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Q42016 Earnings Presentation - (PDF)
Declares Quarterly Dividend of 16 Cents
Conference Call to Discuss Results Scheduled for 10:00
AM ET Today
NEW YORK, NY – February 9, 2017 - BGC Partners, Inc. (NASDAQ: BGCP) (“BGC Partners” or “BGC” or “the Company”), a leading global brokerage company servicing the financial and real estate markets, today reported its financial results for the quarter and year ended December 31, 2016.
Select Results Compared to the Year-Earlier Period
|Highlights of Consolidated Results (USD millions)
|Income from operations before income taxes under U.S. Generally Accepted Accounting Principles (“GAAP”)
|GAAP net income for fully diluted shares
|Pre-tax distributable earnings before noncontrolling interest in subsidiaries and taxes
|Post-tax distributable earnings to fully diluted shareholders
|Per Share Results ||4Q16||4Q15 ||Change||FY16||FY15||Change
|GAAP net income per fully diluted share||$0.06||$0.24 ||(75.0)%||$0.36||$0.48||(25.0)%
|Pre-tax distributable earnings per share ||0.30||0.26||15.4%||1.00||0.96||4.2%
|Post-tax distributable earnings per share ||0.25||0.21||19.0%||0.84||0.77||9.1%
“BGC generated record revenues for the sixth consecutive year”, said Howard W. Lutnick, Chairman and Chief Executive Officer of BGC. “Excluding the $391 million gain we recorded with respect to our Trayport sale last year, our GAAP net income for fully diluted shares and Adjusted EBITDA improved dramatically for the quarter and full year. We are pleased to report that we generated record post-tax distributable earnings for the quarter and full year. Our strong results were led by business integration synergies, the improving profitability of our high-margin fully electronic FENICS business, and the highest-ever revenues generated by Newmark Grubb Knight Frank’s real estate capital markets business.
“We have $757 million of balance sheet liquidity. On top of this, we expect to receive over $750 million of additional Nasdaq shares over time, which are not yet reflected on our balance sheet. We also expect our overall top- and bottom-lines to further improve over time as our recent acquisitions and front-office hires get fully up to speed.
“I am also pleased to announce that our board declared a 16 cent dividend for the fourth quarter, which is consistent with the previous three quarters, but up 14.3 percent year-on-year. At yesterday’s closing stock price, this translates into a 5.8 percent annualized yield. The board also increased our stock repurchase program by $170 million, bringing the total amount authorized to $300 million”.
Mr. Lutnick concluded: “Earlier today, we issued a press release relating to the confidential filing of our registration statement for the proposed IPO of Newmark, our Real Estate Services business. Since we are currently in the registration process, we are subject to the restrictions under the securities laws on communications relating to the offering. Please refer to the press release for more information”.
Shaun D. Lynn, President of BGC, said: “Our rates revenues increased by over 7 percent year-on-year in the fourth quarter, and we saw particularly strong overall Financial Services top-line growth in November as a result of increased activity following the U.S. election. The combination of potential regulatory reforms, our investment in technology, and the expectation of rising interest rates makes us confident in the prospects of our Financial Services business.
“The widely discussed regulatory changes should be very beneficial for both our clients and us. Over time, we could see the overall industry returning to activity levels seen a few years ago. For example, in 2011, BGC’s Financial Services business and GFI (excluding Trayport and Kyte) generated combined net revenues of nearly $2.2 billion, more than 40 percent higher than in 2016.
“We have spent the last two years reducing our expenses by successfully integrating GFI and investing approximately $140 million per year in technology. As a result, we have delivered a dramatic improvement in Financial Services profitability. This improved operating leverage came despite the sale of Trayport, which generated revenues of $15.8 million and $58.6 million, respectively, in the fourth quarter and full year 2015 and which had pre-tax margins of nearly 45 percent. Given our more efficient structure, we expect future revenue growth to produce strong incremental margins for the business”.
Mr. Lynn concluded: “Our FENICS platform increased its full year pre-tax earnings by over 20 percent versus 2015. As we continue to convert hybrid and voice desks to fully electronic trading, further expand our customer base, and roll out several new FENICS offerings over the course of 2017, we expect to improve fully electronic earnings and revenues”.
Barry M. Gosin, Chief Executive Officer of Newmark Grubb Knight Frank, added: “NGKF’s real estate capital markets brokerage revenues increased by 43 percent and 28 percent year-on-year for the quarter and full year, respectively. This outpaced the overall market, as Real Capital Analytics reports that U.S. investment sales declined by 20 percent and 11 percent, respectively, over the same timeframes. Our industry-leading real estate capital markets growth was almost entirely organic, as the investments made over the course of the last few years begin to bear fruit.
“Our management services business, with its recurring revenues, increased its top line by 9 percent in the quarter year-on-year and by 5 percent for 2016. NGKF’s overall revenues increased by 7 percent to $306 million in the fourth quarter compared to a year earlier and by 6 percent to $1,058 million for 2016. Although the uncertainty following the political results in the U.K. and U.S. may have caused some hesitation on the part of users and investors in commercial real estate, we think the macroeconomic fundamentals remain solid. Steady GDP growth generally provides a positive tailwind to our leasing business, while interest rates in the U.S. and other major economies remain low relative to capitalization rates, which continues to make investing in commercial real estate attractive”.
Mr. Gosin concluded: “We anticipate making further accretive acquisitions and profitable hires over the coming year. As our recently-hired brokers ramp up their productivity, and as we continue to execute our strategy, we expect to grow our revenues and profits faster than the overall industry going forward”.
Dividend Information and Share Repurchase Authorization.
On February 7, 2017, BGC Partners’ Board of Directors declared a quarterly qualified cash dividend of $0.16 per share payable on March 14, 2017 to Class A and Class B common stockholders of record as of February 28, 2017. The ex-dividend date will be February 24, 2017. The Board expects to consider whether to increase the dividend in late April, which is consistent with the Company’s annual process.
