DISCUSSION OF FORWARD-LOOKING STATEMENTS ABOUT BGC
Statements in this document regarding BGC that are not historical facts are "forward-looking statements" that involve risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements. These include statements about the effects of the COVID-19 pandemic on the Company's business, results, financial position, liquidity and outlook, which may constitute forward-looking statements and are subject to the risk that the actual impact may differ, possibly materially, from what is currently expected. 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 and Special Note on Forward-Looking Information set forth in these filings and any updates to 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.
Unless otherwise stated, all results provided in this document compare the third quarter of 2020 with the year-earlier period. Certain reclassifications may have been made to previously reported amounts to conform to the current presentation and to show results on a consistent basis across periods. With the exception of reporting Newmark as a discontinued operation and the previously announced non-GAAP presentation, any such reclassifications would have had no impact on consolidated revenues or earnings under GAAP and would leave consolidated pre- and post-tax Adjusted Earnings for the prior periods essentially unchanged all else being equal. Certain numbers and percentage changes listed throughout this document may not sum due to rounding.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). This standard requires lessees to recognize a right-of-use ("ROU") asset and lease liability for all leases with terms of more than 12 months. Recognition, measurement and presentation of expenses will depend on classification as a finance or operating lease. The amendments also require certain quantitative and qualitative disclosures. These impacts were approximately $157.8 million and $179.7 million in Total Assets and Total Liabilities, respectively, as of September 30, 2020. These impacts were approximately $169.1 million and $187.4 million in Total Assets and Total Liabilities, respectively, as of December 31, 2019. For additional information regarding the adoption of ASC 842, please see the section titled "New Accounting Pronouncements" in BGC's Annual Reports on Form 10-K as filed with the Securities and Exchange Commission.
Please see the sections titled "Impact of COVID-19 on Employees" and "Impact of COVID-19 on the Company's Results" in the Company's most recent report on Form 10-Q for the impact of the pandemic on the Company's employees, clients, and results.
NEWMARK SPIN-OFF
The Spin-Off included the shares of Newmark Class A and Class B common stock owned by BGC, as well as the shares of Newmark common stock into which the limited partnership units of Newmark Holdings, L.P. and Newmark Partners, L.P. owned by BGC were exchanged prior to and in connection with the Spin-Off. For more information, see the press release titled "BGC Partners Announces Completion of Spin-Off of Newmark" dated November 30, 2018, and the related filing on Form 8-K filed before market open on December 6, 2018. Unless otherwise stated, all the tables and financial results in this document through the Outlook section reflect continuing operations of BGC. The financial results from continuing operations of BGC do not present a distinct corporate segment and are generally comparable to the stand-alone results for BGC Partners excluding Newmark Group, referred to as "post-spin BGC" in previous documents. Post-spin BGC represented what BGC financial results would have been had the Spin-Off of Newmark occurred prior to the Distribution date of November 30, 2018. Post-spin BGC can also be defined as the results for BGC's Financial Services segment plus its pro-rata portion of corporate items.
NON-GAAP FINANCIAL MEASURES
This presentation should be read in conjunction with BGC's most recent financial results press releases and filings or reports on Form 10-K, Form 10-Q or Form 8-K. Throughout this presentation, BGC refers to certain non-GAAP financial measures, including Adjusted Earnings, Adjusted EBITDA and Liquidity. All non-GAAP results discussed herein are comparable to and reconciled with the most directly comparable GAAP figures. For an updated complete description of Adjusted Earnings, Adjusted EBITDA and Liquidity, and how, when, and why management uses these and other non-GAAP measures, as well as reconciliations of these measures to the comparable GAAP measures, and more information regarding GAAP and non-GAAP results, see the "Appendix" section of this presentation. Below under "Highlights of Consolidated Results" is a summary of certain GAAP and non-GAAP results for BGC. Results on a GAAP and non-GAAP basis are included towards the end of this presentation, with appropriate reconciliations provided in the "Appendix" section noted above and in our most recent financial results press release and/or are available at http://ir.bgcpartners.com.
2
2
HIGHLIGHTS OF CONSOLIDATED RESULTS: Q3' 20
3
Highlights of Consolidated Results
(USD millions, except per share data)
Revenues
GAAP income (loss) from operations before income taxes
GAAP net income (loss) for fully diluted shares
Adjusted Earnings before noncontrolling interest in subsidiaries and taxes
Post-tax Adjusted Earnings
Adjusted EBITDA
GAAP fully diluted earnings (loss) per share
Post-tax Adjusted Earnings per share
3Q 2020
3Q 2019
Change
$455.0
$521.1
(12.7)%
28.7
8.7
228.2%
29.6
(3.5)
938.1%
69.2
87.7
(21.1)%
61.9
77.3
(19.9)%
101.2
84.2
20.2%
$0.05
($0.01)
600.0%
$0.11
$0.15
(26.7)%
3
BGC PARTNERS, INC.
GENERAL OVERVIEW
BUSINESS OVERVIEW: 3Q'20
5
B U S I N E S S O V E R V I E W
REVENUE:
$455.0M
Electronic
Voice/Hybrid
Brokerage
13%
Brokerage
Data, Software
69%
& Post-Trade
5%
Insurance
Brokerage
10%
Other
4% 1
PRE-TAX ADJ. EARNINGS:
$69.2M
(PRE-TAX ADJ. EARNINGS MARGIN: 15.2%)
R E V E N U E B Y A S S E T C L A S S & G E O G R P A H Y
Americas
EMEA
28%
55%
Data, software &
post-trade, and
other1
Equity derivatives 8%
and cash equities
Rates
11%
26%
Insurance
10%
Energy &
Foreign
Exchange
Commodities
16%
14%
Credit
15%
APAC
17%
F E N I C S
NET REVENUE:
(EXCLUDING INTER-COMPANY)
$79.5M
NET REVENUE GROWTH:
(Yr/Yr)
+19%
B U S I N E S S H I G H L I G H T S ( 3 Q 2 0 2 0 )
19% Fenics growth despite a challenging
Insurance brokerage continues strong growth
Fenics and Insurance revenues represent over
macro environment and subdued
trajectory driven by investment in new hires
a quarter of company-wide revenues providing
secondary trading volumes
and business lines
diversification to BGC's combined business
BGC expects a $65M improvement in pre-tax Adj. Earnings from Fenics and insurance brokerage in 2021
1.
