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spk03: Greetings. Welcome to the BGC Group Third Quarter 2023 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the call, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. At this time, I would like to hand the call over to Jason Krusikas, Head of Investor Relations. Thank you. You may begin.
spk06: 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 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 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 non-controlling 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 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 as Fenix. Fenix offerings include Fenix Markets and Fenix 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, BTC undertakes no obligation to update any forward-looking statements. Any outlook and targets discussed in this call assume no material acquisitions, buybacks, extraordinary transactions, or meaningful changes to the company's stock price. For discussion of additional risks and uncertainties, which could cause actual results 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 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.
spk04: Thank you, Jason. Good morning, and welcome to our third quarter 2023 conference call. With me today are our Chief Operating Officer, Sean Windyette, and our Chief Financial Officer, Jason Hough. We had another outstanding quarter, generating revenue growth of 16 percent, 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. Fenix revenues improved 19%, outperforming both its electronic trading platform and exchange peers. This was led by another record quarter for Fenix growth platforms, which grew by over 45%. Fenix UST, our electronic US Treasury platform, reached a record 25% market share of volume traded on US Treasury exchange marketplaces during the third quarter. With that, I'll turn the call over to Sean.
spk01: 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 percent, 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 continued 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 Fenix and Voice Hybrid, along with record front office productivity. Turning to Fenix. Fenix 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. Fenix revenue growth was led by electronic rates and credit products, as well as data, network, and post-trade businesses. Fenix growth platforms had another record quarter, generating revenue of $18.4 million, a 45.4% improvement versus last year. Fenix markets had strong revenue growth of 15.1%. Fenix 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. Fenix UST is the second largest and fastest growing treasury marketplace globally. Portfolio Match grew its U.S. credit volumes over ninefold 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. Fenix Go, the only fully electronic block-sized equity options exchange platform, saw year-on-year revenue growth of 65%. driven by strong growth across Delta One products and Eurostox 50 index options. Data, network, and post-trade revenues grew by 16.8%, led by strong double-digit improvements across Lucera, our network and infrastructure business, and Capitalab, our post-trade business. Benix market data also recorded double-digit growth and had record third-quarter sales. further adding to its 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 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 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.
spk02: Thank you, Sean. Hello, everyone. BGC generated total revenue of $482.7 million, an increase of 15.9 percent as compared to last year. By geography, America's revenue increased by 19 percent. Europe, Middle East, and Africa revenues increased by 16.9 percent, and Asia Pacific revenues increased by 5.9 percent. Turning to expenses. Our compensation and employee benefits under adjusted earnings increased by 16.6 percent. Non-compensation expenses under adjusted earnings increased by 10.8 percent, 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 percent improvement with a 125 basis point margin expansion to 21.1 percent, our 12th consecutive quarter of year-over-year margin expansion. Our post-tax adjusted earnings increased by 21.4 percent to $94.1 million, or 19 cents per share, an 18.8 percent improvement. Our adjusted EBITDA was $135.9 million, a 27 percent improvement. Turning to share count, our fully diluted weighted average share count decreased by 15.4 million shares, a 3 percent sequentially to 490 million shares. This significant share reduction was primarily driven by our corporate conversion and the related unit redemptions, as well as share repurchases during the quarter. As of September 30th, our liquidity was $605 million, compared with $524.3 million as of year-end 2022. With that, I'd like to turn to Howard for closing remarks.
spk04: Thank you, Jason. This is obviously an exciting time to be part of BGC. Our top-line and bottom-line growth clearly demonstrate the extraordinarily positive position we have built in the global capital market. We continue to make significant progress with FMX, and as we've said, we look forward to communicating additional updates and details during this quarter. With that, operator, we're happy to turn the call over for questions.
spk03: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your questions from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for your questions. Our first questions come from the line of Patrick Moley with Piper Sandler. Please proceed with your questions.