On February 7, 2017, BGC Partners’ Board of Directors and Audit Committee increased the Company’s share repurchase and unit redemption authorization by $170.3 million to $300 million. As of December 31, 2016, the Company had $129.7 million remaining from its previous $300 million share repurchase and unit redemption authorization.
Discussion of Financial Results
Unless otherwise stated, all results provided in this document compare the fourth quarter of 2016 with the year-earlier period. With respect to BGC's consolidated financial results, for the period from February 27, 2015, to April 28, 2015, approximately 44 percent of the post-tax earnings generated by GFI were attributable to non-controlling interest in subsidiaries, while the remaining approximately 56 percent were attributable to BGC's fully diluted shares. From April 29, 2015 through January 11, 2016, approximately 67 percent of GFI's post-tax earnings were attributable to BGC's fully diluted shares. From January 12, 2016 forward, 100 percent of GFI's post-tax earnings are attributable to BGC's fully diluted shares.
On November 4, 2016, BGC acquired the 80 percent of the Lucera business not already owned by the Company. Lucera is a financial technology network and infrastructure provider headquartered in New York, the revenues for which are now recorded as part of “Data, software, and post-trade”. Because this transaction involved entities under common control, BGC’s financial results have been retrospectively adjusted to include the results of Lucera in the current and prior periods. This adjustment impacted a number of line items for the Financial Services segment, Corporate Items, and the consolidated Company for all periods shown in this document.
Beyond the changes made with respect to the Lucera transaction, certain reclassifications have been made to previously reported amounts to conform to the current presentation and to show results on a consistent basis across periods. Any such changes would have had no impact on consolidated revenues or earnings for GAAP and would either leave essentially unchanged or increase pre- and post-tax distributable earnings for the prior periods, all else being equal. Certain numbers in the tables throughout this document may not sum due to rounding. See the tables towards the end of this document titled “Segment Disclosure” for additional information on both Real Estate Services and Financial Services, as well as on Corporate Items, which are shown separately from the following segment results.
Online Availability of Investor Presentation and Additional Financial Tables
Investors should note that an investor presentation as well as Excel versions of the tables at the end of this document are available for download if one views the HTML version of the release at ir.bgcpartners.com. The Excel tables and presentation contain the results discussed in this document as well as other useful information that may not be contained herein. Those viewing the release on this website should see the link to the tables and presentation near the top of that page.
Financial Services Results
Industry-wide, wholesale financial brokers tend to be seasonally strongest in the first calendar quarter of the year in terms of revenues and profitability, sequentially slower in each of the next two quarters, and then slowest in the fourth calendar quarter. As a result of the sale of Trayport, its revenues, net of intra-company eliminations, are shown separately in the below tables, while its results are excluded from those of BGC’s fully electronic businesses.
|Financial Services Results (USD millions)||4Q16||4Q15||Change||FY16||FY15||Change
|Rates revenues ||$116.1||$108.1 ||7.5%||$468.8||$471.2 ||(0.5)%
|Foreign exchange revenues ||70.8||75.2 ||(5.8)%||303.3||324.8 ||(6.6)%
|Credit revenues ||62.3||63.4 ||(1.7)%||291.8||271.6 ||7.4%
|Energy and commodities revenues ||54.1||57.1||(5.2)%||222.9||196.2||13.6%
|Equities and other asset classes revenues ||42.0||42.6||(1.5)%||175.0||172.3||1.5%
|Total brokerage revenues ||345.3||346.3||(0.3)%||1,461.7||1,436.1||1.8%
|Data, software, and post-trade, excluding Trayport and net of intra-company eliminations ||12.9||14.7||(11.7)%||54.3||43.7||24.2%
|Trayport revenues, net of intra-company eliminations ||0.0||15.8||(100.0)%||0.0||58.6||(100.0)%
|Interest, fees from related parties, and other revenue ||1.1||1.4||(25.1)%||7.2||9.7||(25.5)%
|GAAP income from operations before taxes||63.7||55.6||14.6%||326.5||284.9||14.6%
|GAAP income from operations before taxes as a percent of revenues||17.7%||14.7%||21.4%||18.4%||
|Pre-tax distributable earnings ||87.7||69.8||25.7%||351.8||306.3||14.8%
|Pre-tax distributable earnings as a percent of revenues ||24.4%||18.4%||23.1%||19.8%||
For the full year 2016, BGC’s overall Financial Services revenues declined primarily due to the sale of Trayport and lower volumes across global foreign exchange markets, partially offset by the addition of GFI, as well as strong growth from fully electronic credit brokerage and the data, software, and post-trade businesses. In addition, fourth quarter and full year 2016 segment revenues would have been at least $6.5 million and $21.0 million higher, respectively, but for the strengthening of the U.S. dollar relative to other major currencies.
The Company reduced the number of less productive brokers and salespeople in Financial Services, which resulted in segment front office headcount declining by approximately 120 people year-on-year. Although this reduced revenues, it increased profitability. Average revenue per front office employee in Financial Services increased by 4 percent and 3 percent, respectively, in the fourth quarter and full year compared with the year-earlier periods.
