Welcome to the BGC Partners First Quarter 2019 Earnings Conference Call. My name is Loraine, 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 like to turn the call over to Mr. Ujjal Basu Roy, Vice President of Investor Relations. Sir, you may begin.

Good morning. We issued BGC's first quarter 2019 financial results, press release and the presentation summarizing these this morning. You can find these at ir.bgcpartners.com. BGC spun off all of the shares of its former subsidiary Newmark held by BGC to the stockholders of BGC on November 30th, 2018. Because BGC did not own any shares of Newmark as of year ended 2018, Newmark's results are presented as discontinued operations within BGC's consolidated results for all periods through the November 30th, 2018 spin off date. Newmark's results are not included in BGC's consolidated results presented after November 30th, 2018. Unless otherwise stated, all the financial results and outlook discussed in today's call reflect only the continuing operations of BGC, and therefore will not match the results and tables in the Company's press release for the first quarter of 2018 dated May 3rd, 2018. Unless otherwise stated the results provided on today's call compare on the first quarter of 2019 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. 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 securities owned, less securities loaned and repurchase agreements. We define total capital as redeemable partnership interest, total stockholder's equity and non-controlling interest in subsidiaries. All non-GAAP results discussed herein are comparable to and reconciled with the most directly comparable GAAP results from BGC's continuing operations. Please see today's press release for results under Generally Accepted Accounting Principles or GAAP. Please also see the sections in the back of today's press release for the complete and updated definitions of any non-GAAP items; reconciliation of these items to the corresponding GAAP results, and how, when, and why management uses these terms. All of the company's fully electronic businesses are referred to as FENICS. These offerings include our fully electronic brokerage products as well as the sale of market data, software solutions, and post-trade services. I also remind you that the information regarding our business on today's call that are not historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 as amended and Section 21E of the Securities Exchange Act of 1934 as amended. Such statements involve risks and uncertainties. Except as required by law, BGC undertakes no obligation to update any forward-looking 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 SEC filings including but not limited to the risk factors and special note on forward-looking statements set forth in our most recent 10-K and updates contained in subsequent Form 10-Q or Form 8-K filings. I'm now happy to turn the call over to Howard Lutnick, Chairman and CEO of BGC Partners.

Thank you, Ujjal. Good morning and thank you for joining us for our first quarter 2019 conference call. With me today are BGC's President, Shaun Lynn; our Chief Operating Officer and Interim Chief Financial Officer, Sean Windeatt; and our Chief Accounting Officer, Sean Galvin. So just be aware if you are asking questions it's most likely be answered by somebody named Sean. Our revenues improved 4% year-over-year despite challenging market conditions from many of our clients, low industry volumes, and volatility, and the $14 million foreign exchange headwind to our top line related to the strengthening U.S. dollar. I am pleased to report that the company's Board of Directors have declared a qualified dividend of $0.14 per share. This translates to a 10.1% dividend yield based on yesterday's closing stock price. As we continue to invest in growing our fully electronic FENICS business, higher profitability and make accretive acquisitions, we expect to deliver strong returns to our shareholders over time. With that, I will turn the call over to Shaun Lynn.

Thank you, Howard, and good morning everyone. FENICS brokerage revenues increased by 10% year-on-year, our revenues from our high margin data, software, and post-trade business were up by 19%. Overall FENICS net revenues improved by 12% and once again increased as a percentage of BGC's revenues. FENICS represented 14% of BGC's overall revenues in the quarter. Electronic brokerage generated 17% of our combined brokerage revenues across rates, credit, and foreign exchange. This compares with 15% for the first quarter of 2018 and 4% in 2010 which is as far back as we have tracked this metric. We expect FENICS to continue to benefit from the long-term trend towards more electronic trading, increased demand for market data, and the need for increased automation and post-trade services by our traditional client base as well as Newmark customers. We therefore expect FENICS to drive the revenues and earnings of the company as we further invest in the platform. BCG's energy and commodities business grew by 16% led by the recently completed acquisition of Poten and Ginga Petroleum, partly offset by the sale of CSC Commodities. During the quarter, we also closed the acquisitions of Ed Broking. Ed is now part of BCG's growing insurance business. Although Ed was not profitable upon acquisition, we expect this acquisition to be accretive to earnings per share in the first quarter of 2020. We expect Ed to be similar to some of our previous acquisition such as GFI and Grubb & Ellis. Both acquisitions became very profitable as we integrated them into our financial services and [indiscernible] businesses. With that, I am now happy to turn the call over Sean Windeatt.

