HOWARD LUTNICK:
Good morning and thank you for joining us for our first
quarter 2015 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’s post-tax earnings increased by approximately 32
percent to 62 million dollars, the third quarterly record in a row
in terms of profits, and the second consecutive quarterly record
in terms of revenues. These best-ever results also reflect pre-tax
earnings growth of nearly 65 percent for our high margin fully
electronic businesses, due mainly to the remarkable success our
brokers have had in converting voice and hybrid Financial
Services desks to much more profitable fully electronic trading.
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This significant growth came despite the strong U.S. dollar
reducing our Financial Services revenues by more than 20
million dollars during the quarter.
Our results include GFI for the month of March. At the end
of the first quarter BGC owned approximately 56 percent of
GFI’s outstanding common shares. On April 28th BGC acquired
an additional 11 percent of GFI, resulting in our total ownership
of 67 percent of GFI. We are now able to control the timing and
process of the full merger of the two companies.
While the front office operations of GFI and BGC will
remain separately branded, we have already begun integrating
the back office, technology, and infrastructure of these two
companies. Beginning in the first quarter of 2016, we expect to
have reduced our expense run rate by at least 50 million dollars
a year, and by an additional 40 million dollars by the end of the
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following twelve months, for a total of at least 90 million
dollars. We also expect to increase productivity per broker and
to continue converting voice and hybrid broking to higher
margin fully electronic trading, all of which should lead to
increased revenues and profitability. By freeing up duplicative
capital set aside for regulatory and clearing purposes, we will
also be able to use our balance sheet more efficiently.
We love the business of Trayport and would be delighted to
keep it. But the reality of the stock market is that high growth,
high margin technology companies like Trayport often don’t get
the valuation they deserve inside a company like ours. So in
order to maximize shareholder value, we need to explore getting
the right price for this asset, as we did with eSpeed.
We have retained Cantor Fitzgerald to assist in the sale of
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Trayport. We expect numerous parties to be interested in
acquiring this business at a valuation that reflects its high
margins, growth rate, leading technology, and strategic
importance in the global energy and commodities markets. We
anticipate completing a transaction before the end of 2015. The
gain from the sale of this business will be excluded from
distributable earnings.
A successful Trayport transaction, combined with increased
profits from integrating GFI, growing our fully electronic
businesses, and the strength of our Real Estate Services
business, will lead to BGC’s liquidity being dramatically higher.
We also anticipate receiving over 635 million dollars in
additional NASDAQ OMX stock over time. As we execute our
strategy, we expect to have significant capital with which to
make accretive acquisitions, profitably hire, pay dividends, and
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repurchase shares and/or units of BGC, all while maintaining
our investment grade rating.
I am happy to report that our board declared a 14 cent
qualified dividend for the first quarter, which represents an
increase of 16.7 percent. At yesterday’s closing stock price, this
translates into a 5.8 percent annualized yield.
With that, I will now turn the call over to Shaun.
SHAUN LYNN
Thanks Howard and good morning everyone.
Financial Services revenues were up by 23.9 percent to
355.7 million dollars. These revenues would have been over 20
million dollars higher in the quarter but for the strengthening of
the U.S. dollar.
Our Financial Services business increased its pre-tax
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earnings by 32.5 percent to 78.3 million dollars. We were able
to expand our pre-tax margins by over 140 basis points to 22
percent due largely to the significant growth of our more
profitable fully electronic businesses.
Excluding Trayport, revenues for our e-businesses rose by
73.7 percent to 40.8 million dollars, while their pre-tax earnings
increased by 64.9 percent to 20.5 million dollars. This
improvement was driven by revenue increases ranging from 54
to 133 percent for our fully electronic products in FX, rates,
credit, market data, and software solutions, reflecting our strong
double-digit organic growth and the acquisition of GFI.
This e-business trend continued into the current quarter, as
revenues for these e-businesses more than doubled year-on-year
over the first 16 trading days of April. Even excluding Trayport,
our fully electronic businesses have much higher quarterly
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revenues and growth rates than eSpeed did in the two years
before its sale for over 1.2 billion dollars.