In the following table, results for FENICS are broken out from the above Financial Services results. Revenues from inter-company data, software, and post-trade are eliminated at the segment level upon consolidation. As higher-margin fully electronic revenues become a larger portion of the segment’s results, the Company expects overall profitability to continue to improve, all else being equal.
|FENICS Results in Financial Services (Excludes Trayport)(USD millions) ||4Q16 ||4Q15 ||Change ||FY16 ||FY15 ||Change
|Total fully electronic brokerage revenues ||$35.0||$34.2||2.3%||$154.3||$148.3 ||4.1%
|Data, software, and post-trade, excluding Trayport ||12.9||14.7||(11.7)%||54.3||43.7||24.2%
|Data, software, and post-trade revenues (inter-company) ||12.3||11.7||4.7%||52.2||37.3||40.0%
|Total FENICS revenues ||60.2||60.6||(0.7)%||260.9||229.3||13.7%
|FENICS GAAP income from operations before taxes ||23.3||22.2||4.8%||104.8||86.9||20.5%
|FENICS GAAP income from operations before taxes as a percent of fully electronic revenues||38.7%||36.7%||40.2%||37.9%||
|FENICS pre-tax distributable earnings ||24.9||23.6||5.3%||111.0||91.4||21.5%
|FENICS pre-tax distributable earnings as a percent of fully electronic revenues ||41.3%||39.0%||42.6%||39.9%||
Real Estate Services Results
NGKF’s real estate capital markets revenues grew during the quarter, as recent new hires ramped up their productivity. Industry-wide, commercial real estate brokers tend to be seasonally slowest in the first calendar quarter of the year in terms of revenues and profitability, sequentially stronger in each of the next two quarters, and then strongest in the fourth calendar quarter.
|Real Estate Services Results (USD millions) ||4Q16 ||4Q15 ||Change ||FY16 ||FY15 ||Change
|Leasing and other services revenues ||$144.5||$162.3 ||(10.9)%||$513.8||$539.7 ||(4.8)%
|Real estate capital markets revenues ||104.7||73.1 ||43.2%||344.2||269.2 ||27.9%
|Total real estate brokerage revenues ||249.3||235.4||5.9%||858.0||808.9||6.1%
|Management services ||55.8||51.1||9.2%||196.8||187.1||5.2%
|Interest and other revenue ||1.0||0.9||16.2%||3.5||2.5||44.3%
|GAAP income from operations before taxes||48.1||45.7||5.2%||126.4||129.8||(2.6)%
|GAAP income from operations before taxes as a percent of revenues||15.7%||15.9%||11.9%||13.0%||
|Pre-tax distributable earnings ||49.5||47.2||4.8%||130.5||139.3||(6.3)%
|Pre-tax distributable earnings as a percent of revenues ||16.2%||16.4%||12.3%||14.0%||
The Company’s compensation and non-compensation expenses declined largely due to continued cost reduction efforts and the sale of Trayport, partially offset by the impact of recent acquisitions and hires. In addition, the fourth quarter and full year 2015 included a significant amount of GAAP non-cash and/or non-dilutive charges recorded following the Trayport sale, aside from those that might have been expected as part of the Company’s ordinary operating business.
|Consolidated Expenses(USD millions)||4Q16||4Q15||Change||FY16||FY15||Change
|Compensation and employee benefits under GAAP||$406.0||$479.1 ||(15.3)%||$1,653.6||$1,696.6 ||(2.5)%
|GAAP allocations of net income and grant of exchangeability to limited partnership units and FPUs||60.3 ||145.7 ||(58.6)%||192.9 ||259.6 ||(25.7)%
|Non-compensation expenses under GAAP||169.5 ||221.8 ||(23.6)%||686.0 ||763.7 ||(10.2)%
|Total expenses under GAAP||635.7 ||846.6 ||(24.9)%||2,532.5 ||2,719.9 ||(6.9)%
|Compensation and employee benefits as a percent of revenues under GAAP ||60.3%||71.0% || ||63.3%||65.7% ||
|Non-compensation expenses as a percent of GAAP revenues||25.2%||32.9% || ||26.3%||29.6% ||
|Compensation and employee benefits for distributable earnings||402.6 ||425.5 ||(5.4)%||1,625.0 ||1,624.9 ||0.0%
|Non-compensation expenses for distributable earnings||160.4 ||171.4 ||(6.4)%||653.5 ||661.2 ||(1.2)%
|Total expenses for distributable earnings||563.0 ||596.9 ||(5.7)%||2,278.5 ||2,286.0 ||(0.3)%
|Compensation and employee benefits as a percent of revenues for distributable earnings||59.8%||63.0% || ||62.2%||63.0% ||
|Non-compensation expenses as a percent of revenues for distributable earnings ||23.8%||25.4% || ||25.0%||25.6% ||
Noncontrolling Interest and Taxes
Noncontrolling interest in subsidiaries represents the noncontrolling interest allocation associated with the joint ownership of BGC’s administrative services company (Tower Bridge), GFI, and certain NGKF affiliated entities. Because GFI was not wholly owned by BGC at the time of the Trayport sale, a large portion of the gain on sale and the related taxes were attributable to GFI in the fourth quarter and full year 2015.
|Noncontrolling Interest and Taxes (USD millions)||4Q16||4Q15||Change||FY16||FY15||Change
|GAAP provision for income taxes ||$14.6 ||$79.4 ||(81.6)%||$60.3 ||$120.5 ||(50.0)%
|GAAP net income attributable to noncontrolling interest in subsidiaries||$6.7||106.7 ||(93.7)%||25.5||138.8 ||(81.6)%
|Provision for income taxes for distributable earnings||19.9 ||15.5 ||27.9%||65.8 ||55.4 ||18.7%
|Distributable earnings attributable to noncontrolling interest||1.2 ||4.6 ||(74.3)%||1.6 ||16.5 ||(90.2)%
Consolidated Share Count
|Consolidated Share Count(USD millions)||4Q16||4Q15||Change||FY16||FY15||Change
|Fully diluted weighted-average share count under GAAP||433.4 ||405.4 ||6.9%||433.2||335.4 ||29.2%
|Fully diluted weighted-average share count for distributable earnings||433.4 ||404.1 ||7.3%||433.2 ||390.8 ||10.8%
The GAAP share count was lower than that for distributable earnings for the full year 2015 because it excluded certain share equivalents in order to avoid anti-dilution. The share count for both GAAP and distributable earnings increased year-on-year due to the 23.5 million shares issued related to the GFI back-end merger, as well as shares issued with respect to various other acquisitions, front-office hires, employee equity-based compensation, and general corporate purposes. This was partially offset by the repayment of BGC’s 4.5 percent Convertible Senior Notes for $159.9 million in cash and approximately 7 thousand shares of BGC’s Class A common stock, which reduced the fully diluted share count by just under 16.3 million. Additionally, BGC redeemed and/or repurchased 12.4 million shares and/or units, net, at a cost to BGC of $110.5 million, or $8.90 per share or unit during the full year 2016.
