BGC Group, Inc (NYSE:BGC) Q1 2024 Earnings Call Transcript

BGC Group, Inc (NYSE:BGC) Q1 2024 Earnings Call Transcript April 30, 2024

BGC Group, Inc isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Greetings, and welcome to the BGC Group First Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host Jason Chryssicas. Please go ahead.

Jason Chryssicas: Thank you, and good morning. We issued BGC's first quarter 2024 financial results press release and the presentation, summarizing these results this morning prior to the market open. You can find these at ir.bgcg.com. Please note you can find additional details on our quarterly results in today's press release and investor presentation. Unless otherwise stated, any historical results provided on today's call compare only to the first quarter 2024 with the prior year period. We will be referring to our results on 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 non-controlling interest in subsidiaries. Please see today's press release for 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.bgcg.com and in our investor presentation. We refer to the company's technology-driven businesses Fenics. Fenics' offerings include Fenics Markets and Fenics Growth platforms.

I also remind you that the information regarding our business on today's call that are not historical are forward-looking statements. 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 and 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 subsequent reports on Form 10-K, Form 10-Q or Form 8-K.

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

Howard Lutnick: Thank you, Jason. Good morning and welcome to our first quarter 2024 conference call. With me today are our 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. 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 market. 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.

Sean Windeatt: 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. Rates revenues increased by 6.3% to $175.1 million reflecting strong growth across interest rate derivatives, government bonds and emerging market rate 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% to $87.6 million, primarily due to lower trading volumes in Asian credit, partially offset by strong European credit activity. Equities revenues decreased by 7.7% to $62.9 million due to lower secondary trading volumes in equity derivative products partially offset by higher cash equity volumes consistent with the industry-wide trends. Data Network and Post-trade revenues improved by 13.9% driven by broad-based revenue growth across Fenics Market Data; Lucera, our network business; and Capitalab our post-trade business.

Turning to Fenics. 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 during the 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 FMX UST, Portfolio Match, Lucera and Capitalab. As a reminder, Fenics UST is now renamed FMX UST, part of our FMX product suite following last week's transaction. FMX UST revenues increased by over 33% on a 21% improvement in average daily volume.

FMX UST grew its market share to 28% in the first quarter up from 26% in the fourth quarter of 2023 and 21% a year ago. FMX UST continues to be the fastest-growing US Treasuries platform with its market share increasing one to two points each sequential quarter. Portfolio Match more than doubled its U.S. credit volumes versus a year ago. These record volumes drove revenues 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's subscription-based revenues have consistently grown by strong double-digits. Capitalab 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 pre-tax 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.

Jason Hauf: 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 revenues as well as an increase in newly hired brokers and new business lines. Non-compensation 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 for fully diluted shares which improved by 92.2%.

Our pre-tax 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 pre-tax 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 31st, our liquidity was $615.7 million compared with $701.4 million as of year-end 2023. Cash uses are typically larger in the first half of the year as we pay bonuses and taxes. With that, I'd like to turn the call over to Howard for closing remarks.

Howard Lutnick: Thank you, Jason. The United States interest rate markets are the largest in the world. We have built the fastest-growing US Treasury platform. And now with the support of our partners, FMX is the only competitor to the CME. Following our best quarter on record and reflecting our strong balance sheet and future growth prospects, I'm 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.

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