Release Date: October 31, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- BGC Group Inc (BGC, Financial) reported record third-quarter revenues of $561 million, marking a 16% increase compared to the previous year.
- The company experienced growth across every asset class and region, with pre-tax adjusted earnings rising by more than 24%.
- BGC Group Inc (BGC) announced the acquisition of OTC Global Holdings and Sage Energy Partners, expected to add over $450 million in annual revenues and be immediately accretive.
- FMX continues to outperform peers, generating record volumes across US Treasury and FX platforms, with plans to connect additional major FCMS in the coming quarters.
- The company anticipates fourth-quarter revenue growth of over 11% and pre-tax adjusted earnings growth of around 17% for the full year 2024.
Negative Points
- Compensation and employee benefits expenses increased by 16.4%, impacting overall profitability.
- Non-compensation expenses rose by 17.5%, driven by higher interest expenses, although partially offset by higher interest income.
- The FMX Treasury market share experienced a slight decline due to increased trading between professional firms on the CME, which BGC Group Inc (BGC) does not focus on.
- The integration of new acquisitions may initially result in slightly lower margins until fully integrated.
- The company expects a temporary reduction in share repurchasing due to capital allocation towards recent acquisitions.
Q & A Highlights
Q: Can you provide an update on the FMX Futures Exchange launch and the connection of additional FCMs?
A: Howard Lutnick, CEO, explained that FMX Futures Exchange launched with five FCMs, which was at the high end of their expectations. They plan to connect an additional 5 to 10 FCMs over the next couple of quarters. The process is ongoing, and they expect to have all FCMs signed up by the end of the first year, with all clients signed up by the end of the second year. This will position them to compete with CME in the third year.
Q: What caused the decline in FMX market share in the third quarter, and what is the outlook for market share growth?
A: Howard Lutnick, CEO, noted that the slight decline was due to a spike in volume from professional trading firms on CME, which is not their focus. Despite this, their outlook for market share growth remains positive, and they expect to see increases as more FCMs and trading pods come online.
Q: How will the acquisitions of Sage Energy Partners and OTC Global Holdings impact BGC's business and margins?
A: Sean Win, COO, stated that these acquisitions will significantly enhance BGC's presence in the energy sector, making them a major player. The acquisitions are expected to be immediately accretive, with annualized revenues exceeding $450 million. While initial margins may be slightly lower, they anticipate margins around 20% post-integration.
Q: What is the expected contribution of acquisitions to the fourth quarter revenue growth, and how should we model margins going forward?
A: Sean Win, COO, indicated that 1-2% of the expected 10% year-over-year revenue growth in Q4 will come from acquisitions, with the rest being organic. Post-acquisition, margins are expected to stabilize around 20%.
Q: What are BGC's capital allocation priorities following these acquisitions, and are there plans for divestitures?
A: Howard Lutnick, CEO, mentioned that while acquisitions have been a priority, they are open to divesting some tech and electronic assets that could attract high multiples. This would be accretive and demonstrate the value of their electronic assets.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
