periods and to provide a context to our year over year results for the next four quarters we have broken out these NGKF figures for you in our earnings presentation.

Real Estate Services had 894 brokers and sales people at the quarter end which is more than double the year earlier figure of 409. Average revenue per real estate broker was approximately $84,000 in the first quarter compared with $113,000 a year earlier. Average revenue per real estate broker decreased largely due to Grubb & Ellis' acquisition. In addition, we changed the way we categorized certain real estate services front offices employees. Which increase brokerage head count and therefore mathematically decreased revenue per broker sales person in that segment for the second quarter 2012 through to the first quarter 2013. This change had no impact on BGC's revenues or earnings or even distributable earnings or GAAP.

NGKF drove BGC's overall 16.8% increase in front office headcount to 2,535 brokers and sales people as of year end.

BGC's total average revenue per front office employee was approximately $154,000, a year earlier these figures were 2,170 brokers and sales people at an average of approximate $180,000 each.

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

Thank you Shaun and good morning everyone. BGC generated revenues of $449.8 million, up 11.4% compared to $403.9 million. Our revenues from the Americas were up 32% to $219 million due mainly to the addition of Grubb & Ellis. Europe, Middle East, and Africa was flat at $182 million and Asia Pacific revenues decreased by 13% to $49 million.

Excluding the Real Estate Services segment our global January 2013 revenues were up by approximately 9% to $127 million. February was down approximately 11% to $107 million, while March was down by approximately 15% to $102 million. All when compared with a year earlier.

Turning to expenses. Compensation and Employee Benefits were 61.7% of revenues compared to 55.6% of revenues. Our compensation ratio increased mainly due to the growth of NGKF. The commercial services real estate industry generally has higher compensation ratios but lower non-compensation expenses compared with our financial services segment.

Non-compensation expenses were 28.3% of revenues which was an improvement when compared with 29.9% of revenues. The decrease in non-compensation expenses was due largely to lower professional consulting fees, partially offset by expenses related to Grubb & Ellis and higher interest expense as a result of June 2012 issuance of senior retail notes.

We are on target to reduce overall costs by a total of at least $50 million on a go forward basis by the end of 2013. As compared with the second half of 2012 of run rate. This reduction will include comp and non-comp expenses.

BGC's pre-tax earnings were $45.1 million compared with $58.2 million. Our pre-tax margin was 10% compared with 14.4%. Our effected tax rate for distributable earnings was 14.5% in the first quarter of 2013 compared with 14.2% a year earlier.

BGC's post-tax distributable earnings were $38.5 million or $0.12 per diluted share compared with $50.9 million or $0.19. Our post-tax earnings margin was 8.6% compared with 12.6%.

Our fully diluted weighted average share count was 357.5 million for the first quarter of 2013. This included a weighted average of 39.7 million shares associated with our convertible senior notes. A year earlier a fully weighted average share count was 302.9 million. In both periods a GAAP fully diluted weighted average share counts were lower than those for distributable earnings because certain share equivalents were diluted for distributable earnings but not for GAAP.

As of March 31, 2013 our fully diluted share count was 360.3 million assuming conversion of 39.8 million shares underlying the convertible senior notes.

I would now like to take a moment to discuss how we view the valuations of some of the assets of our company. With respect to the $750 million consideration from NASDAQ OMX we currently expect a tax rate of approximately 20%. This one time item will be excluded in our calculations for distributable earnings. With respect to the $484 million in NASDAQ OMX stock we expect a tax rate of around 15% for the foreseeable future.

We currently expect to include approximately $32 million per year related to this receipt of stock in our calculations for distributable earnings. We expect this transaction to close mid 2013.

With respect to the value of our real estate business, we compare it to its publicly traded peers. NGKF has generated pre-tax earnings of over $45 million for the trailing 12 months just ended. It is North American listed peers trade at between 18 and 21 times calendar year 2012 net income. Using our 15% tax rate and these multiples we believe that the market would value NGKF at between $700 million and $800 million.

