Two gains explain more than half of BGC's adjusted EBITDA growth

BGC's trading desks delivered a strong third quarter. Brokerage revenue rose 14.8%, and pretax Adjusted Earnings grew 20.9%, a faster pace than in Q2.

Another profit measure grew much faster: adjusted EBITDA climbed 48.9% to $249.5 million. That figure includes a business-sale gain and an increase in investment values that BGC removes from Adjusted Earnings.

Where the extra lift came from

Research by Ticker Byline shows that the sale and valuation effects explain about 55% of the year-over-year increase in adjusted EBITDA. The comparison uses both years' figures, including a small investment loss in the earlier quarter.

BGC booked a $35 million gain on the sale of Water Street Labs and CX Clearinghouse to Fanatics. It also recognized a $10.1 million noncash gain from investment valuations.

Adjusted EBITDA removes interest, taxes and several accounting costs, including share-based compensation and asset impairment. It keeps those sale and valuation gains. BGC's other measure, pretax Adjusted Earnings, removes them and still rose to $187.5 million from $155.1 million.

The 49% increase therefore overstates the pace shown by the company's measure of ongoing operating earnings. The 21% increase shows that trading growth is making a substantial contribution of its own.

The trading business is doing better

BGC helps banks and other institutions trade bonds, currencies, commodities and other financial products. Total revenue reached $832.6 million, up 13%.

Energy, commodities and shipping, interest-rate products, foreign exchange and equities all grew at double-digit rates. Credit was the exception, with revenue down 2.5%.

FMX's futures exchange averaged more than 80,000 contracts a day in Q3. That rose to 112,000 in September after the full U.S. Treasury futures range launched in August.

FMX generated $30.5 million of revenue across rates, foreign exchange and market data. The figure covers more than the futures exchange, which is one part of the broader platform.

Strong delivery within the earlier forecast

BGC's revenue and pretax Adjusted Earnings came near the upper ends of the ranges issued in July and reaffirmed in September. Revenue guidance had been $775 million to $835 million; pretax Adjusted Earnings guidance was $172 million to $190 million.

For Q4, BGC expects revenue of $805 million to $865 million and pretax Adjusted Earnings of $178 million to $196 million.

The Fanatics sale closed in August. Its Q3 gain helps explain why the fastest-growing profit measure is not the clearest single guide to the trading business's momentum.

Our BGC company profile compares the earnings measures, tracks FMX and sets out current liquidity, debt and the completed Fanatics transaction.