BGC Group, Inc. — 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023; filed February 29, 2024. The filing also reports unaudited fourth-quarter results. BGC is a global brokerage and financial technology company serving financial, energy and commodities markets. On July 1, 2023, it completed a conversion to a full C-corporation, with BGC Group becoming the public holding company and successor to BGC Partners. This structural change affects year-over-year comparability, particularly compensation and equity reporting.
Financial performance and position
| Metric | 2023 | 2022 |
|---|---|---|
| Total revenue | $2.025 billion | $1.795 billion |
| Brokerage revenue | $1.833 billion | $1.647 billion |
| Income before income taxes | $57.7 million | $97.5 million |
| Consolidated net income | $38.8 million | $58.9 million |
| Net income available to common stockholders | $36.3 million | $48.7 million |
| Basic / diluted EPS | $0.08 / $0.07 | $0.13 / $0.13 |
| Cash provided by operating activities | $405.2 million | $224.4 million |
| Interest expense | $77.2 million | $57.9 million |
Revenue rose 12.8%, while total expenses increased 16.1% to $1.993 billion. Pretax margin decreased to 2.8% from 5.5%; total compensation and employee benefits rose to 66.6% of revenue from 61.5%. The filing does not present a conventional operating-income margin in the results table.
Fourth quarter: Revenue was $516.8 million versus $436.5 million in Q4 2022. Pretax income was $31.9 million versus $1.6 million; consolidated net income was $21.3 million versus $3.6 million, and net income available to common stockholders was $19.9 million versus $2.2 million.
Revenue mix and growth: Energy and Commodities brokerage revenue grew 32.4% to $386.2 million; Rates grew 11.1% to $610.5 million; FX grew 5.0% to $314.7 million; Credit grew 4.9% to $284.7 million; and Equities grew 0.9% to $236.5 million. Fenics revenue increased 16.1% to $521.7 million for the year and represented 25.8% of total revenue, compared with 25.0% in 2022. Fully Electronic brokerage accounted for 22.4% of brokerage revenue, up from 21.4%.
Balance sheet and liquidity: At year-end, total assets were $3.176 billion, cash and cash equivalents were $655.6 million, and total equity was $898.2 million. The company’s non-GAAP Liquidity measure was $701.4 million, up from $524.3 million. Notes payable and other borrowings were $1.184 billion, including $239.2 million outstanding on a $375 million revolving facility, with $135 million undrawn. The company reported compliance with applicable debt covenants and $391.7 million of regulatory net capital above required levels.
Cash flow and capital returns: Operating cash flow was $405.2 million. Investing activities used $90.7 million, including $39.8 million for acquisitions and $45.0 million of capitalized software development costs; financing activities used $146.9 million. BGC repurchased 23.3 million Class A shares for approximately $114.5 million during 2023. Its $400 million repurchase authorization had $333.1 million remaining at year-end. The Board declared a $0.01-per-share Q4 dividend in February 2024.
Material changes versus the prior comparable period
- Revenue increased $230.1 million, led by brokerage growth, higher data, network and post-trade revenue, and increased interest income on cash and money-market balances.
- Pretax income fell $39.7 million despite higher revenue. Compensation expense increased $243.7 million, including a $60.9 million charge associated with the Corporate Conversion, share issuance and related tax payments. Interest expense also increased, partly due to 8.000% notes and revolving-credit borrowings.
- Operating cash flow increased $180.8 million. Year-end Liquidity increased $177.1 million, principally reflecting debt issuance, revolver borrowings and operating cash flow, partly offset by debt repayment, acquisitions, repurchases, taxes and investment in Fenics.
- BGC repaid $450 million principal of 5.375% notes in July 2023 and completed an October exchange offer that moved most remaining 3.750%, 4.375% and 8.000% notes from BGC Partners to BGC Group, with substantially similar coupons and maturities. The 8.000% notes carry a higher coupon than the refinanced 5.375% notes.
- 2023 acquisitions included Trident, ContiCap and Open Energy Group; total consideration was approximately $71 million, subject to post-closing adjustments.
Outlook, commentary, risks and unusual items
- Management said the improved rates and trading environment benefited BGC in 2023 and expected that environment to continue through 2024. No quantified full-year revenue or earnings guidance is provided in the filing.
- BGC intends to launch the FMX Futures Exchange in summer 2024 after receiving CFTC approval on January 22, 2024 to operate an exchange for U.S. Treasury and SOFR futures. Management said it planned to discuss strategic partners and further details by or at its Q1 2024 earnings call.
- Management’s strategy emphasizes expanding electronic execution and Fenics, investing in newer platforms, and prioritizing share repurchases over dividends. Fenics Growth Platforms are not yet fully scaled; management expects them to become profitable as revenue and scale increase.
- Key risks include trading-volume and market volatility exposure; competition and pressure on commissions and spreads; talent retention; counterparty, clearing and credit risks; regulation and regulatory capital requirements; cybersecurity and technology disruption; foreign exchange and geopolitical exposure; and dependence on Cantor and its affiliates. The top ten customers generated approximately 30% of 2023 revenue; the largest accounted for 4.8%. U.K. and U.S. operations generated 35.8% and 32.0% of revenue, respectively.
- Debt and refinancing merit attention: $300 million of 3.750% notes in aggregate mature October 1, 2024; a further $300 million of 4.375% notes mature in December 2025. BGC reported BBB- ratings from Fitch and S&P, with stable outlooks. Its revolving facility matures March 2025.
- Potentially unusual items include the $60.9 million Corporate Conversion-related compensation charge and a $12.4 million tax benefit from the conversion in the tax-rate reconciliation. BGC also reported $9.0 million of reserves in 2023 related to unsettled trades and receivables with sanctioned Russian entities; the CECL reserve for broker-dealer and related receivables reached $18.9 million, mainly reflecting credit-rating deterioration in certain Russia-related unsettled trades.
- Legal matters include a putative class action filed in February 2024 alleging the Corporate Conversion unfairly increased Cantor’s voting control; BGC said it believes the suit lacks merit. A separate former-partner class action alleges contract and antitrust violations and seeks at least $5 million in damages; BGC also said it believes that case lacks merit. The Berkeley Point derivative litigation was concluded in defendants’ favor in 2023.
- The auditor issued unqualified opinions on the financial statements and internal control over financial reporting. The internal-control audit excluded the three 2023 acquisitions; management said it expected to include them in its 2024 assessment.
Most important facts for investors to verify
- Reconcile the reported $1.184 billion of debt, the $701.4 million non-GAAP Liquidity measure, revolver availability and near-term note maturities; assess refinancing needs and interest costs.
- Separate recurring operating performance from the Corporate Conversion-related compensation charge and tax effects; review the detailed compensation and EPS reconciliations.
- Track whether Fenics and the newer Growth Platforms continue to grow, gain share and improve margins, and whether FMX launches on schedule and attracts trading activity.
- Review the composition and collectability of employee loans ($367.8 million net), Russia-related receivables and reserves, and other credit exposures.
- Assess potential dilution from equity awards and authorized issuance capacity, alongside share repurchases and the highly concentrated voting control: Cantor and related holders controlled approximately 73.7% of total voting power at year-end.
- Monitor the Corporate Conversion and former-partner lawsuits, related-party arrangements with Cantor, and integration and internal-control coverage of the 2023 acquisitions.