Welcome to the BGC Partners Inc. First Quarter 2017 Financial Results Conference Call. My name is Jason, and I will be your operator. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. [Operator Instructions] And please note this conference is being recorded. I will now turn the call over to Jason McGruder, Head of Investor Relations. You may begin, sir.

Good morning. Our first quarter 2017 financial results press release and presentation summarizing these results were issued this morning. These can be found at ir.bgcpartners.com. Unless otherwise stated, the results provided in today's call compare only the first quarter of 2017 with the year earlier period. We will be referring to our results on this call only on a distributable earnings basis unless otherwise stated. We may also refer to adjusted EBITDA. Please see today's press release for results under Generally Accepted Accounting Principles or GAAP. Please also see the section in the back of today's press release for the complete definitions of any such non-GAAP items, reconciliation of these items to the corresponding GAAP results and how, when and why management uses non-GAAP terms. For the purposes of today's call, all the Company's fully electronic businesses are referred to as FENICS. These offerings include financial services segment results, fully electronic brokerage, as well as offerings of market data, software solutions and post-trade services across BGC and GFI. Also Newmark is synonymous with Newmark Grubb Knight Frank, NGKF or Real Estate Services. I also remind you that the information on this call regarding our business that are not historical facts are forward-looking statements within the meaning of Section 27A of Securities Act of 1933 as amended and Section 21E of Securities Exchange Act of 1934 as amended, such statements involve risks and uncertainties. Except as required by law, BGC undertakes no obligation to update any forward-looking statements. For a discussion of additional risks and uncertainties, which could cause actual results to differ from those contained in forward-looking statements, see BGC's Securities and Exchange Commission filings, including, but not limited to the risk factors set forth in our most recent Form 10-K and any updates to such risk factors contained in subsequent Form 10-Q or Form 8-K filings. I am happy to turn the call over to our host, Howard Lutnick, Chairman and CEO of BGC Partners.

Thank you, Jason. Good morning and thank you for joining us for our first quarter 2017 conference call. With me today are BGC's President, Shaun Lynn; our Chief Operating Officer, Sean Windeatt and Steve McMurray, our Chief Financial Officer. BGC generated record quarterly revenues of $707 million led by Newmark's revenue growth of over 20%. Our overall top-line revenue improvement was also helped by acquisitions made within Financial Services, as well as by double-digit growth from our Rates business. Our post-tax earnings were up by 38% to $103 million, while adjusted EBITDA improved by 36% to $125 million. We expect BGC's revenues and earnings to continue to outperform our industry metrics over time. I am also pleased to report that our Board increased our dividend to $0.02 per share to an $0.18 qualified dividend for the first quarter, which is up 12.5%, compared to last year. At yesterday's closing stock price, this translates into a 6.3% annualized yield. With that, I'll turn the call over to Shaun.

Thanks, Howard. And good day, everyone. Equities, insurance and other asset classes brokerage revenues improved by more than 56% due to the additions of Sunrise and Besso. Our Rates business generated a top-line increase of over 13% driven by organic growth, which included particularly strong improvement from our FENICS rates business. Our quarterly revenues for Financial Services increased by nearly 6% to a record $441 million. FENICS brokerage revenues increased by over 8% as we continued to convert voice/hybrid desks to fully electronic trading. Data software and post-trade revenues declined by 6% compared to last year. However, they were more than double the revenues recorded in the first quarter of 2015 excluding Trayport. FENICS’ total revenues were up by 4.4% and pre-tax earnings were up by 6.5%, reflects strong growth – strong future growth for FENICS, as we rolled out new offerings over the course of 2017. Our overall Financial Services pre-tax earnings were up by 12.6% to $113.5 million and margins expanded for two main reasons. One, the cost synergies we delivered over the course of 2015 and 2016 and two, broker productivity improved by 4% year-on-year for the quarter. Turning to our results for Real Estate Services, Newmark's real estate capital markets revenues increased by 27%, while leasing and other services were up by 21%. Our results outpaced the overall market as real capital analytics reported the US investment sales declined by 18% over the same timeframe, while Newmark's research shows overall US leasing activity was flat to slightly down. Newmark's brokerage outperformance was driven by organic growth delivered by our front-office hires over the last two years, dramatically improving our productivity. Our Real Estate Services revenue growth, revenue per broker was up by over 20% year-on-year in the quarter. As investments, we have - may built momentum. Our Management Services business, with its reoccurring revenues, increased its top-line by 9.9%. Newmark's overall revenues increased by 20.3% to $258 million and its pre-tax earnings increased by 31.9% to $227 million. Sorry to break up. As we continued to make accretive acquisitions and profitably hire industry-leading producers, we expect our Real Estate Services business to continue to outpace the overall industry. With that, I am happy to turn the call over to Steve.

