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Edited Transcript of BGCP earnings conference call or presentation 5-May-20 2:00pm GMT

Q1 2020 BGC Partners Inc Earnings Call

NEW YORK May 28, 2020 (Thomson StreetEvents) -- Edited Transcript of BGC Partners Inc earnings conference call or presentation Tuesday, May 5, 2020 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Howard W. Lutnick

BGC Partners, Inc. - Chairman & CEO

* Jason A. McGruder

BGC Partners, Inc. - Head of IR

* Sean A. Windeatt

BGC Partners, Inc. - COO

* Shaun D. Lynn

BGC Partners, Inc. - President

* Steven Bisgay

BGC Partners, Inc. - Executive MD & CFO

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Conference Call Participants

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* Patrick Joseph O'Shaughnessy

Raymond James & Associates, Inc., Research Division - Research Analyst

* Richard Henry Repetto

Piper Sandler & Co., Research Division - MD & Senior Research Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by, and welcome to the BGC Partners, Inc. first quarter earnings conference call. (Operator Instructions) Please be advised that today's conference is being recorded. (Operator Instructions)

I would now like to hand the conference over to your speaker today, Jason McGruder, Group Head of Investor Relations. Thank you, and please go ahead.

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Jason A. McGruder, BGC Partners, Inc. - Head of IR [2]

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Good morning. We issued BGC's first quarter 2020 financial results press release and the presentation summarizing the results earlier this morning. You can find these at ir.bgcpartners.com. BGC spun-off all the shares of former subsidiary, Newmark, held by BGC to the stockholders of BGC on November 30, 2018. Because BGC did not own any shares of Newmark as of year-end, Newmark's results are not included in BGC's consolidated results presented after the spin-off.

Unless otherwise stated, the results provided on today's call compare only the first quarter of 2020 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. We may refer to our liquidity, which we define as cash and cash equivalents plus marketable securities that have not been financed, reverse repurchase agreements, if any, and securities owned, less securities loans and repurchase agreements, if any. We define total capital as redeemable partnership interest, total stockholders' equity and noncontrolling interest in subsidiaries.

Please see today's press release for results under generally accepted accounting principles or GAAP. Please also see the relative sections of the back of today's press release -- in the back of today's press release for a complete updated definitions of any non-GAAP terms, reconciliation of these items, the corresponding GAAP results and how, when and why management uses such terms. Additional information with respect to our GAAP and non-GAAP results mentioned on today's call is available on our website at ir.bgcpartners.com and in our investor presentation, which is next to the press release on the website. We refer to the company's fully electronic businesses as Fenics. These offerings include our fully electronic brokerage products as well as sale of market data and software solutions and post-trade services.

I'll also remind you that the information regarding our business on today's call that are not historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 as amended and Section 21E of the Securities Exchange Act of 1934 as amended. These include statements about the effects of COVID-19 on the company's business results, financial position, liquidity and outlook. Any forward-looking statements involving risks and uncertainties, except as required by law, BGC -- sorry, undertakes no obligation to update any forward-looking statements. Any outlook and targets discussed on this call assume no material acquisitions, buybacks extraordinary transition -- transactions or meaningful changes to the company's stock price.

For a discussion of additional risks and uncertainties, which could cause actual results differ from those contained in the forward-looking statements, see BGC's SEC filings, including, but not limited to, the risk factors and special note on forward-looking statements set forth in these filings and any updates of such risk factors and special note on forward-looking information contained in subsequent reports on Form 10-K, Form 10-Q or Form 8-K.

I am now happy to turn the call over to Howard Lutnick, Chairman and CEO of the company.

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Howard W. Lutnick, BGC Partners, Inc. - Chairman & CEO [3]

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Good morning, and thank you all for joining us for our first quarter 2020 conference call. Joining me virtually for today's call are BGC's President, Shaun Lynn; our Chief Operating Officer, Sean Windeatt; and our Chief Financial Officer, Steve Bisgay.

