Q4 2019 Earnings Call

Ladies and gentlemen, today's conference is scheduled to begin shortly.

Please continue to standby and thank you for your patience.

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Ladies and gentlemen, today's conference is scheduled to begin shortly please continue to standby and thank you for your patience.

[music].

Uh huh.

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Come to the BDC partners Inc. fourth quarter 2019 earnings call.

Name is Carmen and I'll be your operator for.

Today's call at this time, all participants are not listen only mode. Later, we'll conduct a question and NASA section during the question and answer session you have.

He's press Star then one on your Touchtone phone. Please note that this conference is being recorded I will now turn to call over to which all bus overweight.

You may begin.

[music]. Good morning, we issued Bdcs football rights for your 2019 venture results press release and the presentation summer. They summarizing. These results earlier. This morning, you can find these that I, our dog PGC partners Dotcom BGC spun off all the shares during the Mark held by because you seem to stockholders of BGC.

On November Thirtyth, Twentyeighty, because BGC did not owning shares in new markets up here. In 2018, you must results are presented as discontinued operations. The didn't bdcs consolidated results for all periods to the November Thirtyth. When he came to an update you must results not into any bdcs consolidated results presented after the spin off.

I stated the results from continuing operations provided on todays call compared to only the fourth quarter Oakley 19, with the Euro <unk>, we will be referring to our thoughts on this call.

Turning spaces, unless otherwise stated.

Also refer to adjusted EBITDA.

So to a liquidity, but you can find its cash and cash you couldn't spot market its journey.

Not being financed.

Repurchase agreement on security don't let securities London repurchase agreements, we define those cabinets female buttress interest on the stockholders' equity and non controlling interest in substituting. Please see todays press release I was under generally accepted accounting principles are gap, because obviously the rather than section in the back to this press release with a complete an updated definitions.

Any non-GAAP item reconciliations of these items, the corresponding GAAP results and how when and why management uses these terms additional information with respect to GAAP and non-GAAP as Doug mentioned after this call is available on our website at <unk> Dot BGC Barton Dot com and in our Investor presentation, we're sort of the company's fully electronic business is that.

Phenix. These offerings include a fleet electronic brokerage product as well as the sale market do not software solution. That's supposed to be it services I also remind you that information regarding our business on todays call that I'm not historically all forward looking statement wouldn't the meaning of section 27 habits getting back to making 33 as amended and section 21, Yes, Joe you see Jack.

Thank you for Redmond, such statements involve risks and uncertainties, except as required by law <unk> undertakes no obligation to update any forward looking statements any outlook and targets discussed on this call. This you know with your acquisitions buybacks extraordinary transaction, Oh meaningfully changed to the company stock price.

Our discussion of additional risks and uncertainties, which could cause.

Actual results to differ from those contain forward looking statements.

Did you see SBC body, including but not limited to the risk factors, especially not unfold mission sevenfold in these findings on any update such risk factors, especially relevant always cancellation continue she's been foams and foam gencare form 10-Q, I'll make it.

No hockey.

On the color words, I would love to make chairman of the board and the other Peach tea bar.

Thank you John Good morning, Thank you joining us for a fourth quarter 2019 conference call.

Today, or <unk> presidential land or Chief operating officer sure when do yet our Chief Financial Officer, Steve Scary, our Chief Accounting Officer.

Got it.

I would like to start by welcoming steepness gauge was first BGC conference call that's our CFO.

Did you see is revenues improved by 8.6% and 4.5% for the full year fourth quarter 29 gene.

Last year.

Generated top line growth despite.

We lower industry volumes.

Before our next quarterly conference call, we expect to submit a proposal to Bdcs board of directors in Rolling committees, which I think to converting a partnership into a corporation or current target is to be positioned to begin executing a conversion around the ended the third quarter 2020 expected.

We see execution around hearing.

Any such restructuring would be subject to tax accounting regulatory and other considerations got approved.

I'm pleased to report.

Board declared a qualified dividend 14 cents per share this translates into a 9.4% dividend yield based.

On Yesterdays closing stock price.

Let's turn the call over Charlotte.

Thank you have.

Good morning, everyone energy commodities business improved by 26 to say the full year 2009, cheap led by the acquisition, a potent and getting them to try to Oh.

Partially offset by the same CSC come on.

Turning now to funny.

I'd say, it's putting a 20 range business increased 15% kiichi thousand might see both data software and punch trade grew by 12%.

