Bgc Group, Inc. · NASDAQ:BGC
Bgc — BGC Partners — Q3 2013 Earnings Presentation
45 slides from Bgc's earnings presentation, 2013
Slide 1: BGC Partners, Inc. Q3 2013 Earnings Presentation
BGC PARTNERS, INC. Q3 2013 EARNINGS PRESENTATION
Slide 2: Disclaimer
DISCLAIMER Discussion of Forward-Looking Statements by BGC Partners Statements in this document regarding BGC Partners’ business that are not historical facts are "forward-looking statements" that involve risks and uncertainties. Except as required by law, BGC undertakes no obligation to release any
Slide 3: General Overview
Tb gC voice + electronic brokerage
Slide 4: Select 3Q 2013 Results Compared to 3Q 2012
SELECT 3Q 2013 RESULTS COMPARED TO 3Q 2012 Highlights of Consolidated Results Change 3Q 2013 3Q 2012 ($ millions, except per share data) (%) Revenues for distributable earnings $414.4 $445.7 (7.0) Pre-tax distributable earnings before non-controlling interest 37.4 46.7 (20.0) in subsidiaries and tax
Slide 5: 3Q 2013 Global Revenue Breakdown
3Q 2013 GLOBAL REVENUE BREAKDOWN Americas Revenue down 14% Y-o-Y (excluding eSpeed Americas Revenue down 4%) Europe, Middle East & Africa Revenue up 5% Y-o-Y Asia Pacific Revenue down 16% Y-o-Y 3Q2013 Revenues Hong London APAC Kong 10.4% Americas 48.6% EMEA 41.0% New York Paris Date Singapore
Slide 6: BGC's Front Office Overview
BGC’S FRONT OFFICE OVERVIEW Front Office Headcount Front Office Productivity (in thousands) $1,200 Y-o-Y change: (5.6%) $1,000 2,500 2,575 2,551 2,535 2,485 2,432 $776 (Front Office Employees) 840 830 $800 2,000 894 898 887 $639 ($ thousands) 1,500 $600 1,000 1,735 1,721 1,641 1,587 1,545 500 $400 0
Slide 7: 3Q 2013 Product Diversity
3Q 2013 PRODUCT DIVERSITY Date Note: percentages may not sum to 100% due to rounding. 7
Slide 8: 3Q 2013 Segment Data
3Q 2013 SEGMENT DATA 3Q2013 Revenues 3Q2013 Revenues Pre‐tax Earnings Pre‐tax Margin In USD millions Financial $256.7 $29.7 11.6% Corporate Real Estate $148.1 $15.5 10.5% 2.3% Real Estate Corporate $9.6 ($7.8) NMF Services 35.7% Financial Pre‐tax Pre‐tax Services 62.0% 3Q2012 In USD millions Revenue
Slide 9: Volatility Levels Trending Below Historical Average
VOLATILITY LEVELS TRENDING BELOW HISTORICAL AVERAGE Date Interest rate and foreign exchange volatilities based on the annualized standard deviation of daily price returns. Source: FactSet, Bloomberg, Credit Suisse data as of 10/28/2013. 9
Slide 10: Quantitative Easing Continues to Benefit Real Estate, But Temper Rates Volumes
QUANTITATIVE EASING CONTINUES TO BENEFIT REAL ESTATE, BUT TEMPER RATES VOLUMES Date Source: Bloomberg 10
Slide 11: Current Monetary Policy Likely to Continue Into 2014
CURRENT MONETARY POLICY LIKELY TO CONTINUE INTO 2014 Monetary Policy Forecast Fed Seemingly To Remain Cautious On • Fed not likely to taper until 2014 Tapering Purchases Due To: • Any tapering likely to be asymmetrical • Prodigious labor slack, output and • Tapering of treasuries likely to outweigh
Slide 12: eSpeed Transaction Details and Use of Proceeds
ESPEED TRANSACTION DETAILS AND USE OF PROCEEDS On June 28, 2013, BGC completed the sale of its fully electronic trading platform for benchmark U.S. Treasury Notes and Bonds ("eSpeed") to the NASDAQ OMX Group, Inc. This platform generated $99 MM in revenues for BGC in 2012, less than 6% of overall
Slide 13: eSpeed Transaction Details and Use of Proceeds (Continued)
