Welcome to the BGC Partners Incorporated Second Quarter 2018 Earnings Conference Call. My name is Krystal, and I'll be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. [Operator Instructions] Please note that this conference is being recorded. I will now turn the call over to Jason McGruder, Head of Investor Relations. Mr. McGruder, you may begin.

Good morning. I'm giving Ujjal a break today. We issued BGC's second quarter 2018 financial results press release and the presentation summarizing these results this morning. You can find these at ir.bgcpartners.com. BGC's results consolidate those of the company's publicly-traded majority-owned subsidiary, Newmark Group, Inc. You can find details about Newmark Group's separate conference call scheduled for today right after BGC's, as well as Newmark's financial results press release and presentation at ir.ngkf.com. Both Newmark and BGC's financial results have been recast and include the results of Berkeley Point for all periods discussed in today's call, because the transaction involved there reorganization of entities under control control. Unless otherwise stated, the results provided on today's call compare only the second quarter of 2018 with the year-earlier 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. Please see today's press release of full-year financial results and -- sorry not full-year results -- of results under Generally Accepted Accounting Principles, or GAAP. Please also see the sections in the back of today's press release for the complete definitions of any such non-GAAP terms; reconciliation of these items to the corresponding GAAP results, and how, when, and why management uses them. All of the company's fully electronic businesses are referred to as FENICS. These offerings include the Financial Services segment's fully electronic brokerage products as well as the sale of market data, software solutions, and post-trade services. With respect to our plan for the proposed tax-free spin-off for Newmark, we cannot provide any assurance regarding if, when, how and where the spin-off will take place. Spin-off occur immediately following the close of second quarter 2018 the ratio of Newmark common share to be distributed with…

Thank you, Jason. And good morning and thank you for joining us for our second quarter 2018 conference call. With me today are BGC's President, Shaun Lynn; our Chief Operating Officer, Shaun Windeatt; and Steve McMurray, our Chief Financial Officer. Revenues from our Financial Services business were up by more than 11%, and Newmark's revenues grew by more than 15%. BGC's consolidated revenues grew by 13% to a quarterly record of $960 million, while post-tax earnings were share were up by 15%, to $0.30. We continue to make progress towards our planned spin-off of Newmark, which we intend to complete by the end of 2018. I'm also pleased to announce that our Board declared $0.18 dividend for the second quarter, which is consistent sequentially and year-on-year. At yesterday's closing stock price, this translates into a 6.6% annualized yield. As we explained in the beginning of the call and in today's press release, post-spin BGC represents the company excluding Newmark, or what BGC would look like had the spin-off already occurred. Since many of you have asked about the earnings of post-spin BGC, let me breakdown the consolidated company into its two businesses as they would look post-spin. Post-spin BGC would have increased its revenues by 13% in 2017, and its pretax earnings by 32% that compares it with 2016. We expect post-spin BGC revenues to increase by between 7% and 10% year-on-year in 2018, and for pretax earnings to improve by between 20% and 28%. Given BGC's dividend policy of paying out at least 75% of post-tax adjusted earnings per share, post-spin BGC would have paid full-year dividend of at least $0.50 per share in 2018, with the expectation of increasing the post-spin BGC dividend in 2019. The spin-off had occurred immediately after the end of the second quarter of…

Thank you, Howard and good morning everyone. We believe that financial services business is continue to gain market share thus far in 2018. We benefit from ongoing investment and technology improved front office productivity and the continued benefits from our successful integration of J5, Sunrise, and other recent acquisitions. A year-on-year revenue both is entirely organic because all of that financial services asset cost is in both voice hybrid and put electronic businesses. This is led by 24% improvement from overall foreign exchange business and 16% growth from energy and commodities. Earnings generated double digit percentage revenue growth across rates credit foreign exchange. Fully electronic products with notable performance during the quarter included European. U.K. and Canadian sovereign bonds, spot foreign exchange and foreign exchange options, interest rate options, credit and foreign exchange products in emerging markets and credit derivatives. Revenues from a higher margin data, software, and post-trade business increased by 15% year-on-year. Overall FENICS Nineteen percent as we continue to invest in technology and revenues grew by more than 19% as we continue to invest in technology and as voice and hybrid desk to more profitable and fully electronic tradings. We expect to have $1.6 billion of voice hybrid brokerage revenues to avoid substantial opportunity additional conversion into more profitable fully electronic trading. Overall revenues for financial services as a segment increased by a 11%, $480 million for the quarter while pretax earnings were up by 24% to $113 million and continued margin expansion was led by the 15% year-on-year increase in revenue per produced for the second quarter of 2018 in financial services. Front office productivity has improved year-on-year to six quarters in a row. As we were new products and services across FENICS, per broker or sales people increased productivity. We continue to see market volumes and growth. We expect to have strong performance and organically increased our revenues, market share and profits. With respect to results for real estate services revenues from Newmark as a standalone company increased by 15% year-on-year in the quarter to $467 million while pretax adjusted earnings increased by 28% to $76 million, placing Newmark's press release from earlier to-date more details. With that, I'm happy to turn the call over to Steve.

