Welcome to the BGC Partners Inc. Third Quarter 2018 Earnings Conference Call. My name is Nicole, and I'll be your operator for today's call. [Operator Instructions] Please note that this conference is being recorded. I will now turn the call over to Ujjal Basu Roy, Vice President of Investor Relations. You may begin.

Good morning. We issued BGC's third quarter 2018 financial results press release and the presentation summarizing these results this morning. You can find these at ir.bgcpartners.com. BGC's results consolidate those of the company's publicly-traded and majority-owned subsidiary, Newmark Group, Inc. You can find details about Newmark Group's Inc.'s separate conference call scheduled for today right after BGC's, as well as Newmark's financial results press release and presentation at ir.ngkf.com. Both Newmark's and BGC's financial results have been recast and include the results of Berkeley Point for all periods discussed in today's call, because the transactions involve reorganization of entities under common control. Unless otherwise stated, the results provided on today's call compares only with third quarter of 2018 with the year-earlier period. We will be referring to our results on this call only on an adjusted earnings basis unless otherwise stated. We may also refer to adjusted EBITDA. You may refer to our liquidity, which we define as cash and cash equivalents plus marketable securities that have not been financed, reverse repurchase agreements, and securities owned, less securities loaned and repurchase agreements. We define total capital as redeemable partnership interest, total stockholders' equity and noncontrolling interest in subsidiaries. Please see today's press release results under Generally Accepted Accounting Principles, or GAAP. Please also see the sections in the back of today's press release for the complete definitions of any non-GAAP terms; reconciliation of these items to the corresponding GAAP results, and how, when, and why management uses them. All of the company's fully electronic businesses are referred to as FENICS. These offerings include the Financial Services segment's fully electronic brokerage products, as well as the sale of market data, software solutions, and post-trade services. On today's call, as well in today's BGC press release and investor presentation, we may refer…

Thank you, Ujjal. Good morning, everyone, and thank you for joining us for our third quarter 2018 conference call. With me today are BGC’s President, Shaun Lynn; our Chief Operating Officer, Shaun Windeatt; and Steve McMurray, our Chief Financial Officer. Newmark’s revenues grew by more than 30%. Our Financial Services topline was up by approximately 7%. BGC's consolidated revenues grew by 18% to a quarterly record of $977 million. Our results this quarter were impacted by a decline in NASDAQ's share price and a modestly higher annual tax rate as a result of our higher full year earnings. But for these factors our adjusted earnings per share would have been approximately $0.03 higher. Newmark today received on a standalone basis a BBB minus stable credit rating from Fitch, and a BB plus stable rating from S&P. Newmark has a strong credit profile based on its earnings and adjusted EBITDA growth, it's net debt to adjusted EBITDA ratio of 1 times, the remaining $400 million of unencumbered available NASDAQ payments and the $405 million of MSR value carried on its balance sheet at amortized cost, which are worth an additional $40 million at fair value. Newmark's credit metrics together with its target net leverage ratio of 1.5x or less compares favorably to our full service real estate peers. Although this spin-off is subject to certain conditions, we expect to announce the record date for the distribution upon the successful completion of Newmark's debt offering which was announced this morning. We expect to complete the spin-off in a reasonable time thereafter but not later than the end of 2018. I am also pleased to announce that our Board of Directors declared an $0.18 dividend for the third quarter, which is consistent sequentially and year-on-year. At yesterday's closing stock price this translates into a 7% annualized yield. With that, I'll turn the call over to Shaun.