As of December 31, 2016, the Company’s fully diluted share count was 434.2 million.
Consolidated Balance Sheet
The Company’s balance sheet consolidates that of GFI and reflects the impact of various other acquisitions across various line items.
As of December 31, 2016, the Company’s “cash and cash equivalents” were $502.0 million, while its liquidity, which it defines as “cash and cash equivalents”, “marketable securities”, “reverse repurchase agreements”, “securities owned”, all held for liquidity purposes, less “securities loaned”, was $756.9 million. For the same period, BGC’s notes payable and collateralized borrowings were $965.8 million; book value per common share was $3.02 and total capital, which BGC Partners defines as “redeemable partnership interest”, “noncontrolling interest in subsidiaries”, and “total stockholders' equity”, was $1,209.5 million.
In comparison, as of December 31, 2015, the Company’s “cash and cash equivalents” were $462.1 million; liquidity was $1,027.0 million; notes payable and collateralized borrowings were $840.9 million; book value per common share was $2.50; and total capital was $1,289.1 million.
The decrease in BGC’s cash and liquidity since year-end 2015 was primarily related to the $159.9 million used to retire BGC’s 4.5 percent Convertible Senior Notes; $89.9 million used with respect to the GFI back-end merger and related transactions; the redemption and/or repurchase of 12.4 million shares and/or units, net, at a cost to BGC of $110.5 million; ordinary changes in working capital; and cash paid with respect to various acquisitions. The Company also continued to invest significant amounts with regard to new front-office hires in Real Estate Services. These items were partially offset by net proceeds from BGC’s offering of $300 million aggregate principal amount of 5.125 percent Senior Notes due May 27, 2021.
The Company’s balance sheet does not yet reflect the anticipated receipt of more than $750 million worth of additional Nasdaq stock over time, because these shares are contingent upon Nasdaq generating at least $25 million in gross revenues annually. Nasdaq has recorded more than $2.4 billion in gross revenues for each of the last 10 calendar years and generated gross revenues of approximately $3.7 billion in 2016.
Outlook for the First Quarter of 2017 Compared with the First Quarter of 2016
- * BGC anticipates revenues of between approximately $655 million and $700 million, compared with $640.7 million.
- * BGC expects pre-tax distributable earnings before noncontrolling interest in subsidiaries and taxes to increase by between approximately 6 percent and 36 percent and to be in the range of $94 million and $120 million, versus $88.3 million.
- * BGC anticipates its provision for taxes for distributable earnings to be in the range of approximately $14 million and $19 million, compared with $13.6 million.
The Company intends to update its first quarter guidance before the end of March, 2017.
Differences between Consolidated Results for Distributable Earnings and GAAP
The following sections describe the main differences between results as calculated for distributable earnings and GAAP for the periods discussed herein.
Differences between Other income (losses), net, for Distributable Earnings and GAAP
Distributable earnings calculations for the full year 2016 excluded gains on divestitures and sale of investments of $7.0 million, which primarily related to the $7.1 million gain on the sale of a non-core Financial Services asset. There was no such item for the fourth quarter of 2016. For the fourth quarter and full year 2015, distributable earnings excluded the corresponding gains totalling $391.0 million and $394.3 million, respectively, which primarily related to the $391.0 million gain on the sale of Trayport.
In the fourth quarters of 2016 and 2015, a gain of $1.0 million and a loss of $(0.7) million, respectively, related to BGC’s investments accounted for under the equity method, were included as part of “Other income (losses), net” under GAAP but were excluded for distributable earnings. For the full years 2016 and 2015, these amounts were gains of $3.5 million and $2.6 million, respectively.
Under GAAP, gains (losses) of $(0.8) million and $9.8 million related to the mark-to-market movements and/or hedging on the Nasdaq shares were recognized as part of “Other income (losses), net”, in the fourth quarters of 2016 and 2015, respectively. For the full years 2016 and 2015, these GAAP amounts were $78.7 million and $68.0 million, respectively. In the fourth quarters of 2016 and 2015, BGC recorded other income for distributable earnings related to the Nasdaq earn-out and associated mark-to-market movements and/or hedging of $17.2 million and $17.6 million, respectively. For the full years 2016 and 2015, these amounts for distributable earnings were $79.6 million and $60.7 million, respectively. Items related to the Nasdaq earn-out are pro-rated over four quarters as “Other income” for distributable earnings, but recognized as incurred under GAAP.
In the fourth quarter and full year 2016, a gain of $2.0 million and $6.8 million, respectively related to the net realized and unrealized gain on the ICE shares received as part of the Trayport transaction was included in GAAP “Other income (losses), net”. For both the fourth quarter and full year 2015, the corresponding GAAP item was $16.3 million, as the Trayport sale occurred in December of 2015. Items related to the ICE shares’ realized and unrealized gains are pro-rated over four quarters as “Other income” for distributable earnings, but recognized as incurred under GAAP. For distributable earnings, gains of $1.6 million and $14.3 million related to the ICE shares were recorded the fourth quarter and full year 2016, respectively as “Other income”. For the fourth quarter and full year 2015, the corresponding distributable earnings items were both $5.4 million.
For the full year 2016, a gain of $18.3 million related to an adjustment of future earn-out payments that will no longer be required was included as part of “Other income (losses), net” under GAAP but was excluded for distributable earnings. For the full year 2015, a $29.0 million gain with respect to the shares of GFI owned by the Company prior to the successful completion of BGC’s tender offer for GFI was included as part of “Other income (losses), net” under GAAP but was excluded for distributable earnings.