Thank you, Shaun, and hello everyone. BGC generated quarterly revenues of $544.8 million, up 3.8%. Asia-Pacific revenues increased by 19%, Europe, Middle East, and Africa were up by 3%, while Americas is down [ph] 1%. Our overall revenues would have been approximately $14 million higher but for the relative strengthening of the U.S. dollar. This currency headwind was approximately $6 million greater than we guided on our last call. We expect the strong dollar to lower our revenues by approximately $7 million in the second quarter of 2019. With respect to expenses, compensation increased by 3.9% in line with our higher revenues. Our quarterly compensation ratio remained consistent at 52.7%. BGC's non-compensation expenses increased by 11.6% to $153.8 million. Our overall expenses were up by 6.5% to $441.1 million in the quarter. The increase in total expenses year-on-year was primarily driven by the impact of higher revenues on variable compensation, the impact of recent hires on acquisitions, interest expense on the $450 million senior notes due 2023, and interest expense related to the $250 million borrowings on the BGC credit facility. Moving on to our earnings, our first quarter of last year other income benefited from mark-to-market and other gains primarily related to the NASDAQ shares that were $8.4 million higher versus the first quarter of this year. BGC transferred the rights to receive the remainder of these earn-out payments to Newmark during the third quarter of 2017. Our pretax earnings before non-controlling interest in subsidiaries and taxes were $106.2 million compared with a $122.1 million. As we integrate our recent acquisitions and continue increase revenues from FENICS, we expect our profitability to improve over time. Our tax rate adjusted earnings for the quarter was 11.3% which was consistent with our previous full-year outlook between 11% and 12%. As we…

Thank you, Sean. Turning to our outlook for the second quarter compared with last year, we expect to generate revenues of between $516 million and $555 million compared with $491 million. We anticipate pre-tax adjusted earnings to be in the range of $89 million to $105 million versus $101.5 million. We anticipate our adjusted earnings tax rate to be in the range of 11% to 12% for the year 2019 as compared to 11.7% for the full-year 2018. We expect to update our guidance toward the end of June. And with that, operator, I would like to turn the call over to questions.

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Rich Repetto with Sandler O'Neill is on the line with the questions.

Good morning, Howard, and team of Seans. So I guess my question first is about the spending going out later in 2019, could you give us more like an incremental dollar amount that you've decided to spend or any guidance on margins going forward given this increased level of investments?

Well, I think the new - each of the new offerings generally covers with very constrained revenues as we build them out. So, we feel we have a unique opportunity to roll out new offerings extending our U.S. Treasury lines, extending new products and categories, which we're working with clients now to roll out, and that's just investment that will add we think significant incremental value to the company going forward, but that's part of the opportunity that's facing us is we want to create electronic marketplaces and opportunities that our clients are deeply engaged with us in doing so. You want to ask, Sean, maybe you'll go over couple of examples.

Yes. Rich, we've continued to invest in what you mentioned FX [ph] U.S. Treasuries, the things such as non-deliverable forwards, the compression side of that business, and if you margin market base and sales, we continue to broaden our offering and invest deeply into it. We've obviously expanded into FX -- sorry, into equity options also, which that will be released hopefully coming into the summertime. So, I think really just to broaden the FENICS horizon and broaden the breadth of these offerings basically.

