BGC Group (NASDAQ:BGC) Q2 2026 Earnings Call

0:00 Greetings, and welcome to the BGC Group Second Quarter twenty twenty six Earnings Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce Jason Kraseckis, Head of Investor Relations. Please go ahead. Hello, everyone. This morning, we issued BGC's financial results, which can be found at ir.bgcg.com.

0:31 Any historical results provided on today's call compare only the current period with the prior year period unless otherwise specified. All references on today's call to record or all time high results are to BGC's standalone financial results excluding Newmark prior to the spin off in November 2018. We'll be referring to our results on a non GAAP basis, which include the terms adjusted EBITDA and adjusted earnings. Please refer to today's investor materials on our website for additional details on our financial results, relevant economic and industry statistics and for the updated definitions of any non GAAP terms, reconciliations of these items to corresponding GAAP results and how, when and why management uses them. The outlook discussed today assumes no material acquisitions or dispositions. Our expectations are subject to to change based on various macroeconomic, social, political and or other factors. Information on this call contains forward looking statements, including without limitation, statements about our economic outlook and business.

1:22 These statements are subject to risks and uncertainties, which could cause our actual results to differ from expectations. Except as required by law, we undertake no obligation to update any forward looking statements. For information on factors that could cause actual results to differ from forward looking statements and a complete discussion of the risks and other factors that may impact these forward looking statements,

1:41 see our SEC filings including, but not limited to, the risk factors and disclosures within these documents. With that, I am now happy to turn the call over to Sean Windiatt, Co Chief Executive Officer of BGC Group. Thank you, Jason. Good morning and welcome to our second quarter twenty twenty six conference call. With me today are my fellow Co Chief Executive Officers, John Aboularaj and JP Oban along with our Chief Financial Officer, Jason Hoff. We produced revenues of $846,000,000 a second quarter record, up 8% versus last year. This growth was broad based across every asset class, reflecting the durability, diversification and the strength of our global platform.

2:28 Our revenues for the first half of twenty twenty six were up more than 24% to $1,800,000,000 the highest ever through the first two quarters of the year. Since 2022 and the return of interest rates, we have grown our revenues double digits every year since and our half year revenues in 2026 were greater than our full year revenues of just three years ago.

2:58 FMX once again saw market share gains across its cash U. S. Treasury and futures businesses. FMX UST market share grew to 42%, a new all time high, and FMX SOFR and U. S. Treasury futures also reached new market share highs for the month of June. With that, I'd like to turn the call over to John to discuss our exciting new partnership with Fanatics and the quarterly results of the business in more detail. Thank you, Sean. Earlier this week, we announced our partnership with Fanatics, a global sports platform to build a prediction market ecosystem that serves both retail and institutional participants combining BGC's extensive client network and Fanatics database of over 100,000,000 customers.

3:48 Together, BGC and Fanatics will also deliver unique market data in this innovative and rapidly growing asset class. This partnership brings together BGC's established market data and analytics capabilities to enable the development of new data products. Prediction markets are a gauge of sentiment, which predict outcomes as opposed to our traditional data, which reflects past events. Merging these two together will allow us to offer new and exciting data sets to our clients. As part of this agreement, BGC will receive upfront consideration and a performance based earn out as well as the license to the exchange's data. This is entirely separate from FMX's CFTC registered DCM, which BGC continues to own and control.

4:37 Similar to the sale of Case and Capital Lab, this transaction once again underscores the tremendous value of the assets that BGC owns, assets that we believe are worth significantly more than what is currently reflected in the market. Now turning to our second quarter results. We delivered record second quarter revenues of $845,500,000 a 7.8% increase versus last year. Our total brokerage revenues grew by 7.2% to $771,400,000 driven by growth across all asset classes. ECS revenues grew by 5.3% to $275,500,000 driven by strong growth across our shipping, environmental and commodities businesses, partially offset by lower oil and refined product volumes due to disruptions caused by the Strait Of Hormuz closure.

5:37 Additionally, we announced the launch of BGC compute infrastructure markets during the second quarter, a logical extension of our existing power business. This is a new business focused on developing the secondary market for compute and memory capacity. Rates revenues increased by 10.6% to $221,900,000 reflecting higher volumes across all major rates products during the quarter. Foreign exchange revenues were up 9.4 to $118,700,000 primarily due to strong volume growth in emerging market and G10 products and precious metals. Credit revenues increased by 5.4% to $79,300,000 driven by portfolio match along with higher European and emerging market credit volumes.