For the fourth quarter and full year 2016, additional losses of $2.3 million and $3.6 million, respectively, were included in GAAP “Other income (losses), net”, but were excluded from distributable earnings as part of “(Gains) and charges with respect to acquisitions, dispositions and / or resolutions of litigation, charitable contributions, and other non-cash, non-dilutive items, net”. In the year earlier periods, gains of $4.8 million and $10.1 million, were included in GAAP “Other income (losses), net”, but were excluded for distributable earnings.
Differences between Compensation Expenses for Distributable Earnings and GAAP
In the fourth quarter of 2016, the difference between compensation expenses as calculated for GAAP and distributable earnings included non-cash, non-dilutive net charges related to the $48.7 million in grants of exchangeability and $11.6 million in allocation of net income to limited partnership units and FPUs, as well as charges related to additional reserves on employee loans of $0.8 million. For the full year 2016, the corresponding amounts were $141.4 million, $51.5 million, and $16.2 million, respectively.
In the fourth quarter of 2015, the difference between compensation expenses as calculated for GAAP and distributable earnings included non-cash, and/or non-dilutive charges related to the $134.8 million in grants of exchangeability, $10.9 million allocation of net income to limited partnership units and FPUs, and $47.2 million related to additional reserves on employee loans. For the full year 2015, the corresponding amounts were $231.4 million, $28.3 million, and $47.2 million, respectively.
For the fourth quarter and full year 2016, $2.6 million, and $12.5 million, respectively, in GAAP non-cash charges related to the amortization of GFI employee forgivable loans granted prior to the closing of the January 11, 2016 back-end merger with GFI were also excluded from the calculation of pre-tax distributable earnings as part of “(Gains) and charges with respect to acquisitions, dispositions and / or resolutions of litigation, charitable contributions, and other non-cash, non-dilutive items, net”. A year earlier, the corresponding charges excluded from distributable earnings were $4.7 million and $16.2 million, respectively. In addition, for the full year 2015, $6.6 million in GAAP charges related to GFI compensation restructuring was excluded from distributable earnings as part of “(Gains) and charges with respect to acquisitions, dispositions and / or resolutions of litigation, charitable contributions, and other non-cash, non-dilutive items, net”.
Differences between Certain Non-compensation Expenses for Distributable Earnings and GAAP
The difference between non-compensation expenses in the fourth quarter and full year 2016 as calculated for GAAP and distributable earnings included additional “(Gains) and charges with respect to acquisitions, dispositions and / or resolutions of litigation, charitable contributions, and other non-cash, non-dilutive items, net”. These included $5.1 million and $20.1 million, respectively, of non-cash GAAP charges related to amortization of intangibles; $2.2 million and $7.5 million, respectively, of acquisition related costs; $0.6 million and $4.4 million, respectively, of non-cash GAAP impairment charges; and various other GAAP items that together came to net charges of $1.2 million and $0.5 million, respectively.
The difference between non-compensation expenses in the fourth quarter and full year 2015 as calculated for GAAP and distributable earnings included additional “(Gains) and charges with respect to acquisitions, dispositions and / or resolutions of litigation, charitable contributions, and other non-cash, non-dilutive items, net”. These included $6.0 million and $27.2 million, respectively, of non-cash GAAP charges related to amortization of intangibles; $0.6 million and $13.7 million, respectively, of acquisition related costs; $0.3 million and $19.1 million, respectively, of non-cash GAAP impairment charges; a $40.0 million reserve related to a commitment to make charitable contributions with respect to BGC’s annual Charity day; and various other GAAP items that together came to charges of $3.5 million and $2.6 million, respectively.
Differences between Taxes for Distributable Earnings and GAAP
BGC’s GAAP provision for income taxes from 2016 forward is calculated based on an annualized methodology. The Company’s GAAP provision for income taxes was $14.6 million and $79.4 million for the fourth quarter of 2016 and 2015, respectively. The Company includes additional tax-deductible items when calculating the provision for taxes with respect to distributable earnings using an annualized methodology. These include tax-deductions related to equity-based compensation with respect to limited partnership unit exchange, employee loan amortization, charitable contributions, and certain net-operating loss carryforwards. The provision for income taxes with respect to distributable earnings was adjusted by $5.3 million and $(63.9) million for the fourth quarter of 2016 and 2015, respectively.
As a result, the provision for income taxes with respect to distributable earnings was $19.9 million and $15.5 million for the fourth quarter of 2016 and 2015, respectively.
The Company’s GAAP provision for income taxes was $60.3 million and $120.5 million for the full years 2016 and 2015, respectively. The provision for income taxes with respect to distributable earnings was adjusted by $5.5 million and $(65.1) million for the full years of 2016 and 2015, respectively, for the reasons discussed above. As a result, the provision for income taxes with respect to distributable earnings was $65.8 million and $55.4 million for the full years 2016 and 2015, respectively.
Conference Call and Investor Presentation
BGC will host a conference call the date of this release at 10:00 a.m. ET to discuss these results. A webcast of the call, along with an investor presentation summarizing BGC’s consolidated distributable earnings results, will be accessible via the following:
http://ir.bgcpartners.com (an HTML version with Excel financial tables or PDF)
http://ir.bgcpartners.com/news-releases/news-releases/default.aspx (an HTML version with Excel financial tables or PDF)
http://bgcpartners.com/category/bgc-releases / (PDF only)
A listing of minimum system requirement can be found here:
A webcast replay of the conference call is expected to be accessible at http://ir.bgcpartners.com within 24 hours of the live call and will be available for 365 days following the call. Additionally, call participants may dial in with the following information:
Date - Start Time: 2/9/2017 at 10:00 a.m. ET
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Distributable Earnings Defined
BGC Partners uses non-GAAP financial measures including, but not limited to, "pre-tax distributable earnings” and "post-tax distributable earnings", which are supplemental measures of operating results that are used by management to evaluate the financial performance of the Company and its consolidated subsidiaries. BGC believes that distributable earnings best reflect the operating earnings generated by the Company on a consolidated basis and are the earnings which management considers available for, among other things, distribution to BGC Partners, Inc. and its common stockholders, as well as to holders of BGC Holdings partnership units during any period.