Including GFI, we now have a pipeline of over 1.5 billion
dollars of annual voice and hybrid Financial Services brokerage
revenue, a large portion of which can be converted to fully
electronic brokerage and generate valuable market data. So we
expect our e-businesses to continue their positive growth
momentum for years to come.
Looking at our overall Financial Services results by asset
class: Revenues from our fully electronic rates products were up
by approximately 54 percent, while our overall rates revenues
were up by 7.3 percent in the quarter to 122 million dollars. In
comparison, rates volumes were down by 2 percent at Eurex.
The global FX markets benefited from higher volatility in
the quarter, although our growth outpaced the industry. Our e7
FX revenues, including both spot and derivatives, were up by
over 80 percent. Our overall FX business was up by 40.1
percent to 72.9 million dollars. In comparison, overall FX
volumes were up between 5 and 31 percent at Thomson Reuters,
CME, and EBS.
We generated a 67 percent increase in revenues from our
fully electronic credit desks, while overall credit revenues
increased by 2.6 percent to 67.2 million dollars. These results
outpaced industry statistics. For example, the daily average
Primary Dealer volumes for corporate bonds were down by
approximately 5 percent year-over-year according to the Federal
Reserve, while dealer gross notional credit derivatives
outstanding were down by approximately 46 percent according
to SIFMA.
Our revenues from Equities and Other Asset Classes,
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increased by 22 percent to 36.2 million dollars. This
improvement surpassed most relevant industry volumes. For
example, equity derivative volumes ranged from being down by
19 percent for ICE to being up by 16 percent at Eurex.
This category no longer includes revenues from our energy
and commodities desks, because we have broken them out as a
separate category due to their significant growth and the
addition of GFI.
BGC’s revenues in energy and commodities increased by
125.2 percent. This compares with the combined number of
energy and commodities contracts traded at the ICE and CME
being up by 13 percent and 15 percent, respectively.
Moving on to our Real Estate Services business - NGKF
continues to benefit from the low interest rate environment,
easier availability of credit and a steadily improving U.S.
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economy.
According to NGKF’s research team, the overall leasing
market continued to improve, with the combined vacancy rate
for office, industrial, and retail properties declining from 9.1
percent to 8.5 percent year-over-year.
In real estate capital markets, first quarter U.S. commercial
sales volumes were up by 17 percent according to Real Capital
Analytics. Financing activity was also robust, with U.S. nonagency CMBS issuance up by over 20 percent for the trailing
twelve months ended March 31st, 2015, according to
Commercial Mortgage Alert.
While helped by these positive industry trends, we believe
that NGKF continued to gain market share.
Our revenues from leasing and other services improved by
19.4 percent to 105.4 million dollars, while real estate capital
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markets increased by 149.0 percent to 53.8 million dollars.
Management services and other revenues were up 2.9 percent to
41.1 million dollars, while NGKF’s overall revenues improved
by 33.7 percent to 200.4 million dollars. Pre-tax earnings
increased by 28.7 percent to 19.6 million dollars in Real Estate
Services.
Industry wide, commercial real estate brokers tend to be
seasonally slowest in the first calendar quarter of the year in
terms of revenues and profitability, sequentially stronger in each
of the next two quarters, and then strongest in the fourth
calendar quarter. Based on these historical patterns, we are
confident in reaching our goal for our Real Estate Services
business to generate at least 1 billion dollars in revenues for the
full year 2015.
Turning to headcount - We had 1,293 Real Estate brokers
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and salespeople as of quarter-end, up 46 percent compared with
888 a year earlier, mainly due to the additions of Cornish &
Carey and ARA. Average revenue per real estate broker
increased by 1 percent to 126 thousand dollars.
We finished March with 2,579 Financial Services brokers
and sales people, up by 72 percent from 1,497 a year earlier,
primarily due to the addition of GFI. Excluding Trayport, our
average revenue per Financial Services broker/salesperson was
flat at 184 thousand dollars. Historically, productivity has
increased over the following year after significant headcount
growth. As we continue to convert voice and hybrid brokerage
to fully electronic, we expect to increase broker productivity in
Financial Services.