Before we talk about the company, I would like to say that we at BGC express our deepest sympathy for those who have experienced loss of a loved one, economic hardship, pain and difficulties due to the ongoing pandemic. We remain thankful for the health care professionals, first responders and other essential workers, who are helping the world get through this unprecedented crisis.

The company has faced monumental challenges in the past, which we have overcome. We implemented our business continuity plan. However, we never imagined implementing it globally all at the same time. BGC's employees have worked tirelessly over these past months, and they remain focused on serving our clients during these difficult circumstances. Our employees and our technology are why we continue to operate effectively.

With respect to BGC's performance, BGC's revenues improved by 10.7% for the first quarter of 2020 as compared to last year. While we benefited from generally higher industry volumes, this was partially offset by the dislocation faced by BGC's employees and clients due to COVID-19. But for these disruptions, we believe that our revenue improvement would have been greater. Looking forward, we expect our voice/hybrid and fully electronic brokerage business across rates and credit to benefit from the unprecedented amounts of global government and corporate debt issuance. Over time, we believe this issuance will reach a previously unimaginable scale. This vast supply will create significant long-term opportunity for BGC. The company continues to explore a possible conversion of its Up-C partnership structure into a more simple corporate structure.

If the company determines to execute such a conversion, it, of course, would be subject to the approval of the Board of Directors and the relevant committees -- any -- will be completed -- were to be done earlier than year-end 2020. Any such transaction would be subject to tax, accounting, regulatory and other considerations and approvals.

So with that, I'll turn the call over to Shaun Lynn.

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Shaun D. Lynn, BGC Partners, Inc. - President [4]

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Thank you. And good morning, everyone. Our business can be examined in 3 components: BGC's and Fenics integrated voice and electronic liquidity pools, Fenics fully electronic marketplaces and our data, connectivity, software and post-trade businesses. Of these categories, the dynamics of our integrated voice and electronic liquidity pools were impacted the most by the current crisis.

BGC's brokerage revenues, excluding insurance, were up by 9% year-on-year in the quarter, while March grew by more than twice this rate. This reflected substantially higher global volumes and volatility across every financial asset class in the last weeks of the quarter. As we have said in the past, during periods of market turbulence, our clients often value the insights our brokers provide. As a result, voice brokers added more liquidity and market share over these past several months in many areas, where clients have access to our liquidity equally via voice or electronics.

This dynamic caused what we believe was a temporary shift by traders toward voice execution in many markets. This was due both to extreme levels of volatility across many asset classes as well as the disruptive physical dislocations faced by our brokers, clients and customers of our clients.

However, our clients have indicated that the dislocations caused by COVID-19 have resulted in an even greater demand for our electronic execution. The driver of this demand is our best-in-class market liquidity that only integrated global firms like BGC can provide.

BGC's platform is an integral part of our clients' technology. So when they execute remotely, our systems are synchronized in real time. We expect the trend towards automation to improve our electronic brokerage revenues and profitability over time.

With respect to our fully electronic marketplaces, our stand-alone platforms generated strong improvement in the quarter. Fenics UST generated substantial growth year-over-year, with notional volumes up by more than 300% in the first quarter compared to 14% for primary dealer volumes. We believe that Fenics UST has gained significant market share and is distinguishing itself as the clear #2 among Central Limit Order Book or CLOB trading platforms.

Moreover, Fenics fully electronic foreign exchange volumes increased by 23% compared with the year earlier, as the market has continued to embrace electronic execution in this asset class and as our foreign exchange offerings, such as Fenics FX, MidFX and Fenics Direct gained further market share. In addition, our Fenics Global Options, fully electronic trading platform, or Fenics GO, continues its successful rollout with numerous record volume days. It was the leading broker for certain Euro Stoxx 50 option contracts on some days during April. And our data, connectivity, software and post-trade services include a large percentage of recurring and predictable revenue streams. As a result, our data, software and post-trade businesses once again generated solid top line growth in the quarter and were up by over 8%.