ESPEED TRANSACTION DETAILS AND USE OF PROCEEDS (CONTINUED) The remaining technology-based businesses in BGC’s Financial Services segment had a 27% CAGR for the three year period ending December 31, 2012, and grew 5% Y-o-Y during the nine months ended September 30, 2013. The large gain related to
Slide 14: Financial Services Segment Overview
FINANCIAL SERVICES SEGMENT OVERVIEW
Slide 15: Business Overview: Rates
BUSINESS OVERVIEW: RATES Example of Products % of 3Q 2013 Total Distributable Earnings Revenue Interest Rate Derivatives US Treasuries (off-the-run) Global Government Bonds RATES Agencies 26.3% Interest Rate Futures Dollar Derivatives Repurchase Agreements Non-Deliverable Swaps Int
Slide 16: BGC's Fully Electronic Rates (ex. eSpeed) Continues to Grow
BGC'S FULLY ELECTRONIC RATES (EX. ESPEED) CONTINUES TO GROW BGC continues to exhibit solid growth in its higher margin retained fully electronic Rates business Industry-wide Rates volumes mixed on a year-over-year basis 35% 32% 30% 25% 20% 16% 15% 10% 5% 5% Date 0% Eurex Rates Volume Fed U.S. Tr
Slide 17: Business Overview: Credit
BUSINESS OVERVIEW: CREDIT Example of Products % of 3Q 2013 Total Distributable Earnings Revenue Credit Derivatives Asset-Backed Securities Convertibles Corporate Bonds High-Yield Bonds Emerging Market Bonds Drivers Credit Revenue Growth Industry derivatives volumes generally lower $500
Slide 18: Business Overview: Foreign Exchange
BUSINESS OVERVIEW: FOREIGN EXCHANGE Example of Products % of 3Q 2013 Total Distributable Earnings Revenue In virtually all currency pairs Options Exotics Spot Forwards Non-deliverable forwards Drivers Foreign Exchange Revenue Growth FX volumes tracked lower globally for $208.0 $218.4 mos
Slide 19: BGC's Fully Electronic FX Volumes Outperform Industry
BGC’S FULLY ELECTRONIC FX VOLUMES OUTPERFORM INDUSTRY 3Q 2013 Y-o-Y Change 40% 36% 30% 20% 10% 0% EBS FX Average Daily Reuters Spot FX Volumes CME FX Futures Volumes BGC Total FX Revenue BGC Fully Electronic FX Volumes (3%) Volume ‐10% (5%) (12%) ‐20% ‐30% (27%) Date ‐40% Source: ICAP, CME, Thomson
Slide 20: Business Overview: Equities & Other Asset Classes
BUSINESS OVERVIEW: EQUITIES & OTHER ASSET CLASSES Example of Products % of 3Q 2013 Total Distributable Earnings Revenue Equity Derivatives Cash Equities Index Futures 8.4% Commodities Energy Derivatives Other Derivatives and Futures Drivers Equities & Other Asset Classes Revenue Growth
Slide 21: Equities and Other Outpaced General Industry Trends
EQUITIES AND OTHER OUTPACED GENERAL INDUSTRY TRENDS 3Q 2013 Y-o-Y Change 5% 0% 1% 0% Euronext Equity Derivative Eurex Equity Derivative Deutsche Borse Xetra Volume OCC Equity Option Volume BGC Equity & Other Asset Volume Volume (ADV) (2%) Class Revenues ‐5% ‐10% ‐15% ‐20% (20%) ‐25% ‐30% (30%) Date
Slide 22: BGC's Fully Electronic Brokerage Metrics
BGC’S FULLY ELECTRONIC BROKERAGE METRICS Fully Electronic Brokerage Notional Volumes (in billions)1 Retained Technology Revenues (in millions)2 $45 $3,000 $2,622.5 $2,416.3 $40 $2,500 $2,167.0 $1,988.2 $35 $2,000 $1,701.0 ($ millions) $30 ($ billions) $1,500 $25 $22.7 $21.9 $19.3 $1,000 $17.9 $17.8
Slide 23: Tech-Based Products Have Much Higher Margins
TECH-BASED PRODUCTS HAVE MUCH HIGHER MARGINS Q3 2013 Q3 2012 Technology Voice / Corporate / Technology Voice / Corporate / - Based Hybrid Other Total - Based Hybrid Other Total Revenue $18 $387 $10 $414 $42 $391 $12 $446 Pre-Tax DE $8 $37 ($7) $37 $20 $39 ($12) $47 Pre-tax DE Margin 45% 10% NMF 9% 4