As compared with "income (loss) from operations before income taxes”, and "net income (loss) per fully diluted share”, all prepared in accordance with GAAP, distributable earnings calculations primarily exclude certain non-cash compensation and other expenses that generally do not involve the receipt or outlay of cash by the Company and/or which do not dilute existing stockholders, as described below. In addition, distributable earnings calculations exclude certain gains and charges that management believes do not best reflect the ordinary operating results of BGC.
Adjustments Made to Calculate Pre-Tax Distributable Earnings
Pre-tax distributable earnings are defined as GAAP income (loss) from operations before income taxes and noncontrolling interest in subsidiaries excluding items, such as:
- * Non-cash equity-based compensation charges related to limited partnership unit exchange or conversion.
- * Non-cash asset impairment charges, if any.
- * Non-cash compensation charges for items granted or issued pre-merger with respect to certain mergers or acquisitions by BGC Partners, Inc. To date, these mergers have only included those with and into eSpeed, Inc. and the back-end merger with GFI Group Inc.
Distributable earnings calculations also exclude certain unusual, one-time or non-recurring items, if any. These charges are excluded from distributable earnings because the Company views excluding such charges as a better reflection of the ongoing, ordinary operations of BGC.
In addition to the above items, allocations of net income to founding/working partner and other limited partnership units are excluded from calculations of pre-tax distributable earnings. Such allocations represent the pro-rata portion of pre-tax earnings available to such unit holders. These units are in the fully diluted share count, and are exchangeable on a one-to-one basis into common stock. As these units are exchanged into common shares, unit holders become entitled to cash dividends rather than cash distributions. The Company views such allocations as intellectually similar to dividends on common shares. Because dividends paid to common shares are not an expense under GAAP, management believes similar allocations of income to unit holders should also be excluded when calculating distributable earnings performance measures.
BGC’s definition of distributable earnings also excludes certain gains and charges with respect to acquisitions, dispositions, or resolutions of litigation. This includes the one-time gains related to the Nasdaq and Trayport transactions. Management believes that excluding such gains and charges also best reflects the ongoing operating performance of BGC.
However, the payments associated with BGC’s expected annual receipt of Nasdaq stock and related mark-to-market gains or losses are anticipated to be included in the Company’s calculation of distributable earnings for the following reasons:
- * Nasdaq is expected to pay BGC in an equal amount of stock on a regular basis for a 15 year period beginning in 2013 as part of that transaction;
- * The Nasdaq earn-out largely replaced the generally recurring quarterly earnings BGC generated from eSpeed; and
- * The Company intends to pay dividends and distributions to common stockholders and/or unit holders based on all other income related to the receipt of the earn-out.
To make period-to-period comparisons more meaningful, one-quarter of each annual Nasdaq contingent earn-out amount, as well as gains or losses with respect to associated mark-to-market movements and/or hedging, will be included in the Company’s calculation of distributable earnings each quarter as “other income”.
The Company also treats gains or losses related to mark-to-market movements and/or hedging with respect to any remaining shares of Intercontinental Exchange, Inc. (“ICE”) in a consistent manner with the treatment of Nasdaq shares when calculating distributable earnings.
Investors and analysts should note that, due to the large gain recorded with respect to the Trayport sale in December, 2015, and the closing of the back-end merger with GFI in January, 2016, non-cash charges related to the amortization of intangibles with respect to acquisitions are also excluded from the calculation of pre-tax distributable earnings.
Adjustments Made to Calculate Post-Tax Distributable Earnings
Since distributable earnings are calculated on a pre-tax basis, management intends to also report post-tax distributable earnings to fully diluted shareholders. Post-tax distributable earnings to fully diluted shareholders are defined as pre-tax distributable earnings, less noncontrolling interest in subsidiaries, and reduced by the provision for taxes as described below.
The Company’s calculation of the provision for taxes on an annualized basis starts with GAAP income tax provision, adjusted to reflect tax-deductible items. Management uses this non-GAAP provision for taxes in part to help it to evaluate, among other things, the overall performance of the business, make decisions with respect to the Company’s operations, and to determine the amount of dividends paid to common shareholders.
The provision for taxes with respect to distributable earnings includes additional tax-deductible items including limited partnership unit exchange or conversion, employee loan amortization, charitable contributions, and certain net-operating loss carryforwards.
BGC incurs income tax expenses based on the location, legal structure and jurisdictional taxing authorities of each of its subsidiaries. Certain of the Company’s entities are taxed as U.S. partnerships and are subject to the Unincorporated Business Tax (“UBT”) in New York City. Any U.S. federal and state income tax liability or benefit related to the partnership income or loss, with the exception of UBT, rests with the unit holders rather than with the partnership entity. The Company’s consolidated financial statements include U.S. federal, state and local income taxes on the Company’s allocable share of the U.S. results of operations. Outside of the U.S., BGC operates principally through subsidiary corporations subject to local income taxes. For these reasons, taxes for distributable earnings are presented to show the tax provision the consolidated Company would expect to pay if 100 percent of earnings were taxed at global corporate rates.
Calculations of Pre-tax and Post-Tax Distributable Earnings per Share
BGC’s distributable earnings per share calculations assume either that:
- * The fully diluted share count includes the shares related to any dilutive instruments, such as the Convertible Senior Notes, but excludes the associated interest expense, net of tax, when the impact would be dilutive; or
- * The fully diluted share count excludes the shares related to these instruments, but includes the associated interest expense, net of tax.
The share count for distributable earnings excludes shares expected to be issued in future periods but not yet eligible to receive dividends and/or distributions.