Fees from related parties, interest and dividend income, and other revenues
5
BUSINESS OVERVIEW: FENICS
6
F E N I C S O V E R V I E W : 3 Q ' 2 0
S E L E C T P L A T F O R M H I G H L I G H T S
NET REVENUE1,2:
$79.5M
Equities and
Data, software &
Energy &
post trade
Commodities
27%
Rates
1%
34%
FX
19%Credit
18%
+19% yr/yr
+86% VOLUME GROWTH
YTD SEP 20 vs. YTD SEP 19
DOUBLED MARKET
SHARE TO 12%3
AMONGST UST CLOBs 3Q 20 YR/YR
#2 LARGEST
UST CLOB PLATFORM
AS OF SEP 2020
~$115 MILLION3
ESTIMATED CLIENT SAVINGS SINCE JAN 19 DRIVEN BY TIGHTER FENICS UST PRICING
200% GROWTH
EURO STOXX 50 OPTION VOLUMES
3Q'20 VS. 1Q'20 (launched 3Q'19)
6% MARKET SHARE4
ESTIMATED FOR EURO STOXX 50 FRONT-MONTH OPTIONS, SEP 20
150% GROWTH
NIKKEI 225 OPTION VOLUMES
3Q'20 VS. 2Q'20 (launched Q1'20)
13% MARKET SHARE4
ESTIMATED FOR NIKKEI 225 FRONT MONTH OPTIONS, SEP 20
ELECTRONIC BROKERAGE
QUARTERLY OVERVIEW
DATA, SOFTWARE AND POST-TRADE5
$58
+20%
▪ Electronic brokerage growth of 20% driven by Rates, FX and Fenics
$22
+17%
Integrated
MILLION
GROWTH
▪ Over 17% growth in Data, Software and Post-trade powered by
MILLION
GROWTH
REVENUE
YR/YR
REVENUE
YR/YR
Lucera Connect, Algomi, and strong client demand for Capitalab's
Initial Margin Optimization and NDF Match businesses
1. Inter-company revenues are eliminated in consolidation. 2. Net revenue includes Fenics Integrated revenue starting in 2Q'20. Desks are categorized as "Fenics Integrated" if they utilize sufficient levels of technology such that significant amounts of their transactions can be or are executed
without broker intervention and have expected pre-tax Adjusted Earnings margins of at least 25%. 3. Central limit order book ("CLOB") market share is based on data from Greenwich Associates and BGC's internal estimates. Including these CLOB platforms as well as those using other
fully electronic US Treasury trading protocols, Fenics UST increased its overall market share from 4.3 percent to 5.8 percent year-on-year in September 2020, per Greenwich Associates. BGC internal estimates based on savings per tick (1/16 of 1/32 = $19.53125) adjusted for tenor
multiplied by the quantity of the trade (single counted). 4. GO's market share is based on estimated Euro Stoxx 50 and Nikkei 225 IDB block-sized transactions for "front-month" option volume, which refers to the nearest expiration date for an options contract (within 32 days of
6
expiration). 5. Total revenue as of Q3 2020 and excludes $14.1 million of inter-company data, software and post-trade.
FENICS UST HIGHLIGHTS
7
UST NOTIONAL TRADING VOLUMES
FENICS UST CLOB MARKET SHARE1
UST CLOB MARKET SHARE1
YTD SEP 20 (Yr/Yr)
SEP 20
CME
Nasdaq Fixed
13%
Nasdaq
8%
12%
12%
BrokerTec
Income
SIFMA
Dealerweb
10%
10%
10%
86%
10%
10%
11%
9%
9%
9%
8%
8%
13%
4%
CME
BrokerTec
69%
-22%
Sep-19
Nov-19
Jan-20Mar-20
May-20Jul-20
Sep-20
-48%
PERFORMANCE HIGHLIGHTS
MARKET LEADING TECHNOLOGY
COST SAVINGS FOR CLIENTS
▪ Doubled market share to 12%
▪ Tightest pricing and fastest
~$115 million in estimated client
in 3Q20201
matching cash US Treasury
savings from January 1, 2019 to
▪ Volumes up 86% YTD 2020
marketplace
September, 20202
▪ CLOB and Direct Streaming
1.
Central limit order book ("CLOB") market share is based on data from Greenwich Associates and BGC's internal estimates. Including these CLOB platforms as well as those using other fully electronic US Treasury trading protocols, Fenics UST increased its overall market
share from 4.3 percent to 5.8 percent year-on-year in September 2020, per Greenwich Associates. Primary dealer volumes are based on data from the Securities Industry and Financial Markets Association ("SIFMA").
2.
BGC internal estimates based on savings per tick (1/16 of 1/32 = $19.53125) adjusted for tenor multiplied by the quantity of the trade (single counted).
7
FENICS GO HIGHLIGHTS
8
EURO STOXX 50 (EUREX)1
NIKKEI 225 (OSE)1
FENICS GO EST. MARKET SHARE
FENICS GO EST. MARKET SHARE
(IDB Block Size Trades)
(IDB Block Size Trades)
6.3%
13.6%
4.4%
4.1%
10.0%
3.7%
8.7%
4.7%
0.5%
0.3%
0.2%
0.1%
Mar 20
Jun 20
Sept 20
Mar 20
Jun 20
Sept 20
Front Month
Short-dated
Front Month
Short-dated
DEEPEST OFF-EXCHANGE LIQUIDITY SUPPORTED BY LEADING GLOBAL LIQUIDITY PARTNERS
MARKET LEADING TECHNOLOGY
PRODUCT PIPELINE
Web-based with API connectivity
▪
Additional European equity index options
▪ Request for Stream,Volume Clearing and Order Book
▪
Additional Asian equity index options
Aggregated product access from multiple exchanges
▪
Delta One products
▪ Multiple asset classes available on single interface
1. Fenics GO launched on the Euro Stoxx 50 in Q3' 19 and on the NIKKEI 225 Options market in Q1' 20. BGC's estimate of Fenics GO's market share is based on estimated Euro Stoxx 50 and Nikkei 225 IDB block-sized transactions for "front-month" option volume, which refers to the
nearest expiration date for an options contract (within 32 days of expiration) and "short-dated" options, which refers to options expiry dates within three-months (up to 91 days).
8
FENICS MARKET DATA OPPORTUNITY
9
FENICS MARKET DATA OVERVIEW
Estimated Global Market Data Wallet:
1
AT AN ESTIMATED $32 BILLION PER ANNUM, THE GLOBAL
CONSUMPTION OF MARKET DATA CONTINUES TO REACH
RECORD LEVELS;
$32B
ANNUALLY
BGC CONTINUES TO EXPECT DOUBLE-DIGIT GROWTH ACROSS DATA, SOFTWARE, AND POST-TRADE DRIVEN BY PIPELINE OF NEW AND INNOVATIVE PRODUCTS INCLUDING LIBOR TRANSITION SOLUTIONS AND NEW RATES AND FX DATA SETS THAT LEVERAGE BGC'S MARKET LEADING RATES AND FX FRANCHISES
DATA, SOFTWARE AND POST-TRADE REVENUE
(excluding inter-company revenue)
$73
$79
$61
$53
TTM 3Q2017
TTM 3Q2018
TTM 3Q2019
TTM 3Q2020
Supported by over 2,300 brokers
Significant opportunity to monetize
Multiple distribution channels
and salespeople and Fenics stand-
vast amounts of capital markets
provides opportunities to expand
alone platforms
transactions that BGC executes
existing client base
Note: Chart not shown to scale.
9
1. Burton-Taylor Market Data research
BUSINESS OVERVIEW: INSURANCE BROKERAGE
10
I N S U R A N C E B R O K E R A G E O V E R V I E W
INSURANCE BROKERAGE REVENUE:
($ in millions)
3Q'20:
> $50.0
$43.3
$39.7
+9%
YR/YR
$19.2
+125%
VS. 3Q'18
3Q'18
3Q'19
3Q'20
4Q'20E
Expected 4Q'20 revenue growth of around 20% in 4Q'20 as previous front office hires and newly launched business lines increase productivity
Revenues are typically more predictable while insurance brokerage has historically been non-cyclical and resilient in recessionary environments
I N T E G R A T E D G L O B A L P L A T F O R M
BGC Insurance's global platform attracts top talent and competes for market share across all major geographies
BGC Insurance's client base and insurance carrier network are highly diversified and global
BU S I N E S S H I G H L I G H T S ( 3 Q 2 0 2 0 )
FRONT-OFFICE HEADCOUNT1
POSITIVE MARKET TAILWINDS
SELECT BGC INSURANCE BROKERAGE PRODUCTS
464 +22%
BROKERS GROWTH
YR/YR
1. Period end headcount as of September 30, 2020.
Global insurance rates increasing across all insurance business classes
Market hardening expected to result in increased premiums and higher brokerage commissions
Accident &
Aerospace
Cargo &
Cyber
Construction
Energy
health
Marine
Fine art,
Financial &
Risk
Professional &
Property &
jewelry and
political risk
solutions
executive risk
Reinsurance
casualty
specie
10
INSURANCE BROKERAGE OPPORTUNITY
Insurance brokerage provides a significant global opportunity with high levels of fragmentation despite recent industry consolidation
11
GLOBAL PROPERTY & CASULATY
GROSS WRITTEN PREMIUMS1:
$1.6T
GWPINSURANCE
Insurance brokerage represents a massive global opportunity with a long runway for continued growth
BGC Insurance generated $177M of TTM 3Q'20 brokerage revenue but represents less than one percent of estimated global P&C GWP
Chart not shown to scale. Source: "State of Property & Casualty Insurance 2020", McKinsey & Company.
