BGC Group, Inc. Q1 FY2025 earnings call

• Delivered record quarterly revenues of over $664 million, a 15% increase vs last year's first quarter, driven by robust organic growth in Voice/Hybrid and Fenics businesses. - FMX had best ever quarter with record volumes and market share. - Completed acquisition of OTC Global Holdings on April 1, adding over $400 million in annualized revenue, making BGC world's largest ECS broker, expected to be immediately accretive. - Second quarter continued global market volatility led to broad organic growth. - Rates revenue up 14.8% to record $200.9 million, ECS up 26.6% to $149.9 million, FX up 31% to $110 million, etc. - Fenics revenues improved 15.6% to $172.7 million, FMX UST and FX had record volumes, Portfolio Match ADV doubled, Lucera revenue up over 15%.

BGC Group delivered record quarterly revenues of more than $664 million, a 15% increase versus last year's first quarter. Rates revenue increased 14.8% to a record $200.9 million. ECS revenue grew by 26.6% to a record $149.9 million. Foreign exchange revenues were up 31% to a record $110 million. Credit revenues decreased by 0.7% to $86.9 million. Equities revenues were flat at $62.9 million. Data network and post-trade revenues increased by 5.2% to $32.5 million. Fenics revenues improved by 15.6% to $172.7 million, with Fenics Markets reporting revenues of $145.5 million (an increase of 14.2%) and Fenics growth platforms growing by 23.7% to $27.1 million. FMX had its best ever quarter with record volumes and market share across both FMX UST and FX platforms. On April 1, BGC completed the acquisition of OTC Global Holdings, adding over $400 million in annualized revenue and making BGC the world's largest ECS broker.

• Expect to generate total revenues of between $715 million and $765 million in the second quarter of 2025, compared to $550.8 million in the second quarter of 2024, with midpoint representing ~34% revenue growth. Excluding OTC, expect second quarter revenues to grow between 10% and 17%. - Anticipate pretax adjusted earnings to be in the range of $156 million to $171 million versus $125.8 million last year, midpoint representing 30% earnings growth. - Expect adjusted earnings tax rate to be between 10% and 12% for the full year 2025.

• Information on the call contains forward-looking statements subject to risks and uncertainties that could cause actual results to differ from expectations. For factors causing actual results to differ and complete discussion of risks, see SEC filings.

Q: Hey, good morning, guys. So I wanted to just start off talking about the FMX launch. It's been slightly delayed here. You're still planning to launch this month, though. So I was hoping you could just maybe elaborate on what's driven the delay so far? Is this entirely due to the environment and just not wanting to launch into some of the extreme volatility that we've seen? Or are there any other technological or specific onboarding issues that have contributed to the delay? And then as a second part of that, there was an article that came out yesterday citing a source from inside the LCH that said that they were maybe dealing with some settlement or delivery issues on their end. So to the extent that you're willing to address that, is there any validity to those reports?

A: Hello Patrick, JP here. So you're correct. The extreme volatility in April created an environment not ideal for a successful launch. But the good news is we're launching this month in May. So to come back to the article, we are aware of this article. And while we don't comment on rumors, we can say that we spoke to our – with our clearing partner, LCH. And by the way, we spoke to them every day. So we spoke to LCH as recently as last evening following the release of this article. And guess what they are ready, LCH is ready. We are ready. And we will be launching in this month's period.

Q: And then as a follow-up, one more. You closed OTC Global Holdings about a month ago. You've had a little while now to look under the hood. So I was hoping to get your updated expectations on how accretive this acquisition could be? What the revenue upside looks like in terms of cross-sells between the two customer bases? And then on the margins, it seemed like the second quarter margins were maybe a little bit softer than we were expecting. So any color you can give on kind of how you're expecting margins to trend from here would be great.

A: Yes, sure. Thanks. I mean, it's good, right. We've had a total of, I think, 37 days of owning OTC. So – but rest assured, as you know, as Patrick, we are hard at work with the integration, and we're very happy with the – what we've seen so far. I mean, look, in the implied guidance, we separated guidance out for you. So you saw at the sort of midpoint of guidance, we expect $115 million, which as you would guess, shows decent growth from the $400 million that we initially expected. Look, in terms of – and in terms of the margin itself, I think we said on the previous call that BGC as a group, has margins in excess of – pretax margins in excess of 20%, whereas when you're buying a larger company like OTC, that has smaller margins to start with. And as you can see, you can work out the implied margin from our guidance. That's why we did that work for you. But that's immediately. We've done huge amounts of small transactions and we get the economies of scale. We're also very experienced at the larger transactions, such as GFI. And what I would expect is as I said before, whilst we don't think the OTC business will get up to the BGC margins in the short-term, you will definitely see a growth in those margins by the end of year one, beginning of year two. Maybe, John, you wanted to add something in terms of the business itself and the synergy.

Q: Good morning, everyone. Thanks for taking the question. After treasury futures, what are the next key milestones or product launches that investors should be able to look out for? When should we expect longer 10-year treasury futures and options on futures to go live?

A: Hey Eli. JP here. Look, as you know, one is about connectivity. We in your one right? And as I mentioned previously, we are launching this month in May, our UST futures. Our bank partners, equity partners are the main users of UST futures. It's great news. We do expect their respective trading desks to become highly active on our exchange, which we drive volumes up. It's our target today. Obviously, our plan, right? As a reminder, year one connectivity, year two deepening client connectivity and increasing volumes and open interest. And year three full competition with CME. We stick to our plan. It's a three-year plan year one.

Q: Based on the noncontrolling interest deduction, it looks like FMX still hasn't reached profitability. Can you help us quantify the cash burn related to FMX Futures? And once the futures exchange starts to breakeven, what do you think the normalized profit margins of FMX should look like?

A: So obviously, we don't break out FMX independently. However, to be clear, the cash burn to BGC is zero. So part of the deal with our – with FMX's partners, we contributed the business. And they are funding, if you like, the future development of futures, how about that? So the cash burn to BGC is zero. And then in terms of profitability and where the margin will get to, I think in the short-term, we get – certainly get to breakeven and slightly beyond. And in terms of the medium to long-term, I think it's commensurate with other exchanges, which is around the 40% to 50% level.

Q: And then just the last one for me. Do we have any additional clarity yet on the outcome for Howard shares? My math's right. I think we're getting close to the 90-day mark for divestment.

A: I think all – as probably as you'd expect Eli, all you can say is that how it will comply with all the Senate Ethics Committee standards, including his – divesting his holdings. The public SEC filings will be required when he does so. And as we've previously stated, we don't expect any sales in the open market, and we expect no changes equally to the corporate structure. And on your point of math is – I would agree with you 90 days is fast approaching.

Q: Yes. Thanks for taking the follow-up. So I just have two modeling items to ask about. The first is on the tax rate. It came in at 11.9% by my calculation this quarter was the highest it's been in a little while. So any color you can give on tax rate expectations going forward? And then secondly, on the acquisition of OTC Global Holdings, what should we assume in terms of the cash outlay this quarter for that acquisition?

A: Sure. So yes, look, the reason we added as we have done before in my prepared remarks, I suggested that the tax rate – our expected tax rate is between 10% and 12% for 2025. In terms of cash outlay for OTC, it was $325 million. So is now sort of fully disclosed. So that was paid on April 1.