Next up, it's my pleasure to welcome to the three co-CEOs of BGC Group, John Abularrage and Sean Windeatt. These two gentlemen, along with JP Aubin, who couldn't be here today, took over as co-CEOs following Commerce Secretary Lutnick's departure from the firm. Gentlemen, thank you so much for joining us.
Thank you very much for having us.
So Howard departed as CEO in February. He was obviously a very visible, very outspoken CEO. What has the departure and the ensuing transition been like for you? And then the three-headed CEO model is not something that you typically see. Why does it work for BGC?
I think, look, he departed in February, but John, JP, and myself worked together, for John joined three and a half years ago. And so really, from the day-to-day running of the business, a lot of you always have to be careful when you're thinking about the past with Howard. But the reality is that the three of us are running the business anyway for the last few years. And before Howard decided to, or was requested to go into government, he was running the co-chair of the transition. And therefore, especially during 2024, if you think about it, the company had a second year of double-digit growth. We acquired two companies in the ECS space, which I'm sure we'll talk more about. And then we sold one of our smaller tech assets.
So I think from an overall perspective, I'd say life's gone pretty well and it's been reasonably seamless. And I think that's just because I've been with the company 28 years. John, three and a half, been in the industry for the same. So it's been a very seamless process.
So we had shared, over the three and a half years that I've been there, I shared listed products with JP. So there's a history there of us working together. And then I think what my co-CEO is probably too kind to say is that in my first year at BGC, he was effectively my boss. Because unfortunately, Howard was suffering from cancer and handed the duties of looking after the new guy to Sean. So all of my approvals went to Sean. And the benefit of that is that you get to know each other incredibly well. And so transitioning into the role of CEO, we speak 10x a day, but we really genuinely know how the other one thinks.
It doesn't mean we agree all the time, but it's really not particularly different than it was before Howard walked away in terms of our day-to-day.
So very topical with the launch of FMX only a few weeks ago. We just met with Terry Duffy here on the stage. I believe you were originally planning to launch sometime in April, but it got pushed out due to some of the extreme volatility that we've seen. How are you feeling about the launch so far? And can you share any updates into where you're at in the process and how things have been going?
Yeah, I mean, in terms of delaying the launch, I think what went on in April in the markets sort of mandated that. I don't think that was a decision to delay because of any issues. It was quite simply that our partners were focused on their own internal business and making sure that their tech and what goes on in their day-to-day wasn't falling down. And thus asking them to do work for the new exchange. We pushed back a month and it was without question the right thing to do. And then, as we said, we launched straight after and the progress has been meaningful. And so, of course, we saw volumes and open interest go down in April, as you would expect in the futures side, but go up meaningfully in the UST side because we're kind of one of the two big ones.
But you've seen both open interest and volumes recently go to record levels. And we appreciate we're in the first inning of this, but it's good to see after what happened in April that we're back above those and that our partners are continuing the work and continuing to lean in to support us.
So we move on to the core business. You've seen organic revenue growth exceed 10%. I think it's seven of the last eight quarters, which is pretty exceptional. This past first quarter was particularly strong. Revenue's up 15% year over year. Can you take a moment to just talk about where the revenue strength has been coming from the last few years? I think rates has been a big part of it. But where are you seeing the most growth and how do you expect that to kind of trend as we move forward?
Look, I think in terms of the structure, remember we're an intermediary, right? So for us, we had 14 years of zero interest rates, and then sitting here at the beginning of 2023, as interest rates start to come back, you've then got natural growth within the market, and in terms of, remember, you don't need necessarily a 5%, 4%, or 3% interest rate. You need a rate and you need volatility within that rate and some uncertainty, and so I think it sounds weird to say back to normality, but as a result of that, therefore our business, and remember our business is not a market risk business. We don't make money if the market goes up or goes down. We make money from people trading and our clients trading, and so what you saw is you saw it started off with rate strength within our rates product.
And that drove our growth throughout 2023, just under 12%. That was then followed by FX. And then at the same time, one of the things that we realized during 2022 is we realized we were undersized in two areas. We were undersized from an asset class perspective in ECS and we were undersized from a geography in the U.S., strangely. And one of the things that the two biggest areas of growth we've had is, number one, the U.S. piece, which coincided with John joining, of course. And secondly is the growth of the asset class of ECS. So you've seen 12% growth in 2023. You've seen similar growth again in 2024. You're quite right to say we grew 15% in Q1 of 2025 and sort of mid-guidance 13.5% guided for Q2. And that's pre-our acquisition, of course, of OTC.
So I think driven by rates, followed by FX, and obviously from the significant market share gains that we've made within the ECS business.
And you talked about ECS. You acquired OTC Global Holdings April 1st. They were the largest, I think, interdealer brokerage platform in that sector that was still private. And that's going to significantly expand your crude oil franchise specifically. What attracted you most to this acquisition? And when we think about your ability to take their customer base and your customer base and cross-sell products, what are you most excited about?
