BGC Partners, Inc. — 2021 Form 10-K Summary
Filing and period: The filing is BGC Partners, Inc.’s annual report for the fiscal year ended December 31, 2021, with quarterly results including the fourth quarter. The supplied metadata names BGC Group, Inc.; the filing itself identifies the registrant as BGC Partners, Inc. (Nasdaq: BGCP).
Business context
BGC is a global financial brokerage and technology company serving wholesale financial markets. Its brokerage spans rates, credit, foreign exchange, energy and commodities, equities, and futures; its Fenics businesses provide electronic brokerage, data, software, connectivity, and post-trade services. The company reported one operating segment. It sold its insurance brokerage business on November 1, 2021, and acquired the Futures Exchange Group from Cantor in July 2021.
Financial performance
| Metric | FY 2021 | FY 2020 | Change / context |
|---|---|---|---|
| Total revenue | $2,015.4 million | $2,056.8 million | Down 2.0% |
| Total expenses | $2,178.2 million | $1,991.5 million | Up $186.7 million; compensation was the main driver |
| Pre-tax income | $176.5 million | $72.2 million | Includes a $312.9 million gain on the insurance-business sale |
| Consolidated net income | $153.5 million | $50.9 million | Up substantially, principally due to the sale gain |
| Net income available to common stockholders | $124.0 million | $45.1 million | Basic EPS $0.33; diluted EPS $0.32 |
| Net cash from operating activities | $417.2 million | $302.6 million | Up $114.6 million |
| Liquidity, as defined by the company | $594.8 million | $655.2 million | Down $60.4 million |
| Notes payable and other borrowings | $1,052.8 million | $1,315.9 million | Down $263.1 million; $3.6 million of short-term borrowings was separately reported |
Margins and cash flows: Pre-tax income was 8.7% of revenue versus 3.5% in 2020, but the comparison is materially affected by the sale gain; total expenses were 108.1% of revenue versus 96.8%. Investing cash flow was positive $121.1 million, including insurance-sale proceeds net of cash transferred. Financing cash flow was negative $819.5 million, including $365.4 million of share repurchases, debt repayments, dividends, and partnership-unit redemptions. The filing does not provide a directly comparable free-cash-flow measure in the supplied text.
Liquidity and debt: Year-end cash and cash equivalents were $553.6 million. The company repaid $300 million drawn under its revolving facility and the remaining $256 million of 5.125% notes during 2021. It ended the year with no revolver borrowings and $350 million available under the facility, which matures in February 2023. Senior notes include $450 million due July 2023, $300 million due October 2024, and $300 million due December 2025. The next bond maturity is July 2023.
Material changes versus the prior year
- Revenue declined as weaker credit, FX, and equity-derivatives activity more than offset growth in rates and energy and commodities. Credit revenue fell 12.8%, FX 4.4%, and equity derivatives and cash equities 2.8%; rates grew 2.6%.
- Fenics net revenue rose 25.9% to $401.3 million, representing 21.8% of revenue excluding insurance, versus 17.0% in 2020. Fenics Markets revenue increased 22.6% to $355.8 million and Fenics Growth Platforms increased 60.2% to $45.5 million. Fully Electronic brokerage revenue increased 31.4% to $311.2 million; it represented 16.6% of brokerage revenue versus 12.3% in 2020.
- Compensation and employee benefits increased by $138.8 million, while equity-based compensation and partnership allocations rose by $72.6 million. Insurance-sale-related compensation and expenses totaled $168.6 million, mostly non-cash.
- The insurance-business disposition generated $534.9 million of gross cash proceeds and a $312.9 million gain. The business contributed $178.1 million of revenue for the year, including $19.9 million in the fourth quarter before its sale.
- Front-office headcount was approximately 2,100, down 8.1% from 2,297; average revenue per front-office employee rose 8.1% to approximately $811,000.
Outlook, risks, and unusual items
- Outlook: Management expects electronic execution, data demand, connectivity, and post-trade services to support Fenics growth. It identified debt issuance, rate volatility, central-bank tapering, and economic improvement as potential tailwinds for rates. The filing gives no clear numerical full-year 2022 revenue or earnings guidance.
- Planned initiatives: FMX was developing a U.S. rates futures platform, with U.S. Treasury, Eurodollar, and SOFR futures planned to launch concurrently in the fourth quarter of 2022. Management also planned additional cryptocurrency and digital-asset offerings during 2022. Newer Fenics Growth Platforms were not yet fully scaled or generating significant revenue; management expects them to become profitable as they grow.
- Capital allocation: Management planned to use remaining insurance-sale proceeds and other liquidity to return capital and invest in Fenics, prioritizing share and unit repurchases over dividends. The board declared a $0.01-per-share fourth-quarter dividend and said it would reevaluate a dividend increase in the first quarter of 2022. The company repurchased 68.3 million Class A shares for $365.4 million in 2021.
- Key risks: Market volumes and volatility, COVID-19 disruption, Brexit-related market access, regulatory and capital requirements, cyber and operational risk, employee retention, and competition could affect results. The top ten customers accounted for 41.9% of 2021 revenue; the largest accounted for 8.4%. Cantor controlled approximately 59.1% of voting power at year-end through Class B shares, and related-party arrangements create potential conflicts.
- Contingencies and controls: A derivative lawsuit concerning the Berkeley Point acquisition and a real-estate investment remained pending after trial; the company said a ruling was expected around the second quarter of 2022 and that the outcome was uncertain. The filing also disclosed a $35.2 million cumulative earnings impact from theft of U.K. tax-payment funds by two individuals associated with the company; management expected to recover most or substantially all through insurance and litigation. A material weakness in U.K. payment controls identified for 2020 was reported as remediated by December 31, 2021; the auditor gave unqualified opinions on the financial statements and internal controls.
Important facts for investors to verify
- How much of the 2021 earnings increase reflects recurring operations versus the $312.9 million insurance-sale gain and sale-related compensation costs.
- Whether Fenics Growth Platforms and the planned FMX futures launch achieve scale, profitability, and the announced timetable.
- The sustainability of operating cash flow, particularly given substantial matched-trade receivable and payable movements, and the uses of remaining insurance-sale proceeds.
- Refinancing and repayment plans for the $450 million notes due in July 2023 and the revolving facility maturing in February 2023.
- Developments in the derivative lawsuit and recovery of the stolen tax funds, as well as the continued effectiveness of remediated payment controls.
- Potential dilution, capital returns, and related-party implications of the dual-class structure, employee equity awards, and Cantor’s voting control.