Pro forma for the announced AON / Willis Towers Watson merger in April 2020 and Marsh & McLennan's acquisition of JLT completed in April 2019.
Risk placement concentration concerns by insurance carriers
Overlap causing brokers to seek global independent alternatives
11
CORPORATE CONSIDERATIONS
12
INVESTMENT GRADE CREDIT RATING
Investment Grade Credit Rated:
Fitch: BBB- (Outlook: Stable)
S&P: BBB- (Outlook: Stable)
Kroll Bond Rating Agency: BBB (Outlook: Stable)
Japanese Credit Rating Agency (JCR): BBB+ (Outlook: Stable)
Strong balance sheet and liquidity provides financial flexibility
Liquidity of $549.1 M1 at September 30, 2020
BGC continues to manage its business with a focus on the Company's Investment Grade ratings
POSSIBLE CORPORATION CONVERSION
UPDATED CAPITAL RETURN POLICY TIMING
The Company continues to explore a possible conversion into a simpler corporate structure
An important factor will be any significant change in taxation policy in any of the major jurisdictions in which the Company operates and its stakeholders reside, particularly the United States whose tax policies are likely to be affected by the outcome of the elections this November
The Company continues to work with regulators, lenders, and rating agencies regarding any possible conversion
BGC's Board committees will review potential transaction arrangements
BGC expects to announce its updated capital return policy in 1Q 2021
Historically, BGC's capital return strategy was highly dividend focused
Going forward, BGC plans to consider both share repurchases and dividends as part of its overall capital return policy
1. Includes Cash and Cash Equivalents of $492.3 million, Securities Owned of $58.5 million, Repurchase Agreements of $(2.1) million, and Marketable Securities of $0.3 million as of September 30, 2020.
12
OUTLOOK: 4Q'20
13
13
Metric
(USD millions)
Revenues
Pre-tax Adjusted Earnings
Adjusted Earnings Tax Rate (%)
Guidance
4Q 2020
$440-490
$65-85
FY 2020
10-12%
Actual
4Q 2019
$487.2
$73.2
FY 2019
11.4%
BGC's revenues decreased by approximately 4.4 percent year-on-year for the first 17 trading days of the fourth quarter of 2020
Additionally, in the first 17 trading days of the fourth quarter of 2020, Asia Pacific revenues have increased around 5 percent and continental Europe is up over 10 percent
Beginning at the end of December, BGC will be modifying the way it updates guidance. Going forward the Company plans to either reaffirm its quarterly guidance range or provide an update if it expects its results to be above or below the previously guided range
BGC expects to update its quarterly outlook towards the end of December 2020
13
BGC PARTNERS, INC.
GAAP FINANCIAL RESULTS
BGC PARTNERS, INC. CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED) (UNDER GAAP)
September 30,
December 31,
2020
2019
Assets
Cash and cash equivalents
$
492,303
$
415,379
Cash segregated under regulatory requirements
244,230
220,735
Securities owned
58,547
57,525
Marketable securities
303
14,228
Receivables from broker-dealers, clearing organizations, customers and related broker-dealers
1,140,121
551,445
Accrued commissions and other receivables, net
689,045
778,415
Loans, forgivable loans and other receivables from employees and partners, net
401,633
315,590
Fixed assets, net
218,654
204,841
Investments
40,169
40,349
Goodwill
553,688
553,745
Other intangible assets, net
291,339
303,224
Receivables from related parties
14,246
14,273
Other assets
450,007
446,371
Total assets
$
4,594,285
$
3,916,120
Liabilities, Redeemable Partnership Interest, and Equity
Short-term borrowings
$
3,546
$
4,962
Repurchase agreements
2,089
-
Securities loaned
-
13,902
Accrued compensation
212,561
215,085
Payables to broker-dealers, clearing organizations, customers and related broker-dealers
988,329
416,566
Payables to related parties
45,750
72,497
Accounts payable, accrued and other liabilities
1,197,615
1,283,046
Notes payable and other borrowings
1,318,490
1,142,687
Total liabilities
3,768,380
3,148,745
Redeemable partnership interest
23,280
23,638
Equity
Stockholders' equity:
Class A common stock, par value $0.01 per share; 750,000 shares authorized;
365,842 and 358,440 shares issued at September 30, 2020 and December 31,
2019, respectively; and 315,315 and 307,915 shares outstanding at
September 30, 2020 and December 31, 2019, respectively
3,658
3,584
Class B common stock, par value $0.01 per share; 150,000 shares authorized;
45,884 shares issued and outstanding at each of September 30, 2020 and
December 31, 2019, convertible into Class A common stock
459
459
Additional paid-in capital
2,317,706
2,271,947
Treasury stock, at cost: 50,527 and 50,525 shares of Class A common stock at
(315,313)
(315,308)
September 30, 2020 and December 31, 2019, respectively
Retained deficit
(1,237,657)
(1,241,754)
Accumulated other comprehensive income (loss)
(39,405)
(33,102)
Total stockholders' equity
729,448
685,826
Noncontrolling interest in subsidiaries
73,177
57,911
Total equity
802,625
743,737
Total liabilities, redeemable partnership interest and equity
$
4,594,285
$
3,916,120
15
15
BGC PARTNERS, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED) (UNDER GAAP)
Three Months Ended September 30,
Nine Months Ended September 30,
Revenues:
2020
2019
2020
2019
Commissions
$
352,027
$
409,765
$
1,190,522
1,262,921
Principal transactions
65,182
75,536
277,946
250,198
Total brokerage revenues
417,209
485,301
1,468,468
1,513,119
Fees from related parties
8,814
8,208
20,897
21,224
Data, software and post-trade
21,523
18,364
61,060
55,015
Interest and dividend income
2,418
3,976
13,115
15,454
Other revenues
5,075
5,288
13,754
12,263
Total revenues
455,039
521,137
1,577,294
1,617,075
Expenses:
Compensation and employee benefits
244,240
278,544
872,426
856,615
Equity-based compensation and allocations of net income
to limited partnership units and FPUs
33,007
40,330
103,030
96,223
Total compensation and employee benefits
277,247
318,874
975,456
952,838
Occupancy and equipment
45,224
44,709
143,545
135,820
Fees to related parties
7,610
7,123
18,239
16,507
Professional and consulting fees
15,637
21,262
55,398
64,614
Communications
30,088
29,882
91,133
90,267
Selling and promotion
5,943
20,320
31,276
60,213
Commissions and floor brokerage
12,933
15,831
45,730
47,240
Interest expense
19,488
15,258
54,279
43,441
Other expenses
18,458
42,757
59,145
88,537
Total non-compensation expenses
155,381
197,142
498,745
546,639
Total expenses
432,628
516,016
1,474,201
1,499,477
Other income (losses), net:
Gains (losses) on divestitures and sale of investments
(9)
-
(9)
18,435
Gains (losses) on equity method investments
1,527
1,530
3,669
3,051
Other income (loss)
4,779
2,095
(107)
23,491
Total other income (losses), net
6,297
3,625
3,553
44,977
Income (loss) from operations before income taxes
28,708
8,746
106,646
162,575
Provision (benefit) for income taxes
3,778
6,186
21,125
51,076
Consolidated net income (loss)
$
24,930
$
2,560
$
85,521
$
111,499
Less: Net income (loss) attributable to noncontrolling interest
5,549
6,089
23,727
39,549
in subsidiaries
Net income (loss) available to common stockholders
$
19,381
$
(3,529)
$
61,794
$
71,950
16
16
BGC PARTNERS, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS -
CONTINUED
17
(IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED) (UNDER GAAP)
Three Months Ended September 30,
Nine Months Ended September 30,
2020
2019
2020
2019
Per share data:
Basic earnings (lo ss) per share
Net income (loss) available to common stockholders
$
19,381
$
(3,529)
$
61,794
$
71,950
Basic earnings (loss) per share
$
0.05
$
(0.01)
$
0.17
$
0.21
Basic weighted-average shares of common stock outstanding
363,244
346,060
360,629
341,940
Fully diluted earnings (lo ss) per share
Net income (loss) for fully diluted shares
$
29,575
$
(3,529)
$
90,270
$
108,378
Fully diluted earnings (loss) per share
$
0.05
$
(0.01)
$
0.17
$
0.21
Fully diluted weighted-average shares of common stock outstanding
549,244
346,060
544,475
523,218
17
BGC PARTNERS, INC.
