Yahoo Finance BGC Group, Inc (NYSE:BGC) Q4 2023 Earnings Call Transcript
BGC Group, Inc (NYSE:BGC) Q4 2023 Earnings Call Transcript February 14, 2024
BGC Group, Inc beats earnings expectations. Reported EPS is $0.21, expectations were $0.2. 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 Fourth Quarter and Full Year 2023 Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions] As a remainder being, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Jason Chryssicas, Head of Investor Relations. Please begin, sir.
Jason Chryssicas: Thank you, and good morning. We issued BGC's fourth quarter and full year 2023 financial results press release and the presentation summarizing these results this morning. 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 fourth 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, 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 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 Fenics. Fenics' offerings include Fenics Markets and Fenics Growth platforms.
I'd also remind you that any information on today's call that is 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 and Form 8-K.
I'm now 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 fourth quarter and full year 2023 conference call. With me today are our Chief Operating Officer, Sean Windeatt; and our Chief Financial Officer, Jason Hauf. BGC had its best fourth quarter with record revenues and adjusted earnings. Our revenues improved over 18% ending a strong year where we delivered accelerating year-over-year revenue growth each quarter. We expect favorable macro trading conditions to continue throughout 2024. With our global presence and scale, we will continue to capitalize on interest rate and energy market volatility to higher fixed income issuance across both government and corporate bonds. We are pleased with the CFTC's recent unanimous approval for FMX to operate in exchange for U.S. interest rate futures products which are the largest and most widely traded futures contracts in the world.
We intend to launch the FMX Futures Exchange in the summer of '24, and we plan to discuss our strategic partners and further details on or before our first quarter earnings call. I'd now like to turn the call over to Sean.
Sean Windeatt: Thanks, and good day, everyone. Our fourth quarter revenues grew by 18.4% to $516.8 million and represented our highest ever fourth quarter revenue performance. This growth was driven by the Americas and EMEA, which improved by 21.9% and 20.5%, respectively. Total brokerage revenues grew by 16.1%, driven by strong growth across Energy & Commodities, rates and foreign exchange. Revenues from our Energy & Commodities business improved by 42.3%, where we saw strong double-digit growth across our energy complex and environmental products, including our new weather derivatives business. Rates revenues increased by 26.1%, reflecting broad-based growth across interest rate products. Foreign exchange revenues improved by 7.5%, driven by higher volumes across G10 and emerging markets currencies.
BGC's credit revenues decreased by 3.6%, primarily due to a strong comparable period a year ago, partially offset by higher volumes across emerging markets, U.S. and U.K. credit products. We expect BGC's credit business to grow in line with our overall business in 2024, benefiting from record new issuance and interest rate volatility. Equities revenues declined by 3.8%, reflecting lower cash equity volumes, partially offset by higher equity derivatives activity. Data, network and post-trade revenues improved by 17.9%, driven by Fenics Market Data and Lucera, our network business. Turning to Fenics in more detail. In the fourth quarter, Fenics revenues grew by 20.1% to $130.8 million. These higher-margin, technology-driven businesses accounted for more than 25% of BGC's total revenue during the period.
For the full year 2023, Fenics generated $521.7 million, an improvement of 16.1%. Fenics' fourth quarter and full year revenue growth was led by our electronic rates credit and our data network and post-trade businesses. This record performance drove Fenics' revenue above $500 million for the first time. At this scale, Fenics is now one of the largest electronic platforms across the capital market. Our Fenics Markets businesses generated revenue of $109.6 million in the fourth quarter, an increase of 16.5%. This growth was driven by higher electronic rates, credit and foreign exchange volumes along with stronger Fenics Market Data subscription revenues. Fenics Market Data signed a new customer contract in the fourth quarter with an aggregate contract value 30% higher compared to the same period last year.
