Bgc Group Inc (BGC) 2024 Q1 法說會逐字稿

Good morning. We issued BGC's First Quarter 2024 financial results press release and the presentation summarizing these results this morning. Prior to market open, you can find these at ir dot BGCG. dot com. Please note you can find additional details on our quarterly results in today's press release and investor presentation. Unless otherwise stated and historical results provided on today's call compare only the first quarter of 2024 with the prior year period. We will be referring to our results of this call only on an adjusted earnings basis, unless otherwise stated, we may also refer to adjusted EBITDA.

We may refer to our liquidity, which we define as cash and cash equivalents, reverse repurchase agreements and financial instruments owned at fair value less securities loaned and repurchase agreements. We define total capital as redeemable partnership interest, total stockholders' equity and noncontrolling interest in subsidiaries.

Please see today's press release with the results under generally accepted accounting principles. Please also see the relevant sections in the back of today's press release for the complete and updated definitions of any non-GAAP terms. Reconciliations of these items to the corresponding GAAP results and how when and why management uses such terms.

Additional information with respect to our GAAP and non-GAAP results mentioned on today's call is available on our website at ir.bgc.com. And in our investor presentation, we refer to the Company's technology-driven businesses as Fenics, Fenics offerings include Fenics Markets and Fenics Growth Platforms. And I also remind you that the information regarding our business on today's call, these include statements about the company's business results, financial position, liquidity and outlook. Any forward-looking statements involve risks and uncertainties and except as required by law, BGC undertakes no obligation to update any forward-looking statements.

Any outlook and targets discussed on this call assume no material acquisitions, buybacks extraordinary transactions or meaningful changes to the Company's stock price for a discussion of additional risks and uncertainties which could cause actual results to differ from those contained in the forward-looking statements.

See BGC's SEC filings, including, but not limited to the risk factors in special note on forward-looking information set forth in these filings and any updates to such risk factors and special note on forward-looking information contained in the subsequent reports on Form 10-K Form 10-Q or Form 9-K.

Now that I'm happy to turn the call over to Howard Lutnick, Chairman of the Board and CEO of BGC group.

Thank you, Jason. Good morning and welcome to our first quarter 2024 conference call. With me today are Chief Operating Officer, Sean Windeatt; and our Chief Financial Officer, Jason Hauf. This is a great time for BGC today, we reported record first quarter revenues and adjusted earnings. And last week we completed our FMX transaction and announced our strategic partners of these 10 major financial institutions joined us in the formation of FMX., investing $172 million at a post-money equity valuation of $667 million.

Recognizing our success in the US Treasury and FX markets. Their investment further validates both our technology and our vision to reshape the US interest rate markets. This extraordinary group of partners brings enormous value to FMX. far beyond this initial valuation.

With that, I'll turn the call over to Sean.

Thanks and good day, everyone. Our first quarter revenues grew by 8.6% to a record $578.6 million, reflecting broad-based growth across all geographies and growth across energy, commodities and shipping rates and foreign exchange businesses. Beginning this quarter, we renamed energy and commodities to energy commodities and shipping to better reflect the integrated operations of these businesses. Total brokerage revenues grew by 7.3% to $528 million.

Rights revenues increased by 6.3% to $175.1 million, reflecting strong growth across interest rate derivatives, government bonds and emerging market rates, products, energy, commodities and shipping revenues grew by 32.1% to $118.5 million, driven by strong double digit volume growth across our energy, complex and environmental business.

This asset class has become our second largest, providing additional diversification to our client base and macro drivers. Foreign exchange revenues improved by 4.8% to $84 million, driven by higher volumes across emerging market currencies and options. Credit revenues decreased by 2.2%, primarily due to lower trading volumes in Asia and credit, partially offset by strong European credit activity.

Our Equities revenues decreased by 7.7% to $62.9 billion due to lower secondary trading volumes in equity derivative products, partially offset by higher cash equity volumes. Consistent with the industry wide trends, data networking, post-trade revenues improved by 13.9%, driven by broad-based revenue growth across Fenics market data through Sara, our network business and capital at our post-trade business, selling to Phoenix in the first quarter, Fenics generated revenues of $149.3 million, a new quarterly record.

These higher-margin technology-driven businesses accounted for 26% of BGC's total revenue period-over-period Fenics Markets. Businesses generated revenue of $127.4 million in the first quarter, an increase of 3.6%.

This was driven by higher electronic rates and credit volumes, along with stronger Fenics market data subscription revenues, our Fenics Growth Platforms generated first quarter revenues of $21.9 million, up 26.2%, primarily driven by FMXUST. portfolio match Lucera and capitalize. As a reminder, Fenics UST is now renamed FMXUST. part of our FMX. product suite following last week's transaction at MXUSC., revenues increased by over 33% on a 21% improvement in average daily volume. FMXUSC.

