Q3 2020 BGC Partners Inc Earnings Call
We may also refer to adjusted ebitda. You may refer to liquidity which we Define his cash and cash equivalents plus marketable Securities that have not been financed reverse repurchase agreements and security zone less Securities loaned out and repurchase agreements. We Define total capital is redeemable partnership interests total stockholders.
Equity and not controlling interest in subsidiaries. Please. See today's press release for results under generally accepted accounting principles or gaap. Please also see the relevant section in the back of today's press release for the complete an updated definition of non-gaap items reconciliations of these items to the corresponding gaap results and how and why and when 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 our partners and in our investor relations presentation. We refer to the company's fully electronic businesses at FedEx. These offerings include are fully electronic World products as well as the sale of Market data software Solutions and post-trade services.
I also remind you that the information regarding our business is on today's call that are not historical are forward-looking statements these include statements about the effects of COVID-19 pandemic on the companies businesses results financial position liquidity and Outlook any forward-looking statements involve risks and uncertainties, except as required by law BGC undertake no obligation to update any forward-looking statements any outlet and Target system is call as soon or material Acquisitions BuyBacks extraordinary transactions are meaningful changes to the company stock price or discussion of additional risks and uncertainties, which could come excuse me, which could cause actual results to differ from those contained in the forward-looking statements cbc's SEC filings including but not limited to the risk factors and special note on forward-looking information set forth in these filings in any updates to such risk factors and special note on birth information contained in the subsequent ports on form 10-K form 10-q and form 8-k with that. I'm happy to now turn the call over to Howard lutnick chairman of the board and CEO of BGC partners.
Good morning, and thank you for joining us for our third quarter 2020 conference call joining me virtually for today's call. Our BDC is Chief Operating Officer Charles India and our Chief Financial Officer speed. This guy we've made excellent progress this quarter with respect to our investments or FedEx brokerage revenues grew by double digits for the second consecutive quarter cups UFT in Phoenix go to of our newer fully electronic offerings reached record levels of market share and our Insurance Brokerage group is positioned to turn profitable for the fourth quarter and for the full year of 2021. You can see these improvements as they come through our fourth-quarter guide.
Investments we've made in our comprehensive integrated and stand-alone electronic platforms leave us well-positioned to capture market share across our businesses review. The macro Trends accelerate adoption of electronic trading record levels of global debt issuance and the hardening Insurance Market will drive positive fundamentals for our business in the third quarter VTC generated strong Revenue growth of 20% and 9% in its FedEx and insurance brokerage businesses, respectively.
As a result of these improvements we expect to match last year's fourth-quarter earnings, even in this tougher Market environment review. Our stock is demonstrably undervalued as our earnings returned to 2019 levels in the fourth quarter while our current stock price is over 50% below where it was last year. So with that I'd like to turn the call over to Sean Walsh.
Thank you. Had a good day everyone. I'll FedEx business continue to demonstrate strength and resilience outperforming a challenging macro trading backdrop in the third quarter off. I think she was treasuries in Phoenix. Go to have our newer fully electronic offerings reached record levels of market share in their respective markets.
In the span of just two years fenics us treasuries is rapidly grown. Its position to either clear number two among Central limit order book trading platforms with an estimated 13% money market share in September, but is your treasuries generated substantial growth year-over-year with notional volumes up by approximately 86% year-to-date compared to a 4% increase in overall primary data treasury volumes.
Thanks US Treasury estimated to have saved our clients approximately $115 since January 2019 by offering the tightest spreads in the market wage as a result of our continued technological innovations and strong client support. We expect both volumes and market share to continue to outperform the overall Market.
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So fully electronic options trading platform more than tripled. Its volumes since the first quarter of 2020 and it's go platform went live in Euro stoxx 50 options just over a year ago and live in Nick I-225 options in the first quarter of this year in this short time. We estimate Phoenix Go Now commands over six and thirteen thousand market share in Euro stoxx 50 and Nick I-225 front-month block sized options respectively month today in October. Thanks goes already surpassed his previous monthly record volume the state-of-the-art technology and trading protocols underpinning these platforms were designed to scale across products and asset classes.