APPENDIX
FRONT OFFICE HEADCOUNT & PRODUCTIVITY
19
FRONT OFFICE HEADCOUNT AND PRODUCTIVITY (Productivity in USD 000s)
(Excludes Insurance Brokerage)
2,600
$748
$744
$747
$736
$753
$749
$735
2,550
2,500
2,450
2,400
2,350
2,300
2,250
2,200
2,150
2,100
2,050
2,000
1,950
1,900
1,850
1,800
2,574
2,548
2,559
2,573
2,491
1,750
2,388
1,700
2,351
1,650
1,600
1,550
1,500
1,450
1,400
1,350
1,300
1,250
1,200
1,150
1,100
1,050
1,000
1Q2019
2Q2019
3Q2019
4Q2019
1Q2020
2Q2020
3Q2020
$800
$750
FENICS IS EXPECTED TO
DRIVE INCREASED
$700
PRODUCTIVITY AND
$650
HIGHER PROFITABILITY
WITH SCALE
$600
$550 Period-end Front Office Headcount
TTM Front Office Productivity
BGC continues to focus on optimizing its front office headcount and reducing expense in less profitable businesses
Expanded use of technology and automated processes is expected to drive increased front office productivity
Fenics Integrated, which was launched in Q2' 20, will further incentivize the Company's brokers and clients to automate execution, which we expect to increase productivity
Note: The figures in the above table include total brokerage revenue (excluding insurance brokerage revenue) and revenue from data, software and post-trade. The average revenue for all producers are approximate and based on the relevant revenues divided by the average number
19
of producers for the period.
BGC'S FULLY DILUTED SHARE COUNT SUMMARY AS OF SEPTEMBER 30, 2020
20
(share count in millions)
20
BGC Partners, Inc. Fully Diluted Share Count Summary
Fully-diluted
Ownership (%)
(as of September 30, 2020)
Shares
Class A owned by Public
298.1
54%
Class A owned by executives, board members and employees(1)
17.2
3%
Partnership units owned by employees(2)
129.9
24%
Other owned by employees(3)
4.7
1%
Class A owned by Cantor
0.0
0%
Class B owned by Cantor
45.9
8%
Partnership units owned by Cantor(4)
52.3
10%
-1%
Total
548.1
100%
BGC Partners, Inc. Fully Diluted Share Count Summary
Fully-diluted
Ownership (%)
(as of September 30, 2020)
Shares
Public
298.1
54%
Employees
151.8
28%
Cantor
98.2
18%
Class A shares owned by board members or executives and restricted shares owned by other employees of BGC and Newmark. Any Class A share owned by an employee without restriction is included in the "Class A owned by Public".
Partnership units owned by employees include founding/working partner units and limited partnership units. In conjunction with the proposed spin-off of Newmark, the Partnership units are owned by employees of both Newmark and BGC. Over time, virtually all of the partners of Newmark are expected to only own units and/or shares of Newmark and virtually all of the partners of BGC are expected to only own units and/or shares of BGC. Going forward, partners of BGC will be compensated with BGC partnership units and partners of Newmark will be compensated with Newmark partnership units.
These primarily represent contingent shares and/or units held by employees of BGC and Newmark for which all necessary conditions have been satisfied except for the passage of time.
Total notes payable and other borrowings / Total Capital2
1.6x
BGC's Adjusted EBITDA is higher under its credit agreement financial covenants
BGC's credit agreement is subject to financial covenants that do not permit the Company to have: (a) a gross leverage ratio of greater than 3.25x; or (b) an interest coverage ratio of less than 4.0x. BGC's credit agreement financial covenant metrics are based on a TTM Adjusted EBITDA of $513 million as calculated under BGC's credit agreement. Interest expense under this agreement excludes interest on securities financing transactions. As of September 30, 2020, there was $350 million of available undrawn capacity under BGC's revolving credit facility.
Total Capital includes total equity and redeemable partnership interest and therefore is representative of what debt to equity would be on a fully diluted basis, all else equal.
21
21
CORRELATION BETWEEN BGC'S BROKERAGE REVENUES AND CERTAIN
INDUSTRY METRICS
22
Asset Class
Rates
FX
Equities1
Credit
Industry Metric
BGC Rates Revenues vs. Fed UST Primary Dealer Volume BGC Rates Revenues vs. EUREX Interest Rate Derivatives BGC Rates Revenues vs. BrokerTec (NEX/CME) Volume
BGC FX Revenues vs. CME FX Futures Volume
BGC FX Revenues vs. EBS (NEX/CME) Volume
BGC Equities and Other Asset Classes Revenues vs. OCC Total Industry Equity Option Volume
BGC Credit Revenues vs. Fed Primary Dealer Corporate Bond Inventory
Correlation 22
60.4%
62.8%
47.4%
57.8%
30.8%
71.0%
41.3%
BGC's revenues generally correlated with industry notional volumes but tend to have low correlation in the short and medium-term with global bank and broker-dealer sales and trading revenues1
Bank and broker-dealer sales and trading revenues reflect bid-ask spreads and mark-to-market movements, as well as industry volumes in both the primary and secondary markets
BGC's brokerage revenues driven mainly by secondary trading volumes in the markets in which it transacts1
Overall industry volumes have historically been seasonally strongest in the 1st calendar quarter of the year and slowest in the 4th calendar quarter
Sources: Bloomberg, Eurex, CME, OCC and Federal Reserve
Note: Correlation periods measured are quarterly from 1Q2007 through 4Q2019 except for CME FX Futures (1Q2008 through 4Q2019) and Fed Primary Dealer Positions for Corporate Securities (1Q2009 through 4Q2019). Correlation between rates and FX revenues of
BGC and NEX/CME are measured based on quarterly revenues from 2015-2019 and 2016-2019, respectively.
1. Equities excludes insurance brokerage revenues
22
BGC FINANCIAL ASSET CLASS BREAKDOWN
23
Revenue by Asset Class & Comparison to Secondary Trading Volumes: 3Q'20
Rates
Credit
FX
Energy &
Equity Derivatives
Commodities
and Cash Equities
3Q'20 BGC Financial Revenues
$119 million
$68 million
$73 million
$66 million
$47 million
Revenue:
(24)%
(6)%
(15)%
(10)%
(17)%
% Change (Yr/Yr):
Industry Volumes % Change (Yr/Yr)
(23)%
17%
(6)%
N/A
(8)%
Cash1:
European
(14)%
(5)%
(13)%
(25)%
Equities
Derivatives2:
(33)%
Cash volumes include a simple average of various intermediaries and exchanges. For Equities, this includes Euro Equities volumes (Source: Raymond James). For Rates, this includes MarketAxess U.S. government bonds, Nasdaq U.S. fixed income, LSE/MTS Cash, CME/NEX US
Treasuries, and Tradeweb U.S. government bonds. For FX, this includes CBOE Hotspot, Refinitiv Spot FX, CME/NEX Spot FX (EBS), Euronext FX (Fastmatch), and CLS Spot. For Credit, this includes Primary Dealer US Corporate Bonds (source: Bloomberg), MarketAxess total credit, and Tradeweb total cash credit.