Slide 24: Real Estate Segment Overview
REAL ESTATE SEGMENT OVERVIEW
Slide 25: Business Overview: Real Estate Services
BUSINESS OVERVIEW: REAL ESTATE SERVICES Example of Products % of 3Q 2013 Total Distributable Earnings Revenue Leasing Advisory Global Corporate Services Retail Services Property & Facilities Management Consulting Program and Project Management Industrial Services Valuation Property
Slide 26: NGKF Revenue Analysis
NGKF REVENUE ANALYSIS On April 13, 2012, BGC purchased certain assets of Grubb & Ellis. Because of this, NGKF collected $21.7 million during full year 2012 not related to the Company’s ongoing Real Estate Services business, of which $5.2 million was recognized as distributable earnings revenue in
Slide 27: Economic Recovery Forecasted to Continue Into 2014
ECONOMIC RECOVERY FORECASTED TO CONTINUE INTO 2014 Improving U.S. economic conditions should continue to provide tailwinds for our Real Estate business 3.50% 7.35% 7.40% 7.30% 3.00% 7.20% 2.90% 7.20% Unemployment Rate 2.50% 7.10% 7.10% Real GDP Growth 7.00% 2.00% 7.00% 2.00% 1.50% 6.90% 6.80% 6.80%
Slide 28: Commercial Real Estate Yields Remain Attractive
COMMERCIAL REAL ESTATE YIELDS REMAIN ATTRACTIVE 12% 600 10% 500 Cap Rate & 10-year Yield Spread (basis points) 8% 400 6% 300 4% 200 2% 100 0% 0 '06 '07 '08 '09 '10 '11 '12 '13 10-yr. Yield Cap Rate Spread Cap rates remain well above 10-year UST yields Date Recent jump in 10-year U.S. Treasury yi
Slide 29: Quarterly Sales Market Trends Continue to Improve
QUARTERLY SALES MARKET TRENDS CONTINUE TO IMPROVE Date Industry-wide commercial sales volumes up 26% Y-o-Y Demand for commercial real estate remains strong as cap rates continue to offer superior returns over U.S. Treasuries Sources: RCA/Moodys, CoStar 29
Slide 30: Real Estate Market Continues to Improve Nationally: Office Space
REAL ESTATE MARKET CONTINUES TO IMPROVE NATIONALLY U.S. Commercial Real Estate: Office Space Office Vacancy & Asking Rent 18% $28 16% $27 14% $26 12% $25 10% $24 '07 '08 '09 '10 '11 '12 '13 Vacancy (L Axis) Rent (R Axis) Date Commercial office sales volumes up 36% Y-o-Y Office asking rent up ~2%
Slide 31: Real Estate Market Continues to Improve Nationally: Retail Space
REAL ESTATE MARKET CONTINUES TO IMPROVE NATIONALLY U.S. Commercial Real Estate: Retail Space Retail Vacancy & Asking Rent 8.0% $17 7.5% $16 7.0% $15 6.5% $14 6.0% $13 5.5% $12 '07 '08 '09 '10 '11 '12 '13 Vacancy (L Axis) Rent (R Axis) Date Industry-wide retail property sales more than doubled to $
Slide 32: NGKF Recent Highlights and Headlines
NGKF RECENT HIGHLIGHTS AND HEADLINES Brookfield Office Properties awarded NGKF the leasing assignment for the 2.3 MSF One Liberty Plaza in Lower Manhattan. SunGard Availability Services appointed Global Corporate Services as its North American real estate advisor. This includes transaction manag
Slide 33: Outlook
Tb gC voice + electronic brokerage OUTLOOK
Slide 34: Fourth Quarter 2013 Outlook Compared with Fourth Quarter 2012 Results
FOURTH QUARTER 2013 OUTLOOK COMPARED WITH FOURTH QUARTER 2012 RESULTS The Company expects to generate distributable earnings revenues of between approximately $400 million and $425 million compared with $436.3 million. BGC Partners expects pre-tax distributable earnings to be between approximate
Slide 35: BGC Partners, Inc. Operational Outlook