You took the words out of my mouth. It's the oil franchise. So to build that organically would have, actually, I don't even think we could do it to the extent that they've built that franchise. And there's tons written every day on green energy and transition, and we do spend a lot of time on it. But ultimately, the majority of the money made in what we do for a living still comes in oil and refined products. And being able to add OTC takes us to number one in both of those segments and balances out geographically where we stand in terms of our ECS franchise and takes us to a pro forma of just under a billion and number one in the world in that space.
As you and I have discussed many times, it diversifies our client base and brings us into an area that we think is going to continue to grow over time.
Yeah, it's an energy very fast-growing space. And I think it's interesting that a few years ago, maybe you had 15% of your revenues were energy. And that's almost up to 40% at this point.
Yeah, it goes back to what I was saying before when I first joined. And Sean and I spent quite a bit with JP on doing an offsite and looking at where we wanted to invest our shareholders' capital, where we thought we could get the best return. And we focused on ECS. And I think we're seeing the benefits of that come through.
Yeah, you know, I think, and I think it was such a perfect fit. I mean, there were obviously a number of interested parties in that business. And why I think they chose us, as well as us choosing them, of course, the reason they chose us is because I think from a U.S. perspective, what we'd already done, what John in particular had done in the U.S. complemented the bits that they had in the U.S. They were incredibly strong in the U.K., where we were weaker. And it really became such a good fit. And as you know, with most of our acquisitions, it's still within the people and the people business as well. And the gentleman who runs OTC, there was, again, there were two partners. One was a retiring partner, the other to remain with us for a long period of time.
Doubling the size of our ECS business with that one transaction has just been a game changer for us.
Do you think you're where you want to be in the ECS business? Do you think there's more you can be doing? Or do you feel like you've kind of built it out enough?
No and yes. Yeah. So no, we love the space. And we happen to have two fantastic guys who globally manage it, who do a wonderful job. And we will continue to grow in that space. And I don't think that we're anywhere near at sort of proverbial capacity in the ECS space.
If you think, also, I think about our market data business. Our market data business, as we've spoken about before, which is, yeah, it's a good business, but it's still undersized compared to our competition. One of the biggest asset classes that we are undersizing is ECS. What's the best way to grow? What's the best backdrop for good potential in market data is to be number one in that marketplace. I think that's a fantastic derivative of the position we now find ourselves in with being the biggest in the ECS space.
Your, I think, market data across the entire business today is less than 5%. You look at some other exchange and trading companies. The U.S. exchanges, for example, are closer to 15%-20%. You've said that you think you can continue to grow the data business, I think, 10%-15% per year. Do you think how does that change with OTC acquisition, and how quickly do you think we could get closer to an exchange-like peer in terms of the revenue mix from data?
OTC being number one in the spaces in which they are number one will supercharge our growth in ECS data. So it's one of the reasons that it was so attractive to us. We're well aware of the fact that we're undersized. I think that anyone within BGC would say it's only become really a focus over the last few years where some other market participants would have started focusing on it earlier than that. But I think we're making good ground. And as you said, I think we can grow at it 10%-15% going forward. And it will become a more meaningful part of our business.
So I think one of the discussion points with BGC's business is this that you're primarily a voice broker with 75% of your revenues coming from voice trading. And what could future growth look like in a world where trading is becoming more and more electronic? You do have that core Fenics business that's electronic. But how do you think about just the dynamic today between voice and electronic? And how do you balance that given that the margin profiles are so much higher in electronic? How do you kind of think about that? I know how Howard thought about it, but is there any change there?
Look, our job is to grow the profitability of the business overall. The way, yes, we're 25% of our business being electronic today, but that's off a top-line number that's grown significantly. So if you think, if you took out ECS, actually the electronic growth numbers are far more significant. And remember, we're a service provider. We're an intermediary. So our job is to make sure we allow our clients to trade in the way our clients want to trade, whether that is voice or whether that is electronic. In the rates, FX, and credit space, by definition, that will be more electronic. However, just think about it, right? In April, I think it's interesting, right? In April, when volatility was where it was because of certain things happening here in the U.S.
That your old CEO had a big hand in, so.
You said it, not me. I would never say that. But if you think that we should thank him for that, I guess, for volatility. But if you think that during April, when life is more volatile, guess what the clients want? The clients want, again, they want voice brokerage. The beauty of BGC is that we can provide both. Yes, we're 25% electronic today, which be it sort of circa $600 million based on last year's revenue, $600 million of Fenics electronic revenues. But first, it's a very big number. And secondly, it's the fact that within our rates, credit, and FX franchise, the clients have the ability they could, 90%+ of that business could be electronic. But that's the client's choice.
What I think is particularly useful, certainly as we go a year, two years forward, the fact that clients understand that they can do both voice and electronic with us as opposed to just a pure electronic platform or pure voice platform. I think we're in a very sweet spot from that perspective.
