Welcome to the BGC Partners Incorporated Fourth Quarter 2019 Earnings Call. My name is Carmen, and I will 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 Ujjal Basu Roy. You may begin.

Good morning. We issued BGC's fourth quarter and full year 2019 financial results press release and the presentation summarizing these results earlier this morning. You can find these at ir.bgcpartners.com. BGC spun off all the shares of its former subsidiary, Newmark, held by BGC to the stockholders of BGC on November 30, 2018. Because BGC did not own any shares of Newmark as of year-end 2018, Newmark's results are presented as discontinued operations within BGC's consolidated results for all periods through the November 30, 2018 spin-off date. Newmark's results are not included in BGC's consolidated results presented after the spin-off. Unless otherwise stated the results from continuing operations provided on today's call compare only the fourth quarter of 2019 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. 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 stockholders' equity and non-controlling interest in subsidiaries. Please see today's press release, our results on the Generally Accepted Accounting Principles or GAAP. Please also see the relevant section in the back of today's press release for the complete and updated definitions of any non-GAAP items. Reconciliations of these items to the corresponding GAAP results, and how, when and why management uses these terms. Additional information with respect to our GAAP and non-GAAP results mentioned on today's call is available on our website at ir.bgcpartners.com and in our investor presentation. We refer to the company's fully electronic businesses 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 information regarding our business on today's call that are not historical are forward-looking statements, within the meaning of Section 27-A of the Securities Act of 1933, as amended and Section 21-E 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. 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 forms 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 Partners.

Thank you, Ujjal. Good morning, and thank you for joining us for our fourth quarter 2019 conference call. With me today are BGC's President, Shaun Lynn; our Chief Operating Officer, Sean Windeatt; our Chief Financial Officer, Steve Bisgay; our Chief Accounting Officer, Sean Galvin. I would like to start by welcoming Steve Bisgay to his first BGC conference call as our CFO. BGC's revenues improved by 8.6% and 4.5% for the full year and fourth quarter of 2019 as compared with last year. We generated topline growth despite generally lower industry volumes. Before our next quarterly conference call, we expect to submit a proposal to BGC's Board of Directors and relevant committees with respect to converting our partnership into a corporation. Our current target is to be positioned to begin executing the conversion around the end of the third quarter of 2020 and expect to complete the execution around year end. Any such restructuring would be subject to tax, accounting, regulatory, and other considerations and approvals. I am pleased to report that the Board has declared a qualified dividend of $0.14 per share, and this translates into a 9.4% dividend yield based on yesterday's closing stock price. With that, I'd like to turn the call over to Shaun Lynn.

Thank you, Howard. Good morning everyone. Our energy and commodities business improved by 26% for the full year 2019, led by the acquisitions of Poten and Ginga Petroleum, partially offset by the sale of CSC Commodities. Turning now to Fenics. Our Fenics fully electronic rates business increased 14% in 2019 while data, software, and post-trade grew by 12%. Fenics net and total revenues improved by 6% and 10% respectively for the year. We continue to roll out our next-gen Fenics brokerage platform across more products and geographies with the goal of seamlessly integrating voice liquidity with customer electronic orders either by a graphical user interface or API. As announced in December, we made leadership changes to our global brokerage business with the objective of accelerating the conversion of our voice/hybrid business to fully electronic execution. In addition, we have continued to invest in our new stand-alone Fenics businesses, including Fenics UST, Fenics GO, Fenics FX, Lucera, and Capitalab. Fenics UST increased its market share of central limit order book trading from approximately 2% to 10% and is now the second largest CLOB platform for US Treasuries. Fenics Global Options platform or Fenics GO, has recently added Citadel Securities who joins IMC, Maven Securities, and Optiver as electronic liquidity providers. Fenics GO provides live, real-time, and tradeable two-way electronic liquidity for exchange-listed futures and options such as Eurex EURO STOXX 50 Index Options, NIKKEI 225, and related Delta One strategies. We look forward to the growth of our Fenics GO platform as we continue its roll out. The 2019 net investment cost associated with our newer stand-alone Fenics businesses was more than $55 million, and we expect these businesses to improve to a net investment cost of $40 million in 2020 and to break even in 2021. We believe that our new fully electronic businesses have created significant shareholder value. We plan to host a Fenics Analyst Day in early April, during which we will provide further information on our fully electronic businesses. Moving to insurance brokerage; revenues for the fourth quarter and full year 2019 increased year-on-year by approximately 186% and 126% respectively, due mainly to the acquisition of Ed Broking. Because of the significant growth in this business, we expect to break out insurance brokerage revenues separately from equities and other asset classes starting in the next quarter. We believe our insurance brokerage business is worth materially more than our investment and are actively considering ways to better express its value for the benefit of our stakeholders. With that, I'm now happy to turn the call over to Steve Bisgay.