With respect to our connectivity and software business, we acquired Algomi in March. Algomi provides technology aggregation buy-side clients, access to venues, trading counterparties and exchanges. This subscription Software-as-a-Service, or SaaS, improves their workflow and liquidity through data aggregation, pretrade information analysis and execution facilitation. We expect to integrate this business with our Lucera SaaS connectivity subscription service, in order to provide both data and execution capabilities directly between banks, dealers and their buy-side customers.

While the ongoing crisis has slowed the rollout for some of our newer Fenics offerings over the short-term due to the physical dislocations experienced by our brokers and clients, we do not expect our medium- to longer-term strategy with respect to these financial technology businesses to be impacted.

Turning to our insurance brokerage business. This industry typically generates significant amounts of predictable revenues at specific times of the year as different categories of clients sign or renew policies. Although certain clients may be facing financial hardship or dislocation due to the pandemic, the insurance brokerage industry had generally performed well during past economic downturn. We expect reduced insurance near-term earnings because of the scale of the recent new hires. We anticipate this division's second quarter to be well below the second quarter of 2019 and to improve in the third and fourth quarters, but remain just below breakeven. We expect insurance brokerage to operate profitably in 2021 and to reach 15% margin on profitability by 2022, including additional new hires.

We believe that our insurance brokerage platform is worth materially more than our investment in it. Our goal is to maximize value for our investors, and we are exploring ways to do so with respect to this business.

With that, I'm now happy to turn the call over to Steve Bisgay.

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Steven Bisgay, BGC Partners, Inc. - Executive MD & CFO [5]

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Thank you, Shaun, and hello, everyone. You can find details on our quarterly results in today's press release and investor presentation. I just want to touch on a few important items related to our financial positions.

Because we are not a capital-intensive business, we have historically returned most of our earnings to shareholders rather than building of retained earnings. This policy was designed for more ordinary economic conditions. These past 2 months have been the most difficult and tumultuous markets anyone on the management team at BGC has ever seen. They are probably the most uncertain markets any of our parents would have ever seen, and no one knows how long the effects of the global pandemic will last.

Therefore, we have taken steps designed to further strengthen our financial position. These include reducing our quarterly dividend to common shareholders and distributions to unitholders. We did sell-out of an abundance of caution due to the potential negative impact COVID-19 might have on our clients, our industry, the overall economy and the world, not due to any company specific concern with respect to BGC.

While our revenues have improved year-on-year in March and April, it is impossible to perceive if current market conditions will continue or if the pandemic might directly or indirectly impact any of our employees, clients, vendors or other market participants. In addition, as Howard said, we think the massive amounts of debt issuance underway globally will lead to more revenues for us over the medium and long term. However, it is possible that the massive, quantitative easing measures taken by global central banks, lower negative interest rates and the drop in commodity prices could temporarily lower industry volumes.

We believe that the right thing for the company to do, given the global macroeconomic uncertainty, is to prioritize our near-term financial strength and fortify our balance sheet. We expect the Board to regularly review our capital return policy, as global conditions with respect to the pandemic evolve and hopefully become clearer. When the time is right, we expect the Board to consider what amounts should be returned to stockholders.

During the quarter, we acted to reduce our compensation-related cost base and streamline our operations, which resulted in $22.7 million of GAAP charges recorded in the first quarter. This restructuring program is expected to reduce the company's GAAP compensation expenses by over $35 million for the remainder of 2020.

With respect to our stand-alone fully electronic Fenics products, such as Lucera and Fenics UST, we expect to significantly grow revenues over the next 2 years. And with our rollout costs behind us, we expect the overall expenses for these businesses to decline. We anticipate the net investment cost for these businesses to be less than $40 million for full year 2020 and breakeven for full year 2021.