Company-wide, our front office headcount was up by 62
percent to 3,872 brokers and salespeople.
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With that, I would now like to turn the call over to Graham.
GRAHAM SADLER
[These prepared remarks have been updated subsequent to the
Company’s first quarter 2015 conference call on April 29, 2015, to
correct the Company’s Q1 2015 revenues by geography]
Thank you Shaun and good morning everyone.
As Howard mentioned, our results include those of GFI for
the month of March. This had an impact on a number of income
statement and balance sheet line items.
BGC generated consolidated revenues of 563.9 million
dollars, up 26.5 percent compared with 445.9 million dollars.
Our revenues from the Americas were up approximately 28
percent. Revenues from Europe, Middle East, and Africa were
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up by 28 percent while Asia-Pacific revenues increased by 10
percent. As Shaun mentioned, our non-U.S. results were
negatively impacted during the quarter by the stronger U.S.
dollar, mostly in our European offices.
Turning to expenses: Compensation and employee benefits
were up by 26.4 percent on an absolute basis, but our
compensation ratio improved slightly to 61.7 percent.
While non-compensation expenses increased in absolute
terms by 23.0 percent, they were down as a percentage of
revenues to 24.9 percent compared with 25.6 percent.
The absolute increase in quarterly expenses was primarily
due to the impact of acquisitions, as well as interest expense
related to the Company’s fourth quarter issuance of 300 million
dollars of 5.375 percent Senior Notes due 2019.
Our pre-tax earnings before noncontrolling interest in
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subsidiaries and taxes were 75.2 million dollars, up by 33.7
percent when compared with 56.2 million dollars. Our pre-tax
margin this quarter expanded by around 75 basis points to 13.3
percent compared with 12.6 percent a year ago.
BGC’s effective tax rate for distributable earnings was
unchanged at 15 percent.
Our post-tax earnings were up by 31.5 percent to 62.1
million dollars, compared with 47.2 million dollars.
Our post-tax earnings margin improved by around 40 basis
points to 11.0 percent compared with 10.6 percent, while our
post-tax earnings per share were up by 20 percent to 18 cents.
BGC had a fully diluted weighted-average share count for
distributable earnings of 378.7 million in the first quarter of
2015 and 338.5 million under GAAP. A year earlier, our fully
diluted share count was 362.1 million for distributable earnings
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and 322.1 million under GAAP. The GAAP share counts were
lower because they excluded certain share equivalents in order
to avoid anti-dilution.
The share counts increased primarily due to issuances
related to the acquisitions of Cornish & Carey, ARA, Remate,
and HEAT Energy Group; equity-based employee
compensation; and new front-office hires. This was partially
offset by the redemption and/or repurchase of 16.5 million
shares and units at a cost to BGC of 124.8 million dollars, or an
average cost of 7 dollars and 57 cents per share or unit over the
trailing twelve months ended March 31, 2015.
As of the end of the first quarter of 2015, our fully diluted
share count was 379.4 million, assuming conversion of the
Convertible Senior Notes into 40.3 million shares. After the end
of the quarter, BGC’s 150 million dollars of 8.75 percent
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Convertible Senior Notes were converted into approximately 24
million Class A common shares. These shares were already
included in our fully diluted share count, which was therefore
not impacted by this conversion.
Our 4.5 percent Convertible Senior Notes, due July 15,
2016, remain outstanding and are potentially convertible into
approximately 16.2 million shares.
Moving on to the balance sheet - As of March 31, 2015, the
Company’s liquidity - which we define as “cash and cash
equivalents,” “marketable securities” that have not been
financed, and “securities owned” held for liquidity purposes was 458.4 million dollars; notes payable and collateralized
borrowings, and notes payable to related parties were 991.4
million dollars; book value per common share was one dollar
and 78 cents; and total capital, which we define as “redeemable
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partnership interest,” “redeemable noncontrolling interest,”
“noncontrolling interest in subsidiaries,” and “total stockholders'
equity,” was 983.8 million dollars.