Thank you, Howard, and good morning everyone. Our financial services business continued to gain market share in 2018. As we benefit from our investment in technology, improved front office productivity, and the successful integration of GFI, Sunrise, and other recent acquisition. Our year-on -year revenue growth was virtually entirely organic growth across all of our financial services asset classes. This was led by a 20% improvement in our energy and commodities business and an 8% growth in our foreign exchange business. Our quarterly revenues would have been at least $5 million higher but for the strengthening of the U.S. dollar. FENICS businesses were notable performance during the quarter including rates, credit, equity, and spot FX products. In addition, our FENICS U.S. Treasury business has been growing rapidly albeit from a small base, and we believe that FENICS UST is now the number three central limit order book. Revenues from our high margin data, software, and post trade business increased by 20% year-on-year. Overall FENICS revenues grew by almost 13% as we continued to invest in technology and to convert our voice hybrid desks to more profitable fully electronic trading. We expect our $1.6 billion of voice hybrid brokerage revenues to provide substantial opportunity for additional conversion into more profitable fully electronic trading. Our overall revenues for financial services as a segment increased by 7% to $447 million for the quarter. Our pretax adjusted earnings grew up by 6% to $102 million. Our continued growth in profits was led by the 8% year-on-year increase in revenue per producer for the third quarter in 2018. Our financial services front office productivity has improved year-on-year for seven quarters in a row. As we roll out new product and services across FENICS and as brokers and sales people increase their productivity, we expect to continue to have strong performance and organically increase our revenues, market share and profits. With respect to our results from real estate services, revenues for Newmark as a standalone company increased by 30% year-on-year in the quarter to $519 million. Our pretax adjusted earnings increased by 23% to $178 million. Please see Newmark's press release from early today for more details. With that, I'm now happy to turn the call over to Steve.

Thank you, Shaun, and hello everyone. BGC generated consolidated quarterly revenues of $977.3 million, up 18.2%. Our revenues from the Americas grew by 23%. Revenues from Europe, Middle East, and Africa were up by 10%, while Asia Pacific revenues increased by 12%. With respect to expenses, compensation increased by 9.3%, which was primarily driven by higher revenues. Our compensation ratio improved by more than 425 basis points to 52.9%. BGCs consolidated non-compensation expenses increased by 28.4% to $249.4 million. Non-compensation expenses would have increased by approximately 18% excluding the $21.1 million of Newmark pass-through expenses, which are reported as a gross of revenues and expenses under ASC 606. As a percentage of revenue our non-compensation expenses were 25.5% versus 23.5% in the year ago period. Our non-compensation ratio would have stayed around the same level year-on-year but for the impact of ASC 606. Our overall expenses were $766.3 million compared to $667.2 million in the third quarter of 2017. As a result of the NASDAQ monetization transactions, our total equity increased by approximately $325 million, including the receipt of $206 million cash from the value of the forwards. The transactions established downside redemption value for the NASDAQ shares for 2019 through 2022 earn-outs while maintaining all the potential appreciation above the applicable strike prices. In addition to these monetized NASDAQ shares, Newmark expects to receive an additional approximately 5 million NASDAQ shares, which is worth more than $400 million based on yesterday’s closing price. The consolidated balance sheet does not yet reflect these shares because the payments are continued on NASDAQ generating at least $25 million in gross revenues annually. NASDAQ generated gross revenues of approximately $4 billion in 2017 and net revenues of $2.4 billion. Moving onto our earnings, our pretax earnings before non-controlling interest in subsidiaries and taxes…

Thank you, Steve. As we announced earlier today, Steve will be stepping down from his role as CFO, effective December 15th. I am pleased to report that the Board of Directors has appointed Shaun Windeatt as interim-CFO while continuing in his position of COO. The Board of Directors has also appointed Sean Galvin to the newly created role of Chief Accounting Officer. In addition, Kalyan Popuri has recently joined the Company as our Global Treasurer. I'd like to take this opportunity to thank Steve, for his contributions during his tenure and wish him well for the future. Turning to our consolidated outlook for the fourth quarter. We expect to generate revenues between $1,015,000,000 and $1,075,000,000, which is between 14% and 20% higher compared with $894.2 million in the fourth quarter of last year. We anticipate pretax adjusted earnings to be in the range of $205 million to $230 million, which is between 44% and 62% higher compared with $142.3 million in the prior year period. We anticipate our consolidated adjusted earnings tax rate to be in the range of 12% to 12.4% for the full year 2018. This compares to 11% for 2017. For the full year 2018, we expect Post-spin BGC revenues to increase by between 9.5% and 11.5% year-on-year, and pretax adjusted earnings to grow between 29.5% and 33.5%. We expect to update our guidance towards the end of December. Barry Gosin and I will be hosting Newmark's earnings call at 11:00 AM. So please hold your Newmark related questions until then. With that, operator, we would now like to open the call for questions.