Given the value of our real estate business and a reasonable net present value for the after tax amount we expect to receive from NASDAQ OMX, one might assume that the market is assigning virtually no value at all to the remainder of BGC. This is despite the fact that if one excludes the assets we are selling, our financial services segment generated approximately $1.1 billion in review over the trailing 12 months and earned almost $150 million.

As we detail our first quarter earnings presentation, embedded in this segment are our higher margin, faster growing technology based businesses. These businesses consist of our revenues related to fully electronic brokerage, market data and software solutions in the financial service segment. As you can see from our presentation these businesses as a whole generated pre-tax earnings margins of between 50% and 54% for the past three years and most recent quarter.

If one excludes the assets the Company is selling to NASDAQ OMX our technology based revenues increased a compounded 27% per year from 2010 to 2012. For the trailing 12 months just ended, our retained technology based products generated $80 million in revenues and pre-tax margins of over 45%.

When thinking of the valuation for the remaining businesses, we look at the current potential profitability and growth of these products. The total consideration of the NASDAQ OMX transaction which analysts estimate at 22 times trailing earnings, multiples for publicly traded electronic trading platforms of 21 times 2012 earnings. And the recent multiples we have seen in analyst notes for potential electronic trading M&A targets in our sector. Based on these inputs and a 15% tax rate our retained technology based businesses by themselves could be worth $650 million to $700 million.

Finally, our remaining voice and hybrid business, generated $1 billion in revenue and approximately $110 million of pre-tax earnings on the trailing 12 month basis, clearly this business remains very valuable.

As we continue to execute our plan to convert a significant portion of our over $1 billion in annual voice and hybrid revenues to fully electronic trading and sell increasing amounts of market data related to the same. We hope the market will come to understand the existing value, potential multiple expansion that this business brings to this company. With that I am happy to turn the call back over to Howard.

Thank you Graham. Excluding real estate services, revenues for April 2013 were up by approximately 9% compared with a year earlier. There were 22 days in April this year versus 20 days a year ago and therefore on a daily basis April was down 1% comparatively. Our fully electronic businesses continue to outperform our overall financial services results.

With respect to our second quarter outlook compared to a year earlier we expect to generate distributable earnings revenues of between $435 million and $460 million, this compares with $465.1 million from last year. We expect pre-tax distributable earnings to be between $42 million and $53 million for the second quarter and this compares to $55.9 million of last year.

We expect our effective tax rate for distributable earnings to be approximately 15% and this compares with 14.5% in the second quarter of 2012. We intend to update our second quarter outlook around the end of June.

Over time we expect the growth of our technology based businesses, the strength of NGKF, and our focus on cost reduction to substantially reduce the Company's profitability.

(Operators Instructions)

Go ahead operator.

Hello.

Hi. Go ahead. Sorry. Is it Rich?

Hi I was waiting for a little intro but that is okay.

Operator could you please introduce people for the next question. Thanks.

Anyway first question just on the guidance. So the guidance, I believe it does include eSpeed is that correct? For the next quarter.

Yes.

Okay, the bigger question is as you evaluate the uses of cash from the proceeds of eSpeed to NASDAQ can you go through what were the merits and the non-merits of not doing a special dividend versus the other alternates that you outlined?

We think our ability to invest the proceeds accretively are great that are in front of us. We have opportunities in acquisitions across both segments and we can buy backs units and shares and we can repay out debt. All of which will be accretive if done correctly if done to our shareholders and we thing the opportunities for us to earn substantial money one redeployment of this capital, I think are very exciting to the Company.

Howard, I know this is going to put you on the spot, but if you had to say a year from now how you deployed the after tax $600 million or so, would it be a third, a third, a third? Or would you be tilting, are assets and investments a bigger portion than say buyback or repaying debt, or how do you look at it?

Well I guess opportunities come as they come. We obviously as Graham went through, think the Company is undervalued and so you may note in our press release that the Board has authorized both initially an increase and re-authorization for us to repurchase up to $100 million worth of shares.