Turning to share count. Our fully diluted weighted average count increased by 4.3% to 538.4 million under both GAAP and adjusted earnings in the first quarter of 2020. As of March 31, 2020, our spot share count was 538.6 million. This represented a 4.3% year-on-year increase. We expect to continue using relatively more cash with respect to compensation in order to minimize dilution. Largely as a result of this, we still expect our 2020 year-end fully diluted share count to increase by approximately 4% to around 550 million.

With respect to our balance sheet, as of March 31, 2020, our liquidity was $512.3 million compared with $473.2 million as of year-end 2019. Notes payable and other borrowings were $1,368.2 million compared with $1,142.7 million, and total capital was $739.4 million compared with $767.4 million. While historically the first quarter has been our most profitable quarter, it is also the quarter where we structurally use the most cash. The quarter-end balance sheet reflects ordinary movements in working capital, cash paid with respect to annual employee bonuses, company and employee-related taxes, the aforementioned restructuring program, acquisitions, including earnout payments and investments in our newer Fenics platforms and significant broker hires. This cash use was offset by increased borrowing under our revolving credit facility.

The company has paid down $75 million of its revolving credit facility since quarter end and we expect to continue to pay down the revolvers throughout the balance of the year. We believe that our credit metrics, cash generation and access to credit all remains strong. We continue to manage our business with a focus on our investment-grade ratings.

Because we have received many questions regarding our operations over the last several weeks, I would like to remind you of some key facts about our low-risk brokerage business model. BGC's brokerage business is designed to execute transactions that are either name give up, matched principal or clear with central counterparties. Our transactions are, therefore, not balance sheet intensive. In name, if you look at transactions, we match buyers and sellers and charge a fee. In matched principal transactions, we execute both sides of the transactions simultaneously, which eliminates market risk.

A significant and growing percentage of our brokerage business is essentially cleared and therefore eliminates counterparty risk. For example, in numerous transactions, the buyer and seller are novated to a central counterparty, such as LCH or ICE Clear. Furthermore, we are not market makers, and we do not hold inventory. We do not trade on a proprietary basis. We don't have margin calls related to inventory. The margin we do place with clearing organizations is not material to our balance sheet. We also do not issue loans or provide barter to clients, nor do we rely on short-term lending markets, such as repos or commercial paper to fund our operations. In short, we are a brokerage business.

With that, I'm happy to turn the call back over to Shaun Lynn.

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Shaun D. Lynn, BGC Partners, Inc. - President [6]

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Thank you, Steve. Turning to our outlook for the second quarter of 2020 compared with the year earlier. BGC's revenues, excluding our insurance brokerage business, increased by approximately 2% year-on-year for the first 21 trading days of the quarter. This reflects mixed global industry volumes thus far in the quarter as well as continued dislocation for BGC's brokers and their clients due to COVID-19. Our guidance assumes the industry volumes and our non-insurance brokerage revenues are flat to down slightly year-on-year for May and June. In addition, we expect our insurance brokerage revenues to be relatively flat year-on-year in the quarter, but to generate accelerating growth throughout the balance of the year.

Due to the unpredictable nature of the continuing macroeconomic environment, we have a wider outlook range than normal. We expect to generate total revenues between $525 million and $575 million compared with $551.2 million. We anticipate pretax adjusted earnings to be in the range of $89 million to $109 million versus $102.3 million. This includes the impact of our recent insurance brokerage hires, who are incurring costs and are not yet generating meaningful revenue. But for this investment, the midpoint of our range would have been up year-over-year.

We anticipate our full year 2020 adjusted earnings tax rate to be in the range of 10% to 12% versus 11.4% for the full year 2019. We expect to update our outlook towards the end of June.

With that, operator, we would now like to open the call for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And your first question comes from the line of Rich Repetto with Piper Sandler.