Grew its market share to 28% in the first quarter, up from 26% in the fourth quarter of 2023 and 21% a year ago. FMXUST continues to be the fastest growing US Treasuries platform with this market share increasing one to two points each sequential quarter. Australia match more than doubled its US credit volumes versus a year ago. These record volumes drove revenues to 87% higher. Portfolio match continues to increase its market share in this rapidly growing segment of the market. Lucera grew by 36%, primarily driven by new clients and expansion of existing client agreements. Lucera subscription-based revenues have consistently grown by strong double digits capital that generated revenue growth of 40%, driven by higher interest rate compression activity.

Turning to our outlook, I'm pleased to provide the following guidance for the second quarter of 2024, we expect to generate total revenue of between $520 million and $570 million as compared to $493.1 million in the second quarter of 2023, we anticipate pretax adjusted earnings to be in the range of $120 million to $130 million versus $105.5 million last year.

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

Thank you, Sean, and hello, everyone. Bgc generated total first quarter revenue of $578.6 million, an increase of 8.6% as compared to last year. We saw revenue growth across all geographies, Europe, Middle East and Africa revenues increased by 11.5%. Americas revenues increased by 6.2%, and Asia Pacific revenues increased by 3.5%.

Turning to expenses, our compensation and employee benefits under adjusted earnings increased by 9%. This increase was primarily driven by higher in revenues as well as an increase in newly hired brokers and new business loans. Noncompensation expenses under adjusted earnings increased by 7.7%, primarily driven by higher interest expense.

Moving on to earnings. Profitability increased across all earnings metrics during the quarter, including GAAP net income per fully diluted shares, which improved by 92.2%. Our pretax adjusted earnings grew by 8.6% to a record $135.4 million with a margin of 23.4%, its 14th consecutive quarter of year over year margin expansion.

Post-tax adjusted earnings increased by 6.6% to $123.2 million or $0.25 per share, an 8.7% improvement. Going forward, we expect our traditionally strong gearing to continue. This is reflected in our second quarter guidance, where our revenue midpoint is expected to be up 10.5%, and our pretax adjusted earnings midpoint is expected to be up 18.4%. Our first quarter adjusted EBITDA was $208.4 million, a 37.9% improvement.

Turning to share count, our fully diluted weighted average share count was 495 million shares during the first quarter, a 1.2% decrease compared to the first quarter of 2023. We expect our fully diluted weighted average share count to remain approximately flat for the full year 2024 barring any extraordinary transactions. As of March 31, our liquidity was $615.7 million compared with $701.4 million as of year end 2023. Given cash uses are typically larger in the first half of the year, as we paid bonuses and tax.

With that, I'd like to turn the call over to Howard for closing remarks.

Thank you, Jason. The United States interest rate markets are the largest in the world. We have built the fastest growing U.S. treasury platform and now with the support of our partners at the max is the only competitor to the CME following our best quarter on record and reflecting our strong balance sheet and future growth prospects. I am pleased to announce that our Board of Directors has approved an increase in our quarterly dividend to [$0.02] per share.

With that, operator, we're happy to open the call for questions.

(Operator Instructions) Patrick Moley, Piper.

I wanted to start on FMX. and dive a little deeper into a few of the items there. First, can you talk about the pricing structure and the incentives that are being offered to these partners and how that may evolve over time? And then second, can you help us just to understand and maybe even quantify those volume targets that need to be hit for the investors who retain that 10% ownership stake? Is that company-specific that based on the group? Any color there would be great.

Sure. So the 10 partners have some volume targets related to their equity, meaning they have growing volume targets across the businesses throughout the whole ecosystem of the business. So that treasuries, foreign exchange and futures. Obviously, some of the partners, for instance, we'll be more focused on show for futures, some more on treasury futures and more on treasury cash. And so those were individually crafted to be more attuned to the type of trading that that particular firm does the FCMs.

What is spectacular about those partners is many of them have the greatest FCMs in the business and those F. sands will be connecting and really for them, they can't really drive their client business in particular. But what they can do, they can connect their clients and have that be a seamless connection to that is also part of the transaction is that they connect across all of their areas of the of the firm and they have a subscription arrangements which grow over time, meaning the revenues will continue to grow, but they do not have unit economics in the ecosystem, meaning that those partners can drive business and drive volume through the ecosystem without marginal cost.

And that is a fundamental part of the Company's view is that we think breaking unit economics and driving a subscription-based pricing model is something that we are open-minded to other clients as well. So that is a model that we like that we embrace and that we look forward to driving across the ecosystem of data, and that's both for our partners and for other companies as well.

Great, thanks. And then just on the on the fixed pricing structure, I guess just overall what impact you expect formation of that mix to have on CGC.'s top line? And in the short term, is there do you expect there to be a revenue step-up just from the fact that these partners are switching from a variable plans, six pricing plans. And then I guess just adding on to that from a market share standpoint, with these volume centers where how do you expect the formation of this over the next quarter, call it two quarters or so?

