Greetings, and welcome to the BGC Group First Quarter 2024 Earnings Conference Call. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Jason Chryssicas. Please go ahead.

Thank you, and good morning. We issued BGC's first quarter 2024 financial results press release and the presentation summarizing these results this morning prior to the market open. 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 first quarter of 2024 with the prior year period. We'll 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 noncontrolling interest in subsidiaries. Please see today's press release for the results under generally accepted accounting principles. 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 as Fenics. Fenics' offerings include Fenics Markets and Fenics Growth Platforms. I also remind you that the information regarding our business on today's call that are 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 the subsequent course on Form 10-K, Form 10-Q or Form 8-K. Now with that, I'm happy to turn the call over to Howard Lutnick, Chairman of the Board and CEO of BGC Group.

Thank you, Jason. Good morning, and welcome to our first quarter 2024 conference call. With me today are our Chief Operating Officer, Sean Windeatt; and our Chief Financial Officer, Jason Hauf. This is a great time for BGC. Today, we reported record first quarter revenues and adjusted earnings. Last week, we completed our FMX transaction and announced our strategic partners. These 10 major financial institutions joined us in the formation of FMX, investing $172 million at a post-money equity valuation of $667 million. Recognizing our success in the U.S. Treasury and FX markets, their investment further validates both our technology and our vision to reshape the U.S. interest rate market. This extraordinary group of partners brings enormous value to FMX far beyond this initial valuation.

Thanks, and good day, everyone. Our first quarter revenues grew by 8.6% to a record $578.6 million, reflecting broad-based growth across all geographies and growth across Energy, Commodities and Shipping, Rates and Foreign Exchange Businesses. Beginning this quarter, we renamed Energy and Commodities to Energy, Commodities and Shipping to better reflect the integrated operations of these businesses. Total brokerage revenues grew by 7.3% to $528 million. Rates revenues increased by 6.3% to $175.1 million, reflecting strong growth across interest rate derivatives, government bonds and emerging market rate products. Energy, Commodities and Shipping revenues grew by 32.1% to $118.5 million, driven by strong double-digit volume growth across our energy complex and environmental business. This asset class has become our second largest, providing additional diversification to our client base and macro drivers. Foreign Exchange revenues improved by 4.8% to $84 million, driven by higher volumes across emerging market currencies and options. Credit revenues decreased by 2.2% to $87.6 million, primarily due to lower trading volumes in Asian credit, partially offset by strong European credit activity. Equities revenues decreased by 7.7% to $62.9 million due to lower secondary trading volumes in equity derivative products, partially offset by higher cash equity volumes consistent with the industry-wide trends. Data, Network and Post-trade revenues improved by 13.9%, driven by broad-based revenue growth across Fenics Market Data; Lucera, our network business; and Capitalab, our post-trade business. Turning to Fenics. In the first quarter, Fenics generated revenues of $149.3 million, a new quarterly record. These higher-margin technology-driven businesses accounted for 26% of BGC's total revenue during the period. Fenics Markets businesses generated revenue of $127.4 million in the first quarter, an increase of 3.6%. This was driven by higher electronic rates and credit volumes along with stronger Fenics Market Data subscription revenues. Our Fenics Growth Platforms generated first quarter revenues of $21.9 million, up 26.2%, primarily driven by FMX UST, Portfolio Match, Lucera and Capitalab. As a reminder, Fenics UST is now renamed FMX UST, part of our FMX product suite, following last week's transaction. FMX UST revenues increased by over 33% on a 21% improvement in average daily volume. FMX UST grew its market share to 28% in the first quarter, up from 26% in the fourth quarter of 2023 and 21% a year ago. FMX UST continues to be the fastest-growing U.S. Treasuries platform with its market share increasing 1 to 2 points each sequential quarter. Portfolio Match more than doubled its U.S. credit volumes versus a year ago. These record volumes drove revenues 87% higher. Portfolio Match continues to increase its market share in this rapidly growing segment of the market. Lucera grew by 36%, primarily driven by new clients and expansion of existing client agreements. Lucera's subscription-based revenues have consistently grown by strong double digits. Capitalab generated revenue growth of 40%, driven by higher interest rate compression activity.