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Richard Henry Repetto, Piper Sandler & Co., Research Division - MD & Senior Research Analyst [2]

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Hope everybody's family -- your family are all safe and healthier. So the first question is on Fenics, on the fully electronic revenue. And Howard, you had sort of talked about this prior that in the volatile markets that customers, sort of, go back to their old ways. So the revenue was down 5% year-over-year. When I look -- but I guess my question is when I looked at the notional volume that you disclosed, it was up 20% year-over-year without any big change in mix and with each one -- each product category up in the high teens or above. So I'm just trying to understand -- I do get the overall explanation, but how the numbers sort of support that, I guess, or behind it?

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Shaun D. Lynn, BGC Partners, Inc. - President [3]

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Well, as we -- Rich, it's Shaun. As we've seen in these volatile times, and as Howard had said and the proof in the past is that, our business gravitates directly towards where the liquidity pool is and where the experience has been, which is where as the dislocation happened, the voice brokers were on hand with the technology too, but they had the in-depth knowledge. So therefore, there was some vast turnover that was happening via the voice brokers at this time, which is -- was a slight headwind for electronic revenue. Some electronic platforms performed really well. But in the greater volatility markets such as in, say, rates and credit, we saw some-- we saw the voice brokers come to the fore.

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Richard Henry Repetto, Piper Sandler & Co., Research Division - MD & Senior Research Analyst [4]

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Can you hear me now?

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Shaun D. Lynn, BGC Partners, Inc. - President [5]

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We can hear you.

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Richard Henry Repetto, Piper Sandler & Co., Research Division - MD & Senior Research Analyst [6]

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Sorry. My mistake here. So my next question is, you paid down the revolver, $75 million, I believe, maybe after quarter end or towards quarter end. And now -- your guidance is certainly reasonable for the second quarter. I guess the question, is this all an indication that you're more comfortable with this scenario? And I noted Steve's, sort of, cautionary tone as well, but I just see no big losses. It seems like your customers -- you didn't take any customer loss. So what's the view, Howard, I guess, on the business, in general? And I got one more follow-up after.

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Steven Bisgay, BGC Partners, Inc. - Executive MD & CFO [7]

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Rich, it's Steve. Yes, we did pay down $75 million after quarter end. Our plan is to continue to use excess cash to pay down the revolver as well under the circumstances as we continued to perform. We did not suffer any significant -- to your question specifically, in Q1, no, we did not suffer any significant, nor material losses at all with regard to our client activity -- our brokerage activity. So -- yes, we do plan to continue to pay down our revolver.

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Howard W. Lutnick, BGC Partners, Inc. - Chairman & CEO [8]

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And Rich, your comment -- yes, if we could be assured that April was the future of the pandemic, then, of course, we would be more comfortable. But since no one can articulate what May and June will be, what will happen in the fall, I think our view is we just want to be strong. Now it may be that we have been through a lot. This management team has been through a lot. And we just want to make sure that the company is very strong, as it heads into uncertain times. So if April is a future, of course, we are more confident. Did we pay back, as Steve just said, we decided to pay back $75 million of the revolver? That clearly defines that. Do we expect to generate substantial cash going forward? Of course, we do. Do we expect to pay down the revolver through the rest of the year? Of course, we do. So we feel much better. We implemented our business continuity plan. Lots of our brokers were very effective from home. As they start to come back to the office, they will become more and more effective. We've reconfigured our offices. We're ready for them. We are looking forward to more traditional times when our staff comes to the office and works together. But for the time being, we wait for governments to tell us what we can do. We wait for our staff to be comfortable and healthy and taken care of, and -- but if April were the way, yes, we are more comfortable. And no, as Steve said, there was nothing that happened to BGC vis-à-vis just BGC, but we just don't know what the future is as nor does anybody.