We plan to leverage these platform Investments as we introduce new products such as repos and edb's to drive fully electronic growth across our businesses off data software and post-trade businesses, which are predominantly comprised of reoccurring Revenue grew by more than 17% this strong performance package driven by lucero's connect platform winning new SAS client contracts and the acquisition of alchemy.
Lucera has a fully-built scalable infrastructure that provides clients electronic trading connectivity with their counterparties within two days as opposed to month, and I only lower cost.
There's Sarah connect is quickly becoming the industry standard for the FX Market.
Alchemy is a deep-sea credit Marketplace, but Banks streaming to buy side times and provides the biocide aggregated access to broadband liquidity our Capital our business office by more than 20% driven by the adoption of its initial margin optimization product and ndf matches continued market share growth. We have a strong pipeline of new Innovative products included including Libor transition Solutions and new rates and FX data sets, which leverage our market-leading rates and FX franchises. We continue to expect double-digit growth across our data software and post-trade businesses.
As we continue to electronic significant parts of our business profitability and margin profile are expected to continuously improve with that are now having to turn the call over to Steve. Thank you Shawn and hello everyone. Our insurance brokers group grew its broken revenues by 9% this quarter driven by new hires in aviation and reinsurance peacock Aerospace Insurance Brokerage business achieved a significant Milestone by winning rolls-royce's a client during the quarter.
we expect
Around 20% top-line growth in this business next quarter to over fifty million dollars as previous front office hires and newly-launched business lines increased productivity. Furthermore Life Insurance Brokerage group has reached a size and scale. We're expected to be possible for the fourth quarter and improve mean she's bottom line by over $25 in 2021 compared to 2012 movie onto Sony's this quarter BBC's quarterly Gap pre-tax earnings would have been eighteen point four million dollars higher, but for the impact of our continued investment in our Standalone setting off and insurance brokerage business,
As we expand our product offerings optimize our commercial agreements and add new clients across our electronic platforms. We continue to expect profitability in our newer thenics. Send home businesses which includes Phoenix Phoenix go on the Sara to improve by forty million dollars and collectively Break Even next year. It's Improvement in Phoenix combined with the $25,000 provement Insurance Brokerage profitability will drive over all pre-tax adjusted earnings and adjusted ebitda at least 65 million dollars higher in 2021. All else equal is a further increase of $15 above what we expected last quarter.
Moving to a quote results starting with our revenues by geography Europe Middle East and Africa revenues declined by 11.8% The Americas were down by 15.7% while asia-pacific revenues declined by 10.4%
in terms of expenses. We remain focused on reducing our cost base to improve margins. Our compensation expenses under adjusted earnings decreased as a result of lower commissionable revenues as well as R35 million dollar cost Reduction Program.
Non-compensation expenses decreased primarily due to lower selling and promotion expenses.
The decline in selling and promotion expenses was due to a continued focus on tighter class management as well as the obvious impact of the COVID-19 demek.
The decrease in these expenses was partially offset by an increase in interest expense driven by the $300 of 3.75% senior notes due 2024 and the three hundred million dollars of 4.375% senior notes do 2025 less lower interest expense on a revolving credit facility, which would be paid in full during the quarter.
Moving on to our adjusted earnings pre-tax income was 69.2 million dollars compared with eighty seven point seven million dollars.
Post-tax earnings were 61.9 million dollars were eleven cents per share compared with 77.3 million dollars or fifteen cents per share.
Trying to share accounts are fully diluted weighted average share count increased by 3.9% to 549.2 million under adjusted earnings in the third quarter of 2020.
As of September 30th 2020 our spot share count was 548.1 million and increase of 0.3% sequentially.
We expect to use relatively more cash with respect to compensation and Acquisitions to minimize dilution. We still expect our 2020 year-end fully diluted share count to 1000 by approximately 4% to around five hundred fifty million.
With respect to our balance sheet as of September 30th 2020 recording was 549.1 million dollars compared with four hundred seventy three point two million dollars as back in 2019 notes payable and other borrowings or 1 billion three hundred eighteen point five million dollars compared with 1 billion 182 point seven million dollars a month and total Capital was 825.9 million dollars compared with 767 return the call back over to Howard.
thank you Steve turning to our outlet for the
Fourth quarter of 2020 as compared with the year-earlier bgc's revenues were approximately 4.4% lower year-on-year for the first Seventeen trading days off the fourth quarter of 2020. We are beginning to see evidence of a return to growth for example in the first Seventeen trading days of the fourth quarter of 2020. Our asia-pacific revenues have increased around 5% in Continental. Europe is running up over 10%
These represent our first Regional increases in Revenue since the start of the pandemic.