Thank you, Shaun, and hello everyone. BGC’s quarterly revenues increased by 4.5%. Europe, Middle East, and Africa revenues improved by 4.6%, the Americas were up by 3.9%, while Asia-Pacific revenues grew by 5%. With respect to quarterly expenses, compensation increased by 9.3% due to the impact of acquisitions. Excluding acquisitions, compensation expenses would have represented 51.3% of revenues in the fourth quarter. Our total technology headcount increased by 8.5% year-on-year to 691, related primarily to our stand-alone fully electronic offerings, some of which Shaun discussed earlier. BGC's non-compensation expenses increased by 10.9% to $158.7 million, driven by the acquisition of Ed Broking as well as interest expense and our increased investment in technology. Excluding acquisitions, non-compensation expenses would have represented 31.7% of revenues for the quarter. Moving on to earnings; our pretax earnings were $73.2 million compared with $86.3 million. BGC's pretax earnings would have been at least $20 million higher in the fourth quarter of 2019 excluding the net investment cost for the period associated with our newer stand-alone Fenics businesses. As these businesses grow, we expect their net investment cost to narrow to approximately $40 million for full-year 2020 and breakeven in 2021. My team and I are going to examine how best to operate our business with the goal of reducing expenses going forward. Moving on to post-tax results; our post-tax earnings were $61.4 million or $0.12 per share compared with $71.1 million or $0.14. Our fully diluted weighted average share count was 351.4 million under GAAP and 532 million for adjusted earnings in the fourth quarter of 2019. A year earlier, these figures were 331.4 million under GAAP and 498.5 million for adjusted earnings. Increase in weighted average share count reflected the issuance of 29.8 million share equivalents related to the Newmark spin-off. This reduced non-controlling interest but had no dilutive impact nor effect on earnings per share. As of quarter-end, our spot share count was 530.4 million, this represented a 2.2% year-on-year increase, which was better than our previous guidance. With respect to our balance sheet, as of December 31, 2019, our liquidity was $473.2 million compared with $410.9 million as of year-end 2018. Notes payable and other borrowings were $1,142.7 million compared with $763.5 million. Book value per common share was $1.94 versus $2.28 and total capital was $769 million compared with $887.9 million. With that, I'm happy to turn the call back over to Shaun Lynn.

Thank you, Steve. Turning to outlook for the first quarter of 2020 compared with last year. Global industry volumes have been mixed thus far in the first quarter. Our guidance assumes volumes remain around these levels for the balance of the quarter. We expect to generate revenues between $540 million and $580 million compared with $544.8 million. We anticipate pretax adjusted earnings to be in the range of $90 million to $106 million versus $106.2 million. We anticipate our adjusted earnings tax rate to be in the range of 10% to 12%, versus 11.4% We expect to update our outlook, towards the end of March. With that, operator we'd now like to turn the call opened for questions.

Thank you. [Operator Instructions] And our first question is from Rich Repetto with Piper Sandler.

Good morning Howard and Shaun, and welcome, Steve. Good to have you on again.

Thank you, sir.

So I guess the first question, Howard, has to do with the C-Corp and I know you’ve studied it and you've outlined sort of the timeline. I guess any more updates in regards to tax rate and potential changes in dividend. Can you give us any sort of other color around how things are working in this conversion to a C-Corp later-- which is expected later in the year, I guess?

Rich, it's Steve. How are you doing? We're still studying the proposed transaction, and there’s lots of moving parts, lots of complexity as you can imagine. But overall, we believe the company will be better off in the long-term.

Okay. So, no comments on dividend or anything like that?

Yes. We're not - as we sit here today, we're not expecting a modification of the dividend having to do with the change to a C-Corp. Our businesses -- our business - I mean, obviously that notwithstanding, we don't think the C-Corp move will impact our view of dividend.

Okay. Next question, Howard, to Steve and Shaun would be like on the Fenics growth. I know the inter-company revenue grew substantially, but just looking at the year-over-year growth in the fully electronic, it was down slightly. Just trying to get more color on what's going on there in these businesses?

Hi Rich, it's Shaun. Across the exchanges and the marketplaces that we track, overall volumes were down in the fourth quarter. While we were down a little bit, we did outperform the marketplace in general. We have a substantial business across a wide range of asset classes as you know, as we've spoken out before, but we are sharply focused on these new areas. Automation of our business is absolutely paramount for us. When we think about the offerings that we've got to give, we will not rest until we've given out everything we have to deliver fully electronic offerings to our clients, and we're hard at work at it.

Got it. And last question is sort of on the first quarter guidance. You are seeing a nice uptick quarter-over-quarter and also year-over-year. But, it's not quite the increase you've seen in the past, and I'm just trying to see - it seems like volumes are up pretty robustly, and just trying to sort of fill in the gaps here on where the numbers are - the estimates versus the guidance?

I think Rich - it's Sean here. I think, as always, we guide what we see. Shaun said in his prepared remarks that the start of the quarter, we’ve seen volumes mix across the board, and our guidance assumes they remain at these levels. You also noticed - as you quite rightly say, there is a significant uptick in both revenues and of course in profitability from Q4. Also remember, we've made a significant amount of hirings in a number of our businesses across - for example, in our insurance business as we stated, and of course what happens with those businesses is revenue generation comes towards the end of the first year, beginning of the second year of those businesses. So, I think also as we've said, I think there is - we're already created significant value - significant shareholder value of well in excess of what we paid for those businesses.