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Richard Henry Repetto, Piper Sandler & Co., Research Division - MD & Senior Research Analyst [9]

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Got it. We're all waiting for those return to the normal times, Howard, for sure. One last quick question. As you look at the capital return policy overall, do you have a period right now? Again, out of precaution and uncertainty, you sort of put things in limbo. If you continue to build up cash, I guess, towards year-end, you could either buy back shares, you get a different stock price now. So I guess the question is, would -- is the buyback -- or excuse me, is the capital return policy evolving to something to shift to something other than just a pure dividend policy? If it isn't, if it's still a dividend policy, then why wouldn't -- could you ever make a commitment to the dividend once you feel you get the all clear, paying back dividends in arrear, whatever you've earned, but paying back some sort of percentage on what you did earn in these uncertain times?

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Howard W. Lutnick, BGC Partners, Inc. - Chairman & CEO [10]

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I think the way I said at the beginning, sort of sounds right, which is the Board will examine our dividend return policy, when we're feeling comfortable that the future is more balanced and more certain. So we will do a capital return policy review, and we are going to continue to do that. We are a capital return company and have historically been. But as we entered this pandemic, we felt that we were going into uncharted territory, and we felt we needed to fortify -- as Steve said, fortify our balance sheet, stay strong and be strong so that we could handle whatever came our way.

Looking forward, might that be share buybacks, might that be reinstating a dividend policy or creating a new dividend policy? I think I need to leave that open, but you should understand that we are committed to capital return in our future. That is where we plan to be. That is where we have been in the past. But I think through this period of time, we just need to be strong, and we need to get shareholder value. We have great assets. We have our insurance business, which we think is a valuable asset. And we just want to make sure that the -- we act prudently and effectively for our shareholders and make sure this company is very strong for the long haul. And I think we will make our shareholders superb returns, but we just have to remain strong and focused throughout these difficult periods to get there.

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Operator [11]

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Your next question comes from the line of Patrick O'Shaughnessy with Raymond James.

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Patrick Joseph O'Shaughnessy, Raymond James & Associates, Inc., Research Division - Research Analyst [12]

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How is employee morale holding up in light of the decline in their -- the value of their partnership units and the reduced dividend?

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Shaun D. Lynn, BGC Partners, Inc. - President [13]

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Employee morale is obviously concerned with the overall pandemic, but very good in the sense that they've been able to go home. They've gone home. They've been able to work. They've been able to look after their families. They've been able to work from -- at BCP sites. And some even still from our offices where possible, we've been allowed to operate. It's a worrying time, of course, for the market as a whole, but morale is good. Spirits are good. Obviously, our performance has been -- it's been good. Relative to what's been happening in the global world, our performance has been good. And I think that the biggest factor, I think, that's shown the light to our employees is the strength of the company, the strength of our technology, the strength of our infrastructure, the investments we have made over the years. And our technology, not just the phone system, not just that -- our telephone lines, it's our execution platform that they can operate and still connect to their clients electronically, where some, say, smaller brokers would not be able to compete against us. So I think they feel comforted in the knowledge that they're working at, what I consider, a great company.

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Patrick Joseph O'Shaughnessy, Raymond James & Associates, Inc., Research Division - Research Analyst [14]

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Got it. Appreciate that. In your prepared comments, you spoke about how this unprecedented amount of debt issuance, it could be a nice long-term tailwind for the business. What did you guys see post great financial crisis, where obviously, we had unprecedented debt issuance following that period? How did that impact your rates business?

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Howard W. Lutnick, BGC Partners, Inc. - Chairman & CEO [15]

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Well, it's a little different. The volumes, the Fed coming in and quantitative easing and all of that sort of came in later, whereas in this case it came in straight away. So really, April volumes were muted from what they otherwise would have been, but for the Central Bank -- the scale of Central Bank intervention, which was massive and impressive. So I think you're going to have those 2 things sort of weighing on each other, massive issuance, massive quantitative easing. But then again, massive issuance by governments all around the world. And since we have a great rates business all around the world, we think the government business will be the first to really dramatically change and be a tailwind for the company. And then as they taper the purchases of corporate bonds, which may -- and credit bonds, which may be for a while. They may be buying them for a while. I don't -- I surely don't know. But as they taper that off, the credit business will really dramatically improve because there are companies who are not performing as well as BGC. They're going to have a period of time where they just don't make the money they used to make and/or take losses, and they're going to have to issue debt to cover those numbers. And that debt will remain outstanding for decades and decades, and that's just more raw materials for us to trade with.

