BGC Partners, Inc. — Q2 2022 Form 10-Q
Business context and reporting period. The filing covers the quarter and six months ended June 30, 2022. BGC Partners is a global financial brokerage and technology company operating across Rates, FX, Credit, Equities, Energy and Commodities, and Futures, alongside electronic trading, data, software, and post-trade services. The Insurance brokerage business was sold in November 2021, affecting year-over-year comparisons. Financial statements are unaudited.
Key financial metrics
Amounts are in USD millions, except per-share data and percentages.
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Total revenue | $435.8 | $512.5 | $942.2 | $1,080.0 |
| Income before income taxes | $31.4 | $18.9 | $76.8 | $92.4 |
| Consolidated net income | $16.3 | $20.1 | $47.0 | $78.6 |
| Net income available to common stockholders | $14.8 | $16.2 | $40.7 | $59.0 |
| Basic / fully diluted EPS | $0.04 / $0.04 | $0.04 / $0.04 | $0.11 / $0.11 | $0.16 / $0.15 |
| Operating cash flow | Not presented quarterly | $54.0 | $198.3 |
- Revenue mix and margins: Q2 total revenue declined 15.0%; excluding the sold Insurance business, revenue fell 4.9%. Q2 pretax margin was 7.2%, versus 3.7% a year earlier; net income available to common stockholders was 3.4% of revenue, versus 3.2%. Six-month pretax margin was 8.2%, versus 8.6%.
- Q2 product trends: Rates revenue rose 0.5% to $137.1 million and FX rose 2.1% to $74.3 million. Credit fell 15.6% to $61.3 million, Energy and Commodities fell 10.8% to $66.7 million, and Equities fell 4.2% to $58.3 million. Fully Electronic brokerage represented 21.7% of Q2 brokerage revenue, up from 16.0%.
- Cash flow: Six-month operating cash flow was $54.0 million. Operating cash flow was substantially affected by matched-trade working-capital movements, including a $1.58 billion increase in broker-dealer and clearing receivables and a $1.52 billion increase in related payables. Investing cash outflow was $24.8 million and financing cash outflow was $83.9 million. Cash and regulatory-segregated cash together ended at $509.1 million, down $57.7 million from year-end.
- Liquidity and debt: Management-defined liquidity was $535.0 million at June 30, down $59.8 million from December 31, 2021. Notes payable and other borrowings were $1,051.0 million, plus $3.8 million of short-term borrowings. Senior notes carry rates of 5.375%, 3.750%, and 4.375%, maturing in 2023, 2024, and 2025, respectively. The $375 million revolving credit facility, amended to SOFR-based terms and extended to March 2025, had no outstanding borrowings.
- Capital returns: The company repurchased 8.7 million Class A shares for $29.4 million during the first half and had $158.4 million remaining under its $400 million share/unit repurchase authorization. The Board declared a $0.01-per-share Q2 dividend, payable September 6, 2022.
Material changes versus the prior comparable period
- The Insurance sale removed $54.3 million of Q2 2021 revenue and $106.7 million of first-half 2021 revenue from the comparable business base. On a continuing-business basis, Q2 brokerage revenue declined 4.7%; first-half brokerage revenue declined 3.2%.
- Q2 expenses fell 17.7% to $408.9 million, more than the reported revenue decline, with lower compensation, occupancy, professional fees, communications, and interest expense. The decrease reflects both the Insurance disposition and lower variable compensation; selling and promotion costs increased as travel and other activity resumed.
- Six-month net income and EPS fell despite lower expenses, reflecting reduced revenue, higher income tax expense, and lower other income. The six-month tax provision was $29.8 million, versus $13.7 million.
- Operating cash flow declined from $198.3 million to $54.0 million, with significant settlement-related working-capital changes in both periods.
Outlook, commentary, risks, and unusual items
- Management cited a stronger U.S. dollar as a significant reported-revenue headwind: excluding Insurance, Q2 revenue would have been $19.9 million higher and approximately in line with the year-earlier period at prior-year exchange rates.
- Management expects higher government debt issuance, interest-rate volatility, and central-bank tightening to support Rates activity later in 2022, while describing mixed near-term conditions across products and anticipating a stronger rebound in certain challenged markets in 2023. No quantified full-year revenue or earnings guidance is provided.
- Fenics revenue grew 13.0% in Q2 to $109.6 million. Management highlighted growth in Fenics Growth Platforms, recurring data/software revenue, and continued investment in electronic trading. FMX’s futures exchange launch was targeted for Q4 2022; a cryptocurrency exchange was anticipated in late Q4 2022 or early Q1 2023.
- The company recorded Russia-related credit-loss reserves of $4.8 million in Q2 and $10.8 million for the first half. It ceased trading with sanctioned Russian counterparties; revenue from its Moscow branch and sanctioned Russian counterparties was less than 1% of total revenue. Management said incremental exposure related to unsettled trades could be up to $5.7 million.
- Other notable items include $5.2 million of first-half fixed-asset/software impairment charges and $5.5 million of first-half gains from equity-method investments. The insurance sale had generated a $312.9 million gain in 2021, not in the current period.
- The independent-director committee agreed to pursue conversion from the Up-C structure to a Full C-Corporation, targeted for January 1, 2023, subject to conditions and regulatory approvals. Management was still assessing tax, synergy, and other effects.
- Risks include transaction-volume and market-liquidity sensitivity, foreign-exchange movements, counterparty and settlement exposures, regulatory capital restrictions, cybersecurity and operational risks, and uncertainties from inflation, rising rates, geopolitical events, and Brexit. A derivative suit concerning prior transactions remained pending, with a court ruling expected around Q3 2022; the company said it would defend the claims.
- Management reported effective disclosure controls as of June 30, 2022 and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- How much of the revenue decline reflects the Insurance disposition and currency translation versus underlying trading activity; compare reported and constant-currency measures.
- Whether Fenics and FMX growth, launch timing, and expected profitability develop as management describes; these statements are forward-looking, not guaranteed results.
- The evolution of Russia-related reserves and unsettled-trade exposure, as well as broader receivable and counterparty risk.
- Liquidity and cash-flow quality, including the impact of matched-trade settlement balances, regulated-subsidiary capital restrictions, repurchases, and continued investment.
- Debt refinancing and maturity planning, particularly the $450 million 5.375% notes due July 2023, and the effects of changing interest rates on future financing.
- The proposed corporate conversion’s approval, tax consequences, costs, and potential effects on shareholders; also assess Cantor’s related-party relationships and its reported 58.6% voting power.