6:31 Equities grew by 2.8% to $76,000,000 reflecting strong U. S. Equity volumes partially offset by lower European equity derivative activity. Data, network and post trade revenues grew by 18.6% to $36,700,000 excluding Case, which we sold in the fourth quarter of twenty twenty five. Now turning to Fenics. Fenics revenues increased by 14.3% to a second quarter record of $186,200,000 Fenics markets generated revenues of $152,800,000 an increase of 16.5% excluding case.

7:17 This growth was driven by higher electronic trading volumes across rates, credit, foreign exchange and increased Fenics market data revenue. Fenics Growth Platforms revenues grew to $33,400,000 a 22.9% increase, primarily driven by FMX, PortfolioMatch and Lucera.

7:38 FMX UST generated record second quarter ADV of $79,400,000,000 17% higher compared to last year. FMX UST continued to grow its market share to 42% in the second quarter, up from 41% last quarter and 35% a year ago. FMX futures exchange delivered another quarter of significant growth with second quarter ADV of approximately 54,000 contracts, more than 16 fold higher than a year ago. Shilfer ADV rebounded strongly in June following reduced Iran driven volatility, achieving a monthly record of more than 59,000 contracts. U. S. Treasury futures continued to scale in the second quarter averaging more than 15,000 contracts per day and total open interest ended at more than 140,000 contracts, up from approximately 22,000 contracts a year ago.

8:39 As you know, we currently list only the two and five year U. S. Treasury future contracts, but we'll be listing the remaining tenors across the full curve on 08/03/2026 supporting further growth in trading volumes and open interest on the exchange. FMX FX average daily volumes increased by 16% to $18,000,000,000 driven by continued growth across spot FX and NDF volumes resulting in continued market share gains.

9:10 Portfolio match ADV grew 82% to a new quarterly record of $431,000,000 significantly outpacing the broader credit market. Lucera, Phoenix network business providing real time trading infrastructure to the capital grew its revenues by 15%. And with that, I would now like to turn the call over to Jason. Thank you, John, and hello everyone. BGC generated revenues of $845,500,000 during the second quarter. EMEA and Americas grew revenues by 11.26.1% respectively, while Asia Pacific revenues decreased by 2.9%. Turning to expenses, compensation and employee benefits for adjusted earnings increased by 7.7%.

10:02 The increase was related to higher commissionable revenues during the period. Non compensation expenses for adjusted earnings increased by 5.2% primarily due to increased selling and promotion along with commissions and fuller brokerage expenses related to higher client activity.

10:20 Moving on to our record second quarter adjusted earnings. Our pretax adjusted earnings grew by 11.1% to $192,900,000 representing a pretax incremental margin of 31.3%. Post tax adjusted earnings increased by 11.2% to $171,000,000 resulting in a post tax adjusted earnings per share of $0.35 12.9% higher versus last year. Adjusted EBITDA increased by 7.2% to $228,700,000 Turning to share count. BGC's fully diluted weighted average share count for adjusted earnings was 495,400,000 shares during the period, approximately flat compared to last quarter and a 1% decrease compared to last year.

11:17 As of June 30, our liquidity was $861,400,000 compared with $979,100,000 as of year end 2025. We recently received upgraded credit ratings from both Kroll and JCRA to BBB plus and A- respectively due to the continued strong performance of our business. With that, I'd like to turn the call back to Sean to go over our third quarter outlook. Thank you, Jason. I'm pleased to provide the following guidance for the third quarter of twenty twenty six. We expect to generate revenues of between $775,000,000 and $835,000,000 compared to $736,800,000 in the third quarter of twenty twenty five, which at the midpoint of our guidance would represent just over 9% revenue growth for the third quarter and 19% revenue growth for the first nine months of the year.

12:20 We anticipate pre tax adjusted earnings to be in the range of $172,000,000 to $190,000,000 versus $155,100,000 last year, which at the midpoint of guidance would represent 17% earnings growth for the third quarter and 24% earnings growth for the first nine months of the year.

12:43 We expect our adjusted earnings tax rate to be between 1114% for the full year 2026. Before we open the call for questions, I'm excited to announce that we will be hosting our first ever FMX Investor Day on October 13, with further details to follow. I'm also excited to share that our keynote speaker will be Jeffrey Hinton, the godfather of AI, who won the 2024 Nobel Prize and the 2018 Turing Award for his work with artificial and deep neural networks. And with that operator, we'd now like to open the call for questions. We'll now be conducting a question and answer session.

13:53 Our first question is from Patrick Molley with Piper Sandler.