Thank you, Shaun and hello everyone. BGC generated consolidated quarterly revenues of $960.1 million, 13.1%. Our revenues from the Americas grew by 11%, revenues from Europe, Middle East, and Africa were up by 16%, while Asia Pacific revenues increased by 21%. To expect to the expenses compensation increased by 8.9%, our compensation ratio improved by approximately 210 basis points to 54.5% due to the mix of revenues by geography and product, our quarterly compensation ratio post in BGC was more than 2 percentage points lower for the consolidated company and improved year-on-year. DGCs consolidated non-compensation expenses increased by 21.7% to $240.7 million. Non-compensation expenses will increase by approximately 9% excluding the $24.5 million Newmark past-trade expenses would end ASC 606. As potential revenue our non-compensation expenses were 25.1% as 23.3% in the year ago period. Our non-compensation ratio were improved the 23.1% ASC 606. Our overall expenses were $763.8 million compared to $678.1 million consistent with Newmark's methodology recognizing income related to shares in the third quarter on the GAAP. The consolidated company will report any income and tax obligation rates to not by earn out in the third quarter each year to 237 per GAAP adjusted earnings and adjusted EBITDA, based on closing stock price we expect it for the third quarter of 2018 to be approximately $91 million. We recently announced Newmark entered into transactions monetization of the expected 2019, 2020 earn-out payments as role to these transactions Newmark received $152.9 million of cash as well as balance by protection below $94.21 on the 2019 and 2020 earnouts. Retains for potential pre station rates unstated received $9.9 million NASDAQ share in 2018 to 2027 and have a flexibility to monetize some or all of the payments in 21 to the 2027. In addition to the monetization in OpEx…

Thank you, Steve. Our consolidated outlook for the third quarter is as follows. We expect to generate revenues of between $920 million and $970 million, which is between 11% and 17% higher as compared to $827 million for the third quarter of last year. We anticipate pretax adjusted earnings to be in the range of $250 million to $270 million, which is between 12% to 21% higher compared with $223.9 million from the prior year period. We anticipate our consolidated adjusted earnings tax rate to be in the range of approximately 11% to 12% in the third quarter of 2018, which compares with 16.2% for the third quarter of last year. For the full-year 2018, we expect post-spin BGC revenues to increase by between 7% and 10% year-on-year, and pretax adjusted earnings to grow between and 20% and 28%. For the full-year 2018, Newmark expects its revenues to increase by 19% to 28%, and its adjusted earnings per share to grow by 22% to 39%. We expect to update our guidance towards the end of September. And Barry Gosin and I will be hosting Newmark's earnings call at 11:00 AM, so please hold your detailed and Real Estate Services questions until then. With that, operator, we'd now like to open the call up for questions, please.

Thank you. [Operator Instructions] And our first question comes from Rich Repetto from Sandler O'Neill. Your line is open.

Yes, good morning, Howard.

Good morning.

And thanks for all the breakout on the conversion ratio on the post-spin BGCP, I called it BGCP stub before, we'll call it post-spin BGCP.

It's a better name.

It is. So a voice broker peer had some problems, the call at ICAP [ph] the CEO was fired, the difficulties with synergies, et cetera. And I'm just, given your guidance, I'm trying to see any of the problems of, call it, ICAP don't appear to be transferable over to your voice broker. Just trying to get any comments what that means to you, what's been happening to your competitor there?