BGC PARTNERS, INC. OPERATIONAL OUTLOOK Over the remainder of 2013 and into next year, we expect to profitably hire and make accretive acquisitions across both of our segments while investing in our technology-based businesses. This, combined with our focus on cost reduction, gives us confidence
Slide 36: Swap Execution Facilities: Dodd-Frank Compliant Trading Begins
SWAP EXECUTION FACILITIES: DODD-FRANK COMPLIANT TRADING BEGINS Date On October 2, 2013, BGC Derivative Markets, LP began operating our Swap Execution Facility as prescribed by the Dodd-Frank Act. The new model of Swap trading will not take effect until the first quarter of 2014 and the SEF volum
Slide 37: Appendix
Tb gC voice + electronic brokerage APPENDIX
Slide 38: Adjusted EBITDA
ADJUSTED EBITDA BGC Partners, Inc Reconciliation of GAAP Income to Adjusted EBITDA (and Comparison to Pre-Tax Distributable Earnings) (in thousands) (unaudited) Q3 2013 Q3 2012 GAAP Income from continuing operations before income taxes $ 42,663 $ 3,612 Add back: Employee loan amortization 7,744 9,71
Slide 39: BGC Partners Compensation Ratio
BGC PARTNERS COMPENSATION RATIO $1,200 100% 90% $1,000 80% 70% $800 60.9% 59.2% 61.6% 56.2% 53.8% ($ millions) 60% $600 $713.3 $1,036.8 50% $749.8 $793.5 40% $822.2 $400 30% 20% $200 10% $0 0% 2009 2010 2011 2012 YTD 2013 Compensation and Employee Benefits Compensation and Employee Benefits as % of
Slide 40: Non-Compensation Expenses & Pre-Tax Margin
NON-COMPENSATION EXPENSES & PRE-TAX MARGIN 50% 40% 29.2% 30.0% 30.2% 29.6% 28.2% 30% 20% 16.1% 13.8% 11.2% 10.2% 10% 9.8% 0% FY 2009 FY 2010 FY 2011 FY 2012 YTD 2013 Pre-tax distributable earnings as % of Total Revenue Non-comp Expenses as a % of Total Revenue Date Non-comp expenses were 29.0% of
Slide 41: Monthly Revenue Excluding Real Estate Services
MONTHLY REVENUE EXCLUDING REAL ESTATE SERVICES ($MM) Revenue for August 2010 included $11.6M in “other revenues” as the result of a favorable BGC Monthly Distributable Earnings arbitration ruling pertaining to Refco Securities. Revenues ($MM) First 21 trading days for October down about 4% per day e
Slide 42: BGC's Economic Ownership as of 9/30/13
BGC’S ECONOMIC OWNERSHIP AS OF 9/30/13 Employees, Executives, & Directors 34% Cantor Public 24% 42% Date Note: Employees, Executives, and Directors ownership figure attributes all units (PSUs, FPUs, RSUs, etc.) and distribution rights to founding partners & employees and also includes all A shares o
Slide 43: Average Exchange Rates
AVERAGE EXCHANGE RATES Average 3Q2013 3Q2012 October 1- 30th, 2013 October 1- 30th, 2012 US Dollar 1 1 1 1 British Pound 1.550 1.580 1.610 1.608 Euro 1.325 1.251 1.363 1.297 Hong Kong Dollar 0.129 0.129 0.129 0.129 Singapore Dollar 0.789 0.802 0.804 0.817 Japanese Yen* 98.900 78.640 97.780 78.900 *
Slide 44: Distributable Earnings
DISTRIBUTABLE EARNINGS BGC Partners uses non-GAAP financial measures including "revenues for distributable earnings," "pre-tax distributable earnings" and "post-tax distributable earnings," which are supplemental measures of operating performance that are used by management to evaluate the financial
Slide 45: Adjusted EBITDA
ADJUSTED EBITDA BGC also . provides an additional non-GAAP financial measure, “adjusted EBITDA,” which it defines as GAAP income from operations before income taxes, adjusted to add back interest expense as well as the following non-cash items: Employee loan amortization; Fixed asset depreciatio