So question number one, revenues will grow because they're there subscription price exceeds the amount of revenue we currently receive. So number one, our revenues will grow and number two across our ecosystem, for example, our foreign exchange business, we have a an excellent platform in foreign exchange that has enormous scale to grow. And now with these partners connecting to it to those who it connected to it and using it, I think we will we will demonstrably grow our foreign exchange business, which will both add market share as well as to really create a wonderful marketplace for others to transact business at very attractive price.

So we are excited about our front exchange platform. Obviously, our treasury platform was growing 1% or 2% per sequential quarter, and that was without these partners being owners now with them being owners. We think over the next two and three quarters, you're going to see substantial growth in our treasury platform, both in terms of volume, average daily volume, market share and revenues as well across the board. And then FUTURES, as we've said, we plan to open in September. We are not expecting to charge and immaterial amounts of money for our futures business our expectation in the 1st year is to charge a very low to no price.

So people can connect and people can trade and people can grow their volume and understand the benefits of this system and technology speed. And so our futures business is not where we expect in the 1st year to be gaining material revenues. However, our foreign exchange business and U.S. Treasury businesses should be growing their revenues nicely across the year.

Okay. And then just on on the futures piece, I think in the past you've said that it might take a year or two before you would expect to meaningfully start growing the market share in futures and taking share from CME. Can you just kind of update us on how you're thinking about the time line until you kind of get everyone to the starting line and have the ability to take share? And then how you would expect that to maybe evolve once you get everyone there.

So there's there's depth and breadth conversations. So with our with our partners, we have sufficient our capacity to light up our markets when we open our futures. I've used the term like a Christmas tree. I would expect our futures markets to have wonderful pricing because when you add 10 of the greatest trading firms in the world, as your partner, they have more than sufficient capacity to transact in the healthy volumes with with the marketplace.

So but I do understand that it takes time to connect the global infrastructure of trading firms across the world to our new futures exchange. And we think that will take could well take a year. And so while we're starting now, we know there are different firms going to be coming on all across the time line between now and the end of the year. That's just going to happen. And we hope many of them will happen by the time we opened in September, but it is a reasonable view that that some of the biggest sands will be coming on. Their clients will be coming on through the end of the year. And we are we are aware of it. We are working on it and we expect that.

And so we think the 1st year will be one of adding breadth, having everybody Connect, making sure the model is full where the playing field is full of all the players. So we hope a year from when we open we will have all the players on the playing field and then it will truly began. So I would say year or two would be the beginning where we have all the players on the field.

And then we began and then year three, when everybody has all of the ecosystem completely connected, completely available, totally knowledgeable about the benefits of our technology to speed the capacity. It's not a major where you can trade a against B in built into the software into the platform, something that the CME can really do because they bought BrokerTec and it's separate from their cash businesses separate from the futures business, we have the benefits of cross-margining sulfur futures against interest rate swaps. I think you're going to really see tremendous competition for market share. So it's a process that process takes time to trust the process.

But I think early on people will be surprised by the quality of our markets and as I said, kind of will remind me of the holiday second quarter, the midpoint of the guidance range implies a little bit more margin expansion than The Street was expecting last quarter, you mentioned that you've made some investments that you didn't really expect to bear fruit until the second half of this year. Is that margin expansion in the second quarter is that any indication that you're starting to see earlier than expected? Or is that maybe just driven by some of the lower expenses from the formation of economics and kind of the capital that's freed up our expenses. And that's kind of deterred.

I think, you or see from here on out a more clear view of our the Fenics business and how that adds margin to our company. We have been big investors in first, our U.S. Treasury platforms, then our RFMX. futures platform. And when you're investing a big like that when you when you look at us holistically and what you haven't seen is you haven't seen the benefits of our higher-margin aesthetics business flow through to the bottom line because we've made big investments across our scale. You've seen us invest in Lucera, which is that winning in capital lab, which is that winning in a whole variety of our businesses, a portfolio Match, which is now winning. So all of those things reduced our margin over the many years that you've seen past, the lion's share of those investments are now behind us. And now we are in harvesting mode. We are going to start harvesting FMX. even even though futures has not opened yet.

Yes, just the outgrowth in treasuries and growth and foreign exchange will more than satisfy, I think in our view, the expense of our futures exchange, we're now in a really wonderful position where you will start to see the benefits of our Phoenix platform and those margins, right? And I think so from here on out starting the second quarter, our margins are going to be healthy. They are going to have expanded from what you've seen in the past, and I think that will continue going forward. So it's both things are moving more quickly. Things are moving well and the company started to fire and also.