So, we read with interest what happened to them because we had none of that. I mean, as you've seen, we've bought numerous numbers of companies, and we've told the market what we expected in our integration cost and performance. And we were able to deliver those numbers, and then exceed them as we got better and better at understanding the various companies we acquired and how we could integrate them. I think we've become very good at that over time, and I'm very proud of my management team's capacity to integrate companies into our back office, into our technology, and to utilize the scale of our technology to improve the performance of the companies we acquire. And that may be the differentiating factor, is that we are and we have a technology company as part of us. FENICS is part of us. And so our ability to take the scale of our technology investment and then give that technology to the new companies we acquire and allow them to leverage and grow off of that technology has been a key driver to why we're able to integrate the companies. So no, we have a, a long-standing management that's been together a long time. B, we understand how to integrate companies, and have successfully integrated GFI, Sunrise, others. C, we've delivered the cost savings that we said we would. And D, we are growing and gaining market share. So I don't really want to comment on things that happened to others, but obviously our growth across the board, across each of our areas of Financial Services have really been outstanding, and we're very proud of where we are, how we're growing, how we're succeeding, how we're moving things electronic. And we feel really good about the company, the prospects. The volumes in the market are growing. I mean, how nice when you read in the newspaper today that the U.S. Treasury is going to have to issue more and more treasuries. It might be tough to read in the newspaper, but if you're in the volume of trading business these are really good things. And we're seeing lots of volume out there; growing interest rates is excellent for our company. And we feel really good about our prospects.

Got it. And, Howard, I guess the next question or follow-up question is on the revenue outlook for 3Q. If you take somewhere around the midpoint, it's flat to slightly up compared to this quarter, I believe. And I know the seasonality, and we know what volumes are that it started off. So I guess can you help -- you won't give any outlook on just the post-spin BGCP revenue outlook for 3Q. And I know you've given some guidance for the full-year. So just bridging that, I guess.

We have the full-year guidance for Newmark. We now gave full-year guidance for post-spin BGC, so you now have a good sense of -- and the key of why we chose to do that is people were very concerned. And they didn't really understand the scale by which post-spin BGC produces enormous amounts of cash. And at our minimum of 75% distribution dividend policy, you're talking about a dividend policy that would be well above at current stock prices 11%, could even cross into the 12%, and then with our growth rate in 2019, to grow from there. And that just seems to us to be incredibly attractively priced if you'd want to buy the company. It seems illogical to us given the scale and scope of how well we're doing, how good the market -- our side of the markets are performing. And so I can't really sort of break it out any further. I tried to show, and the management tried to show the details of how confident we are in the business, how successful we think the business is going to be for the full-year for both divisions of the company, and if we put them together you're going to see enormous cash flow, a great dividend-paying company, and great upside.

Got it, understood. And the very last question, Howard, is you say in the earnings release you intend to use additional net proceeds from the debt raise to redeem $112.5 million of, I believe, Newmark debt. And I guess the question is why -- is that just to lower the interest payments at Newmark? Does that delay at all the spin-off or the distribution of Newmark shares? Why is this being done, I guess, is the question?

Well, it's basically attractive economics mathematically, right. If BGC is able to borrow and raise the size of its debt offering, which eventually it will want to use when it's acquiring other companies. So for this interim period it increased the size of its offering an extra $100 million-$112 million. Newmark is going to use the money to pay off its debt which will lower its coupons dramatically to make a need. Too much lower numbers, that's great for Newmark, which we own 90% of it. So that makes us feel really good. And then when Newmark spins they'll just pay BGC back the money. And so it has no delay whatsoever. And the spin, it's just basically going to be a short-term positive economics for Newmark. And then when Newmark separates, which it expects to do before the end of the year now, they'll pay back BGC. And so this is just smart economics.

Understood. Thanks, Howard. I'll get back in the queue. Thank you.

Thank you. And our next question comes from Patrick O'Shaughnessy from Raymond James. Your line is open.

Hey, good morning. So I wanted to follow-up on Rich's first question about TP ICAP and some of their commentary. And especially their commentary about more market forces are driving broker compensation up. Can you speak to what the compensation ratio trends have looked like in your post-spin business, as we're calling it?