[Operator Instructions] Our first question comes from the line of Rich Repetto of Sandler O'Neill. Your line is now open.

First congrats on the Fitch credit rating for Newmark and also the commencement I guess of the marketing of the debt. So, I guess my question Howard is do we expect other credit ratings and when would we expect them?

Sure, so Fitch was BBB minus stable, S&P will also be publishing today and they are BB plus stable and that’s what we have so far.

Then a question on the other income with NASDAQ. I'm trying to see, we expected somewhere around 85 million and can you tell us how that is accounted for and it was just well below what we thought it would be. And the stock was down a bit 6% in the quarter, but not dramatically?

I don’t think there was anything it was right at the end of the quarter it was 85.8 and we multiplied by 992,000 shares. And there is other things that the company owns that are also mark-to-market that are included in that number as well.

I guess that’s the question then, could you walk us through some of the other things that brought that other income down as much?

The company owned some shares and other owned shares in public companies which I don't want to discuss which marks them to market along the way. I wouldn't expect them to be material after the end of the year.

So I guess the NASDAQ itself earn-out was not - it was what you expected it, it wasn't dramatically off I guess that's the point?

Yes, more simply saying if you - just the NASDAQ movement and just the NASDAQ movement from our guidance moment which was in - when we first guided in August 2, just NASDAQ and the fact that our tax rate was little higher because we made more money that those two things were approximately $0.03.

And then I guess my last one Howard would be on the guidance going forward. It appears October is pretty volatile and it seen at least in our view your guidance might be a little bit conservative. Could you just talk a little bit about how you’re coming up with the numbers and the outlook for 4Q?

Yes, I think we - as you know we guide what we see. You’re correct to say that October has been a good start to October and that's why we've guided within the range. We gave additional information that the Q4 is easy to back in to BGC post-spin because we upped our full-year estimate from up 7% to up to 9.5% to 11.5%. So that growth is reflected in our guidance.

By the way that was Shaun Windeatt, but we always guide what we see. We like the world the way it is going now; it is volatile. It is more volume volatility has always been a friend. BGC financial services and this change that you all felt over the last month you were going to see positive impacts across the company going forward. Yes, we’re looking forward to the improvement of volatility and [indiscernible] to our business.

Our next question comes from the line of Patrick O'Shaughnessy of Raymond James. Your line is now open.

Starting with the question on the tax rate I think you noted that it was a little bit higher due to stronger earnings and perhaps more earnings mix from Newmark. At this point how should we be thinking about the tax rate for standalone BGC Partners in 2019?

I don’t think we put that out, as of yet I will take that under advisement and if we can give you more guidance on it we will do so.

Any thoughts on or updated thoughts on Brexit, it looks like the odds of a hard Brexit are probably increasing. Any expected impact on your business operations?

I don't know that I could credibly answer any better than –[indiscernible] almost every company that has material business in the U.K. We think we have a plan in place, but I don't know that we know the outcome. So I think there are lots of people who bet on all sorts of different things with it, I just don’t know the answer. So I think we think we are adequately prepared. Shaun, do you want to add anything?

Yes Patrick I think just take it one step further then what Howard said I think we are adequately prepared for, hopefully pretty much any outcome with regards to Brexit or a negotiated exit. We have already invested heavily in Europe with regards to our growth in Europe, with regards to France being one of our major centers. So we feel that we’re positioned in a reasonable way going forward.