Derivatives volumes include a simple average of various intermediaries and exchanges. For Equities, this includes Eurex Index and Equity traded contracts. For Rates, this includes ICE short-term Interest Rates and medium & long-term Interest Rates, Eurex European Interest Rate
derivatives, CME Interest Rate futures and options, Tradeweb total Rates derivatives, ISDA Interest Rate derivatives, and SEF - FIA Interest Rate derivatives, excluding forward rate agreements. For FX, this includes SEF - FIA FX non-deliverable forwards and options based on
currencies, and excludes products based on gold, silver, and other precious metals, Refinitiv Other FX volume, CME FX futures and options volume, Deutsche Boerse 360T, and CLS swap and forward volume. For Credit, this includes ISDA credit derivatives, Tradeweb total credit
23
derivatives, and SEF - FIA credit volume, which is limited to credit default swaps and options based on indices. For Energy and Commodities, this includes CME energy and metals futures and options, and ICE total energy and other agriculture and metals.
INDUSTRY VOLUMES
24
3Q'20 CHANGE IN TRADING VOLUMES1,2
4 Q ' 2 0 T D C H A N G E I N T R A D I N G V O L U M E S 2 , 3
24
-51%
Interest Rate Futures (CME)
-41%
Interest Rate Futures (CME)
-28%
U.S. Treasuries (Primary Dealer)
-24%
CDS Notional Turnover (ISDA)
-27%
Interest Rate Futures (ICE)
-19%
FX Futures (CME)
-25%
Eurex Equity Derivatives
-19%
U.S. Treasuries (Primary Dealer)
-23%
CDS Notional Turnover (ISDA)
-12%
European Equities
-18%
Energy and Metals (CME)
-14%
Equity Indices (ICE)
2%
Energy (ICE)
-8%
Energy (ICE)
14%
U.S. Corp. Bonds
-3%
FX Futures (CME)
17%
U.S. Agency (Primary Dealer)
-2%
Refinitiv (Thomson Reuters) FX Spot
18%
U.S. High-Grade Credit
5%
Energy & Commodities Options (FIA)
32%
U.S Equities
8%
U.S. Corp. Bonds (Primary Dealer)
Industry volumes were mostly lower yr/yr across asset
Industry volumes are mixed yr/yr in 4QTD 2020
classes in 3Q2020
Sources: Bloomberg, CME, Eurex, FIA, ICE, ISDA, and Refinitiv for 3Q2020 and Raymond James (BATS, CBOE, CME, ICE, EuroNext, IEX, NYSE, Nasdaq, and Trace), Bloomberg, and ISDA for 2020 4QTD.
1.
Global futures volumes reported to FIA for agriculture, energy, non-precious metals, and precious metals.
2.
Futures volumes are generally based on contracts traded throughout the month/quarter.
24
3.. U.S. Corp. Bond, U.S. Agency, and U.S. Treasury data from 10/1/2020 - 10/16/2020 (Bloomberg). All others from 10/1/2020 - 10/23/2020.
1.TTM total revenue as of Q3 2020 and excludes $83.1 million of inter-company data, software and post-trade.
25
FENICS STAND-ALONE ELECTRONIC PLATFORMS
Fully Lit Central Limit Order Book ("CLOB") plus bespoke Directed Stream ("DCLOB") trading platform for US Treasuries
Highlights
+86% notional volume growth YTD September 20 vs.YTD September 19
Doubled market share to 12% in 3Q20201
#2 largest UST CLOB platform as of September 20201
~$115 million in estimated client savings from January 1, 2019 to August 31, 20202
MidFX, Spot, FX Options, and Non-
Deliverable Forwards ("NDF") and
FX Forwards
Highlights
Spot FX focuses on ultra-low latency execution
Currently offers 55 Spot pairs & continuous marketplace (24/6)
Supporting all forms of fully electronic connectivity including binary, FIX, GUI, and STP
MIDFX serves bank liquidity originators seeking to reduce existing positional risk in a fully electronic, name disclosed, dark environment
Fully electronic end-to-end platform for the arrangement of block trades in listed derivative products
Highlights
> 200% growth in Euro Stoxx 50 option volumes - 3Q'20 VS. Q1'20 (launched Q3'19)
> 6% market share estimated for Euro Stoxx 50 front-month options3
>150% growth in NIKKEI 225 option volumes - 3Q'20 VS. 2Q'20 (launched Q1'20)
> 13% market share estimated for NIKKEI 225 front-month options3
26
Web-delivered FX Options platform providing aggregated multi-dealer liquidity and trade execution through one single interface
Highlights
Name disclosed pre-trade pricing and bi-lateral execution to promote best possible FX Option pricing relative to anonymous order book methodology
Superior FX option liquidity instantly
Web-deployedfor ease of implementation
Central limit order book ("CLOB") market share is based on data from Greenwich Associates and BGC's internal estimates. Including these CLOB platforms as well as those using other fully electronic US Treasury trading protocols, Fenics UST increased its overall market share from 4.3 percent to 5.8 percent year-on-year in September 2020, per Greenwich Associates. Primary dealer volumes are based on data from the Securities Industry and Financial Markets Association ("SIFMA").
BGC internal estimates based on savings per tick (1/16 of 1/32 = $19.53125) adjusted for tenor multiplied by the quantity of the trade.
BGC's estimate of Fenics GO's market share is based on estimated Euro Stoxx 50 and Nikkei 225 IDB block-sized transactions for "front-month" option volume, which refers to the nearest expiration date for an options contract (within 32 days of expiration).26
FENICS DATA, SOFTWARE AND POST-TRADE OFFERINGS
Comprehensive market data solution providing unique & valuable data sets sourced from inputs generated across our global brokerage operations
Highlights
Coverage across multiple global asset classes
Enhanced FX data package
US dollar data service, FENICSMD 20/20, combining Fenics UST pricing with real-time interest rate swaps data from BGC and US Treasuries implied spreads to SOFR1
Note: Algomi was acquired by Fenics in March of 2020.
Independent software vendor providing gateway access, analytics, pricing, deal capture, trade lifecycle management, and distribution solutions
Highlights
Updated version of its award-winning platform, kACE Pro
Provides pricing, data aggregation, trading front ends, deal capture, and risk management in Spot FX and FX Options
Lucera is BGC's software defined network enabling the trading community to directly connect to each other
Algomi provides technology aggregating buy-side clients' access to venues, trading counterparties and exchanges
Highlights
BGC is integrating Algomi with its Lucera SaaS connectivity subscription service to provide direct data and execution capabilities between the buy side and the sell side
27
Derivatives optimization service providing portfolio compression, margin optimization, and NDF reset risk mitigation services
Highlights
Compressed over $10.5 trillion of notional Interest Rate Options; $60+ billion in margin reductions
Interest Rate, FX and Equity Options risk compression offered via multilateral cycles
Bilateral Initial Margin cash/collateral shrunk multilaterally across counterparties and CCPs
1. Secured overnight financing rate (SOFR)
27
BGC PARTNERS, INC.