And upon the NASDAQ OMX transaction closing that authorization climbs to $250 million and so the Board has authorized the Company if it so chooses to buy back shares clearly because we think the share price does not fully reflect the value of the Company as Graham went through. We are seeing and are being presented with really first class opportunities to acquire companies and employ very, very talented brokers across our segments. And I think we have lot of opportunities to grow our businesses at very healthy margins, very, very healthy margins.

The interesting thing about the NASDAQ transaction in the treasury business was that because of quantitative easing the treasury business was not growing. So it was a highly valuable, high margin, high multiple business that was not growing because of quantitative easing.

So there was a exogenous event that was holding it down and as you saw from the Fed they continue to hold it down. So from a dollars and cents perspective our ability to invest this money in growing businesses is something that very much excites this company. That on top of the fact that we are well on top of the idea of converting our voice and hybrid businesses to fully electronic and drive those margins again.

There is excitement running through this company now because you know our employees are owners of this company. You know our employees are partners. And you know how much they clearly understand as they move this business electronic, a portion of this business will go right to them because they are completely aligned with our shareholders and there is palpable excitement in the air here as we are driving it.

And I want to be crystal clear here. Our management is on it and our employee partners are on it and I think you are going to see great things as we move our voice business over to electronics. It is our technology and I think we have a spectacular opportunity in front of us.

Okay, thanks, Howard, I will get back in the queue. Thank you.

Thank you, your next question comes from the line of Jillian Miller of BMO Capital Markets, please proceed.

Thanks guys, it sounded to me like you hinted that maybe some of your other electronic businesses might possibly be acquisition targets as some point in the future and then potentially even the real estate business because you feel it is undervalued right now.

But I was just wondering what electronic businesses are actually large enough and self contained enough that they would be a logical acquisition? eSpeed was very unique in its market share. And then separately you started to build out the real estate business but it is still relatively early stages. I was just wondering how long you need to give that before it is mature enough that you might potentially like to divest it?

With regards to the other market that we do the same thing. Plus we think that our FX platform as we have today and also a non US Government business are both at the brink of becoming ready. We continue to invest, we continue to grow and expand in these businesses and at the right time we may consider a similar thing.

So with respect, so basically our foreign exchange and non US Government bond business are stand along business, they stand in and of themselves and they are based on our technology. And they are capable of a transaction, we are not offering them. But we are expressly saying they are capable of a transaction, if we so choose.

But they are growing rapidly as Graham described and they are continuing to grow rapidly and they do not have the quantitative easing holding them down. So we think those numbers will continue to improve and as they grow that way you have a long way to go with them and those are great opportunities.

With respect to the real estate business the answer is we are a value driven company. That is our objective, our objective is to earn our shareholders more money and whatever the best way to do that we are going to do that. We think our real estate business is doing very, very well. Our ability to invest in it and grow a brokerage business I think is clear and apparent and I think we have tremendous opportunity to grow the real estate business.

Our objective on the phone call today was Graham was to point out to you the makeup of the value of our enterprises and the value to which we are growing. Our job is to make more money and drive earnings to the bottom line and create asset value. Sooner or later we are going to achieve that asset value we need to achieve that asset value, either within BGC or in other ways. So while none of these businesses are quote for sale, that is not the point. The point is I want to make sure and Graham wanted you to understand that these things are of tremendous value.

You all, I guess it was difficult for us to explain to you how much the treasury business was valuable over all these years. We have said it multiple times but because of quantitative easing the business was not growing and it was not obvious. Right? But we are expressing again today the assets of this company are superb and much, much more valuable than our current stock price delineates. And that is why our Board has authorized a share repurchase program to grow to $250 million once the NASDAQ OMX transaction closes.

Okay, fair enough and then just to clarify the $45 million of revenues that you cited for Newmark over the last 12 months. Did that include the $23.5 million, I guess, a one time gain or non-recurring revenue or was that separate from that. Like a normal run rate.