13:59 Yes. Good morning, gentlemen. I want to start off with a question on the BGC compute infrastructure markets. You launched that in June. I know this is being positioned by yourselves and others in the industry as kind of a compute memory capacity being an emerging commodity market. So I was hoping you could maybe just like walk us through the growth opportunity there and the monetization model. Is this primarily a brokerage of OTC blocks between

14:30 some of the participants in the AI ecosystem? Is there a market data or benchmarking opportunity?

14:37 And then ultimately, I guess, how are you thinking about the maturity curve here? When should we expect revenues, I guess, from this business to maybe be reflected in the financials? And then I have a follow-up. Thanks.

14:51 Hey, Patrick, it's John. That was a bunch of questions. So I'll do my best, but remind me if I skip one. Mean, the obvious point is CapEx is going to be close to $1,000,000,000,000 globally. We obviously look at it and think there hasn't been an effective market that's formed to hedge risk. And so the focus so far has been on cleared futures. But I think for BGC, the real opportunity is going to be on the OTC market. So cash settled derivatives to hedge exposure and OTC delivered trades when counterparties want actual physical delivery. So we're number one in ECS. I think it's a natural extension of our power markets and where we're going with it is to drive standardization across

15:39 what is a highly fragmented market needs a broker in it. And so when we see revenues, I would assume we'll start to trade relatively soon, but it's early and too nascent a market for us to give financial guidance at the moment, but I think we have a group of some of our best ECS brokers who are doing this. Think we have connectivity to

16:03 the hyperscalers, the neos and the traditional client base. So I think we're uniquely positioned to enter the market and help standardize things. And on the back of that, I think we'll we're very excited about potential opportunity. So I hope that answers the question.

16:19 No, definitely. Thanks for that. And then just a follow-up on the 3Q guidance and margins. I think pretty impressive revenue guide on the margin side. This quarter, I think it was up 100 basis points year over year pretax adjusted margin. I think that's going to accelerate this quarter based on the midpoint of the guide to maybe 150 basis point step up year over year. So could you maybe just talk about the longer term realistic multi year margin destination, how you're thinking about that today? And what's really driving that

16:52 incremental margin step up year over year? Thanks. Yes, certainly, Patrick, it's Sean here. I think you've actually you framed it quite correctly. We what you're seeing is the gearing that we've always spoken about, and that's why in the prepared notes we didn't just point out the quarter, but pointed out the nine months assuming the midpoint. What you're seeing is, you're seeing that in that guidance for Q3, you're seeing the flow through just under 40 percentage points and that's a mixture of course the incremental business, the incremental growth and the cost savings that we've identified and executed on during the year. I think as you quite rightly say, look, we're incredibly excited going forward because what you have is we have a model where the gearing is in place, you're seeing even on the sort of 22 ish percent margin, you're seeing that, but on incremental, it's well in excess of 30%. And of course, leading into 2027 and beyond, we still have our electronic platforms and our FMX business, which will of course, once up to full speed, dwarf the margins of our existing business.

18:12 And so, I think our runway remains incredibly positive.

18:21 All right. Thank you all. That's it for me. Our next question is from Eli Aboud with Bank of America.

18:37 Good morning, everyone. Thanks for taking the question. I wanted to ask if you were seeing any impacts downstream from the SLR reforms, which took place or took effect at certain banks earlier this year. I appreciate that your rates revenue is broadly strong here, up 19% in aggregate in the first half. But are you seeing any outsized contribution coming from the bank channel that's worth calling out? Hello, Eli. JP here. Yes, it's early stage, but we did notice strong activity from the banks linked to the SLR. So yes, it's positive, definitely. Our strong market share with top banks provide us the ability to notice on various underlyings the positive aspect of the SRO.

19:30 Got it. And I have a couple here for you on FMX as well. Can you talk about how the progress is coming in hooking up the buy side clients?

19:40 And if I mean to the extent that you've obstacles there, can you give us any details into what pushback you guys are getting from that client channel?

19:53 Sure. Eli, it's John. I would say that the onboarding of the buy side is accelerating. I would say that we're happy with the progress. I would say that the pipeline of buy side participants and new participants that are coming on the exchange is happening at least as fast as we had hoped and the new participants certainly will drive

20:16 the number of contracts going forward. So I don't think we've had a problem at all. I think it was, as we told you before, kind of going into the progression and year three of FMX, the buy side is taking notice and starting to trade more actively. So we're pretty happy with where we are. Got it. And just bigger picture on FMX for a second. I know year three was kind of always framed as all about market share. That's when the big market share push was going to be. So I guess as we come across that three year anniversary very shortly here, what should our expectations be? Where do you expect to end year three in terms of market share? Can you just like give us a baseline expectation?