So we're going to talk to Jim Esposito from Citadel Securities here a little later. Citadel has made a push into credit. And there's been some media reports that they're sort of targeting mid-tier bank liquidity in credit. Do you have any thoughts on how that could impact your interdealer brokerage business? Any thoughts there at all? If you don't, then I can move on to the next one, but I thought I'd at least mention it.
I've known Jim for a long time. He's a great guy, and he's a partner of ours. And so when you look at Citadel making that push and taking mid-tier banks and aggregating liquidity, we value highly our relationship with his firm. I guess he's been there, what, six months? We can call it nine months. We call it his firm, nine months, and I think our partnership works really well on the FMX side and would do the same as we discuss more things that we can do together, so I look at it as an opportunity.
On the margins, your margins in the first quarter reached, I think, a multi-year high, 24%, trending upward. You closed the acquisition of OTC Global Holdings on April 1st. I think you guided to that coming in a little bit, just given the acquisition. How should investors think about the margin profile from here, assuming once you get through this acquisition and the integration?
Yeah, it's interesting. We had, after our first quarter earnings, you give your earnings, which are a great first quarter, good guidance, I think, for second, and we talked to our shareholders and they said, well, the OTC margin's lower. The way I think about it is this: yes, our margins in the mid- to low-20s as an overall group. We said that with OTC, it had margins of low-teens, so around the 13%. Personally, we think that's a good thing because that meant that we could buy the company for the $325 million we bought it for. If they had margins the same as us, we would not have been able to buy it at $325 million, so that's good.
That's a good way to look at it.
You've been with us a long time, and for those shareholders who've been with us a long time as well, when we buy bigger businesses, we'll identify synergies, right? With a $400 million revenue acquisition, it takes a year to get those synergies in play, and so what we said post-earnings was, I don't think in the short term that OTC business goes to the BGC Group levels. But bridging that gap, absolutely will bridge that gap. We'll bridge the gap from into the mid to high teens, I would say, by the end of year one. I think that's a good aim, but anytime you can acquire a company at a six-time multiple when we're at nine times, I think is highly accretive, and remember, as we've also seen with a smaller acquisition within Trident, we bought that business, $25 million worth of revenue.
That's now going to do $75 million this year. So the answer is you get accretion from a number of ways. And actually plugging it into our platform, I think will expedite the growth. And therefore, I think the margin therefore of a much bigger number will still be in the low 20s overall.
I want to talk about stock-based comp as well. Is the percentage of total expenses in the first quarter the lowest that it's been in a while? I had asked Howard about this in the past. With new leadership, is this indicative of any sort of shift in how you approach stock-based comp going forward? Could you potentially look to maybe lower the amount of stock-based comp you pay and just pay more cash comp? How do you think about it?
So I think probably a good way of saying it, yes, it is indicative, actually. We think about, we operate in a competitive marketplace. And stock-based comp is, let's tell it as it is, it's good for employee retention, right? Number one. But we have to balance that with the, of course, balance that with the interest of how that affects the return to our shareholder. What you saw in Q1 was a 22% reduction in our stock-based comp. Remember, the stock-based comp that runs through those financials is not the stock-based comp that's issued in that quarter in that year. We're a partnership. We were born as a partnership. Our employees own a significant amount of stock. From time to time, of course, we allow them liquidity events to sell some of that stock should they wish to. And of course, the stock has performed well.
And therefore, what goes through there is what was previously issued. However, the fact that you've seen it go lower, you should see stock-based comp remain as a lower percentage than it has been historically. That is something that John, myself, and JP talk about all the time. So we make sure we manage those levels. And I think Q1 is a very good barometer for the balance of the year. And we'll look to bring it down slightly a little bit more.
Moving on, I think we have time for one more question. Can you share your updated views just on capital return and buybacks and how you sort of balance that with future M&A?
It's all about what is best for our shareholders. Remember, we're pretty unique in as much as we're very much aligned with our shareholders in terms of the ownership, the internal ownership as well. Our primary focus, of course, for capital return has been buybacks. Now, I think as John quite rightly said in one of the one-on-one meetings earlier, the sad thing is you can't talk about things you can't talk about until they happen. You saw us buy back $16.4 million of the ex-CEO's shares, which was done recently. So share buybacks remain a key part. Equally, we've done three acquisitions over the last year or so. And so for us, it's about balancing where the best use that capital is. As you can imagine, we get a lot of incoming calls for potential acquisitions.
What we will always do is look to see where we can get the best return on that capital. So we've just done a couple of large, one large and another acquisition. So I think right now it'll be more in buybacks. But that's as we see it today. If there are other opportunities that come out there, you should expect us to continue on the acquisition trail as well.
All right. Well, that about does it, guys. Thanks so much for the time. Really appreciate it. Pleasure.
Thank you.