Net interest from revenues improved by 6% to 10% expects full year.

We.

Oh that nexgen textbook brokerage platform across more products and geographies. The gold it seems the integration Bush liquidity custom at 20 quarters, either by a graphical user interface or 18.

As announced in December we make leadership changes to that global brokerage business. The object you folks.

Right the conversion that Bush hybrid business, just 2020 constitution.

In addition, we've continued to best at U.S. Standalone finished species.

Greetings sense U.S.T.

Thanks, Tom Thanks effects you share in Canada.

I think she was to increase.

These market share central limit order book training, but don't speak to say 10, [laughter] and is now the second largest called.

So you must treasures.

And he spoke auctions, but well thanks, Tom has recently added system Securities. He joins I am see maybe securities and.

That's an interesting liquidity providers.

He's got to places like real twice the train two way they tried to Christie place changed futures and options such as your makes your Stopes 50 index options Nikolai two to five unrelated fell to one strategies.

We look forward to the growth that faced okay.

As we continue to <unk>.

2019, net investment cost associated with the U.S. Standalone fax business was more than $55 million.

We expect these species to preach a net investment cost $40 million in 2020, that's a breakeven in 2021.

We believe that Youve put electronic business is creating significant shareholder value.

We plan to host studies, we stay in early April during which we will provide that information when I put electronic this.

Maybe to reinsurance brokerage revenues for the fourth quarter and full year 2019 increased.

Yeah, my folks, the 186% and 126% per se.

She majored acquisition it's Frank.

Because its nixon broken this business, we expect to breakout insurance brokerage revenues separately X season of the actually cost stocking in the next question.

We believe our insurance brokerage.

He's with two of anymore.

Freshmen and are actively considering ways to better expressed by the benefit because I cycles.

With that I know habits and of course CP Scott. Thank you, Sean and I look Hello, everyone.

She's quarterly revenues increased by 4.5%.

Europe Middle East.

In Africa revenues improved by 4.6%.

The Americas rose by 3.9% well Asia Pacific revenues grew by 5%.

With respect to quarterly expenses compensation increased by 9.3% due to the back stock positions.

The acquisitions compensation expenses would have represented 51.

With 3% of revenues in the fourth quarter.

Our total technologies head count increased by 8.5% year on year to 691.

Related primarily to our symbol fully electronic offerings, some would Sean that's true.

[noise] bdcs non compensation expenses increased by 10.9%.

<unk> when $79 driven by the acquisition of that Broking, Israel's interest expense and our increased investment in technology.

Excluding acquisitions Noncompensation expenses would have represented 31.7 percentage of revenues for the quarter.

Moving onto earnings our pretax earnings were.

$3.2 million compared with $86.3 million.

Bdcs pretax earnings would have been at least $20 million higher than the fourth quarter 2019, excluding the net investment cost for the period associated with the newer Standalone business.

As these businesses grow we expect their net investment.

Cost to know to approximately $40 million for full year 2020 and break even in 2021.

My team and I are going to examine how best to operate our business, but the goal of reducing expenses going forward.

Moving on to post tax results.

Our post tax earnings were $61.4 million or 12 cents per share.

Compared with $71.1 million.14.

Our fully diluted weighted average shirt I'm supposed to understand the 1.4 million.

And 532 million for adjusted earnings in the fourth quarter 2019.

A year earlier these figures were 331.4 million under GAAP.

And 498.5 million for adjusted earnings.

Increasing weighted average share count reflected the issuance of 29.8 million sure goons relates to New York spin off.

This reduced non controlling interest, but had no dilutive impact nor effect on earnings per share.

As of quarter end or spot.

Sure Count was 530.4 million.

This represents a 2.2% you're on your increase which was better than our previous guidance.

With respect for balance sheet.

Since the first 2019 or liquidity was $473.2 million compared with $410.9 million as of year end.

2018.

No stable another barring a 1 billion $142.7 million compared with $763.5 million.

Book value per common share was $1.94 cents versus $2.20 and someone capital was $769 million compared with 887.99.

In dollars.

How did turn call back over to Charlotte I, you see plenty to out in the first quarter of 2020 compared with last year.

And she bought change the mix desktop and the first quarter guidance assumes volumes remain around these levels the balance of the cool.

We expect to generate revenues between.

540, $518 million compared with 544.8 million.