21:06 Higher would be the answer. So we've avoided as you know giving direct targets because it's new exchange and we're constantly in building mode. So we're not going to change that now in terms of giving an exact number, but I am pretty confident that the number going into year three at the end of year three would be higher than where you see our averages now. Got it. And then just last one for me here. Can you walk us through some of the assumptions that you were baking into that 3Q twenty twenty six revenue guide? It looks like listed energy futures volumes are up quarter to date versus 2Q. Energy is your largest segment, I would have anticipated that your revenue would also be headed higher sequentially. So is there maybe some conservatism baked into that guide? Or is maybe some softer areas in other asset classes? Any detail there would be helpful.

21:59 Sure. So look, I mean, as you know, Eli, we always we guide what we see, right? And that we've been fairly consistent that we would have expected sort of the circa the 10% for this year, obviously we've exceeded that. Q3 is always an interesting one to guide for, because you have the summer months of July and August and the biggest month of the year the biggest month of this quarter is September, and that's why we give a range. You're right to say that the biggest asset class we have is ECS, right about 36%, but we have others. There's nothing that we're seeing to cause any concern whatsoever. But look, I think with the sustained geopolitical tensions that exist, I think that's why we've given the range, certainly no challenges. I think a mid guide of sort of just under 10 and a higher end of 13.5% seems pretty good to us.

23:07 Got it. Thanks everyone. Thank you. Thank you. Our next question is from Patrick Molley with Piper Sandler. Yes. Thanks for taking the follow-up. Maybe just a broad one on the Fanatics partnership. Could you maybe just elaborate on how that came together? Maybe just some of the nuances of the partnership in terms of the revenue share, what you're getting out of that? And then why do you think Fanatics was the right partner for you? I know that they're, I think, more of a sports oriented platform. I would think your customers are maybe more focused on economic indicators and maybe interest rate prediction markets and things like that. So how do you kind of marry that? And, yes, any kind of color you could just give on that on how that came together?

24:01 Thanks. Sure. I think the genesis of it was that we had a DCO and the DCO was kind of active by a few trades a year. So we knew we had that asset. When these things started trading in the market, we looked at how we would best capitalize that. So I think we've shown from our prior acquisitions and disposal that our focus is on maximizing shareholder value. So the conversation happened internally about what to do with the DCO. Then our General Counsel introduced me to a gentleman who is an expert in the field and we talked about what to do with it. And we thought the real value was in applying for a DCM and putting the two of them together. So we did that, started that process. And then I fortuitously got introduced to a great partner named Matt King, who runs the Fanatics Sports and Exchange business.

25:01 And from the beginning of that, I think we thought this was a perfect marriage. So to your last question, yes, currently Fanatics is a sports related business, but their reach in terms of consumers and retail is over 100,000,000 customers in their database. That is something that since I've come into this industry has been a relative criticism where we have no reach into retail. So we've solved that problem by partnering with Fanatics. I think that all you need to do in terms of realizing that this is the right partner to get our shareholders long term great shareholder value is attend Fanatics Fest, which is mind boggling in terms of its reach and the people that are there. And I think we're incredibly excited about this partnership.

25:50 And of course, Fanatics does more at the moment in sports in terms of their current listing, but we will be helping bring the institutional market that BGC is known for to that retail market and combining those two things on contracts that you quite rightly point out our client base will be more interested in, we'll take prediction markets where it needs to go. And on the back of that, you will see predictive data. So as we said in the opening remarks, the vast majority of the data that we currently sell is backward looking. And now you get predictive data and you will get all new client interest in new datasets. And so for us partnering with Michael Rubin, Matt King, Glenn Schiffman and the team over at Fanatics is an absolute grand slam for us and we're incredibly happy about it and we will do our very best to deliver shareholder value as we always do.

26:45 Okay. And then I apologize if I missed it, we've been juggling a few calls this morning. So it might be in the deck, but anything you've disclosed or willing to disclose on the economics of that partnership? Not yet. I mean, I think what we said was that there is upfront consideration, which again we're always focused on delivering shareholder value. There is an earn out associated with the exchange volume. And finally, there is a true partnership on the data side. So that where we are there's a gentleman called Aaron Roussel on our side, he's running the project for us. And we will endeavor to again, for the right shareholder value through that.

27:38 All right. Great, John. Thanks for that color. And I look forward to your October FMX Analyst Day. It is a day after my wedding anniversary, but I'm going try to make it work. So I'll see you guys soon. We can extend an extra invitation to your wife. Have a good one guys. Thanks. Thank you. There are no further questions at this time. I would like to hand the floor back over to Mr. Wendy for any closing remarks. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.