Thank you, Sean, and hello, everyone. BGC generated total first quarter revenue of $578.6 million, an increase of 8.6% as compared to last year. We saw revenue growth across all geographies. Europe, Middle East and Africa revenues increased by 11.5%, Americas revenues increased by 6.2% and Asia Pacific revenues increased by 3.5%. Turning to expenses. Our compensation and employee benefits under adjusted earnings increased by 9%. This increase was primarily driven by higher revenues as well as an increase in newly hired brokers and new business lines. Non-compensation expenses under adjusted earnings increased by 7.7%, primarily driven by higher interest expense. Moving on to earnings. Profitability increased across all earnings metrics during the quarter, including GAAP net income for fully diluted shares, which improved by 92.2%. Our pretax adjusted earnings grew by 8.6% to a record $135.4 million with a margin of 23.4%, its 14th consecutive quarter of year-over-year margin expansion. Post-tax adjusted earnings increased by 6.6% to $123.2 million or $0.25 per share, an 8.7% improvement. Going forward, we expect our traditionally strong gearing to continue. This is reflected in our second quarter guidance, where our revenue midpoint is expected to be up 10.5% and our pretax adjusted earnings midpoint is expected to be up 18.4%. Our first quarter adjusted EBITDA was $208.4 million, a 37.9% improvement.

Turning to our outlook. I'm pleased to provide the following guidance for the second quarter of 2024. We expect to generate total revenue of between $520 million and $570 million as compared to $493.1 million in the second quarter of 2023. We anticipate pretax adjusted earnings to be in the range of $120 million to $130 million versus $105.5 million last year. With that, I'd like to turn the call over to Jason.

As of March 31, our liquidity was $615.7 million compared with $701.4 million as of year-end 2023. Cash uses are typically larger in the first half of the year as we pay bonuses and taxes.

Thank you, Jason. The United States interest rate markets are the largest in the world. We have built the fastest-growing U.S. Treasury platform. And now with the support of our partners, FMX is the only competitor to the CME. Following our best quarter on record and reflecting our strong balance sheet and future growth prospects, I'm pleased to announce that our Board of Directors has approved an increase in our quarterly dividend to $0.02 per share. With that, operator, we're happy to open the call for questions.

Your first question comes from Patrick Moley with Piper Sandler.

I just wanted to start on FMX and dive a little deeper in a few of the items there. First, can you talk about the pricing structure and the incentives that are being offered to these partners and how that may evolve over time? And then second, can you help us just understand and maybe even quantify those volume targets that need to be hit for the investors to retain that 10% ownership stake? Is that company specific? Is that based on the group? Any color there would be great.

Sure. So the 10 partners have volume targets related to their equity, meaning they have growing volume targets across the businesses throughout the whole ecosystem of the business, so that's Treasuries, Foreign Exchange and futures. Obviously, some of the partners, for instance, will be more focused on SOFR futures, some more on Treasury futures, some more on Treasury cash. And so those were individually crafted to be more attuned to the type of trading that that particular firm does. The FCMs, what is spectacular about those partners is many of them have the greatest FCMs in the business and those FCMs will be connecting. And really, for them, they can't drive their client business in particular, but what they can do is they can connect their clients and have that be a seamless connection. So that is also part of the transaction, is that they connect across all of their areas of the firms. They have subscription arrangements, which grow over time, meaning the revenues will continue to grow. But they do not have unit economics in the ecosystem, meaning that those partners can drive business and drive volume through the ecosystem without marginal cost. And that is a fundamental part of the company's view, is that we think breaking unit economics and driving a subscription-based pricing model is something that we are open-minded to, to other clients as well. So that is a model that we like, that we embrace and that we look forward to driving across the ecosystem of FMX, both for our partners and for other companies as well.