I understand. I was just trying to get some quantification of that, if possible, but anyway I'll move on here. But staying on the FENICS topic, I guess a couple questions on that, the inter-company, what you call it, data software and post trade revenues declined year-over-year, and I was just trying to understand why that would occur? And then the other question, and you know, you specifically said in the -- Sean, in the prepared remarks about the high margins of -- high margin data software in post trade businesses, how do we quantify that, what do you mean by -- is that higher than the rest of the business, is it higher than the trading the brokerage revenues, electronic brokerage revenues in FENICS? And of course the long run, the father of question is how do we stand with the overall reporting of margins for FENICS?

So, if I take the first question first, so regard to market data, yes, usually I mean more profitable to the bottom line for market data, what we've recognized and we mentioned before is that our offering isn't as broad and as wide as we need it to be. So we continue to invest in mining that data from within our group and within the marketplace. Today we have better offering to the marketplace to sell, which we've been successful so far, and we continue to do so. That of course comes to the investment, but also there is revenue generation, but it's still a long-term reoccurring revenue generation, which is what we're trying to achieve.

And in terms of the inter-company line, Rich, so there are two things, the line is down, there are -- FENICS provides services to electronic services to certain parts of our business, to our more traditional foreign exchange rates, credit business, and of course -- and then when it becomes fully electronic, you see it moved from that line into the top line of fully electronic revenues, which you've seen grow by 10% this quarter. So it's really -- we think about it as the top line being -- is either electronically processed or hybrid business in the inter-company line and electronic -- fully electronic in that top line.

I get it. So the growth -- the negative growth of that line contribute to the double-digit growth on the top line, some of the other top line?

Yes, you're right. Exactly right.

Yes. And then any update on the overall -- I don't know what you want to call it, project to get more transparency into FENICS on the margins?

Rich, as we've said before, yes, our intention is to present FENICS the best way you possibly can to continue to invest in FENICS. We haven't said exactly the time that we're looking to try to announce that, and we understand your question and recognize that it's a burning question of yours to try to understand what the bottom line is of the business, but we need to present it in the correct way, and -- because we have not one shot, but we get -- we want to look at best when we come out precisely, and as we continue to invest in FENICS as I just said with regards to market data and the various different ongoing initiatives we have inside the group. We've continued to invest and broaden and build with new client base, new customers, and continue to get great support with that clients, because they're working with us, and we need to make sure that we present at the right time. So, nothing to say on this call today, but we listen to what you're saying.

Got it. Thank you.

Thank you. [Operator Instructions] Patrick O'Shaughnessy with Raymond James is on the line with the questions.

Hey, good morning, guys. So maybe first, given your second half earnings outlook, Howard, how do you feel about the sustainability of your dividend, knowing that -- the year-over-year comparison, you know, if you do similar to second half of 2018, I think that's $0.15 and $0.14 in the third and fourth quarters of those years, do you feel pretty comfortable with your dividend level as it currently stands?

We do. The insurance business and our investments in that insurance business you know, we brought Ed and when we bought it, it was not a profit-making business, but our expectation is it will be accretive to earnings in the first quarter of 2020. So that's a significant turn of something that is, is not profit making going to be fully accretive to its purchase price. And so, we are growing our insurance business, and we think that will materially improve its contribution to our profits. And that plus the growth of a variety of our FENICS initiatives this year, plus new hires we've made this year will contribute to our earnings going forward. So we remain comfortable in our dividend for next year.

Got it. And then speaking of Ed, are you able to quantify the profitability drag that represented in this quarter that you expected to present in next few quarters? And I guess even if you can't quantify that, how do you expect to bring it from unprofitable now to profitability next year?