I think the way - the best way to say it is, a hard Brexit would absolutely be challenging for us and every company. And I don't think any company out there can credibly say they can understand how it will all work; the rules aren’t written, it's just not possible. So all we can do is take a look at our business and try to plan as best we reasonably can for all variety of circumstances and hope that covers everything. But I don't think there's any company that could give you a more clear answer other than they know their business. They’re studying their business and trying to manage for all different outcomes, reading the paper, listening to what politicians say. I unfortunately Patrick can’t give you any more insight then reading the newspaper and listening to the ground and trying to figure out what’s best. But it will be a challenge; it could be pushed off but the right answer is I don’t know.

Within financial services we saw your headcount grow I think 21 front office personnel in the third quarter. Can you speak to the key drivers behind that headcount growth?

I would say need the headcount growth, the headcount growth – day to day management of our business is to make sure that we’re hiring - continue to hire the best talent across locations. We have seen some good growth in our Asia and European business which is actually driven those high for this particular quarter but there is nothing special about this quarter in our hiring as opposed to any other quarter.

Now we continues to track [indiscernible] this quarter and as you seen our revenue per head continues to increase.

Yes, I think it just notable just from we’ve seen a relatively consistent decline in your front office headcount ex any acquisitions. So does this imply that the fact that you’re doing the hiring you’re feeling probably better about the environment then you may have for much of the last several years?

No, we definitely feel confident and we feel better about the environment; we still converting more of our business to electronic and it's always that balance where we continue to hire great producers, convert the market that we had to electronic and its continuing that circle where you take more markets of electronic you will give them more tools to do their job and better platform and that’s track you can start and you continue to bring that into the platform. And therefore more revenue produces while continuing to study - aggressively look at your staff and make sure their performance is the best to their abilities.

Energy and commodities I think had a pretty good quarter up sequentially over the second quarter when you look at some of the comps. The futures exchanges they have energy volumes as they are relatively soft in the third quarter. What was some of the key drivers of your outperformance?

We continue to invest in energy and commodities. We always been what we would consider sub where we’d like be subscale. But we’ve continue to invest so it’s not just performing market. We continue to grow the business and grow each different product lines. So, and you see - expect to see us do that going forward.

And then maybe last one from me, you spoke about your U.S. treasuries operation with FENICS and you now think its number three which I think would apply bigger than the trade web solution. Are there any other areas within FENICS that you would call out as been particular highlights right now?

Sure. Our foreign exchange platform is performing very well across a variety of transactions mid FX as well as FX CEN they’re both performing well. And as our credit businesses in FENICS have been continuing to grow and build anything you want to add.

Yes, there are many other products coming online Patrick as we continue build that FENICS. We’re using the platform that we have, that we built with U.S. treasuries. The super fast products and we continue to grow on that foundation as we bring other products to the marketplace.

And actually one more from me just kind of came to me. Within foreign exchange that you were speaking to, CME Group is definitely excited about the prospect of a new uncleared swap margin rules moving more foreign exchange volumes onto exchange and into futures contracts. Is that a shift that you would expect as well and if so, is that a positive for you is that a negative for you is that a nonevent?

I think it is positive. I think that clearly affects opportunity something that we’ve all been looking for to potentially coming to the marketplace. And I think that is something that is going to be played out in the relative exchanges across the globe. We’re excited about it FX obviously is one of that our strong markets and you should expect to see us take full advantage of that.

[Operator Instructions] And we have no further questions at this time. I’d like to hand the call back over to Howard Lutnick, Chairman and CEO for closing remarks.

So thank you very much everybody, and we look forward to updating you towards the end of the quarter and speak to you again next quarter. For those of you who are participating in the Newmark call, I look forward to speaking to you with Barry Gosin in about half hour. Thanks everybody, we’ll speak to you then.

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