We've seen them steady to declining. And you've seen that in our quarter-over-quarter numbers. For a long time you see them as steady and declining. The key to having a steady-to-declining compensation ratio is the capacity to assist your brokers in being more productive electronically. I mean, having the tools to make your brokers more productive allows your overall compensation ratio to decline. And the key to that of course is that our brokers have significant amount of equity ownership in this company. And they want to be part of the company. And they have of course substantial economics if they were to part. And so we have the lowest turnover. Our brokers have been very productive because of electronics. And I think the combination those math means that we expect our compensation ratio to remain steady or decline going forward. That is our expectation.

Got it. Thanks. And then, another follow-up questions just on mechanics of loaning that $112.5 million to Newmark and then paying down that 8% debt. When would you expect that to take place process wise?

So I mean the call -- a call [indiscernible] takes approximately 30 days. So let's assume that that gets done in and around somewhere near that three - four weeks now. Then BG should lend the money to Newmark. And Newmark pay off the debt. And then Newmark will be issuing its own debt between now and the end of the year to separate to BGC and would payback. So it's really only a couple of months process. But it was just economically logically for us to do it. BGC wanted to borrow and do the debt deal that it did. But it just didn't need that cash for the short period of time. So it's best use within the group was to lend it to Newmark. And let Newmark save a couple of hundred basis points. And that just seemed a smart thing to do short term. We all know that Newmark as we intend Newmark intends to repay for the debt by the end of the year in the spin. So this is only just short term.

Got it. And then speaking of debt, you guys have a slide where you lay out what the pro forma net debt to EBITDA would be for the post spin BGC partners. And I think it was 0.6 times net to debt EBITDA. What do you think is an appropriate leverage ratio for the post-spin business, and assuming that's higher than 0.6 times, what are your thoughts in terms of potentially use this for any debt capacity that you have?

So, I think we have substantial debt capacity remaining in the post spin BGC. As we mentioned before, we view being an investment grade credit is something that we consider important to us not really important to the business per se. But it's something that we consider important. And therefore, that would be sort of the balance by which we try to stay in. Uses of that significant dry powder would be as we grow our business, you have watched this grow our commodities. We have the capacity to grow an insurance. There are variety of places that we see out there that we have the opportunity to grow. And there are lots of brokerage businesses for us to grow and build. You have watched us continue extend accretively and successfully. And having that dry powder is attractive to the map of accretive acquisitions, and we plan to do that.

Got it. Want to turn to FENICS, any update on your plans to provide us little additional clarity to the financials of that business?

Our current plan is we are focused on the spin of Newmark and the execution of that between now and the end of the year. After that, we are going to look strongly at the best way to start to separate for you the details and financials of FENICS. We are hard at work with that. And we are trying to consider when is the best time to start to do that. So I would -- but I would think that would be a post spin BGC coming out party if you will, you know, something that we will talk about as people want to look at post spin BGC, we will consider how to separate out the FENICS in much more detail for you so that you can get a good understanding of its value. Again these are just incredibly valuable assets that are part of this company that we have built and grown. And these are great opportunities for us.

And then speaking of those FENICS assets, can you speak to the traction that you are seeing with your FENICS U.S. Treasury Solution. Looks like you had a nice sequentially uptick in your electronic rate volume spiked some seasonally slower volumes overall. So are you seeing some increased customer interest in that solution?

We are. So in June, we announced the opening of our U.S. Treasury business. And we called that rolling opening because we had a pipeline of clients who are integrating to the platform. Our objective was to have the fastest system with the best data and the type of spread. And so far, our data has been exceptional. We have been trading at incredibly tight spreads and building on the volume. Each month has been a substantial growth plus the market details are at plus 40% growth month over month. We feel really good. And there are so many accounts that are coming online, so many who are testing with us with just the Gann trading on the platform. So we feel really good. In treasuries, we have a similar system growing in foreign exchange as we speak also during really nice month to month growth. And these are look, these are all small numbers but when you grow 40% - 50% per month, you become material pretty quickly. And so we expect in U.S. Treasuries to become a material player in U.S. Treasury business reasonably quick.

Got it. Thank you for answering all my questions.

Thank you. And that does conclude today's question-and-answer session. I would now like to turn the conference back over to Mr. Howard Lutnick for any closing remarks.

Thank you all for joining us today. And we look forward to speaking to both updating towards the end of the September. And we will look forward to speaking to you next quarter. Thanks everyone. Have a great day today.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program. You may all disconnect. Everyone have a wonderful day.