In comparison, as of year-end 2014, the Company’s
liquidity was 825.5 million dollars; notes payable and
collateralized borrowings, and notes payable to related parties
were 706.7 million dollars; book value per common share was
one dollar and 83 cents; and total capital was 641.4 million
dollars.
The changes in BGC’s liquidity since year-end 2014 were
primarily related to cash used to purchase GFI and ARA during
the quarter; the redemption and/or repurchase of shares and units
in the first quarter of 2015; and previously disclosed legal
settlements.
As Howard mentioned, we purchased yesterday
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approximately 43 million newly issued shares of GFI’s common
stock at yesterday’s closing price of 5 dollars and 81 cents per
share, for an aggregate purchase price of 250 million dollars.
The purchase price was paid to GFI in the form of a note due on
June 19, 2018, that bears interest at LIBOR plus 200 basis
points. Due to intercompany eliminations, the new shares and
the note will have no impact on the consolidated balance sheet
of BGC. GFI expects that any funds received in payment of the
principal of the note would be earmarked for GFI’s existing 240
million dollar senior notes due July 2018, or potentially be the
basis of collateral with respect to such GFI Notes.
Following the issuance of the New Shares, BGC owns
approximately 67 percent of GFI’s outstanding common stock.
With that, I am happy to turn the call back over to Howard.
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HOWARD LUTNICK:
Thank you, Graham.
Our guidance for the second quarter 2015 as compared to a
year earlier is as follows:
 We expect to generate revenues of between 650 and 680
million dollars, an increase of between 51 and 58 percent
when compared with 430.3 million dollars.
 Our revenue guidance would be at least 18 million dollars
higher, but for the continued strength of the U.S. dollar.
 We anticipate pre-tax earnings to be range of 70 to 80
million dollars, an increase of between 32 and 51 percent as
compared to 53 million dollars.
 We expect our effective tax rate to remain around 15
percent.
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We intend to update our second quarter guidance by the
end of June, 2015.
Operator, we would now like to open the call for questions.
Q&A
After Q&A - Howard Lutnick:
Thank you all for joining us today and we look forward to
speaking to you again next quarter.
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JASON MCGRUDER
Good morning.
Our first quarter 2015 financial results press release and a
presentation summarizing our results were issued this morning.
This can be found at “Investor Relations” sections of our web
site at www.bgcpartners.com.
The financial results and other metrics for BGC’s majorityowned division, GFI Group Inc., are consolidated with those of
BGC from March 2, 2015 onward throughout this call.
Whenever we refer to the results of quote “the Company” end
quote we mean the consolidated results for BGC Partners, Inc.
Throughout today’s call we will be referring to our results
only on a distributable earnings basis. Please see today’s press
release for GAAP results. Please also see the sections of today’s
press release entitled “Distributable Earnings,” “Distributable
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Earnings Results Compared with GAAP Results”,
“Reconciliation of Revenues Under GAAP and Distributable
Earnings”, 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, we are doing so
on a distributable earnings basis. Other than balance sheet
items, the results provided on this call compare the first quarter
of 2015 with the year-earlier period.
Also, “Newmark Grubb Knight Frank” is synonymous with
“NGKF” or our “Real Estate Services.” segment.
I also remind you that the information on this call regarding
our business that are not historical facts are "forward-looking
statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities
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Exchange Act of 1934, as amended. Such statements involve
risks and uncertainties. Except as required by law, BGC
undertakes no obligation to release any revisions to any forwardlooking statements.
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 Securities and Exchange
Commission filings, including, but not limited to, the risk factors
set forth in our public filings, including our most recent Form
10-K and any updates to such risk factors contained in
subsequent Form 10-Q or Form 8-K filings.
I am happy turn the call over to our host, Howard Lutnick,
Chairman and CEO of BGC Partners.
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