So looking forward to the fourth quarter to be in the range of 10 to 12% and that compares to 11.4% for the full year of 2019.
Beginning at the end of December. We will be modifying the way we update guidance going forward. We plan to either affirm our quarterly guidance range or provide updates. If we expect our results to be above or below the previously guided range with that operator. We'd like to open the call questions.
Thank you. We will now begin the question-and-answer session to ask a question. You may press * then one on your telephone keypad. If you are using a speaker phone pick up your handset before pressing any keys to withdraw your question, please press star then to the software posted revenues inter-company. So that's the first time it's been went down 30% I think the first time it's been down below the
Twenty million, I think a little in the past four or five quarters. So, can you give a little color feedback what's going on there?
Sure, Rich Sean here. You may remember in the past that we said as as the the revenue moves into off into full electronic wage, which is of course what what we want you'll see the you said there will be some revenue or we'll go from the inter-company into into fully electronic as it becomes fully electronic Revenue that that has happened and then secondly, it's also remember Phoenix provides the the technology trading for for our our voice businesses and when the voice big change the fraction lower by definition as a percentage of the that that business that line is is practicing lower as well.
So the electronic Revenue then of sorry electronic revenue of FedEx, you know company isn't broken out as in a competition cuz that can you give us a feel for how much that is.
So so again, there's two two parts to the inter-company is where the the our technology package for FedEx company provides the technology for our our voice hybrid business. And and for that for that charge is 8 a.m. And then that's number one. So, of course that would would go down if the revenues of our of our business is declining revenues for actually declined in in the in the third quarter equally though. Our aim is as we discussed before as as those voice hybrid revenues become electronico news. They those revenues move into our electronic brokerage line as we convert that voice business into electronic and so you see you see in
Increases in our electronic Revenue line, so it's a mixture of those two.
Okay. All right. And then I guess another question how like you make a good point about how earnings are you know on par with last year, but the bank stock price is down materially one big difference is also is there's no dividend now compared to last year. So any updates wage you have on the capital return policy, you know, you know, I know you've talked about year-end, but do you see that as a difference too in in what can we is there anything you can update us off?
Hey Richard, it's Steve. How are you? You know the board is currently considering it's it's cap return policy and we will be prepared to discuss that in our next conference call. But but one point where the note is that is strictly as you're aware. The Firm has been entirely dividend-focused and ends part of our planning. We will definitely consider evaluating share BuyBacks as part of our Capital return policy, but we will have more to say syrup next quarter.
Okay, I guess the the last question is it looks like your net debt is up, you know about a hundred million a year to date and month. It doesn't seem like it's captured all the cash, you know the pay Downs of the revolve or Etc. I want I was just wondering whether you know, whether you could just walk through a cash flows on that you pay down debt and why isn't the net debt, you know higher than that $99 million or so the other day.
Well, we have our weekly total liquidity is up. It's up to about five hundred fifty almost $544. So it's certainly up significantly year-to-date. We did do a tender as you know, for how long for you know, the 45 million dollars this quarter. That's a part of it. We paid down the revolver entirely as well. The the the the fears million dollar note that we took was affecting a refunding for the May twenty ones that are coming to so so so bear in mind that's the case as well.
Got it. Okay. Thank you. I'll get back in the queue.
Once again, if you have a question, please press * then 1 our next question comes from Patrick O'Shaughnessy of Raymond James. Please go ahead with hey, good morning to build off of that last question from Rich Steve. So maybe two to lay it on a different way. Year-to-date adjusted earnings have been a little bit more than 240 million net debt increased by about a hundred million so that you know is directly 340 million of cash flow in dividends and distributions year-to-date. I think have been around ninety million. So what are some of the other big uses of your cash flow year-to-date?
Who is definitely cutbacks? There's no question about that on a quarterly basis. We had roughly twenty million dollars of capex. We have continued to Thursday. We're we're turning the corner as you said certainly on we're looking towards to probably.