So I think you'll see it in governments. I think you saw the volumes when there was the -- if you remember, the taper tantrum, if you remember that. So I think these things will be with us for the long, long foreseeable future, as the way you've described it correctly as a tailwind. But there is the offsetting quantitative easing by the governments that are buying enormous, enormous amounts of this. And I think they've bought more that has been issued, trying to keep the capital markets stable, but that will start to change. All these markets will start to issue over the next period of time when maybe a year, maybe 2 years, but the scale of corporate issuance will be enormous. And the scale of government bond issuing -- I mean imagine the U.S. government had a $3 trillion deficit this quarter. It is -- it's unimaginable and scale from where we were before, and that just means enormous issuance across governments, agencies. And that will be true around the world. So I think it's just enormous fundamental baseline with competing issues on any given quarter and any given period of time, but ultimately, great raw material for people in our industry.

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Patrick Joseph O'Shaughnessy, Raymond James & Associates, Inc., Research Division - Research Analyst [16]

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Got it. I want to circle back to some of the discussion on the Fenics brokerage revenues. So I kind of -- I understand what you're saying. And yet, we look at some of the other fully electronic venues that are out there. MarketAxess had a really strong first quarter. Tradeweb's volumes were really strong in the first quarter. I think Brokertec had a pretty strong first quarter. So what's kind of, I guess, specific to the Fenics platforms that maybe led to their underperformance relative to some of those other fully electronic platforms that I mentioned?

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Shaun D. Lynn, BGC Partners, Inc. - President [17]

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So Fenics U.S. Treasury had a really strong quarter. Fenics GO had a really strong quarter. MidFX had a strong quarter. We've had strong quarters in some of our fully electronic platforms as well. I think what has been a headwind for us compared to, say, a competitor, should we say, they don't have voice brokers, so they have a very different offering. And they're mainly focused on dealer-to-client, and we're mainly focused on dealer-to-dealer. And when the markets have got -- and when the markets have been very, very liquid, our clients have been engaging with us. Really from March onwards, as we know, with regards to the voice brokers and getting their inside liquidity and knowledge they've been looking for. So it's been a positive for us, but obviously a negative for our electronic number, but a positive for the revenue turnover and the voice component.

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Sean A. Windeatt, BGC Partners, Inc. - COO [18]

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And I think, Rich, just to add, if you think about the liquidity that we provide between our wholesale banks and market makers, our customers have a choice. They have a choice between voice and electronic. And what we have seen, and as Shaun said in his prepared remarks, is our customers migrated towards voice because they had that choice. With the likes of Fenics U.S. Treasuries, MarketAxess, Tradeweb, that's electronic only. And I think what we do believe is, as you've seen previously, with the growth of our electronic conversion of our voice electronic business, we think that will continue to grow over time in sort of more normalized market conditions, and that will be an increase into our profits over the medium and longer term.

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Shaun D. Lynn, BGC Partners, Inc. - President [19]

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And one other thing, Patrick, just to jump on that is that, we have a broad, broad church. We are a global company, from Australia, all the way through Canada and so on, where some of our other competitors focus on a certain segment of the marketplace, very targeted. And so they're coming from a very different starting point than we are, 2,600-odd brokers and many, many different offices around the globe.

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Patrick Joseph O'Shaughnessy, Raymond James & Associates, Inc., Research Division - Research Analyst [20]

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Got it. I appreciate that color. With insurance brokerage business, you've spoken about trying to figure out how you can extract the most value out of that franchise, and I think a potential option was selling that business. And given current market conditions, has the window to potentially sell that business closed for now?