NON-GAAP DEFINITIONS AND RECONCILIATION TABLES
RECONCILIATION OF GAAP INCOME (LOSS) FROM OPERATIONS BEFORE INCOME TAXES TO ADJUSTED EARNINGS AND GAAP FULLY DILUTED EPS TO POST-TAX ADJUSTED EPS
(IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
Q3 2020
Q3 2019
GAAP income (loss) from operations before income taxes
29
$
28,708
$
8,746
Pre-tax adjustments:
Compensation adjustments:
Equity-based compensation and allocations of net income
to limited partnership units and FPUs (1)
33,007
40,330
Other Compensation charges (2)
2,871
1,531
Total Compensation adjustments
35,878
41,861
Non-Compensation adjustments:
Amortization of intangibles (3)
7,204
7,572
Acquisition related costs
(26)
197
Certain rent charges (4)
-
1,875
Impairment charges
84
354
Other (5)
1,188
28,000
Total Non-Compensation adjustments
8,450
37,998
Other income (losses), net adjustments:
Losses (gains) on divestitures
9
-
Fair value adjustment of investments
990
25
Other net (gains) losses (6)
(4,845)
(970)
Total other income (losses), net adjustments
(3,846)
(945)
Total pre-tax adjustments
40,482
78,914
Adjusted Earnings before noncontrolling interest
in subsidiaries and taxes
$
69,190
$
87,660
GAAP net income (loss) available to common stockholders
$
19,381
$
(3,529)
Allocation of net income (loss) to noncontrolling interest in subsidiaries (7)
6,228
5,839
Total pre-tax adjustments (from above)
40,482
78,912
Income tax adjustment to reflect adjusted earnings taxes (8)
(4,179)
(3,895)
Post-tax adjusted earnings
$
61,912
$
77,327
Per Share Data
GAAP fully diluted earnings (loss) per share
$
0.05
$
(0.01)
Less: Allocations of net income (loss) to limited partnership units,
FPUs, and noncontrolling interest in subsidiaries, net of tax
-
0.02
Total pre-tax adjustments (from above)
0.07
0.15
Income tax adjustment to reflect adjusted earnings taxes
(0.01)
(0.01)
Post-tax adjusted earnings per share
0.11
0.15
Fully diluted weighted-average shares of common stock outstanding
549,244
528,396
Please see footnotes to
Dividends declared per share of common stock
$
0.01
$
0.14
this table on the next page.
Dividends declared and paid per share of common stock
$
0.01
$
0.14
29
29
RECONCILIATION OF GAAP INCOME (LOSS) FROM OPERATIONS BEFORE INCOME TAXES
TO ADJUSTED EARNINGS AND GAAP FULLY DILUTED EPS TO POST-TAX ADJUSTED EPS
30
(IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
(1) The components of equity-based compensation and allocations of net income to limited partnership units and FPUs are as follows (in thousands):
30
Q3 2020
Q3 2019
Issuance of common stock and grants of exchangeability
$
3,554
$
24,245
Allocations of net income
8,213
10,273
LPU amortization
18,455
4,213
RSU amortization
2,785
1,599
Equity-based compensation and allocations of net income to limited partnership units and FPUs
$
33,007
$
40,330
GAAP expenses in the third quarter of 2020 included certain one-off costs associated with the cost reduction program of $1.6 million in addition to certain loan impairments related to the cost reduction program of $0.9 million. GAAP expenses in the third quarter of 2020 and 2019 included certain acquisition-related compensation expenses of $0.5 million and $1.4 million, respectively.
Includes non-cash GAAP charges related to the amortization of intangibles with respect to acquisitions.
Includes certain rent charges incurred by the Company during the build-out phase of the Company's new UK based headquarters.
Includes various other GAAP items. Adjusted Earnings for the third quarter of 2019 exclude the impact of certain GAAP charges recorded as part of "Other expenses", primarily related to litigation matters such as the Company's settlement with the Commodity Futures Trading Commission and the New York Attorney General's Office. This is consistent with BGC's normal practice of excluding certain GAAP gains and charges from Adjusted Earnings that management believes do not best reflect the ordinary results of the Company, including with respect to acquisitions, dispositions, and/or resolutions of litigation.
For the third quarters of both 2020 and 2019, includes non-cash gains of ($1.5) million related to BGC's investments accounted for under the equity method. The third quarter of 2020 also includes a net gain of ($3.3) million related to various other GAAP items, while the third quarter of 2019 also included net losses of $0.5 million for various other GAAP items.
Primarily represents Cantor's pro-rata portion of net income.
BGC's GAAP provision for income taxes is calculated based on an annualized methodology. The Company's GAAP provision for income taxes was $3.8 million and $6.2 million for the third quarters of 2020 and 2019, respectively. The Company includes additional tax-deductible items when calculating the provision for taxes with respect to Adjusted Earnings using an annualized methodology. These include tax-deductions related to equity-based compensation with respect to limited partnership unit exchange, employee loan amortization, and certain net-operating loss carryforwards. The non-GAAP provision for income taxes was adjusted $4.2 million and $3.9 million for the third quarters of 2020 and 2019, respectively. As a result, the provision for income taxes with respect to Adjusted Earnings was $8.0 million and $10.1 million for the third quarters of 2020 and 2019, respectively. The calculation of taxes for Adjusted Earnings excluded the effect of the 2017 U.S. Tax Cuts and Jobs Act.
Note: Certain numbers may not add due to rounding.
30
RECONCILIATION OF GAAP NET INCOME (LOSS) AVAILABLE TO COMMON STOCKHOLDERS TO ADJUSTED EBITDA
(IN THOUSANDS) (UNAUDITED)
Q3 2020
Q3 2019
31
GAAP net income (loss) available to common stockholders
$
19,381
$
(3,529)
Add back:
Provision (benefit) for income taxes
3,778
6,186
Net income (loss) attributable to noncontrolling interest in subsidiaries (1)
5,549
6,089
Interest expense
19,488
15,258
Fixed asset depreciation and intangible asset amortization
21,233
20,176
Impairment of long-lived assets
84
354
Equity-based compensation and allocations of net income to limited partnership units and
33,007
40,330
(Gains) losses on equity method investments (3)
(1,302)
(1,530)
Other non-cash GAAP items (4)
-
909
Adjusted EBITDA
$
101,218
$
84,243
Primarily represents Cantor's pro-rata portion of net income.
Represents BGC employees' pro-rata portion of net income and non-cash and non-dilutive charges relating to equity-based
compensation. See Footnote 1 to the table titled "Reconciliation of GAAP Income (Loss) from Operations before Income Taxes to Adjusted Earnings and GAAP Fully Diluted EPS to Post-Tax Adjusted EPS" for more information.
For the third quarters of both 2020 and 2019, includes non-cash gains of ($1.5) million related to BGC's investments accounted for under the equity method. The third quarter of 2020 also includes a net loss of $0.2 million related to an investment impairment.
Non-cashcharges of amortized rents incurred by the Company during the build-out phase of the Company's new UK based headquarters
Note: BGC's Adjusted EBITDA for Financial Covenants is defined under the amended Revolving Credit Agreement, which the Company entered into on February 26, 2020. For TTM 3Q2020, Adjusted EBITDA for Financial Covenants was $513 million.
31
31
FULLY DILUTED WEIGHTED-AVERAGE SHARE COUNT UNDER GAAP AND FOR ADJUSTED
EARNINGS & LIQUIDITY ANALYSIS
32
(IN THOUSANDS) (UNAUDITED)
32
FULLY DILUTED WEIGHTED AVERAGE SHARE COUNT
Q3 2020
Q3 2019
Common stock outstanding
363,244
346,060
Limited partnership units
119,975
-
Cantor units
52,363
-
Founding partner units
12,304
-
RSUs
219
-
Other
1,139
-
Fully diluted weighted-average share count under GAAP
549,244
346,060
Non-GAAP Adjustments:
Limited partnership units
-
115,730
Cantor units
-
52,363
Founding partner units
-
12,420
RSUs
-
502
Other
-
1,321
Fully diluted weighted-average share count for Adjusted Earnings
549,244
528,396
Note: BGC's fully diluted weighted-average share count under GAAP may differ from the fully diluted weighted-average share count for
Adjusted Earnings in order to avoid anti-dilution in certain periods.