It was $45 million of profit. Those are our pre-tax profit. The $21.5 million in revenues was included in that but that was not $21 million of profit that was just revenues effectively we collected in part on behalf of the Company and on behalf of others. So, we would expect the profits of Newmark to grow substantially from there. So that is not an elevated number that is just what you would classically consider a 12 month trailing number irrespective of the revenues. We just wanted to put the revenues in perspective so when you are doing a comparison year over year you don't see something that doesn't make sense to you.

But the profitability of this business will dramatically grow going forward, we are confident of it and excited about it.

Okay. And then on the share count. I was a little bit surprised at how much it increased this quarter. I think the last time I talked to you, you said that a $10 million to $12 million increase each quarter was generally realistic as a run rate, but the ending share almost marked with $20 million higher than December. I am almost not sure if this is a new run rate or if there was something unusual going on in the quarter?

And then related to that I think in your published remarks you mentioned you were looking at the partnership enhancement program initially to modify it. So maybe you could just give us some detail on what you can do there and where you can get that run rate share count growth to share out when you are done?

Well we had year end compensation in the first quarter but you are right on the topic. That is very much on the plate in front of the management team. We are examining the partnership enhancement program, our partners do own a substantial amount of stock, we think, in partnership units we think we are a very stable company because of that. And we are going to reexamine that and address our share count issuance and we would expect that rate of growth to decline.

So we are on that, we are examining that. I don't think I have any particular numbers to put on it because it is in a state of reexamination right now but we would expect our rate of growth of issuance which is coming under a detailed... We are really scrutinizing it. We would expect it to decline over time as we reexamine it and reapply different formulas and different structures.

Okay, so to clarify, just based on the fact that you are not paying year end bonuses you would expect the share count increase in the second quarter versus the first quarter to be smaller than the sequential increase we saw in the first quarter versus the fourth quarter?

Yes, I would expect it to be lower than the first quarter, yes.

Okay, got it, thanks. I will get back in the queue.

Thank you, your next question comes from the line of Patrick O'Shaughnessy of Raymond James, please proceed.

Hello, good morning.

Good morning.

So my first question, I think, is about your second quarter outlook. I remember on your first quarter call, which was only a couple months ago, that you seemed to be pulling towards the second quarter where everything was going to come together, seasonally stronger quarter for the real estate business, defense services business, should continue some of the momentum you saw in the first quarter. And you were really optimistic about what your earnings power was going to look like in the second quarter. And I think your outlook you talked about today doesn't really reflect the optimism.

Can you talk about what may have changed in the last couple of months that may have taken your view down a little bit?

I think that is why Graham highlighted them in his comments. In the end of January we had seen a 9% growth in revenues and we saw a rather stable business environment up to more traditional levels than we had seen in the years before. We then saw February and March see double digit declines from a year ago periods. It tempered our enthusiasm because of the math. When we guide forward from here we know that while April is up 9% notionally, on a day by day basis it is down 1%.

So by, basically, going back to last year we are down 1%, when you take a 1% to 2% sort of range, that ends up being our guidance in financial services for this quarter. Is that disappointing? Yes, but you know that we guide what we see. Right? So at the end of January what we had been presented with was 9% up. Right? And it felt good and then volumes decline in the industry wide. There was not much we could do about it, other than as Sean went through, increase our market share compared to others and have less of a decline. It doesn't feel good, it is nice to say, but it doesn't feel good when you have less of a decline.

But, the real estate business will come back strong and its margins will be up big in the second quarter and they will effectively overwhelm the decrease that the financial services segment sees. And you are right, am I disappointed that I don't get too businesses operating on reasonable cylinders at one time? Yes, I find it very disappointing that the spectacular real estate business, you know you never get to see it, because as it comes out in the second quarter, the financial services business declined somewhat because of over all industry volumes. But when they hit together it will be an extraordinary company and it will, of course, present tremendous earnings, cash earnings, and power for the Company.

Okay that is fair. And then kind of digging in to the real estate business, the first quarter the year of your comp is a little bit messy just because you were still building out that business. But for the remainder of that year how confident are you that the commercial real estate business is going to see revenue growth on a year over year basis for the last three quarters.