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Howard W. Lutnick, BGC Partners, Inc. - Chairman & CEO [21]

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I don't think so, but I think these businesses perform well and they're countercyclical, meaning that the desire for insurance has probably risen. I think people think about insurance more often now than before. There are certain details where, so obviously, if there are clients that are in stress, that's problematic, but there are more and more clients, who are going to have to reexamine their insurance needs and purchase insurance. So I think, generally, the business is solid. And I think the demand or the opportunity for people to invest in that business, I don't think has dissipated. It may be lower. I mean, I can't deny that the market value may be different. But I think we're going to examine what's the best way and the most value we can get for our investors and our shareholders and our stakeholders, generally. So I think we're examining it. And -- but our business is doing well. We've hired extraordinarily talented people. And those talented people have joined us in the first quarter, in the second quarter, and insurance brokers tend to be more productive. They tend to not be able to do business with their clients in the first year that they join. So go ahead, Shaun, maybe you should add some color to this.

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Shaun D. Lynn, BGC Partners, Inc. - President [22]

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Yes. Just, Patrick, just one other thing that I think is important to mention in this current time that we are a broker, not an underwriter. We don't take risk. And basically, some of the stresses that you're seeing with some of the underwriters at the moment with indemnity insurance is affecting obviously the underwriters, not the brokers. I just wanted to make that point clear.

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Patrick Joseph O'Shaughnessy, Raymond James & Associates, Inc., Research Division - Research Analyst [23]

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Okay. Understood. And then last one, I think for you, Howard. Several years ago, GFI Group share price was coming under a lot of pressure, and management basically came forward with a take-private offer. And obviously, you guys ended up buying GFI Group, so that did not take place. But given BGC's current valuation and the stock price, would you contemplate a take-private deal for BGC partners? Or does this business just make much more sense as a publicly-traded entity?

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Howard W. Lutnick, BGC Partners, Inc. - Chairman & CEO [24]

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I think in early May of 2 months into a pandemic, I think, the answer is the one you've heard from my management team today. Head down, conservative, generate cash, get your people back to the office, take care of your people, make sure they're safe, make sure they can operate effectively, strengthen your balance sheet, look forward. But I think those kind of thoughts are just not on the menu currently. I just don't think that's what you think about in May, 2 months into pandemic, but someday in the future, I'm not commenting one way or the other or anything about that. And frankly, we haven't thought about it at all. I think our issues are: strengthen our balance sheet, generate cash, take care of employees, make sure they're healthy and protected, make sure we can bring them back to the offices when appropriate around the world and take care of our clients as best we can, strengthen our technology, move to electronics, head down, focus on the steps in front of us, and leave that, that's just not on the menu. We're not thinking about it. We're not talking about it. It's not there.

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Operator [25]

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(Operator Instructions) I'm showing no further questions at this time. I would now like to turn the conference back to Howard Lutnick, Chairman and CEO of BGC Partners.

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Howard W. Lutnick, BGC Partners, Inc. - Chairman & CEO [26]

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I just want to thank everybody for spending the time with us this morning. I want to wish you all health, that you have positive time with your families and that you stay healthy, stay protected. And we really appreciate your time. And I think we -- I, for one, and my management team, I know, all of us are tremendously proud of our employees. And I just want to finish by saying that we are completely, completely indebted to our employees, who have worked tirelessly to carry us through to this point, and they have done an extraordinary job, with technology people, our operations people, imagine settling and clearing all these transactions in those last weeks of March, and they have really been brilliant. And I think the culture we have built, the commitment that they have to the company is second-to-none. And I'm -- I just want to express my gratitude to my -- the team of BGC. They are wonderful human beings, who care about each other and deeply care about your company. So thank you all, be safe, and we look forward to speaking to you next quarter. Bye everyone.

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Operator [27]

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