LIQUIDITY ANALYSIS
September 30, 2020
December 31, 2019
Cash and cash equivalents
$
492,303
$
415,379
Repurchase agreements
(2,089)
-
Securities owned
58,547
57,525
Marketable securities (1)
303
326
Total Liquidity
$
549,064
$
473,230
As of December 31, 2019, $13.9 million of Marketable securities on our balance sheet had been lent in a Securities loaned transaction and, therefore, are not included in this Liquidity Analysis.
32
DIFFERENCES BETWEEN NON-GAAP AND GAAP CONSOLIDATED RESULTS
33
NON-GAAP FINANCIAL MEASURES33
This document contains non-GAAP financial measures that differ from the most directly comparable measures calculated and presented in accordance with Generally Accepted Accounting Principles in the United States ("GAAP"). Non-GAAP financial measures used by the Company include "Adjusted Earnings before noncontrolling interests and taxes", which is used interchangeably with "pre-tax Adjusted Earnings"; "Post-tax Adjusted Earnings to fully diluted shareholders", which is used interchangeably with "post-tax Adjusted Earnings"; "Adjusted EBITDA"; and "Liquidity". The definitions of these terms are below.
ADJUSTED EARNINGS DEFINED
BGC uses non-GAAP financial measures, including "Adjusted Earnings before noncontrolling interests and taxes" and "Post-tax Adjusted Earnings to fully diluted shareholders", which are supplemental measures of operating results used by management to evaluate the financial performance of the Company and its consolidated subsidiaries. BGC believes that Adjusted Earnings best reflect the operating earnings generated by the Company on a consolidated basis and are the earnings which management considers when managing its business.
As compared with "Income (loss) from operations before income taxes" and "Net income (loss) for fully diluted shares", both prepared in accordance with GAAP, Adjusted Earnings calculations primarily exclude certain non-cash items 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. In addition, Adjusted Earnings calculations exclude certain gains and charges that management believes do not best reflect the ordinary results of BGC. Adjusted Earnings is calculated by taking the most comparable GAAP measures and adjusting for certain items with respect to compensation expenses, non-compensation expenses, and other income, as discussed below.
CALCULATIONS OF COMPENSATION ADJUSTMENTS FOR ADJUSTED EARNINGS AND ADJUSTED EBITDA
Treatment of Equity-Based Compensation Line Item for Adjusted Earnings and Adjusted EBITDA
The Company's Adjusted Earnings and Adjusted EBITDA measures exclude all GAAP charges included in the line item "Equity-based compensation and allocations of net income to limited partnership units and FPUs" (or "equity-based compensation" for purposes of defining the Company's non-GAAP results) as recorded on the Company's GAAP Consolidated Statements of Operations and GAAP Consolidated Statements of Cash Flows. These GAAP equity-based compensation charges reflect the following items:
Charges with respect to grants of exchangeability, which reflect the right of holders of limited partnership units with no capital accounts, such as LPUs and PSUs, to exchange these units into shares of common stock, or into partnership units with capital accounts, such as HDUs, as well as cash paid with respect to taxes withheld or expected to be owed by the unit holder upon such exchange. The withholding taxes related to the exchange of certain non-exchangeable units without a capital account into either common shares or units with a capital account may be funded by the redemption of preferred units such as PPSUs.
Charges with respect to preferred units. Any preferred units would not be included in the Company's fully diluted share count because they cannot be made exchangeable into shares of common stock and are entitled only to a fixed distribution. Preferred units are granted in connection with the grant of certain limited partnership units that may be granted exchangeability or redeemed in connection with the grant of shares of common stock at ratios designed to cover any withholding taxes expected to be paid. This is an alternative to the common practice among public companies of issuing the gross amount of shares to employees, subject to cashless withholding of shares, to pay applicable withholding taxes.
GAAP equity-based compensation charges with respect to the grant of an offsetting amount of common stock or partnership units with capital accounts in connection with the redemption of non-exchangeable units, including PSUs and LPUs.
Charges related to amortization of RSUs and limited partnership units.
Charges related to grants of equity awards, including common stock or partnership units with capital accounts.
Allocations of net income to limited partnership units and FPUs. Such allocations represent the pro-rata portion of post-tax GAAP earnings available to such unit holders.
The amounts of certain quarterly equity-based compensation charges are based upon the Company's estimate of such expected charges during the annual period, as described further below under "Methodology for Calculating Adjusted Earnings Taxes."
Virtually all of BGC's key executives and producers have equity or partnership stakes in the Company and its subsidiaries and generally receive deferred equity or limited partnership units as part of their compensation. A significant percentage of BGC's fully diluted shares are owned by its executives, partners and employees. The Company issues limited partnership units as well as other forms of equity-based compensation, including grants of exchangeability into shares of common stock, to provide liquidity to its employees, to align the interests of its employees and management with those of common stockholders, to help motivate and retain key employees, and to encourage a collaborative culture that drives cross-selling and revenue growth.
33
DIFFERENCES BETWEEN NON-GAAP AND GAAP CONSOLIDATED RESULTS
34
(CONTINUED)
All share equivalents that are part of the Company's equity-based compensation program, including REUs, PSUs, LPUs, HDUs, and other units that may be made exchangeable into common stock, as well as RSUs (which are recorded using the treasury stock method), are included in the fully diluted share count when issued or at the beginning of the subsequent quarter after the date of grant. Generally, limited partnership units other than preferred units34are expected to be paid a pro-rata distribution based on BGC's calculation of Adjusted Earnings per fully diluted share. However, out of an abundance of caution and in order to strengthen the Company's balance sheet due the uncertain macroeconomic conditions with respect to the COVID-19 pandemic, BGC Holdings, L.P. has reduced its distributions of income from the operations of BGC's businesses to its partners.
Compensation charges are also adjusted for certain other cash and non-cash items, including those related to the amortization of GFI employee forgivable loans granted prior to the closing of the January 11, 2016 back-end merger with GFI.
CERTAIN OTHER COMPENSATION-RELATED ADJUSTMENTS FOR ADJUSTED EARNINGS
BGC also excludes various other GAAP items that management views as not reflective of the Company's underlying performance in a given period from its calculation of Adjusted Earnings. These may include compensation-related items with respect to cost-saving initiatives, such as severance charges incurred in connection with headcount reductions as part of broad restructuring and/or cost savings plans.
CALCULATION OF NON-COMPENSATION ADJUSTMENTS FOR ADJUSTED EARNINGS
Adjusted Earnings calculations may also exclude items such as:
Non-cashGAAP charges related to the amortization of intangibles with respect to acquisitions;
Acquisition related costs;
Certain rent charges;
Non-cashGAAP asset impairment charges; and
Various other GAAP items that management views as not reflective of the Company's underlying performance in a given period, including non-compensation-related charges incurred as part of broad restructuring and/or cost savings plans. Such GAAP items may include charges for exiting leases and/or other long-term contracts as part of cost-saving initiatives, as well as non-cash impairment charges related to assets, goodwill and/or intangibles created from acquisitions.
CALCULATION OF ADJUSTMENTS FOR OTHER (INCOME) LOSSES FOR ADJUSTED EARNINGS
Adjusted Earnings calculations also exclude certain other non-cash,non-dilutive, and/or non-economic items, which may, in some periods, include:
Gains or losses on divestitures;
Fair value adjustment of investments;
Certain other GAAP items, including gains or losses related to BGC's investments accounted for under the equity method; and
Any unusual, one-time,non-ordinary, or non-recurring gains or losses.
METHODOLOGY FOR CALCULATING ADJUSTED EARNINGS TAXES
Although Adjusted Earnings are calculated on a pre-tax basis, BGC also reports post-tax Adjusted Earnings to fully diluted shareholders. The Company defines post-tax Adjusted Earnings to fully diluted shareholders as pre-tax Adjusted Earnings reduced by the non-GAAP tax provision described below and net income (loss) attributable to noncontrolling interest for Adjusted Earnings.