spk05: Yeah, good morning and congrats on the strong quarter. So I'll start with a question on the macro before getting into the quarter. But, Howard, you know, there's been a number of reports out there that are projecting a massive wave of sovereign debt issuance next year. Some are saying we could see upwards of 50% year-over-year growth in issuance in the U.S., 20% to 30% in the U.K. and Europe. So just wondering if you could maybe share your thoughts on what that means for BGC's business, particularly rates revenues going forward.
spk04: So the historical relationship between issuance and secondary market trading volume before the, you know, the 08 to 2022 zero interest rate period was a 60% correlation. So, for example, if you had a 50% increase in issuance next year, you'd have a 30% increase in secondary market rate. You just take a 0.6 and multiply it to it. So, I think that those relationships are healing, meaning they are coming back. Now you have so much issuance. since 08 when we began this process that I think these markets have, you know, just growth for the foreseeable future, for the long foreseeable future. But that kind of issuance growth, I think, should bode very, very well for those markets having 30 percent growth rates. I mean, if that's what happens, I think you're going to see it roll through the markets, and that will bode well for everyone in these marketplaces as a macro.
spk05: Sorry, that's good color. So I guess my next question is just on the guidance ranges for 4Q. I think at the midpoint, you know, it implies revenue growth should slow down slightly from 16% this past quarter to 9% this quarter. So still obviously strong year-over-year growth, you know, against what appears to be a tougher comp in 4Q22. But just as we think about the growth algorithm for the business going forward, was hoping to get your thoughts on you know, what you view as an appropriate kind of run rate for growth in both revenues and adjusted pre-tax earnings?
spk04: Well, overall, I don't think we see any slowdown. So, in fact, we would expect next year, as we sit here today, to be north of 10% top line revenue growth. Last year in the fourth quarter, uh began the broad-based growth and uh and so and you could see that last year because our fourth quarter uh revenues were higher than our third quarter revenues which as you remember uh we are seasonally the strongest the first quarter then a little slower the second quarter a little slower the third quarter a little slower the fourth quarter and the third and fourth quarter are the summer and you know you have christmas and thanksgiving and those kind of things so The fact is, when you outgrow it in the fourth quarter, you're showing that something exogenous happened. And so that was the beginning of our growth. So I don't think we see any deacceleration of our growth. I think our growth rate will remain steady. I'm sure it'll bounce around a couple of points as the markets bounce around. But the fact is, we're a plus 10% growing company going forward as far as we can see.
spk05: Okay, and just also on growth, market data growth has been strong. I think you're tracking towards 15% to 20% growth this year. Do you think that's kind of like a good run rate to use going forward for growth there? And then over the long term, I think market data has been around 5% to 6% of total revenue. So just wondering what you think that can get to, I guess, over the next few years in terms of as a percentage of revenue.
spk04: I think that growth rate is consistent with our expectations. And along with that, I think it should outgrow even our growth rate. So it should be about it should be an accelerated to our growth rate. And I think it's got hundreds of basis points of growth as compared to our overall revenue. So I think it's got a long trajectory. We see a path to doubling those revenues. And so I don't see an end anywhere nearby. I think we have a long way to go. Our data sets are getting better, broader, and deeper. And that will only bode well for the gross level of that and its percentage in the company.
spk05: All right, great. And then one on Fenex, you know, another record quarter there. I know you have some ancillary data businesses within FedEx that you said in the past you could potentially look to to sell at some point later on down the line. So just, you know, how do you think about the opportunity there to potentially divest some of those non-core electronic businesses and potentially use the proceeds, the buyback shares? And I guess just building or in addition to that, just maybe if you could update us on your capital return plans going forward.