Great. Regarding the fixed pricing structure, what impact do you anticipate the formation of FMX will have on BGC's top line in the short term? Do you foresee a revenue increase simply due to partners transitioning from variable plans to fixed pricing plans? Additionally, from a market share perspective, how do you expect the club market share and possibly your share volumes in FX to change as a result of this formation in the upcoming quarter or the next two quarters?

So question number one, revenues will grow because their subscription price exceeds the amount of revenue we currently receive. So number one, our revenues will grow. Number two, across our ecosystem, for example, our Foreign Exchange business, we have an excellent platform in Foreign Exchange that has enormous scale to grow. And now with these partners connecting to it, for those who haven't connected to it and using it, I think we will demonstrably grow our Foreign Exchange business, which will both add market share as well as create a wonderful marketplace for others to transact business at a very attractive price. So we are excited about our Foreign Exchange platform. Obviously, our Treasury platform was growing 1% or 2% per sequential quarter, and that was without these partners being owners. Now with them being owners, we think over the next 2 and 3 quarters, you're going to see substantial growth in our Treasury platform, both in terms of volume, average daily volume, market share and revenues as well across the board. And in futures, as we've said, we plan to open in September. We are not expecting to charge a material amount of money for our futures business. Our expectation in the first year is to charge a very low to no price so people can connect and people can trade and people can grow their volume and understand the benefits of this system, the technology, its speed. And so our futures business is not where we expect in the first year to be gaining material revenues. However, our Foreign Exchange business and U.S. Treasury businesses should be growing their revenues nicely across the year.

Okay. And then just on the futures piece. I think in the past, you've said that it might take a year or 2 before you would expect to meaningfully start growing the market share in futures and taking share from CME. Can you just kind of update us on how you're thinking about the timeline until you kind of get everyone on the starting line and have the ability to take share, and then how you would expect that to maybe evolve once you get everyone there?

There are ongoing discussions with our partners, and we have enough capacity to activate our markets when we launch our futures. I expect our futures markets will offer great pricing because we have ten of the leading trading firms as partners, which allows for substantial transaction volumes. However, I recognize it will take time to integrate the global infrastructure of trading firms with our new Futures Exchange. This could take up to a year. While we're starting now, various firms will gradually join over time, some possibly before we open in September, but it’s reasonable to expect that some large futures commission merchants will onboard their clients throughout the year. We are aware of this process, are actively working on it, and anticipate it. The first year will focus on expanding our network, ensuring all participants can connect, and populating the market fully. We hope that by a year after our opening, all players will be involved, and that will be when the real action begins. Year two will mark the start of competition with all players in place, and then in year three, as everyone is fully connected, knowledgeable about our technology, and aware of the advantages we offer, like cross margining SOFR futures against interest rate swaps, we will see significant competition for market share. It’s a gradual process that requires patience, but I believe our market quality will surprise early on, reminiscent of the holiday season.

Okay. And then just switching to the quarter and the guidance. I think in the second quarter, the midpoint of the guidance range implies a little bit more margin expansion than the Street was expecting. Last quarter, you mentioned that you've made some investments that you didn't really expect to bear fruit until the second half of this year. Is that margin expansion in the second quarter? Is that any indication that you're starting to see kind of those benefits come through earlier than expected? Or is that maybe just driven by some of the lower expenses from the formation of FMX and the capital that's freed up? Or expenses that, that's kind of deterred?

You will see a clearer understanding of the Fenics business and its contribution to our company’s margins going forward. We have made significant investments in our U.S. Treasury platform and our FMX Futures platform. As a result, you haven’t seen the advantages of our higher-margin Fenics business reflected in our bottom line due to these substantial investments. We have invested in Lucera, which has been successful in Capitalab, as well as in various other businesses, like Portfolio Match, which is also performing well. All these investments have diluted our margins in the past years. Most of those investments are now complete, and we are entering a phase where we can start to reap benefits. We plan to begin leveraging FMX, even though futures have not yet launched. We believe that the growth in Treasuries and Foreign Exchange will more than cover the costs associated with our Futures Exchange. We are in an excellent position to start realizing the benefits from our Fenics platform and its associated margins. Starting in the second quarter, our margins are expected to improve significantly compared to what you have seen before, and we anticipate this trend will continue. Overall, things are progressing well, and the company is operating at full capacity.