The Company calculates its tax provision for post-tax Adjusted Earnings using an annual estimate similar to how it accounts for its income tax provision under GAAP. To calculate the quarterly tax provision under GAAP, BGC estimates its full fiscal year GAAP income (loss) from operations before income taxes and noncontrolling interests in subsidiaries and the expected inclusions and deductions for income tax purposes, including expected equity-based compensation during the annual period. The resulting annualized tax rate is applied to BGC's quarterly GAAP income (loss) from operations before income taxes and noncontrolling interests in subsidiaries. At the end of the annual period, the Company updates its estimate to reflect the actual tax amounts owed for the period.
To determine the non-GAAP tax provision, BGC first adjusts pre-tax Adjusted Earnings by recognizing any, and only, amounts for which a tax deduction applies under applicable law. The amounts include charges with respect to equity-based compensation; certain charges related to employee loan forgiveness; certain net operating loss carryforwards when taken for statutory purposes; and certain charges related to tax goodwill amortization. These adjustments may also reflect timing and measurement differences, including treatment of employee loans; changes in the value of units between the dates of grants of exchangeability and the date of actual unit exchange; variations in the value of certain deferred tax assets; and liabilities and the different timing of permitted deductions for tax under GAAP and statutory tax requirements.
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DIFFERENCES BETWEEN NON-GAAP AND GAAP CONSOLIDATED RESULTS
35
(CONTINUED)
After application of these adjustments, the result is the Company's taxable income for its pre-tax Adjusted Earnings, to which BGC then applies the statutory tax rates to determine its non-GAAP tax provision. BGC views the effective tax rate on pre-
tax Adjusted Earnings as equal to the amount of its non-GAAP tax provision divided by the amount of pre-tax Adjusted Earnings.
35
Generally, the most significant factor affecting this non-GAAP tax provision is the amount of charges relating to equity-based compensation. Because the charges relating to equity-based compensation are deductible in accordance with applicable tax laws, increases in such charges have the effect of lowering the Company's non-GAAP effective tax rate and thereby increasing its post-tax Adjusted Earnings.
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 is expected to operate principally through subsidiary corporations subject to local income taxes. For these reasons, taxes for Adjusted Earnings are expected to be 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- AND POST-TAX ADJUSTED EARNINGS PER SHARE
BGC's pre- and post-tax Adjusted Earnings per share calculations assume either that:
The fully diluted share count includes the shares related to any dilutive instruments, but excludes the associated 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 expense, net of tax.
The share count for Adjusted Earnings excludes certain shares and share equivalents expected to be issued in future periods but not yet eligible to receive dividends and/or distributions. Each quarter, the dividend payable to BGC's stockholders, if any, is expected to be determined by the Company's Board of Directors with reference to a number of factors, including post-tax Adjusted Earnings per share. BGC may also pay a pro-rata distribution of net income to limited partnership units, as well as to Cantor for its noncontrolling interest. The amount of this net income, and therefore of these payments per unit, would be determined using the above definition of Adjusted Earnings per share on a pre-tax basis.
The declaration, payment, timing, and amount of any future dividends payable by the Company will be at the discretion of its Board of Directors using the fully diluted share count. For more information on any share count adjustments, see the table titled "Fully Diluted Weighted-Average Share Count under GAAP and for Adjusted Earnings".
MANAGEMENT RATIONALE FOR USING ADJUSTED EARNINGS
BGC's calculation of Adjusted Earnings excludes the items discussed above because they are either non-cash in nature, because the anticipated benefits from the expenditures are not expected to be fully realized until future periods, or because the Company views results excluding these items as a better reflection of the underlying performance of BGC's ongoing operations. Management uses Adjusted Earnings in part to help it evaluate, among other things, the overall performance of the Company's business, to make decisions with respect to the Company's operations, and to determine the amount of dividends payable to common stockholders and distributions payable to holders of limited partnership units. Dividends payable to common stockholders and distributions payable to holders of limited partnership units are included within "Dividends to stockholders" and "Earnings distributions to limited partnership interests and noncontrolling interests," respectively, in our
unaudited, condensed, consolidated statements of cash flows.
The term "Adjusted Earnings" should not be considered in isolation or as an alternative to GAAP net income (loss). The Company views Adjusted 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 Adjusted Earnings, as well as related measures, are not intended to replace the Company's presentation of its GAAP financial results. However, management believes that these measures help provide investors with a clearer understanding of BGC's 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 the GAAP and Adjusted Earnings measures of financial performance should be considered together.
For more information regarding Adjusted Earnings, see the sections of this document and/or the Company's most recent financial results press release titled "Reconciliation of GAAP Income (Loss) from Operations before Income Taxes to Adjusted Earnings and GAAP Fully Diluted EPS to Post-Tax Adjusted EPS", including the related footnotes, for details about how BGC's non-GAAP results are reconciled to those under GAAP.
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DIFFERENCES BETWEEN NON-GAAP AND GAAP CONSOLIDATED RESULTS
(CONTINUED)
ADJUSTED EBITDA DEFINED
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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:36
Provision (benefit) for income taxes;
Net income (loss) attributable to noncontrolling interest in subsidiaries;
Interest expense;
Fixed asset depreciation and intangible asset amortization;
Equity-basedcompensation and allocations of net income to limited partnership units and FPUs;
Impairment of long-lived assets;
(Gains) losses on equity method investments; and
Certain other non-cash GAAP items, such as non-cash charges of amortized rents incurred by the Company for its new UK based headquarters.
The Company's management believes that its Adjusted EBITDA measure 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 this measure 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 BGC's Adjusted EBITDA is not a recognized measurement under GAAP, investors should use this measure 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 the Company's Adjusted EBITDA does not consider certain cash requirements, such as tax and debt service payments.
For more information regarding Adjusted EBITDA, see the section of this document and/or the Company's most recent financial results press release titled "Reconciliation of GAAP Net Income (Loss) Available to Common Stockholders to Adjusted EBITDA", including the footnotes to the same, for details about how BGC's non-GAAP results are reconciled to those under GAAP.
TIMING OF OUTLOOK FOR CERTAIN GAAP AND NON-GAAP ITEMS
BGC anticipates providing forward-looking guidance for GAAP revenues and for certain non-GAAP measures from time to time. However, the Company does not anticipate providing an outlook for other GAAP results. This is because certain GAAP items, which are excluded from Adjusted Earnings and/or Adjusted EBITDA, are difficult to forecast with precision before the end of each period. The Company therefore believes that it is not possible for it to have the required information necessary to forecast GAAP results or to quantitatively reconcile GAAP forecasts to non-GAAP forecasts with sufficient precision without unreasonable efforts. For the same reasons, the Company is unable to address the probable significance of the unavailable information. The relevant items that are difficult to predict on a quarterly and/or annual basis with precision and may materially impact the Company's GAAP results include, but are not limited, to the following:
Certain equity-based compensation charges that may be determined at the discretion of management throughout and up to the period-end;
Unusual, one-time,non-ordinary, or non-recurring items;
The impact of gains or losses on 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-cashasset 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.
LIQUIDITY DEFINED
BGC may also use a non-GAAP measure called "liquidity". The Company considers liquidity to be comprised of the sum of cash and cash equivalents, reverse repurchase agreements (if any), securities owned, and marketable securities, less securities lent out in securities loaned transactions and repurchase agreements (if any). The Company considers liquidity to be an important metric for determining the amount of cash that is available or that could be readily available to the Company on short notice.
For more information regarding Liquidity, see the section of this document and/or the Company's most recent financial results press release titled "Liquidity Analysis", including any footnotes to the same, for details about how BGC's non-GAAP results are reconciled to those under GAAP.
BGC Partners Inc. published this content on 06 November 2020 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 19 November 2020 14:58:07 UTC
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