We anticipate pretax adjusted earnings to be in the range of 9200 $6 million, that's such a $6.2 million.

We anticipate our adjusted earnings tax right. It's been a range of 10 to 12 cents.

That's is 11.4 [noise].

We expect to update I don't know towards the end as much because that whole bunch of analysis and the clean up questions.

[noise], Thank you and ladies and gentlemen, we will now begin the question and NASA session. If you have a question. Please press Star then one on your.

Touchtone phone.

Do you wish to be removed from the Q. Please press the pound sign for the high ski.

If you're you're saying that speaker phone you may need to think of it has had first before threaten the numbers. Once again, if you have a question.

Please press Star then one on your Touchtone phone.

[noise] <unk>.

First question is from rich repetto with fiber Sandler.

Good morning, Hollywood, and Sean and a welcome Steve good or how do you have on it yet.

Thank you Sir [laughter]. So I guess the first question how it has to do the C Corp, and I know you know you studied it and.

You outlined so to the timeline I guess any more updates in regards to tax rate.

Central changes in dividend can you give us any.

Any sort of Oh, the color around how things are working.

In this conversion to a C Corp, where you know what you expected later in the year I guess.

Richard Tse Hayden I believe we're still studying the proposed transaction and there's lots of moving parts lost complexity as you can imagine but overall it leaves the company, we will be better off in the long term.

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

Yeah, we're not.

As we sit here today, we're not expecting modification of the dividend having to do with the.

Change to a C corp in our businesses our business obviously.

That notwithstanding we don't think the C Corp.

It will impact on do you have given.

Okay.

<unk>.

Next question Howard to Steven Sean a would be like on the Pfenex growth.

You know I know the inner company revenue grew substantially but just looking at the year over year growth in the fully electronic.

You know is down slightly just trying to get more color on you know what's going.

On their.

And these guys hi, rich I.

Hi, Ritu show closed the exchange the Monkey places that we track overall volumes were down in the food quota.

Well, we were down a little bit.

We we get out from the marketplace in general.

We have a substantial business across a wide range messy.

As you know, it's we spoke to that full but we are shopping focused on these new areas information that is absolutely paramount for us and when we think about.

Yeah offerings that we got to give a we know rest until we can yeah out.

Everything we had to delays.

Pretty electronic offerings to excellence.

And we ought to look at it.

Got it and last question is sort on the first quarter guidance.

Yeah, you are seeing you know a nice.

Uptick quarter over quarter.

And also year over year.

Sure, but it's not quite the be increases you've seen in the past and I'm just trying to see it seemed like bargains are off you know pretty robustly and I'm, just trying to sort of filling the gaps here on a you know where the numbers are you know on the estimates versus the guidance.

Well I think bridge, Sean I think I.

As always we know we guide what we see Sean said in his in his prepared remarks.

He stopped the quota I've seen.

He was mixed across across the board guidance achieved they remain at these levels yeah, you'll also notice I actually.

Right right beside is a a significant uptake in both both revenues and of course in a profitability from Q4 also remember we <unk>, we made a significant amount of of hirings.

Number of Oh business is a cross sell exactly in our insurance business as we.

They did and of course, what happens with these days.

Those businesses is at revenue generation comes.

Towards the end of the first few beginning in the second year that all those businesses are so goals as we said I think as we've already crazy significant body.

Significant shareholder value of a well in excess of what we pay for those businesses.

[laughter], Okay. That's all I had for now I can get back into queue.

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

Hey, good morning, guys or want to start with Phenix <unk> are there any specific areas within the fenix new investments.

You can call outs that are going to drive that incremental $15 million an EBITDA.

Or earnings in 2020 relative between 19.

Sure. So I mean, we can step.

And on the.

Fenix go as an example, ER was in full build mode in 29 team.

Including you know when you launch and new business.

Our sales or distribution agents all connectivity, there's all sorts of expense.

That comes with the launch without revenues now that its launched you want to see.

Material improvement in the bottom line economics, Oh facts go.

To the company because its launched its out and it's making money and I'd say, that's a big business the global equity options business is a.

Because it's a big business, which will go through and much more detail on analyst day, but that's a good step our newest treasuries.

The cost of going from 2% to 10% a is mature.

Cost of going from 10% 20, just much less.

Just last because you have more people paying.