All right, just shifting the capital allocation in the press release, I think you said that just tens of millions of dollars working capital that it was going to free up would be available for Emageon share repurchases, increasing the dividend, which you obviously did this quarter and then investing for growth. So can you just kind of help us understand how you'd prioritize of those three? And then I have one other one on on capital allocation, but I'll leave it there.

Yes. So the dividend's pretty easy, a penny is $20 million a year. So that's kind of black and white. So we are going to return an extra penny a share. Now we like buying back our shares so that Jason said, we plan to keep it all other things constant. We plan to keep our share flat. They've been flat. I think they were down 1% year over year. We've held there just below [500]. And that's our expectation and hum. It does not mean that that we won't be beneficially buyback shares as we see. You know, we've said this before if one of our shareholders decides to sell, we encourage you to call us because then we can do a block transaction and buy them, you know, things like that.

So I mean, we're open minded to do things like that. We are seeing opportunities to invest in our business. The business is growing. Some others don't have the technology. They don't have the scale and we are seeing that opportunity and we're going to continue to take advantage. I don't think that to be comparatively small generally comparatively small, but you know, you never know and those opportunities are in front of us and we can buy things at the right price and drive them through our ecosystem. We're going to do that. We have the technology. We have the scale, you have Pfenex, we have. And Sara, we have a lot of tools to make money. And as I said, the market is growing.

Our market share is growing compared to everybody else. We feel we feel really good about where we are. We feel really excited about validation that is clear from our partners joining us in FMX. that is the defining characterization of the transaction is that the these partners appreciate our technology. They appreciate its capacity. They know it to compete in the world. They are certain that they seeded in US treasuries. This is not something to think about in the future, right? This technology just took two points market share exists quarter past, and I hope we don't sound like we're backing away from our view of our growth on this, Paul, we continue to feel good and look at those growth of one to two points sequentially. Per quarter or before we have parts.

And so I think those partners will enhance the speed of our growth. And we are really we are really excited about our opportunities, both to invest our capital. We're going to continue to buy back shares. And our expectation of raising our dividend should be something that's going to be constrained because we like buying our shares back, but we felt we had said it was a it was one of the tools to use to return capital to shareholders $20 million for a company that Jeff said, we're going to earn $125 million in the quarter coming in midpoint of our guidance credit constraints.

Great. And then just got you talking about seeing success in some of these Fenics businesses. I think in the past you had said that you could potentially be open to maybe looking to sell some of the easily separable businesses within Fenics and giving that capital back to shareholders. Can you talk about or any update there on your thoughts around potential sale of any of those assets and what you would use proceeds?

Yes. Look, we are open minded as a public company that trades, you know, oddly with our growth rate up top line revenue of 10% growth and now bottom line revenue profits of 18%. We remain surprised being part of the S&P 600 that where we so we traded at such a very attractive prices compared to the index writ large, it's trades at about 15 times earnings.

So and we have lots of assets. And if I wouldn't say they're for sale, that would be wrong. I would say that these changes the world know who we are, and sometimes they really like some of our products. And if they come and talk to us and the multiples are like we've said in the past 12 times revenues, kind of things like that. We're open-minded. And so I wouldn't put your money on for certain. This is what we are doing in the past with what I've said for certain, this is what I'm doing. We've said it and then we've done it right? We said we were going to sell insurance.

We said we would announce our partners, FMAX. and the way we did things like that. I mean, so nothing is for sale, okay? Because it's growing rapidly within our business. However, if the exchanges want to buy something from us and pay us a healthy price, and we can then go out and buy our own shares back at a very attractive spread for our shareholders. I think that we are absolutely open-minded. So not for sale, though, but open-minded for sure.

Okay, great. And then just last question, wanted to just know what do you expect the run rate for stock-based comp to be going forward again, first quarter it was annualizing at about 8% dilution. And so is that is that a run rate we should expect or would you expect that to kind of come down over time? And how much noise, if at all, is still in that number from the from the corporate conversion.

Should not expect that first, I'd expect it to come down. Q1 is the quarter that we paid bonuses a significant amount of hires that were in that period. So I would expect it to come down from the level that it was in Q1?

It's the exact number, probably a couple of points from there would be my view. But yes, certainly Q1 is when when we pay bonuses.

Okay. So like 5% is a good run rate going forward?

Yes, pretty close to that 5%.

Okay, great. All right, guys. Thanks. So much. That's it for me.

Once again, if you would like to ask a question, please press star one on your telephone keypad. There are no further questions. I would like to turn the floor over to Mr. Lutnick for closing remarks.

Although you very much for joining us, we are excited about our future. We're excited about ethanol and building. Finally, opening our futures exchange in in September, the market we're excited that we will be able to present and you'll see the margin growth from Fenics across the business and a DGC. just feels really good, and we look forward to speaking to you next quarter as we update you on our success.

Thank you, everybody.