Okay, that's all I had for now. I'll get back in the queue.

Thank you. Our next question comes from Patrick O'Shaughnessy with Raymond James. Please go ahead.

Good morning, guys. I wanted to start with Fenics. Are there any specific areas within the Fenics new investments that you can call out that are going to drive that incremental $15 million of EBITDA or are earnings in 2020 relative to 2019?

Sure. So, I mean we can step down on the Fenics GO as an example. It was in full build mode in 2019, including when you launch a new business, you hire sales, distribution agents, all connectivity - there's all sorts of expense that comes with the launch without revenues. Now that it's launched, you're going to see a material improvement in the bottom line economics of Fenics GO to the company because it's launched, it's out and it's making money and that's a big business. The global equity options business is a big business, which we'll go through in much more detail at Analyst Day, but that's a good step. US Treasuries; the cost of going from 2% to 10% is material. The cost from going from 10% to 20% is just much less. It's just less because you have more people paying, market data is more valuable. All of the pieces of the puzzle are better, convincing someone you matter when you start at 2% is one thing, becoming the Number 2 CLOB as you pound forward is quite another. And I'm happy to say, that the month of January continued that positive momentum of the business. So, we continue to have positive momentum and that will drive the economics. And then you have the cast of other businesses, Lucera, which is a connectivity. It provides technology connection between banks and their clients and banks to each other, and banks to market makers. It's infrastructure, software as a service, and that business has continued to gain leg. So, each of these businesses which were launched in 2018, you have Fenics FX, which continues to improve, adding market makers, adding clients, adding traders, and adding players. Capitalab doing a little better all the time, so you launch them in…

Got you. And then, if you can remind me that $15 million year-over-year improvement that's mostly coming from expected revenue growth rather than a step down expenses, is that correct?

Yes, we are heavy investors in this business. We have - when you get the tiger by the tail, you invest in it, and so we think these businesses are just going grow.

Got it, thank you for that. Maybe a follow up on an earlier question, but maybe asked in a different way. So, setting aside the C Corp conversion, how comfortable are you that you'll be able to support and maintain your current dividend throughout 2020, given the current earnings run rate of the company?

Well, as I said, the peak investment period for new businesses was 2019, okay. And then, going into 2020, we expect our net investment cost to decline, which will improve our EBITDA, and if the markets remain where they are, we should be able to earn and cover our dividend. We are deeply examining our insurance business, how best to express that value to you all. But we understand that we have competing issues, which is we have a strong dividend - we have strong investments in our new businesses and we want to grow our business and convert it to electronics. So, those are different businesses, we feel that through this year, where we - that, that might be the area that you're looking to invest. But, last year with this top area of net investment cost and everything going forward now starts to improve, and you will see dramatic numbers obviously with these businesses, breaking even, and growing in 2021 obviously that's what we expect. We will get through - we will get through. We know our investors care about the dividend. Board obviously takes that under advisement every quarter, but we feel, as we are right now that we see the path forward, which will allow us to grow our business to dramatically add shareholder value to - we hope to maintain the dividends, and we hope to deliver material economic value to all of our stakeholders as we enter 2021.

Got it. And you touched on the insurance brokerage business in your response to that question. Can you talk about where you are in the process of examining your options for that business? And then, as you, kind of are in the middle of that process, does that pose any challenges in terms of attracting or retaining talent to that business?

Well look, we are great fans of the management of our insurance business. I think, we have really world-class talent and in trying to express value to our shareholders, we are working hand in glove with them. We are, in no ways trying to work contrary to the management who joined us, who we think the world of. So - because we're working together and doing things [indiscernible] in a very positive way I think it's having no negative impact. In fact, it's probably having a positive impact because they know the plan, they're thinking about the plan. We're making enormous numbers of hires now on that. So, we feel good about things. But you should understand we're working together. There is no daylight between us and therefore it's not reducing our hiring in fact. It's harder to imagine that they could go any faster.

Got you. And then maybe I'll finish with just a quick numbers question. So obviously, the share count dilution was much, much lower in 2019 than it was in the past, it came in below your guidance, what is your initial expectation in terms of share count dilution for 2020?

Yes, I think Patrick, you said it correctly, it was much lower in 2019. As we said, it was an area of focus for us. I think with - I think as we look at perhaps to the year-end, I would expect the spot count at the end of the year to be around the 550 mark, taking into account the hirings - a lot of hirings that we've spoken about, for example, insurance, any of the earn-outs of the previous acquisitions on our general equity-based compensation. So, I think a good model is around the 550 for the spot for the end of the year.

All right. Thank you very much.

Thank you. [Operator Instructions] Okay. We have no further questions at this time, I would like to turn the call back to Shaun Lynn for any final remarks.

Thank you all for joining us today, and we look forward speaking to you again next quarter. Thank you.

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