Mark days more valuable well all the pieces of the puzzle of better convincing someone you matter. When you started 2%. It's one thing I, becoming a number two club as you count forward, it's quite another and and I'm happy to say that the month of January a continued that ER positive momentum of the business.

So we continued positive momentum that will drive economics.

Many of the cast of other businesses Sarah.

Which is a connectivity provides a technology connection.

Between a bank send their clients and thanks to each other banks to market makers.

Its infrastructure software as a service not businesses continued to gain legs. So each of these businesses, which were launched in.

2018, Ah, yes, fenix, FX, which continues to improve any market makers, adding clients having traders.

Okay.

Players.

You know capital out of doing a little better all the times Yep.

When you launch them in in 2018, or you know you build them in 2019 to that's sort of our peak investment expense and then you start to see that drop and you saw that in the fourth quarter. We spend you know would've been $20 million.

So just that's for the quarter and we expect that we spent $20 million <unk> of the north of 55 million fourth quarter right in our expectation is.

For.

A full year 2020, <unk> seeing is obviously a dramatic improvement in these businesses going forward and so yeah, so about 20 million.

Core run rate dropping to 40 dropping to zero that makes sense because once you get a 20 million runrate driving that down right you can get to breakeven in 2021. So we really feel good about it you're going to see it improve all year long right, but the net result is gonna be.

40 million or expectations 40.

<unk> million or better for this year and at breakeven or better for next and you know these businesses are growing and you won't be reporting on them, but the treasury business as an example.

You know Greenwich Associates comments on it puts it out everybody watches it and you've seen our Oh rise, which has been relentless ER and.

Gotcha 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 we are heavy investors in this business, we have when you get the Tiger by the tell you invest in it and so we think.

These businesses are just going to grow.

Got it thank you for that.

Maybe a follow up on earlier question, but maybe asked 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 a new businesses.

Was 29.

Okay, and then going into 2020.

We expect our net investment cost to decline, which will improve our 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 Ci wall, but we understand a that we have.

Competing.

Finishes, which is a we have as a.

The strong dividend.

We have strong investments are in our and our new businesses and we want to grow up existing converted.

Two electronics so those are different businesses, we feel that through this year.

Where we you know that that might be the area that you're looking to.

Last but last year with it.

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 growing in 2021, obviously that should we expect a we will get through a we will get through we know.

Our investors care about the dividend a board obviously takes that under advisement every quarter, but we feel as we all right now that we see the path forward, a which will allow us to grow our business to dramatically add shareholder value too.

We hope.

To maintain the.

Dan.

Hope to deliver material economic value to all of our stakeholders.

As we answered 2021.

Got it and you touched on the insurance brokerage business and your response to that question can you talk about where you are in process of examine your options for that business and.

Then.

As you kinda are in the middle that process does that poses any challenges in terms of attracting and retaining talent to that business [noise].

Well, we look we are great fans of management of our insurance I think.

We have a really world class talent and in England trying to express value to our shareholders. We are working hand in glove with them. We are we aren't no ways. You know trying to work contrary to management joined US who we think the world. So.

Because we're working together and doing things in a very positive way I think it's yeah, it's having no no negative impact in fact, probably having a positive impact because they know the plan to thinking about the plan.

You know, we're making enormous number suppliers now and stuff. So we feel good about things, but you should understand we're working together there's no.

There's no daylight between us for.

You know, it's it's not reducing our hiring in fact.

[laughter] imagine that they could go any path.

Gotcha, and then maybe I'll finish with just a quick numbers question. So obviously the share count.

And was much much lower in 2019 and it wasn't the past I came in below your guidance. What is your initial expectation in terms of share count dilution for 2020.

Yeah, I think I think you you said it correctly. It was a it was much leverage that 19, as we said we with the who is an area of focus.

Because for US I think we think as we look I, perhaps to the to the year end. It I would expect the spoke kind at the end of the yes, you're right in the 550 miles taking into account.

Hiring little hirings that we've we've we've spoken about resolve insurance you have any idea and I said the.

Yes acquisitions, and our general equity based compensation. So I think I think a good model is you know run 550 for this fault.

All right. Thank you very much.

Thank you and ladies and gentlemen, that's having in mind or [noise] did get into Q Just press Star then one.

[noise] [noise], Okay. We have no further questions at this time I would like to turn to called back to Sean name for any final remarks.

Thank you all for joining us today, I mean, it puts things you're getting the school.

Thank you.

Thank you.

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

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