Thank you, Shaun and hello everyone. BGC generated consolidated quarterly revenues of $707.4 million, up 10.4%. Our revenues from the Americas were approximately 8%, while revenues for Europe, Middle East and Africa were up by 16%. Asia-Pacific revenues increased by 8%, while non-U.S. revenues would have been at least $5 million higher, if not for currency movements. With respect to expenses, compensation increased by 7.4% with declines for the percentage of revenue. Our compensation ratio was 61.7%, which compares very favorably to 63.4% in the year earlier due to improvements within the Financial Services segment. Our overall non-compensation expenses increased by 3.1%, but also declined as a percentage of revenue to 24.2%. This represents an improvement of approximately 180 basis points. Our overall expenses were up 6.1% to $607.8 million. Our pre-tax earnings before non-controlling interests in subsidiaries and taxes were up 37.6% to $121.5 million. Our pre-tax margin expanded by approximately 340 basis points to 17.2%. BGC's post-tax earnings were up 37.8% to $102.8 million, while post-tax earnings margin was 14.5%, an expansion of almost 290 basis points. Our post-tax earnings per share were up 27.8% to $0.23. BGC's fully diluted weighted average share count was $444.8 million both distributable earnings and GAAP of 2.3% compared to $434.9 million a year earlier. The share count increased due to shares issued with respect to equity-based compensation and front-office hires, various acquisitions, and general corporate purposes. This was partially offset by the July 2016 repayment of BGC's 4.5% convertible senior notes for $159.9 million in cash and approximately 7,000 shares of BGC's Class A common stock, which reduced the fully diluted share count by just under 16.3 million. Additionally, BGC redeemed and/or repurchased approximately 700,000 shares and/or units net at a cost of $7.8 million or $11.07 during the first quarter…

Thank you, Steve. Our outlook for the second quarter of 2017, compared to last year is as follows: we expect to generate revenues of between $675 million and $720 million, which compares with $653.8 million; we anticipate pretax earnings to be in the range of $108 million to $132 million, as compared to $103.6 million last year, we expect our provision for taxes on distributable earnings to be in the range of approximately $17 million to $20.5 million, which compares with $16.1 million and we anticipate updating our second quarter guidance toward the end of June. So, operator, we would now like to open the call for questions.

Thank you. We will now begin the question and answer session. [Operator Instructions] And our first question comes from Rich Repetto from Sandler O'Neill.

Yes, good morning, Howard. I guess, the first question is, a lot of the market makers, or at least electronic market makers experience in this low volatility and negative results, I am just trying to see, it certainly didn't happen in your Rates business, but kind of see whether your view of whether your customers are experiencing negative impacts or is it offset by say, regulatory reform or so?

The overall market that we have lived in for the last, really, five to seven years has been a low volatility market and we have had to reset our expenses and reset our business accordingly over the years and you've watched us do that and I think that was one of key points that Shaun made was the delivery of the expense reductions and synergies over 2015 and 2016 has set us up nicely. We have scale and we have breadth of our business and we suffer when the energy markets are slow, we are slow but when the credit markets in Europe are better, we are better. We have the scale and scope now that we can win in all different kinds of markets. So, we are not particularly exposed to high frequency volatility, but when that does well, we make money from it. So we are a little bit everywhere, maybe we are actually pretty good everywhere. But, I just don't think we were particularly exposed to any one area in a way that should hurt us when the world is doing better and right now, the world is doing a little better.

Okay. Thank you. And then, on the automation in FENICS, you mentioned some new offerings that might – I think Shaun mentioned, later in the year, could you perhaps expand on that? And also, I think somewhere it was mentioned, you had double-digit revenue growth in the – excuse me - fully electronic rates. So just trying to understand, what's driving that and where is it coming from? Are you using other electronic platforms as well to say, layoff risk? But trying to get the electronic sort of picture out there.

Sure. So, as you know, we have been considering the US Treasury space for quite some time and we have been examining it and we have been working on a new electronic offering that we expect to release this year. We've been working on it. It is part of – in our expenses, but there was no revenue for it. So it has, obviously, by math, held back our margins in FENICS, but that's okay, because that will improve as our business rolls out. So, we do expect to have a treasury offering. We do expect it in the calendar year of 2017 and I am going to leave the theater of when we come out and how we come out to my executives, who are going to roll that out for themselves. But that is something we expect to do this year and then with respect to our Rates business, I'll turn it over to Shaun.

Rich, just with regards to the Rates, we've had some quite a lot of success this year. We've been ramping up in a certain part of our Rates division, where we've seen a lot of client interaction on certain products. Not going into too much detail of which products are because they are still – we're still enjoying that traction. And we think it's going to continue throughout the rest of this year, it's a very encouraging – very encouraging start.

Okay. And then, my last question and Howard, I couldn't get by this call without asking, but any progress unlocking shareholder value? I know you have the confidential prospectus under the JOBS Act. Any update you can give us in those regards?

My executives are hard at work on it. It is a work in progress and we will keep you posted. But I can assure you it is a group of people deeply focused and hard at work on this.

Got it. Okay. Thank you. I appreciate you guys.

Thank you. [Operator Instructions] Our next question comes from Patrick O'Shaughnessy from Raymond James.

Hey, good morning guys.

Good morning.

So, to follow up on Rich's last question and I appreciate there is probably not a lot you can say about it, but, I think from the outside, we kind of look at the Newmark IPO and we say, you guys have been working on it for months if not years, at this point, that it looks like all the financials should probably be prepared by now. So, can you help enlighten us a little bit more about why the process is taking as long as it is?