All right. Shifting to capital allocation in the press release, you mentioned that the tens of millions of dollars of working capital that will be freed up would be available for share repurchases, increasing the dividend, which you did this quarter, and investing for growth. Can you help us understand how you prioritize those three? I have one other question on capital allocation, but I'll leave it there.

The dividend is straightforward at $0.01, amounting to about $20 million a year. We are going to increase it by an additional $0.01 per share now. We prefer buying back our shares. While we aim to keep our share count stable, which has been around 500 million, we might buy back shares if any of our shareholders decide to sell. We encourage them to contact us for block transactions. We're open to opportunities for investing in our business, which is growing. Other companies may lack the technology or scale that we have. We are seeing chances to take advantage of these conditions. Although the investments might be comparatively small, we're prepared to move quickly if the price is right. We have the technology and the scale, with products like Fenics and Lucera at our disposal to generate profits. Our market share is growing relative to others, and we're pleased with our progress. The validation from our partners in FMX shows they appreciate our technology and its capability, which has already captured market share recently. We are not backing away from our growth outlook and expect our partners to help accelerate it further. We remain enthusiastic about our investment opportunities and will continue to buy back shares. While we plan to raise our dividend, it will be limited due to our focus on share repurchases. Considering we project earnings of $125 million for the upcoming quarter, the $20 million commitment to dividends appears quite constrained.

Great. You're mentioning success in some of the Fenics businesses. Previously, you had indicated that you might consider selling some of the easily separable businesses within Fenics and returning that capital to shareholders. Can you provide any updates on your thoughts regarding a potential sale of those assets and how you would utilize the proceeds?

We are open-minded as a public company with a unique trading profile, boasting a 10% growth rate in our top line revenue and an 18% increase in bottom line profits. It's surprising to us, being part of the S&P 600, to trade at such an attractive price compared to the broader index, which is around 15 times earnings. We have numerous assets, and though they are not officially for sale, the exchanges are familiar with us and sometimes express interest in our products. If they approach us with attractive multiples, like 12 times revenue, we are open to discussions. However, I wouldn't want to commit to a specific direction as things can change. In the past, I have made definitive statements that we followed through on. While nothing is currently for sale since our business is growing rapidly, if exchanges are interested in purchasing something and offer a reasonable price, we would consider that, especially if it allows us to buy back shares at a favorable rate for our shareholders. So, while nothing is for sale, we remain open-minded about opportunities.

Okay. Great. And then just last question. Wanted to just know, what do you expect the run rate for stock-based compensation to be going forward? I think in the first quarter, it was annualizing out to about 8% dilution. So is that a run rate we should expect? Or would you expect that to kind of come down over time? And how much noise, if at all, is still in that number from the corporate conversion?

Patrick, I expect that it will decrease. The first quarter is when we pay bonuses and there were a significant number of hires during that time. Therefore, I anticipate that it will be lower than the level in the first quarter. My expectation is that it will drop by a couple of points. Yes, the first quarter is definitely when we pay bonuses.

Okay. So like 5% is a good run rate going forward?

Yes. Pretty close to that's fine.

There are no further questions. I would like to turn the floor over to Mr. Lutnick for closing remarks.

Thank you for joining us. We are enthusiastic about our future and the opening of our Futures Exchange in September. We are looking forward to presenting the market and seeing margin growth from Fenics across the business. BGC feels very positive, and we anticipate updating you on our success next quarter. Thank you, everyone.

This concludes today's teleconference. You may disconnect your lines at this time, and thank you for your participation.