BGC Group, Inc (NYSE:BGC) Q3 2023 Earnings Call Transcript

BGC Group, Inc (NYSE:BGC) Q3 2023 Earnings Call Transcript October 30, 2023

Operator: Greetings. Welcome to the BGC Group Third Quarter 2023 Financial Results Conference Call. [Operator Instructions]. As a reminder, this conference is being recorded. At this time, I would like to hand the call over to Jason Chryssicas, Head of Investor Relations. Thank you. You may begin.

Jason Chryssicas: Thank you, and good morning. We issued BGC’s third quarter 2023 financial results press release and the presentation summarizing these results this morning prior to the market opening. You can find these at ir.bgcg.com. Please now 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 the third quarter of 2023 with the prior year period. Certain revenue figures are provided for the current period as indicated. 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 plus marketable securities that have not been financed, 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 for the results under generally accepted accounting principles or GAAP. Please also see the relevant sections in the back of today’s press release for 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 as Fenics. Fenics offerings include Fenics Market 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. 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 known and forward-looking information contained in the subsequent reports on Form 10-K, Form 10-Q or Form 8-K.

I am now happy to turn the call over to Howard Lutnick, Chairman of the Board and CEO of BGC Group.

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Q&A Session

Howard Lutnick : Thank you, Jason. Good morning, and welcome to our third quarter 2023 conference call. With me today are our Chief Operating Officer, Sean Windeatt; and our Chief Financial Officer, Jason Hauf. We had another outstanding quarter, generating revenue growth of 16%, reflecting increased volumes across each and every one of our asset classes. BGC is extraordinarily well positioned to benefit from the return of interest rates, which we expect to drive our trading volumes, revenues, and profitability higher for the foreseeable future. Fenics revenues improved 19% outperforming both its electronic trading platform and exchange peers. This was led by another record quarter for Fenics growth platforms, which grew by over 45%. Fenics UST, our electronic U.S. treasury platform reached a record 25% market share of volume traded on U.S. Treasury exchange marketplaces during the third quarter. With that, I’ll turn the call over to Sean.

Sean Windeatt : Thanks, and good day, everyone. Our revenue grew $66.1 million or 15.9% to $482.7 million in the third quarter of 2023, growing across every geography. Total brokerage revenues grew by 14.8%, driven by strong growth across all of our asset classes. Our fixed-income brokerage volumes were significantly higher during the period as interest rates and wider credit spreads continue to provide favorable macro trading conditions across rates, credit, and FX. Rates and credit revenues improved by 12.1% and 9.6%, respectively, while FX revenues were 8.6% higher. Energy and Commodities revenue grew by 35%, driven by strong double-digit growth across our energy complex and our environmental products. Excluding our Trident acquisition, organic energy and commodities growth would have been 23%, outperforming the overall market.

Our equities business increased by 8.8% reflecting higher volumes across equity derivatives and European cash equities. We generated strong double-digit growth across all earnings metrics during the quarter, driven by higher revenues across Fenics and Voice hybrid along with record front office productivity. Turning to Fenics. Fenics generated industry-leading revenue growth of 18.7% compared to last year. These higher-margin technology-driven businesses generated total revenues of $125.4 million in the third quarter and represented approximately 26% of BGC’s total revenue. Fenics revenue growth was led by electronic rates and credit products as well as data, network, and post-trade businesses. Fenics growth platforms had another record quarter generating revenue of $18.4 million, a 45.4% improvement versus last year.

Fenics market had strong revenue growth of 15.1%. Fenics UST revenue increased by over 55% on 26% higher average daily volumes and our market share increased to over 25% for the third quarter up from 23% in the second quarter of 2023 and 18% a year ago. Fenics UST is the second-largest and fastest-growing treasury marketplace globally. Portfolio match grew its U.S. credit volumes over nine-fold compared to the year-ago period. Portfolio Match continues to win market share in electronic credit portfolio trading a rapidly growing segment of the credit market. Fenics Go, the only fully electronic block size equity options exchange platform saw year-on-year revenue growth of 65% driven by strong growth across Delta One products and EURO STOXX 50 in index options.

Data Network and post-trade revenues grew by 16.8% led by strong double-digit improvement across Lucera, our network and infrastructure business and Capital App, our post-trade business. Fenics market data also recorded double-digit growth and had record third quarter sales, further adding to a subscription revenue pipeline. Our data and network businesses have long-term recurring revenue contracts. Turning to our outlook. I’m pleased to provide the following guidance for the fourth quarter of 2023. We expect to generate total revenue of between $450 million and $500 million as compared to $436.5 million in the fourth quarter of 2022. We anticipate pre-tax adjusted earnings to be in the range of $88 million to $108 million versus $87.1 million last year, which at the midpoint of our guidance would represent over 15% earnings growth for the full year 2023.

And with that, I’d like to turn the call over to Jason.

Jason Hauf : Thank you, Shaun, and hello, everyone. BGC generated total revenue of $482.7 million an increase of 15.9% as compared to last year. By geography, Americas revenue increased by 19%. Europe, Middle East, and Africa revenues increased by 16.9% and Asia Pacific revenues increased by 5.9%. Turning to expenses. Our compensation and employee benefits under adjusted earnings increased by 16.6%. Non-compensation expenses under adjusted earnings increased by 10.8% primarily driven by higher interest expense of $6.3 million. As anticipated, interest income also increased by a similar amount offsetting this expense. Moving on to adjusted earnings. Our pre-tax income was $101.9 million, a 23.1% improvement with a 125-basis point margin expansion to 21.1%, our 12th consecutive quarter of year-over-year margin expansion.