spk04: I wouldn't use the term non-core. These are all deeply, these are businesses that are deeply consistent with our business model across the capital markets. They are, I think the term that people like to understand is they are completely separable. It means we have numerous products that If an exchange or electronic peer marketplace wish to acquire from us, they would be easily separable and able to be sold. so i think we are open-minded to it we we cannot understand why that company trades at the multiple trades at but we understand that and so therefore if there were assets that the company had that would trade at uh the kind of revenue multiples and profit multiples uh that some of the electronic uh trading platforms and exchanges trade at i think we would be open-minded to such a transaction and as you correctly said uh you know selling things at at double-digit multiples of revenue and buying back your company at mid-single-digit multiples of earnings sounds like a smart thing for management to do, especially since we are the biggest owners of this company's shares, and we really like that idea. So we understand it. You spoke to us about it. Some of our shareholders spoke to us about it. We understand it, and we heard you. And we're open-minded, but those things happen if and when they happen. We are not making any promises, but that would be our thinking of return policy. We historically paid dividends. We're now buying back shares. We like that model of buying back shares. We have had the opportunity to buy other companies incredibly accretively to what we think our long-term prospects are, and we're going to continue to do that. acquisitions of course uh if correctly priced we're open-minded to uh and we're generating cash buy back shares and if we of course uh were able to do a transaction uh then we would just be much more aggressive in buying back those shoes okay thanks and then on fmx i i've got to ask it but so just to clarify you are planning to still
spk05: announce the strategic partners and financial details before the end of the year? Is that, did I hear that right? And then just going, you know, once the CFDC approval comes, you know, if you could maybe just talk a little bit about your expectations for market share growth and volumes there, and maybe just what you view as some of the competitive advantages that FMX will offer its customers compared to, you know, your biggest competition there in CME.
spk04: So our current plans are, it's sort of one of two things. We'll either at least, it is the company's desire and expectation to at least this quarter announce our strategic partners. We may in discussions with those strategic partners be able to lay out all of the transaction details. but that we are still in discussions with our strategic partners about. So it will be either at least the names, that's our objective, but also transaction details. We just need to work that out with all the partners. CFTC, we are, again, we work closely with the CFTC going through the process of getting our exchange approved. We are very confident, we remain very confident that that will just come in its due course of time, and we are working through that. That is not a stress point for us internally. It's just work. Lastly, your question about market share. So the futures market is a gigantic opportunity for us, and it has wide breadth across the capital markets. So I would suggest our first year that we are open is going to be a year which we would call breadth, opening every account that we possibly can across the capital markets, having all the FCMs, all the trading firms, getting everybody on the network. Now, as you know, because our treasury platform has been growing, you know, like seven points market share over the last year, we have broad-based users, right? But the futures market is much, much, much, much broader. And as you bring on those much broader number of users, of course, that will grow our treasury business dramatically as well. That's why we look at these things together. So first year, let's call it breadth. Second year then begins depth. And once those two years are completed, then you're going to see bare-knuckled competition. So that's what I would say. It's sort of a one, two, three. First year, you're going to see us defining breadth. Second year is making sure we have depth, meaning every customer, every area of every customer, every portion of every customer. How much are they doing? How much can we get them done? Get them on the network, get them using, get the network effect going. And then year three will be you know, significant, significant competition. And this is an opportunity for this company that is at a scale that is far, far different than the value of this company today. I think people undervalue our U.S. Treasury platform wildly. I think they have no idea of the incredible value that the infrastructure and connectivity this company has to the world's capital markets players and that opportunity in futures. You know, you have the CMEs worth between $70 and $80 billion, and we hover around $3 billion. That is just illogical. I think that illogic will come over time as we go pounding forward, and we are very, very excited about our prospects for FMX.
spk05: All right, that's great, guys. I think that's it for me, but congrats on a strong quarter.
spk03: Thank you. We have reached the end of our question and answer session. I would now like to turn the floor back over to Chairman and Chief Executive Officer, Mr. Letnick, for any closing comments.
spk04: Thank you all for joining us today. We look forward to reporting and meeting with you next quarter and where we will have, again, we look forward to a very positive call. Thank you. We'll see you then.
spk03: This does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.
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