Each quarter, the dividend to BGC’s common stockholders is expected to be determined by the Company’s Board of Directors with reference to a number of factors, including post-tax distributable earnings per fully diluted share. In addition to the Company’s quarterly dividend to common stockholders, BGC Partners expects to pay a pro-rata distribution of net income to BGC Holdings founding/working partner and other limited partnership units, as well as to Cantor for its non-controlling interest. The amount of this net income, and therefore of these payments, is expected to be determined using the above definition of pre-tax distributable earnings per share.
Other Matters with Respect to Distributable Earnings
The term “distributable earnings” should not be considered in isolation or as an alternative to GAAP net income (loss). The Company views distributable earnings as a metric that is not indicative of liquidity or the cash available to fund its operations, but rather as a performance measure.
Pre- and post-tax distributable earnings are not intended to replace the Company’s presentation of GAAP financial results. However, management believes that they help provide investors with a clearer understanding of BGC Partners’ financial performance and offer useful information to both management and investors regarding certain financial and business trends related to the Company’s financial condition and results of operations. Management believes that distributable earnings and the GAAP measures of financial performance should be considered together.
BGC anticipates providing forward-looking quarterly guidance for GAAP revenues and for certain distributable earnings measures from time to time. However, the Company does not anticipate providing a quarterly outlook for other GAAP results. This is because certain GAAP items, which are excluded from distributable earnings, are difficult to forecast with precision before the end of each quarter. The Company therefore believes that it is not possible to forecast quarterly GAAP results or to quantitatively reconcile GAAP results to non-GAAP results with sufficient precision unless BGC makes unreasonable efforts.
The items that are difficult to predict on a quarterly basis with precision and which can have a material impact on the Company’s GAAP results include, but are not limited, to the following:
- * Allocations of net income and grants of exchangeability to limited partnership units and founding partner units, which are determined at the discretion of management throughout and up to the period-end.
- * The impact of certain marketable securities, as well as any gains or losses related to associated mark-to-market movements and/or hedging. These items are calculated using period-end closing prices.
- * Non-cash asset impairment charges, which are calculated and analyzed based on the period-end values of the underlying assets. These amounts may not be known until after period-end.
- * Acquisitions, dispositions and/or resolutions of litigation which are fluid and unpredictable in nature.
For more information on this topic, please see certain tables in the most recent BGC financial results press release including “Reconciliation of GAAP Income (Loss) to Distributable Earnings”. These tables provide summary reconciliations between pre- and post-tax distributable earnings and the corresponding GAAP measures for the Company.
Adjusted EBITDA Defined
BGC also provides an additional non-GAAP financial performance measure, “adjusted EBITDA”, which it defines as GAAP “Net income (loss) available to common stockholders”, adjusted to add back the following items:
- * Interest expense;
- * Fixed asset depreciation and intangible asset amortization;
- * Impairment charges;
- * Employee loan amortization and reserves on employee loans;
- * Provision (benefit) for income taxes;
- * Net income (loss) attributable to noncontrolling interest in subsidiaries;
- * Non-cash charges relating to grants of exchangeability to limited partnership interests;
- * Non-cash charges related to issuance of restricted shares; and
- * Non-cash earnings or losses related to BGC’s equity investments.
The Company’s management believes that adjusted EBITDA is useful in evaluating BGC’s operating performance, because the calculation of this measure generally eliminates the effects of financing and income taxes and the accounting effects of capital spending and acquisitions, which would include impairment charges of goodwill and intangibles created from acquisitions. Such items may vary for different companies for reasons unrelated to overall operating performance. As a result, the Company’s management uses these measures to evaluate operating performance and for other discretionary purposes. BGC believes that adjusted EBITDA is useful to investors to assist them in getting a more complete picture of the Company’s financial results and operations.
Since adjusted EBITDA is not a recognized measurement under GAAP, investors should use adjusted EBITDA in addition to GAAP measures of net income when analyzing BGC’s operating performance. Because not all companies use identical EBITDA calculations, the Company’s presentation of adjusted EBITDA may not be comparable to similarly titled measures of other companies. Furthermore, adjusted EBITDA is not intended to be a measure of free cash flow or GAAP cash flow from operations, because adjusted EBITDA does not consider certain cash requirements, such as tax and debt service payments.
For a reconciliation of adjusted EBITDA to GAAP “Net income (loss) available to common stockholders”, the most comparable financial measure calculated and presented in accordance with GAAP, see the section of this document titled "Reconciliation of GAAP Income (Loss) to Adjusted EBITDA”.
BGC also uses a non-GAAP measure called “liquidity”. The Company considers liquidity to be comprised of the sum of cash and cash equivalents plus marketable securities that have not been financed, reverse repurchase agreements, and securities owned. BGC considers this an important metric for determining the amount of cash that is available or that could be readily available to the Company on short notice.
Nontaxable Return of Capital
BGC Partners intends to pay not less than 75 percent of its post-tax distributable earnings per fully diluted share as cash dividends to all common stockholders.
BGC Partners' common dividend is based on post-tax distributable earnings per fully diluted share, which, due mainly to non-cash, non-dilutive, and/or non-economic GAAP charges, were higher than its earnings and profits under GAAP and U.S. federal income tax principles for certain years. In addition, BGC Partners' net income for both GAAP and distributable earnings includes income earned by foreign affiliates of the Company, corporate subsidiaries, and other entities generally not taxable under U.S. federal income tax principles.
Under U.S. federal income tax principles, a nontaxable return of capital, sometimes referred to as a "nondividend distribution," is a cash distribution that is not paid out of the taxable earnings and profits of a corporation. For common stockholders, a nontaxable return of capital reduces the cost basis of an investment. It is not taxed until the cost basis of said investment is fully recovered. BGC Partners announced that 89.49 percent of its dividends paid to common stockholders in the year ended December 31, 2016 will be treated under U.S. federal income tax principles as a return of capital to the extent of each stockholder's basis, and as capital gains to the extent such portion exceeds a stockholder's basis. The remaining 10.51 percent of the dividends paid will be treated as a qualified dividend for U.S. federal income tax purposes. This information was reported in January, 2017 to certain firms that provide U.S. recipients of BGC's dividend with their IRS Forms 1099-DIV and non-U.S. recipients with their IRS Forms 1042-S.