We think they will see revenue growth and they will see substantial earnings growth. We wanted to make sure we pointed out to you that some of the revenues that are not continuing as part of the business that were part of the Grubb & Ellis acquisition. We have sort of highlighted and you can see them in the presentation so you have a better apples to apples comparison. The real estate business is just more chunky, so sometimes you will get a big transaction in this quarter versus the next. But over the course of the year we are highly confident that we will have revenue growth and that our earnings growth will out pace the industry.

Okay that is helpful. And then following up on Jillian's question about your share dilution. So, if you guys are reexamining the amount of stock you issue is it a fair assessment to say that, going forward, maybe pay people more in cash and less in stock? Is that the thought process?

Yes, but we think we can reduce the overall amount of compensation as well. It is not just, we have more than two levers, and since you have been talking with us for a while you know that it was the tradition in the financial service space that when people's contracts expired they renegotiated and got up front payments that need to continue to be amortized. As both the industry has evolved and our partnership enhancement program has evolved, our necessity to pay people in that fashion is declining and it may be time for us to execute that model which will not only allow us to pay as a relative percentage more cash than shares but if the gross amounts of the overall businesses compensation model also comes down, it will not seem so stark.

On top of that which they become more and more reliant on our technology and the electronic trading portion of our businesses make is much more sticky for them to stay here, because we are a propitiatory deliverer of our technology. And I think one thing is important, when we did the NASDAQ OMX transaction it came with the underlying technology. That is not something that most, if not, any of the companies can say that they have.

So when you rent technology from someone else it is just more difficult to get value out of it. We have built our own technology, you know the concept you have heard us say many, many times. Built and paid for, became very clear as a value proposition in the NASDAQ OMX transaction. And it would be clear were we ever do, when and if we do, another transaction.

Okay, got you. And then lastly from me, an update on legal regulatory front. It seems like some of the rate fixing probes involved inter dealer brokers have broadened a little bit. Can you basically reconfirm that you guys don't have any exposure to any of those probes?

Yes, I will reconfirm.

All right thanks.

Thank you, your next question comes from the line of Niamh Alexander of Keefe, Bruyette & Woods, please proceed.

Hello, thanks for taking my questions. Can we go back to the acquisitions? Because you have a big wad of cash coming in. Are there sizable deals that you have in your sights, in either segment, the inter dealer broker space or the real estate space? Or maybe something else we are not thinking about but you guys are right now? Or should we be thinking about more incrementals?

I think a number of things have happened. The incrementals, you know we have been pursuing some slightly larger than others. We are pursuing them all the time if they are accretive. I think what has happened with the NASDAQ OMX transaction. It has made it clear to some larger players that we may be a natural partner but from an economic standpoint and from a technology standpoint. And so there are just more opportunities presented to us. I don't know when and if any of them will happen and what they will mean.

But it is clear that we will use our money to invest in our business, accretively. And we do not find it stressful, given the fact NASDAQ is going to be paying us $32 million a year in stock for the next 15 years and Graham has said we expect to put that in our distributable earnings number. We are really not making up that much money from the eSpeed you know, Benchmark On-The-Run treasury business. And with $750 million to invest I think we will extraordinarily well.

But Howard, I am just trying to understand the landscape a little bit better. I got the sense that in the real estate that maybe there weren't big deal opportunities compared to what you did. What you did was you bought one out of bankruptcy, and there was one in less healthy financial condition or what not. And there were some great opportunities and from here it is more incremental.

But in the inter dealer broker space I would posit that there is certainly some scale benefits by partnering with some of the top five partnering up. Do you agree with that view?

Well the first part, let's go for the first part which is the real estate business in America is gigantic. And we have only just begun and there are plenty of opportunities in America in the real estate business across a wide variety of spaces for us. If you go look at the broad businesses of the public peers you would see the enormous opportunity there for their scale and size. And you should not count out the rest of the world. We are a global company and the fact that we are only in the US so far in real estate leads you to a dramatic opportunity, say, for the rest of the world. That would be number one.