I'd like to highlight Fenics Market Data's continued success in its regulatory solutions business, which we expect to enhance our growth. Our Fenics growth platforms generated fourth quarter revenues of -- sorry, $21.2 million, up 43.3% primarily driven by Fenics UST, PortfolioMatch and Capitalab. Fenics UST revenue increased by over 70% on a 38% improvement in average daily volume. Fenics grew its market share to 26% in the fourth quarter, up from 25% in the third quarter of 2023 and 20% a year ago. This momentum has carried forward into January, achieving new record ADV that was 44% higher than January last year. PortfolioMatch's U.S. credit volumes improved more than threefold driven by new accounts and deepening relationships in this fast-growing segment of the market.
We are pleased with the success that this platform has seen, which in just 2 years has gained significant share in a market that has historically been dominated by a single incumbent. Capitalab, our post-trade business, generated revenue growth of nearly 90% driven by higher interest rate compression and foreign exchange matching volumes. We expect demand for our Capitalab post-trade products to grow as global banks optimize their balance sheet in an ever-evolving regulatory regime. Lucera, our network infrastructure business saw double-digit revenue growth led by new client contracts and broadening product coverage with existing clients. Lucera continues to see strong demand for its new markets offering, a multi-asset trading system used by many of the world's largest banks.
Turning to our outlook. I'm pleased to provide the following guidance for the first quarter of 2024. We expect to generate total revenue of between $560 million and $610 million as compared to $532.9 million in the first quarter of 2023. We anticipate pretax adjusted earnings to be in the range of $126 million to $144 million versus $124.6 million last year. Our business continues to expand, and our guidance reflects investments in several growth areas. For example, we have made a substantial investment in our global interest rate derivative product suite. We also recently reentered the Japanese interest rate market. After 20 years of ultra-low and even negative interest rates, we expect positive interest rates and the related transaction volumes to return the Japanese rates market.
Additionally, we continue to invest in our FMX futures exchange in preparation for its summer launch. These investments will increase our revenues and expand our margins in the near term. And with that, I'd like to turn the call over to Jason.
Jason Hauf: Thank you, Sean, and hello, everyone. BGC generated total fourth quarter revenue of $516.8 million, an increase of 18.4% as compared to last year. By geography, Americas revenues increased by 21.9%; Europe, Middle East and Africa revenues increased by 20.5%; and Asia Pacific revenues increased by 2.8%. Turning to expenses. Our compensation and employee benefits under adjusted earnings increased by 21.8%. This increase was primarily driven by higher revenues as well as an increase in newly hired brokers and new business lines, which Sean just highlighted. New brokers are typically less productive in their first year, which can temporarily contribute to a higher compensation ratio, all else equal. Non-compensation expenses under adjusted earnings increased by 9.7%, primarily driven by higher interest expense of $6 million.
Moving on to earnings. We generated strong, double-digit growth across all metrics. Our pretax adjusted earnings were $110.8 million, a 27.3% improvement with a 149 basis point margin expansion to 21.4%. This was our 13th consecutive quarter of year-over-year margin expansion, which reflects the gearing potential of our business. Our post-tax adjusted earnings increased by 29.2% to $101.3 million or $0.21 per share, a 31.3% improvement. Our adjusted EBITDA was $151.6 million, a 22.3% improvement. Turning to share count. Our fully diluted weighted average share count increased by 0.1% sequentially to 490.7 million shares. As of December 31, our liquidity was $701.4 million compared to $524.3 million as of year-end 2022. With that, I'd like to turn to Howard for closing remarks.
Howard Lutnick: Thank you, Jason. In 2023, we are proud we achieved record revenues and earnings and completed our corporate conversion to BGC Group. With historical manufactured zero interest rate environment behind us, BGC will continue to demonstrate the strength of our business and deliver growth far superior than our current trading multiple reflects. With that, operator, we're ready to take the call to questions. .
Operator: [Operator Instructions] Our first question comes from Patrick Moley with Piper Sandler.
See also 20 Most Meat Eating States Per Capita and 35 Biggest Football Clubs in the World.
To continue reading the Q&A session, please click here.