I don't think we'd like to discuss the exact financials of it, but we have, two ways of doing it, we can, we have better and there are some synergies that we can bring together. But those synergies are also going to be lessened somewhat by the scale of growth that we expect to put on to the business. So these businesses need to be bigger, because we are hiring aggressively into this business. Insurance brokers tend to be more consistent to real-estate brokers in terms of their delivery of revenues and profits to the company and to financial service people meaning that the first couple of quarters, if not first year, they tend to perform for their prior firm, before the business moves over to the current one. And so, there's that lag, but that lag will rectify itself by time. So we expect that Ed, which did substantially hiring and therefore had the drag of those new hires on its financials, while it looks an attractive, it is in fact very attractive, because they have those new producers in the house, and we have expectations that they will perform. And that is our business, right? Our business is underwriting and determining what we think top producers will perform on our platform, bringing them in and having them perform consistent to our -- what we call, our underwriting on our way to say would be our expectations. So it has attractive people on its books today that we think will perform admirably starting at the end of this year going into 2020. And those numbers will turn into a profit. So smaller and synergies than we would otherwise expect because we expect significant growth, right? So we're not going to just cut as we did with G5 where we had the expenses, we can just take out. Here, we're going to make sure we have a large platform, we may take out some synergies but we'll just invest elsewhere for the platform. But the hiring of performing talent will substantially improve the bottom line of our insurance business into 2020.

Got it? Okay. Thanks. And then maybe a high-level question for you, Howard, you probably saw that headlines that Blackstone announced that it's going to be converting to C-Corp status, given where the tax rates are now it would kind of get rid of your partnership structure be something that you would be willing to contemplate at this point?

Well, we just finished the spin, which took a significant amount of corporate focus. We are now in the early process of examining that question and we are on it and we are thinking about it and we are talking about it and trying to figure out what the right answer is but it is on the table for sure.

Okay, and speaking of corporate resources, can you give us update on your search for a permanent CFO?

Well, I think that when I took the role as interim CFO, at the same time we mentioned that we strengthened our finance department including the hiring of Sean Galvin as our Chief Accounting Officer, who is on the call today. And so we continue to consider both internal and external options for the role on a permanent basis.

Okay, great. And then maybe the last one from me, I appreciate you bearing with me.

But to be clear, it won't be me, hence my title is interim.

Fair enough, Sean. And then last one from me, what changed in terms of your share count dilution between your initial guidance for 5% to 6% dilution and then the updated guidance for 3% to 4%, what did you guys do differently during the first quarter that maybe you hadn't anticipated doing?

Well, I think firstly, in our prepared remarks we said that we wouldn't use as much for acquisitions and [indiscernible] acquisitions for hiring and retention. So we did -- we listened to what you said. We did those three things. Hence the fact that we've -- in the last call we said we've reduced it 5% to 6% we now feel very confident at 3% to 4% this time, and we continue to try and reduce that share count issuance.

Yes, and I guess, the proof of that is our spot share count at the end of the calendar year is effectively the same as the spot share countings at the end of the quarter. So we really effectively -- you should know equity for the quarter because we are focused on that and we are going to use the tools that are available to us to reduce our issuance.

All right. Great, thank you very much.

Thank you. And Rich Repetto with Sandler O'Neill is on the line with a follow-up.

, :

Ginga is a smaller acquisition, a complementary acquisition to our oil business, linking in primarily with our GFI brand, and so no, it's not of consequence, not large.

Okay. And then you did talk about Ed Broking and sort of path to accretion, and you also said that the comp ratio was year-over-year and it was. But all throughout last year in a declining sort of -- with normal seasonality, declining revenues, the comp ratio went more or less down. So quarter-over-quarter the comp ratio was up, and just trying to understand when you look at the bigger acquisitions like Ed Broking and the -- but I think it's potent when you bring stuff on, what's the incremental comp ratio on acquisitions like that?

In the early stages, the incremental comp ratios could be fractionally higher and I think -- so you should expect to see that. Of course what we'd like to think is that we're going to offset that with -- partially offset that with increased compensation from our electronic -- more mature electronic platforms, which have a low comp ratio. So I think in the near term, a little bit higher and yes, I think that's how it will come through today.

Okay. Thank you.

Thank you. And this does conclude our question-and-answer session. I would now like to turn the call back to Shaun Lynn, President of BGC Partners for any closing remarks.

Thank you very much everybody. And we'll be probably speaking to you again next quarter.

Thanks, everyone.

Thank you. Ladies and gentlemen, this concludes today's conference. Thank you for participating. You may now disconnect.