Number two, consolidation of the big players in the IDB space is always a possibility. We have a unique asset in that we have the best electronic trading platform in the space. So if it has to do with real time electronic trading and the world is going forward, we have that asset.

Another asset which does not get much notoriety, is in the Dodd- Frank world one talks about futures exchanges all the time with respect to interest rate swaps and credit derivatives. I would remind you all that BGC has a large share of a futures exchange called ELX that I think is a tremendous asset value for us both going forward for ourselves, and is possibly a tremendous allure to, if there is a transaction to do with one of the other brokers. But that would be up to them as you know, the brokerage business is run by smart capable strong personalities and they would need to make their own decisions on what they are open minded for or not.

Are you a bit more open to it now?

Clearly.

Okay and then on the core. Just on the financial services, I shouldn't say core, because real estate is clearly part of the core now. But in the financial services segment your discussion with your customers. They are under a quite a bit of pressure themselves still, they are still letting some people go and they are dealing with such an amount of new rules and the business conduct rules all kinds of these things are putting a little bit of pressure and increasing transparency, shall we say on the pricing. So are you starting to see any pressure on your rate card are you having any those kind of discussions lately with your customers. Where you are starting to see a little bit of push back?

We only see customer discussion on rate cards and push back every four hours. Yes, so...

Contracts aren't negotiated every four hours.

And that is good for how many years Shaun? Forever? So Shaun and I have been in this business together, decades together, I don't remember a four hour when that wasn't the topic. But the idea for us clearly is to present our clients with the opportunity to dramatically reduce the costs via electronics. Right? And dramatically reduce the costs to increase their efficiency.

Number one, cut the cost, two, increase their efficiency, and three the possibility of partnering well with us to create new and exciting opportunities in this space. Those three things put together is how we use any conversation a client wants to have with us. To really try to hit our goals and theirs as a win win scenario. And we have those conversations all the time. Each and every day we try to have those conversations.

So, it is a low interest rate environment, it is difficult for our clients as, and we try to be, we talk to them all the time and try to find ways that we can help them and be successful for them and helpful and be successful for us. And we think that the number one way that is going to be achieved is by more and more usage of our technology to executive transactions for them and for us. And what works for us best is that our key brokers are partner employees and they know that the economics of that transaction will work for them as well.

And that is the key thing, it may have taken us too long to get here, right? And we have invested lots, and lots of money to get here but we are here and the assets that we have, all of them from ELX all the way through to our technology will help us get from here to there in a way that would just be superior to alternative that I know.

Okay, fair enough Howard. And then just a few things. I am just surprised these pieces not in the discontinued ops. Because you have announced you are selling it and it is going. So maybe next quarter or to help us out with our modeling you can take it out there. The other thing is you say you don't think the stock is fairly valued, you think the stock should be trading higher. If I follow that through, there is a $250 million repurchase authorization coming.

We should not be expected the insiders to be cashing out here right? Because you own the vast majority of 60% that is not public, we should not be looking for a big insider cash out here, if you really do think that the public stock is not fairly valued, would you we waiting? Or should we be looking for some of that to be allocated, converting units and people cashing out?

I have not sold a share and I don't expect to. I think that the Company and the senior management of the Company thinks that the Company is under valued, clearly. And the Board thinks so and that is why it authorized the share repurchase. We have lot and lots of partners who own shares and if any of them sell some shares it is not generally a consequence to the firm. I can't speak to that. Part of having a broad policy where every employee of the Company has share, right, leads to the definition of insiders, each and everyone of our employees has shares and they get part of the compensation in shares and every year some of their shares vest and if they choose to sell them, they choose to sell them. That is up to them.

If that was the point, I think the point of today's call was to make it clear that we think the Company is undervalued and we can't understand and now even more clearly with the NASDAQ transaction coming and the fifteen years of payment on the NASDAQ stock and the $750 million in cash, it should be crystal clear that there ere dividends. And we tried to make that clear today that sustainable and strong at $0.12 a quarter and we just don't understand why our company would trade at north of 8.5% yield, it just doesn't make any sense to us.

