BGC Group, Inc. annual report, FY2022

BGC Partners, Inc. — 2022 Form 10-K

Reporting period: Fiscal year ended December 31, 2022; the filing also presents fourth-quarter results. Although the request identifies BGC Group, Inc., this 10-K is filed by BGC Partners, Inc. BGC Group was then a wholly owned subsidiary intended to become the public holding company upon completion of the proposed Corporate Conversion.

Business context and results

BGC is a global financial brokerage and technology company, serving institutional customers across rates, foreign exchange, credit, equities, energy and commodities, shipping, and futures. Its services span Voice, Hybrid and Fully Electronic execution, alongside market data, software, connectivity and post-trade services. It operated as one reportable segment.

Metric	FY 2022	FY 2021
Total revenue	$1,795.3 million	$2,015.4 million
Income before income taxes	$97.5 million	$176.5 million
Consolidated net income	$58.9 million	$153.5 million
Net income available to common stockholders	$48.7 million	$124.0 million
Basic / fully diluted GAAP EPS	$0.13 / $0.13	$0.33 / $0.32
Net cash from operating activities	$224.4 million	$417.2 million

Reported pretax margin was 5.5%, versus 8.7% in 2021; consolidated net margin was 3.3%, versus 7.6%. These GAAP measures should not be confused with management’s non-GAAP Adjusted Earnings or Adjusted EBITDA.

Revenue, costs and material comparisons

Revenue declined 10.9%. The comparison was materially affected by the November 2021 sale of the Insurance brokerage business, which contributed $178.1 million of 2021 brokerage revenue, and by foreign-exchange headwinds. Excluding insurance, brokerage revenue fell 2.6%.
FY 2022 brokerage revenue was $1,646.8 million: rates $549.5 million, FX $299.7 million, energy and commodities $291.7 million, credit $271.4 million, and equities $234.5 million. Each category declined year over year.
Data, software and post-trade revenue rose 7.1% to $96.4 million. Total Fenics revenue rose 12.0% to $449.4 million for the year; it represented 25% of total revenue in Q4. Fully Electronic brokerage revenue increased 13.4% to $352.9 million for the year, while Voice/Hybrid brokerage revenue declined.
Total expenses decreased 21.2% to $1,717.1 million, primarily reflecting the insurance disposal and lower compensation expense. Compensation and employee benefits, including equity-based compensation, totaled $1,104.2 million, or 61.5% of revenue, versus $1,527.5 million, or 75.8%, in 2021. The prior-year period included significant insurance-sale-related compensation and other one-off costs.
Other income was $19.3 million, compared with $339.4 million in 2021, which included a $312.9 million gain on the insurance-business sale. Thus, the year-over-year decline in GAAP earnings reflects both lower revenue and the absence of that prior-year gain.

Fourth quarter

Q4 2022 revenue was $436.5 million, down from $461.6 million in Q4 2021. Income before taxes was $1.6 million and net income available to common stockholders was $2.2 million, versus $104.8 million and $76.5 million, respectively, in Q4 2021. The prior-year quarter included the $312.9 million insurance-sale gain. Fenics revenue was $108.9 million in Q4, up 7.4% year over year.

Cash, liquidity and debt

At December 31, 2022, cash and cash equivalents were $485.0 million; the company-defined liquidity measure was $524.3 million, down from $594.8 million a year earlier. The filing attributes the decline mainly to share and unit repurchases, distributions, tax payments, investment in Fenics Growth Platforms and working-capital movements.
Operating cash flow was $224.4 million; investing cash outflow was $53.3 million; financing cash outflow was $233.2 million. Financing uses included $103.9 million of Class A share repurchases, $76.2 million of partnership-interest redemptions and repurchases, and $14.9 million of stockholder dividends.
Notes payable and other borrowings were $1,049.2 million, principally $450 million of 5.375% notes due July 2023, $300 million of 3.750% notes due October 2024, and $300 million of 4.375% notes due December 2025. The 2023 maturity is a near-term refinancing or repayment priority.
The unsecured revolving facility was expanded to $375 million and extended to March 2025; no amount was drawn at year-end. BGC subsequently drew $70 million through March 1, 2023, at a stated 6.4% rate. Year-end cash and liquidity do not eliminate the need to monitor debt maturities, clearing needs and restricted regulatory capital.
Reported total assets were $3.075 billion and total liabilities $2.326 billion at year-end. Regulated subsidiaries held $666 million of net assets and had regulatory net capital $342.2 million above aggregate requirements.

Outlook, significant events and risks

Management anticipated sustained higher secondary-market activity in 2023 as interest rates rose and expected broad-based growth. It reported brokerage revenue up 8% over the first 35 trading days of 2023 and Fenics revenue up 11% over the same period. These are early-period observations and management commentary, not full-year guidance.
Management reported continued investment in Fenics and expected electronic execution, data and post-trade services to become a larger part of the business. FMX, its U.S. Treasury and rates futures platform, was targeting a soft launch, subject to regulatory processes and other execution requirements.
The Corporate Conversion agreement, signed in November 2022, proposes moving from an Up-C structure to a full C-corporation under BGC Group, Inc. Management expected closing in Q3 2023, subject to shareholder, regulatory and other approvals. The filing highlights execution, tax, employee-retention and governance uncertainties; Cantor’s expected voting power after conversion was approximately 74.6%.
BGC recorded an $11.4 million reserve associated with unsettled trades and receivables involving sanctioned Russian entities and ceased trading with affected clients. Russia-related exposure, currency movements, market volumes, regulation, cyber and operational risks, customer concentration, and reliance on key personnel are among the disclosed risks.
In 2022, a subsidiary paid a $6.5 million CFTC penalty relating to system safeguards and reporting deficiencies, and U.K. subsidiaries were fined $5.8 million by the FCA for historical trade-surveillance deficiencies that the company said had been remediated. A Delaware derivative case concerning the Berkeley Point transaction was decided for BGC and defendants, but plaintiffs appealed.
The Board declared a $0.01-per-share dividend for Q4 2022, payable in March 2023. Management said it prioritized share and unit repurchases over dividends and distributions. The Inflation Reduction Act’s 1% stock-repurchase excise tax became effective in 2023; BGC did not expect a material financial-statement impact.
The financial statements received an unqualified audit opinion, and the auditor also issued an unqualified opinion on internal control over financial reporting as of December 31, 2022.

Important facts for investors to verify

How the $450 million July 2023 notes were refinanced or repaid, and the subsequent use and cost of the revolving facility.
Whether early-2023 revenue momentum continued, particularly across brokerage products and Fenics, and how it translated into GAAP earnings and cash flow.
The earnings and cash-flow impact of the insurance-sale comparison, foreign exchange, employee compensation, and the $11.4 million Russia-related reserve; also compare GAAP results with reconciled non-GAAP measures.
Completion terms and timing of the Corporate Conversion, including resulting Cantor voting control, dilution, tax effects and changes to employee compensation.
Resolution of the Berkeley Point appeal, regulatory remediation and any further Russia-related credit losses or legal contingencies.
Whether liquidity remains adequate after repurchases, investment spending and regulatory capital needs, and how the company’s employee loans and customer concentration affect credit risk.