Well, I think, yes, let me try to figure out what's the nice way to say it. We are – we think we have a good understanding of what the market would like to see and how they would like to see it and we want like to present Newmark in that light and in the right circumstances and with the right strength. You can imagine, just this quarter with Newmark's revenue growth at 20%, there is a right time and right place for everything. Newmark is clearly in an excellent place demonstrably growing better than the industry metrics and I think we are thinking about it. We are working on it. And we expect to let you know the details when we are ready.

Okay, fair enough. And then, I guess, to follow up on Newmark, certainly, the revenue growth was quite strong in the first quarter. Something that jumped out to me a little bit though was, there was not much margin expansion on a year-over-year basis I think about 80 basis points. And given that revenue growth, I would have expected a little bit more. So, was it maybe just some seasonally higher expenses? Were there – what was the driver of the relatively minimal margin expansion despite the strong top-line growth?

It's dynamic equilibrium. We are always hiring new people, which sets us up for future growth but that has a – as you know, in the first year or two of a new real estate hire they tend to be – they tend to carry the expense without the revenue for productivity. So you are seeing the benefit of that, which we did a couple of years ago and 18 months ago coming through now, but it will be constraining by the new hires that will drive us next year. And so, that dynamic equilibrium constrains us, but that constraint should just – it makes us optimistic on our performance going forward. So that is not a statistic that we worry about per se, because of the new hires always coming in and their marginal productivity being below expectations and the older coming on and reaching full productivity, which drives the margin up. So there is a balance and that's all you are seeing, is good front-office hiring constraints that momentum and scale. But just drives the gross number, which was demonstrably higher and very successful.

Okay. And then, to follow-up on that, as I am looking at your real estate brokerage personnel, the front-office headcount has actually been down slightly, just, I think, 1% in the first quarter, fourth quarter last year was down three people. So it looks like the pace of hiring has really tapered-off. So are you referring to hiring that took place kind of in the first quarter, maybe in the second quarter of 2016, which is, what were kind of comping up against?

Growth of productivity per head is something that we are very focused on. The business model of the company necessarily has us reducing those headcount that are less profitable and less productive and adding to those who are more productive and more successful. That is the basis of the company and the most clear you could see that is if we had no headcount growth at all, but we replaced x amount of brokers who were at the bottom quartile with x amount of brokers at the top quartile. That would have no increase in cost, no increase in expense and just increased revenues and profit. So, we are always doing that, sometimes headcount will grow more quickly, sometimes it will decline. But all of that has my management doing the proper math of driving my average revenue per broker and my average profitability per dollar, upward. And I think we are very focused on that and so we don't tend to focus on gross headcount, we tend to focus on momentum of revenue per broker rising in the business and always trying to hire in the top quartile and letting go of those in the bottom quartile.

Okay, I want to turn to Financial Services then - a couple of questions. Can you break out the contribution from Besso during the quarter?

We haven't done that so far, Patrick.

Well, there is a first time for everything.

I think we will take it under advice and obviously, you can see it in the equity insurance and other asset classes, but I think, as we get some scale in that business, we would hope over time that that would be – we would intellectually get to the place where we could treat it like Newmark. But, this is just a beginning. It's really being managed by the same people in Financial Services being driven by that same knowledge base and experience. So I think it is initially part of our Financial Services business, but eventually, we've only had it for a month. And eventually, we hope that it would be by the scale and scope that can be different, but as of now, it is as part of our business and we'll get there and we'll be glad to go take that under advice and then take a look at it and see if we can give you more details of it as we go forward. It's something guides you.

I am just trying to get a sense, I am sorry go ahead

No it's not that large, I mean, basically.

Okay, so, most of the quarter-over-quarter increase in that revenue line item was due to your pre-existing equities and other business rather than from Besso, is that the right takeaway?

Remember, we bought Sunrise at the end of the year. So if you look, we bought Sunrise right at the end of the year and then we bought Besso about a month ago. So, those two acquisitions were of similar size and scale.

Got it, okay.

Is that’s fair Patrick?

And then, one last one for me, Energy and Commodities, your revenue was essentially flat quarter-over-quarter, down reasonably substantially year-over-year. As we look at the Energy revenue, the futures exchanges, so CME and ICE, they were basically flat on a year-over-year basis. Was there a dynamic going on with your revenue mix and your customers that was maybe a little bit different than what the futures exchanges would have seen?

Yes, slightly because our revenue mix mainly focuses on iron ore and coal, which was impacted quite dramatically. It's – we are with the marketplace. I think, I mean, Trayport themselves announced that the markets are being challenged throughout these last six months. So, we have to take the good with the bad, we are with the market. What we are looking to try and do is continue to grow and build into that space because, as you know, GFI position gave us the opportunity to grow into commodities and we are now still building on that, which is one of our main focuses. So we will continue to build it.

Got it. Thank you very much.

Thank you. And we have no further questions. I will now turn the call over to Howard Lutnick, Chairman and CEO for closing remarks.

Thank you all for joining us today and we look forward to speaking to you next quarter. Have a good day everyone and we'll speak to you soon.