So I think our job is to do just what we are doing today. To explain how we view our company first and secondly to drive investment of the proceeds and consideration of this transaction to raise our earnings and then ultimately to buy back shares and invest in other businesses or whatever is most accretive.

Should we expect a partnership, you mentioned the change in the partnership structure, to reduce the pace of the shareholder dilution. Your revenue is growing, expenses are elevated as you integrate the business, but we are not seeing it in the EPS. So clearly you want to address that. But it may be eliminating the partnership structure or buying out these partnerships entirely, is that on the table?

I don't want to say anything is off the table. The one thing I have said which we do not expect to do is a one time special dividend. But like everything else, whether we buy public shares or units back, whatever is most efficient we will choose to do. I don't want to say that there is something off the table, other than the one time special dividend.

But I do think the investment opportunity for the Company in acquiring accretive companies is well in front of us and something that we think is a huge draw for us to invest. And then the possibility of buying back shares and then the possibility of buying back shares and possibly repaying debt are key things for us to consider.

We want this company to be strong and to make lots of money and your last point is a pretty simple one, it is disappointing that the January industry volumes did not stay through February, March. And that April was down, while it is notionally up 9%, day by day it is down 1%. There is nothing else I can do as I sit here today but to guide based on what we see. The real estate business is coming on strong and when financial volumes stabilize or grow. They are stable now, but as they go back to more normalized levels I think you are going to see one heck of a company.

Okay, I will get back in line. Thanks.

Thank you your next question comes from the line of Michael Wong, of Morningstar, please proceed.

Hello, just a couple of quick questions. Does the profit from your electronic treasury platform sale materially effect the return of capital tax status of your dividend payments?

I think for the near term, once this transaction closes, I think the beneficial tax portion of our dividend, meaning it is still a qualified dividend but that which is non-taxable will decline. So I would expect the amount of our dividend that is considered a return of capital to materially decline. Our dividend will still be, of course, a qualified dividend, but the return of capital portion of it will clearly decline.

Okay, and after the treasury platform sale, how much would you estimate your transaction cost will go up since you will be having to pay NASDAQ instead of using your own platform?

To the extent that we use the platform, we have negotiated with them that very, very favorable terms to both we have the rights to the market data to use it for our business and we have the right to have access to the system going forward. So we do not find either of those things to be consequential. They were part of the transaction that we would have very, very, very good terms for us to use the platform and use the market data. So we do not think those costs will be material, if any.

Okay, good to know, thank you.

Thank you, your last question is from the line of Patrick O'Shaughnessy of Raymond James, please proceed.

Patrick? Patrick can you hear us? Operator any other questions?

There are no further questions. I would now like to pass the call back to Howard Lutnick for closing remarks. Thank you.

Thank you all for joining us this morning. Clearly we think there are tremendous opportunities in front of us at the Company. While we have entered into a transaction to sell our Benchmark US Treasury markets to NASDAQ, we do retain the software. We have the capacity to use the software and our network connectivity to build many, many other businesses, and we expect to.

So part of our call today was to highlight the value of our real estate business, the value of our remaining electrons businesses in financial services, the growth rate of those financial services electronic businesses which were overwhelmed both by our treasury statistics and the unusual aspects of quantitative easing which hold down the treasury businesses volumes. And then lastly our voice and hybrid business and the ability to both convert that prospectively, fully electronic, high margin businesses as well as its fundamental profitability and value to the Company.

So those things taken as a whole, coupled with, we think the fundamental sustainability of our $0.12 per quarter dividend makes us believe our company is dramatically undervalued. I think our Board recognizes that and we will take action accordingly. So we are excited about the prospects of the Company and we look forward to updating you on the call toward the end of June.

So we look forward to speaking with you soon, have a great day.

Thank you ladies and gentlemen, thank you for participating in today's call you may now disconnect. Thank you for joining and enjoy the rest of your day.