The portion of dividends to common stockholders that will be taxable will not impact BGC Partners' financial results for either GAAP or distributable earnings or the Company's or its affiliates' ability to pay distributions to all partnership units and dividend payments to common stockholders. This information is not intended to be all-inclusive or to render specific professional tax advice.
About BGC Partners, Inc.
BGC Partners is a leading global brokerage company servicing the financial and real estate markets. BGC owns GFI Group Inc., a leading intermediary and provider of trading technologies and support services to the global OTC and listed markets. The Company’s Financial Services offerings include fixed income securities, interest rate swaps, foreign exchange, equities, equity derivatives, credit derivatives, commodities, futures, and structured products. BGC provides a wide range of services, including trade execution, broker-dealer services, clearing, trade compression, post trade, information, and other services to a broad range of financial and non-financial institutions. Through brands including FENICS, BGC Trader, Capitalab, and BGC Market Data, BGC offers financial technology solutions, market data, and analytics related to numerous financial instruments and markets.
Real Estate Services are offered through brands including Newmark Grubb Knight Frank, Newmark Cornish & Carey, ARA, Computerized Facility Integration, NGKF Valuation & Advisory, and Excess Space. Under these names and others, the Company provides a wide range of commercial real estate services, including leasing and corporate advisory, investment sales and financial services, consulting, project and development management, and property and facilities management.
BGC’s customers include many of the world’s largest banks, broker-dealers, investment banks, trading firms, hedge funds, governments, corporations, property owners, real estate developers, and investment firms. BGC’s common stock trades on the NASDAQ Global Select Market under the ticker symbol (NASDAQ: BGCP). BGC also has an outstanding bond issuance of Senior Notes due June 15, 2042, which trade on the New York Stock Exchange under the symbol (NYSE: BGCA). BGC Partners is led by Chairman and Chief Executive Officer Howard W. Lutnick. For more information, please visit http://www.bgcpartners.com. You can also follow the Company at https://twitter.com/bgcpartners and/or https://www.linkedin.com/company/bgc-partners.
BGC, BGC Trader, GFI, FENICS, FENICS.COM, Capitalab, Swaptioniser, Newmark, Grubb & Ellis, ARA, Computerized Facility Integration, Landauer, Lucera, and Excess Space, Excess Space Retail Services, Inc., and Grubb are trademarks/service marks, and/or registered trademarks/service marks and/or service marks of BGC Partners, Inc. and/or its affiliates. Knight Frank is a service mark of Knight Frank (Nominees) Limited.
Discussion of Forward-Looking Statements about BGC Partners
Statements in this document regarding BGC that are not historical facts are "forward-looking statements" that involve risks and uncertainties. Except as required by law, BGC undertakes no obligation to update any forward-looking statements. For a discussion of additional risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements, see BGC's Securities and Exchange Commission filings, including, but not limited to, the risk factors set forth in the most recent Form 10-K and any updates to such risk factors contained in subsequent Forms 10-Q or Forms 8-K.
|Karen Laureano-Rikardsen +1 212-829-4975
|Jason McGruder +1 212-829-4988
 See sections of this document including “Distributable Earnings Defined”, “Differences Between Consolidated Results for Distributable Earnings and GAAP”, and “Reconciliation of GAAP Income (loss) to Distributable Earnings” for the complete and revised definition of these non-GAAP terms and how, when and why management uses them, as well as for the differences between results under GAAP and distributable earnings for the periods discussed in this document.
 See the sections of this document titled “Adjusted EBITDA Defined” and “Reconciliation of GAAP Income (loss) to Adjusted EBITDA” for more on this topic.
 Trayport was sold to Intercontinental Exchange, Inc. (“ICE”) in December of 2015 for approximately 2.5 million ICE common shares, which were worth $650 million, which was adjusted at closing.
 For the purposes of this document, all of the Company’s fully electronic businesses in the Financial Services segment may be referred to interchangeably as “FENICS”. FENICS includes fees from fully electronic brokerage, as well as data, software, and post-trade services across both BGC and GFI. FENICS results do not include those of Trayport.
“Newmark Grubb Knight Frank” is used interchangeably with “Newmark”, “NGKF”, and the Company’s Real Estate Services segment.
 See the “Consolidated Balance Sheet” and “Liquidity Defined” sections of this document for the items that make up liquidity. On June 28, 2013, BGC sold its fully electronic trading platform for benchmark U.S. Treasury Notes and Bonds to Nasdaq, Inc. (NASDAQ: NDAQ or “Nasdaq”). For the purposes of this document, the assets sold may be referred to as “eSpeed”. The value of the 10.9 million shares yet to be received, and as discussed in this document, is based on NDAQ’s closing price on February 8, 2017. These shares are expected to be received ratably over the next approximately 11 years.
 GFI Group Inc. (“GFI Group” or “GFI”).
 For the trailing twelve months ended September 30, 2015.
 Also known as “LFI Holdings, LLC”.
 In the fourth quarter of 2016, this included $48.7 million in grants of exchangeability and $11.6 million in allocation of net income to limited partnership units and Founding Partner Units (“FPUs”). A year earlier, these figures were $134.8 million and $10.9 million, respectively. For full year 2016, this included $141.4 million in grants of exchangeability and $51.5 million in allocation of net income to limited partnership units and FPUs. In 2015, these figures were $231.4 million and $28.3 million, respectively.
 Represents the reduction in spot share count as of the date of repayment.
 “Securities owned” are primarily U.S. government securities held for liquidity purposes.
 The Company still expects to pay a total of $111.2 million in cash with respect to the GFI back-end merger.